By Alan Murray and Geoffrey Smith
October 26, 2017

Good morning.

I spent yesterday with a group of 100 CEOs gathered by IBM’s Ginni Rometty to discuss the “big bets” on the future being made by their companies. The session, which included top executives of companies in 17 different industries and representing $2 trillion in revenues and 5 million employees, was off the record, so I can’t discuss specifics. But I can provide a few takeaways.

Rometty opened the session by suggesting the next wave of technology, unlike the last, is going to provide an advantage to legacy companies over digital startups. “I believe this is a ‘now’ moment for the incumbent companies,“ she said. “You can go on the offense. You can be the disruptor, instead of the disrupted.” Many of the participating companies seemed to share her optimism, and a few provided stories of how they were doing just that.

The basis for their optimism? Rometty posited that the first phase of the digital revolution favored a small number of platform giants that benefited from the network effect. The next phase is not about the network alone, but also about knowledge. That, she said, will depend on the proprietary data, as well as the expertise, in the hands of companies like those in the room. Those who use it wisely, with the help of AI, will win.

IBM’s Jon Iwata interviewed the 100 about their big bets prior to the event, and gave the group a summary of some shared insights:

  • The group believes their companies’ core expertise is more important and more relevant than ever. Technology empowers that expertise.
  • Data has become their most powerful asset (although turning that data into intelligence is still a critical challenge).
  • Almost all of them are either building, or participating in, platforms, which are vital to their future.

Finally, the CEOs echoed a point I’ve heard repeatedly in the last few years: the biggest problem they face is not technology, but rather creating a culture that can embrace and adapt to technological change. As Iwata summarized their view: “Culture is the number one impediment… Culture moves in a linear way; technology moves exponentially.”

More news below.

Alan Murray
@alansmurray
alan.murray@fortune.com

Top News

Super Thursday: It’s a Thing

It’s a busy day for tech sector analysts, with Amazon, Alphabet, Intel, and Microsoft all set to announce third-quarter earnings that will shed light on whether current rich valuations in the stock market are actually justified. Amazon’s will be the first to include contributions from Whole Foods. Expectations are, perhaps, most intense for Microsoft, where a ramping Cloud business has raised hopes for a return to top line growth of over 10% for the first time since 2014.
FT, metered access

• …And Draghi Will Just Make It Superer

The European Central Bank will say later how quickly it intends to wind down its bond purchase program, the biggest remaining prop to global market liquidity now that the Fed has ended its own. The market expects Mario Draghi to announce a nine-month extension of the program at a rate of 30 billion euros a month, compared to the current 60 billion. The consensus has been that the fear of a stronger euro would prevent anything bolder. The dollar’s recent strengthening on the growing likelihood of U.S. tax cuts is unlikely to change that calculus, as Eurozone credit and wage growth remain anemic.
Fortune

Europe’s Banks Still Struggling

Europe’s banks will be hoping that Draghi spares them any further embarrassment in the markets. Deutsche Bank and Santander both reported disappointing third quarters Thursday: Deutsche’s investment bank revenues fell by nearly a quarter, and Santander’s otherwise decent returns were hit by the cost of integrating the collapsed Banco Popular. Outside the Eurozone, Barclays fell 5% after posting a 34% drop in bond and currency trading revenue that raised questions over CEO Jes Staley’s focus on investment banking. And in Sweden, Nordea said it would cut 6,000 jobs, reflecting the intense pressure on profitability in a region that has embraced fintech disruption more than others.
Reuters

There Will Be Blood (All Over the Balance Sheet)

The Trump administration announced the largest ever offering of acreage for oil and gas prospecting, including 77 million acres in the Gulf of Mexico and 900 blocks in a federal reserve in northern Alaska. A bold statement of intent as regards establishing U.S. “Energy Dominance,” it’s not clear how willing Big Oil will be to throw billions at high-cost exploration in an environment where OPEC and Russia could undermine prices by abandoning their own output restraint.
Fortune



Around the Water Cooler

American Airlines Feels the Wrath of the NAACP

American Airlines and Kellogg’s found themselves embroiled in race rows. The NAACP warned in an advisory that black people could be subjected to discriminatory treatment by AA, citing four separate incidents (at least one of which appeared to relate to one of its own officials). Kellogg’s got into hot water for racial stereotyping, in an ad in which the only brown face belonged to a janitor.
Fortune

EU to Probe U.K.’s ‘Google Tax’

The EU is set to launch a probe into a U.K. ruling that allowed multinationals to depress their tax liabilities in the U.K.. The FT reported Wednesday that companies avoided paying as much as $8 billion in tax last year by booking profits in so-called “Controlled Foreign Companies.” That the British ruling was dubbed the “Google Tax” is an indication of who might be most vulnerable.
Fortune

Sugar-Free Soda Holds the Line for Coke

Coca Cola was rewarded for not fighting the trend towards healthier soft drinks. A strong uptake for its new Coke Zero Sugar enabled it to keep sales volume stable in the third quarter, an outcome that was the best that could be realistically expected for an industry with structural stagnation issues. The company also cut this year’s capex estimates by 20%, to $2 billion.
WSJ, subscription required

The Night Is Darkest Before the 5G Dawn

Contrary to widespread opinion, there are people who wake up each morning wishing they could be in brick-and-mortar retail. Most of them are in the telecoms equipment business. Nokia’s shares fell 15% Thursday after it warned of a wider-than-expected loss this year and said 2018 could be just as miserable. Last week, Ericsson had reported its fourth straight quarterly loss. Mobile carriers have simply stopped spending until it’s time to upgrade to the 5G standard.
Bloomberg

Summaries by Geoffrey Smith; geoffrey.smith@fortune.com

@geoffreytsmith

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