SITALWeek #228

Welcome to Stuff I Thought About Last Week, a collection of topics on tech, innovation, science, the digital economic transition, the finance industry, frogbots, and whatever else made me think last week. Please grab me on Twitter with any thoughts or feedback.

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In today’s post: vertical integration by tech giants is increasingly impacting adjacent markets; battle for podcasts; Microsoft to go carbon negative; facial recognition use isn’t black and white; the fallacy of loss aversion and economists’ resistance to accepting the truth; feathered drones; frog-cell robots; and lots more below...

Stuff about Innovation and Technology
Feathered Flight isn't Just for the Birds
Researchers at Stanford have used actual pigeon feathers and variable feather overlap (employed by many birds) in a prototype drone to improve maneuverability in turbulent conditions: “Using a feathered biohybrid aerial robot, we demonstrate how both passive mechanisms make morphing wings robust to turbulence. We found that the hooked microstructures fasten feathers across bird species except silent fliers, whose feathers also lack the associated Velcro-like noise. These findings could inspire innovative directional fasteners and morphing aircraft.”

Xenobots
Researchers at the University of Vermont and Tufts have assembled first-of-their-kind living robots from embryonic cells of African clawed frogs. The <1mm robots were first designed in silico by an evolutionary algorithm that integrates 500-1000 skin and heart cells and iteratively tests the designs in a virtual environment. The best performing virtual bots were then "sculpted" from Xenopus embryos and turned loose in a petri dish, where – propelled by their heart-cell engines – "some crept along in straight lines, while others looped around in circles or teamed up with others as they moved around...It’s impossible to know what the applications will be for any new technology, so we can really only guess.”🤔 

Augmented Reality Contact Lens 
Mojo is a startup, backed by $100M+ from Google and others, focused on making AR contact lenses. Mojo’s display, which is 0.5mm across and lays directly on the pupil, has 70,000 pixels. The contact lens also contains an ARM processor, image sensor, and communications chip – all powered by a thin-film, solid-state battery. Even if it gets commercialized, the lens use case is unclear to me; it falls far short of the rich user experience of AR glasses like Magic Leap, and they don't match the promise of direct neural connections that are in the works. No word yet on whether the AR game from Star Trek TNG S5:E6 will be available. 

Biosynthetic Bricks
Researchers at CU Boulder gave calcium-carbonate-producing photosynthetic bacteria a soup of raw materials (nutrients and sand) and a scaffold (gelatin), and, within a ~day, the bacteria had produced solid bricks. The bricks, with still-living bacteria, can absorb more carbon than they emit, unlike concrete. This concept reminds me of the fungus from SITALWeek #211 that could heal cracks in concrete (also by precipitating calcium carbonate); maybe we are on the cusp of more broadly creating living structures?

Microsoft's Carbon Abolition
Microsoft is massively upping the bar in their efforts to combat global warming: the company will go carbon negative by 2030, allowing them to wipe out all the carbon they’ve produced – since the company was formed in 1975 – by the year 2050. This declaration makes other pledges by tech giants look like the lip service they are, and it’s a great example of why we think Microsoft is a company with high NZS, or non-zero-sum goals (and it’s a good excuse to repost Beinhocker’s editorial on the morality of being a carbon abolitist). Microsoft’s CEO Satya Nadella posted this article today describing the company’s approach to “empower every person and every organization on the planet to achieve more,” which is in direct contrast to the myriad CEOs focused on shareholder value above all else. Speaking of which, the Economist looked at the spotty track records of Jack Welch disciples who have suffered under the pursuit of earnings per share above common sense.

Hollywood’s Video Pentafecta Brings Us Full Circle
News this week that ViacomCBS reached a new, broad carriage deal with Comcast (including the CBS All Access app) is one more bit of evidence that everyone – studios, distributors, and consumers – is winning, and that nothing has changed from 10 years ago, except we have more amazing content than ever before. There are five significant owners/creators of premium video content in Hollywood, and they have all launched streaming apps (or are slated to do so imminently). AND, each is an important part of the cable bundle. Those studios are: Disney, Warner, ViacomCBS, NBC Universal, and Netflix. Yep, Netflix benefits from the bundle – as a Comcast subscriber, I get Netflix for free in my cable package. And, by the end of this year, I will get Warner’s HBO Max, ViacomCBS’ CBS All Access, and NBC’s Peacock apps all included in the bundle. And, if Brian Roberts and Bob Iger can bury the hatchet over the Fox deal (which they will because the economic benefits far outweigh their corporate rivalry), I expect Disney+ to be part of my bundle too. So, in the future, I speculate people can either pay for high speed Internet and pay for all of those apps (plus Amazon Prime etc.), or they can just get a cable package with their Internet service and likely end up with more for less. There is no such thing as streaming vs. cable – every major streaming app is aligned to maintain or grow the amount of money households spend on video every month, regardless of how it’s spent. Now that video is settled right back where it started, a much more interesting debate is long form video vs. everything else - TikTok, Fortnite, Twitch, YouTube, etc.

Google Tosses 3rd-Party Cookies
Over the next two years, Google will be phasing out Chrome’s 3rd-party tracking cookies, which are currently responsible for massive amounts of ads and privacy risks. There are certain Information-Age services – like data collection/access – that work better when provided by a monopoly or oligopoly. I’d much rather there be a small number of trusted repositories for my data (perhaps just Google and Amazon, because Apple doesn’t use data and who would trust Facebook!?). However, I also want complete access to/control over what data are collected and who subsequently has access to them. To that effect, I’d like to see the government step in to regulate and democratize the data. Given the rising monopoly power over data, the best way to achieve user control and transparency might be a new decentralized/tokenized Internet, but I don’t see that on the horizon yet.

Bose Backtracks as Vertical Integration Attacks Headphone Market
The hot trend for the new breed of direct-to-consumer retail brands is to diversify their online presence by opening stores or ‘experience centers’. One of the pioneers of this strategy was headphone and speaker company Bose; however, they are now pivoting the other way – announcing the closure of all 119 stores in developed markets (while keeping 130 stores open in emerging markets such as China and India). This is a puzzling move explained away by the company as simply a shift to e-commerce. It would seem more likely that the private company is seeing a significant competitive shift with the rise of the Apple AirPods. AirPods are a perfect example of how Information-Age platforms thrive off of vertical integration, eating adjacent markets one by one. In another example of vertical integration harming competition, Brad Stone discusses the recent lawsuit against Google by Sonos, which alleges patent infringement by the search giant to gain share in the smart speaker market. And, we’ve seen something similar with smart watches – Google’s recent proposal to buy the struggling Fitbit and Apple’s alleged theft of trade secrets from Masimo. There is also a lot of innovation coming in hearables, such as these NuraLoops from Australia with customizable noise canceling and audio transparency, but will the big tech platforms kill or steal it all? The stakes are rising as hardware is increasingly tied to software platforms. As we shift to augmented reality this decade, will Apple and Google shut out the competing technologies, including anything put forth by other tech giants like Amazon and Facebook?

Value of Local Talk Radio?
It’s an open question as to whether there is value in local talk radio, including news, sports, drivetime, etc. Podcasting is on the rise with an anticipated $1B in global revenues in 2021, but that’s less than 10% of the $15B+ talk-programming-heavy radio ad market in the US alone. I addressed the question of how streaming could take ad share in SITALWeek #220, suggesting that a streaming platform could buy iHeartMedia for the local talk content to accelerate the shift of radio ad dollars to digital streaming. Apparently, iHeartMedia doesn’t agree with my views as the company quietly laid off a lot of on-air talent around the US this week according to Rolling Stone. From a Bayesian perspective, this is an objective penalty against my thesis that local talk radio is valuable, and thus lowers my credence. On the other hand, the WSJ reported that Spotify is in talks to buy the Ringer – the podcasting and media business of former ESPN talent Bill Simmons. This move would appear to support my view that increasing the amount of talk (and especially sports) content is crucial for the creation of a winner-takes-most audio platform. While podcast content isn’t currently exclusive to Spotify, these deals increase their access to data and would support their attempts to create an advertising business that would drive higher revenues for podcasters (and a potentially better listener experience). In other streaming news, the WSJ reports that the Assistant Attorney General “expects to announce a decision in the next few months on whether to modify or terminate decades-old antitrust settlements dictating how music is licensed for play on radio, television, streaming services or in venues like restaurants. Changes to the rules could help artists and shake up how businesses, broadcasters and streaming services secure rights from songwriters and publishers.”

Flying Car News of the Week
Toyota will make a $400M investment in Joby, the electric vertical takeoff and landing (eVTOL) company that has a contract with Uber. According to my local paper, Joby will be building production facilities this year at a small airfield in Marina, CA.

Way to Consumers’ $$$ is through Mobile
App Annie reports that, globally, consumers spent $120B on apps in 2019 (up 20% from 2018), including $86B on mobile gaming (the latter is expected to top $100B in 2020). Time spent on phones averaged 3.7 hours, up 10% from 2018 and up 35% from 2017. Total app downloads slowed to 6% growth.

Google’s Advanced Protection now Available to the Masses
Google is making it easier for users to enroll in their highest level of Advanced Protection, which requires use of a qualified phone (now including the iPhone) and/or a physical USB key when accessing your account. It’s a really great, easy layer of security now that bluetooth-activatable security keys are built into Android/iPhone. 

Rising Semi Demand for Autonomous Vehicles
Increasingly, automakers are relying on local processing (instead of the cloud over 5G) for autonomous and safety features. This move is unsurprising, but will create meaningful growth for semis over the next decade – particularly since these chips will need to operate in hardened environments, often with redundancy. The arrival of multiple HD camera feeds processed in real-time, in-vehicle will also require high-bandwidth connectivity throughout the car. Semi Engineering has a more detailed post on the topic. 

Big Business of Sports Betting
Redef has an in-depth post on the increasingly legal market of sports betting in the US – estimated to be $150-400B (with less than one tenth of that legal so far) – and its potential for making live sports even more valuable. 

Big Brother has a Clearview 
Clearview AI is a startup that created a facial recognition database by scraping images available from social media and YouTube videos without permission. According to the NYT, the company sells the software to US law enforcement agencies and corporations, enabling them to identify people simply by uploading a photo. While some facial recognition has been banned at the local level by cities around the US – and the EU is considering a 5-year ban on its use in public places – largely, anyone is free to identify anyone else for any reason using tools that are often flawed and biased. This new tech in use today is an example of the dangerous gap between the accelerating pace of innovation and government’s inability to keep up with regulation (more on that trend in our Pace Layers paper).  As I’ve written in the past, some companies like Microsoft and Taser-maker Axon have been forward thinking and thoughtful about facial recognition use, while others like Amazon continue to recklessly leave use cases up to the free market. Clearview received seed funding that helped it illegally scrape Facebook’s website to build the database from a Facebook board member! The company, whose policies and security precautions are unknown, has free access to not only the database, but potentially-sensitive photos run through their search algorithm. While perhaps unsettling, the use of facial recognition tech is not a black and white issue. In many cases, the rise of anonymity has fueled many of the problems in modern society because it has caused a breakdown in traditional human interaction game theory (which works much better when everyone knows everyone else – think of a tribe of 100 people) that maximizes for progress and socially acceptable outcomes. On the other hand, being able to protest injustice without risk of identification and retribution is immensely important, and tragic consequences (e.g., the current situation in Hong Kong) result when that liberty is removed. The concerning issue today is that the folks with the technology and their investors seem to be entirely thoughtless, as evinced by this quote from a Clearview backer: “I’ve come to the conclusion that because information constantly increases, there’s never going to be privacy...Laws have to determine what’s legal, but you can’t ban technology. Sure, that might lead to a dystopian future or something, but you can’t ban it.”🤦‍♂️

Miscellaneous Stuff
Another Reason to be Thankful for the End-Cretaceous Asteroid
A massive, 700,000-year-long volcanic eruption in India around 66 million years ago had a warming effect that was fortuitously softened by the giant asteroid that left a 110-mile-wide crater in Mexico’s Yucatan Peninsula. In short, the asteroid resulted in the mass death of plankton, which allowed the oceans to absorb more carbon dioxide from the Deccan Volcanoes, lessening the greenhouse effect. This was good news for evolving mammals at the time, but did nothing to save the majority of dinosaurs (only avian dinosaurs – a.k.a. birds – survived).

The Truth is Out There...but Would Compromise National Security
Every week, several paragraphs are cut from SITALWeek to spare you readers from suffering an even longer email, but sometimes I wish I had rescued something from the chopping block. Back on Sept. 19th, 2019 I cut the following: “The Navy confirms that punk rockers Blink-182 did in fact release footage of UFOs last year. They probably weren't alien technology, but who knows?” Well this week, in response to a FOIA request, we got an intriguing update on that UFO phenomenon from the Office of Naval Intelligence: yes, they did have “SECRET” and “TOP SECRET” documents and video pertaining to the UFO encounter in question but “...sharing the information with the public ‘would cause exceptionally grave damage to the National Security of the United States.’” 🛸👽😱

#7DeadlySins
Stephen Fry’s latest podcast series “The 7 Deadly Sins” kicked off this week with a fantastic 30-minute soliloquy on the existential state of humanity as we stand today. Here are the Apple and Spotify links for season 2, episode 1.

All Aboard!
Germany will invest EUR 86B to modernize its rail network in part a response to climate-related flygskam (flight shaming), according to the FT.

Stuff about Geopolitics, Economics, and the Finance Industry
The Fallacy of Loss Aversion Explained by Non-Ergodicity
Almost every investor still believes that loss aversion is a real cognitive bias that people hold. The idea of loss aversion bias – that financial decisions are skewed by us experiencing a more severe emotional impact from a loss than an equivalent gain – was conceived by Tversky and Kahneman, and has become an entrenched tenet of behavioral economics supported by neither data nor real life. In the words of David Gal: “To be sure it is true that big financial losses can be more impactful than big financial gains, but this is not a cognitive bias that requires a loss aversion explanation, but perfectly rational behavior.” Khaneman was wrong, but the belief persists – his disciple Richard Thaler was just awarded a Nobel prize (largely) for loss aversion in 2017! Our economic hero Ole Peters has a great Twitter thread expanding upon Gal’s 2018 article on the fallacy of loss aversion referenced above. As Peters explains, there’s no need to invoke loss aversion bias if you treat financial decision making as non-ergodic. The mistake behavioral economists make is using the expected outcome averaged across a number of hypotheticals, but people don’t exist across a number of hypotheticals – people exist over the passage of time. When you take the path through time into account, people act rationally by sometimes paying to avoid losses, and other times not. The difference is as simple as swapping addition for multiplication – it’s that multiplicative dynamic that changes everything (see the Farmer’s Fable for a visual). For more discussion, see the Nature Physics article on non-ergodicity that I circulated a couple weeks back. In a real example of humans behaving irrationally, many economists are attacking or refusing to acknowledge the weight of this new research because it threatens their life’s work!

New Low for China’s Birth Rate
As the global depopulation crisis looms, China’s 2019 birth rate has sunk to the lowest level since at least 1949 at 10.48 births per 1,000 people (2019’s births were down 580k to 14.65M). More on China’s Silver Tsunami in SITALWeek #221.

Democratizing PE (Public Markets – Who Needs ’Em?!)
PE giants are urging the SEC to allow mom and pop investors to go in on private equity. And, here is a great Twitter thread from Gavin Baker summarizing the recent Bain report on PE.

China Unhappy with Lithography Embargo 
A Chinese trade ambassador is threatening the Netherlands over blocking ASM Lithography’s  shipment of advanced semi manufacturing machines to Chinese semi hopefuls. As I mentioned last week, US intervention to encourage this litho embargo completely stops China from building their own advanced semi industry. ASM Litho has a monopoly and no one is within a decade of catching them because the technology requires such close collaboration with customers to create and run; there are only a few customers in the world, and they are all outside of China.
✌-Brad

Disclaimers:

The content of this newsletter is my personal opinion as of the date published and are subject to change without notice and may not reflect the opinion of NZS Capital, LLC (“NZS”).  This newsletter is simply an informal gathering of topics I’ve recently read and thought about. It generally covers topics related to the digitization of the global economy, technology and innovation, macro and geopolitics, as well as scientific progress, especially in the fields of cosmology and the brain. I will frequently state things in the newsletter that contradict my own views in order to be provocative. I often I try to make jokes, and they aren’t very funny – sorry. 

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