SITALWeek #232
Welcome to Stuff I Thought About Last Week, a collection of topics on tech, innovation, science, the digital economic transition, the finance industry, car-sized turtles, 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: power grid growth; sports betting double win; the quirky antitrust head who is trying to impact all of tech and content; brand “moats” are transferring rapidly to consumers and new gatekeepers; Fortnite creator on the state of video gaming; saving ancient trees (and, how you can help!); the Hubble constant; cooperation, complex systems, and the economy; and, lots more below...
Stuff about Innovation and Technology
Evolving Power Grid
The demand for electricity will be increasing – perhaps at non-linear rates – as connected devices and AI proliferate while we simultaneously shift from fossil fuel cars to EVs. Further, the electric grid will steadily become more distributed, with locally-provided solar, wind, and battery storage. Climate change will also continue to impact the electrical grid and energy generation. As a result of these factors, the grid will need to get bigger and smarter, and that means it will need a lot of sensors and semiconductors. The WSJ reported on a few of these power grid trends last week. I’ve been researching all the complexities of this topic lately – if you have any research or companies I should check out, hit reply and let me know!
Cybugs
If you thought we lived in a world where humans hadn't yet hacked insect brains to turn them into remote-controlled cyborgs...think again! Funded by the US Navy, scientists at WashU St Louis have crossed that one off their bucket list. As Ian Malcolm put it so eloquently: "...scientists were so preoccupied with whether or not they could, they didn’t stop to think if they should." However, in this case, these cyborg locusts have some pretty cool use cases, like replacing bomb sniffing dogs.
Sports Betting Pays Off
The steady legalization of sports betting in the US is a double win for both leagues and sports broadcasters: not only will it bring in new ad revenue, such as the deal CBS announced this week with bookmaker William Hill, it will also increase ratings as more viewers watch live to participate in the spectacle. Thus, there should be new advertisers and higher rates for existing advertisers as audiences grow. As Rob Saperstein says in Amazon Prime’s Patriot, it will be “double great.”
Accelerating AI Language Skills
Microsoft’s Turing Natural Language Generator (T-LNG) has raised the bar in language processing with 17B parameters – doubling NVIDIA’s 8.3B and surpassing Google’s BERT model, released less than two years ago, by 50x. These models all use massive amounts of GPU processing from NVIDIA and, as they get better (and the movie “Her” comes closer to reality), there will be a lot of demand for chips.
Rap Battles on Caffeine
Live-streaming startup Caffeine has signed a deal with Drake to produce a series of rap battles in combination with the Ultimate Rap League. Caffeine was started four years ago by Ben Keighran (formerly of the Apple TV hardware team) to democratize live streaming for video gamers in a challenge to Twitch. Here’s how Keighran describes it today: “Other platforms are very heavy in gaming, and Caffeine is really the first place that’s bringing together entertainment and sports...It’s a place where the next generation can go online and watch anything from X-Games to Coachella to Fortnight — all in one place where they can hang with friends, interact, and enjoy this whole new experience.”
Winner Not Taking All in Video Viewing
Netflix commands 31% of all hours streamed to TVs in the US, according to Nielsen. That sounds big until you realize that it’s 31% of the 19% of hours on TV that are streamed, or only 6% of total TV viewing, as 81% is still viewed via traditional TV (including DVR). Obviously, when you include other connected devices like tablets, that Netflix number is higher; but, Netflix has said around three quarters of viewing takes place on TVs. The glass is half full for everyone in the media landscape here – signs of a winner-takes-all platform in media is not emerging, and in the meantime, leverage is shifting to content owners away from distribution.
Being Makan Delrahim
As I worked on this edition of SITALWeek, I had a movie playing in the background on Prime Video called Trash Fire. It has around a 60% approval rating on IMDB and Rotten Tomatoes, but I think I am in the other 40%. What prompted me to pull up this 2016 Sundance premiere film? Trash Fire was executive produced by Makan Delrahim, who is currently the US Assistant Attorney General for the Antitrust Division of the DoJ. Delrahim convened a VC panel at Stanford last week to further probe whether big tech is suppressing innovation. Back in SITALWeek #197, I expressed some skepticism of Delrahim’s grasp of data-driven network effects, suggesting he may be coming at competition issues with an Industrial view instead of an Information Age lens (Our papers on this topic can be found here). Silicon Valley is on edge after Delrahim indicated that criminal charges will land against a tech company in the next few months (note: both Apple and Google are former clients of his from when he was in private practice). Delrahim, it seems, also has a keen understanding of how Hollywood operates, as you can see in this Hollywood Reporter profile (well worth the read if these topics are on your radar). Delrahim is a “radical” supporter of IP owners to “exploit” their rights, according to the article, which is potentially interesting as he oversees the ongoing negotiations regarding music licensing fees for Spotify and others; however, on the flip side, there are hints he favors new distribution models. Delrahim appears to be a shrewd, multifaceted individual, who perhaps has sights on his future Hollywood movie producing career, and he just happens to be the lynchpin to shaping the entwined futures of content and big tech.
Brand Moats Erode Favoring Consumers and Gatekeepers
Edgewell Personal Care, maker of Schick razors, was denied permission this week by the FTC to acquire upstart direct-to-consumer shaving brand Harry’s. The FTC reckoned it would raise prices and harm competition in the barbaric market for face-scraping blades. P&G’s Gillette dominated the market for men’s shaving for years (and is of course the source of the often repeated mantra in Silicon Valley of the “razor / razor blade” business model, where you sell the initial product for cheap, and then make money on recurring purchases of products or services). Gillette is a classic example of a 1900s, Industrial Age business where its so-called brand and distribution “moats” became vulnerabilities when Dollar Shave Club (acquired by Unilever in 2016) and Harry’s disrupted the high-margin profit pool. Perhaps the circumstances here were unique, but this could also be an increasingly common roadblock that legacy companies face trying to acquire a disruptive challenger. Here are the FTC’s comments: “Harry’s is a uniquely disruptive competitor in the wet shave market, and it has forced its rivals to offer lower prices, and more options, to consumers across the country...The Harry’s and Flamingo brands represent a significant and growing competitive threat to the two firms that have dominated the wet shaving market for decades. Edgewell’s effort to short-circuit competition by buying up its newer rival promises serious harm to consumers.”
But, there is another angle to this story, as explained in this thoughtful article on Retail Dive: direct-to-consumer businesses may not scale on their own, and going direct might ultimately be a passing phase in the evolution of consumer product distribution. The WSJ also reports on the brand malaise causing stuck-in-the-middle consumer product giants Kraft Heinz, Hershey, Kellogg, and Unilever to increase advertising spend as consumers choose cheaper private-label or high-end specialty alternatives. All of this seems to point to one conclusion: brand value and distribution are not the “moats” they used to be, and the Information Age is causing an ever-increasing value shift to consumers, advertising platforms, and the new gatekeepers of commerce. Consumers, Amazon, Google/YouTube, and Facebook, along with TV, radio, and other media businesses, should continue to benefit.
Porsche Trounces Tesla in Serial Track Test
Germany wants to achieve 30% share in batteries for EVs, a market currently dominated by Japanese and Chinese technology/companies, according to this FT article. One of the things I mentioned in my post on Tesla last week was the potential for nationalistic subsidies or regulation to protect legacy car makers; likewise, achieving the target Germany has put forth will likely require heavy government incentives. Germany would compete based on quality, according to the article, and if you look at the impressive results of this recent Tesla vs. Porsche Taycan track test, there may be some merit to that idea. Tesla and Porsche were relatively close to each other on the first run; however, repeated, subsequent tests showed a significant degradation in performance from Tesla’s batteries while the Porsche held to a much higher level.
Spies Like US
Espionage was in the news this week as the WaPo revealed the CIA has been in control of the Swiss company Crypto AG since WWII. The company worked with governments in 100s of countries, all the while leaving a backdoor open so the CIA could unencrypt all the messages. It’s a long, interesting article if you like espionage and what not (which I don’t unless it involves Maxwell Smart). Meanwhile, the US government accuses Huawei of having a malicious backdoor in all of its telecom gear, which touches most traffic around the world, allowing the Chinese government to do the same. With the changing nature of communication, it’s fairly obvious why Crypto AG was becoming less relevant, and why governments are now dead set on Apple, Google, and Facebook allowing them backdoors to unencrypt anything and everything they want. I am still waiting for an entrepreneur to pitch a modern day Cone of Silence; in the meantime, checkout this article on the evolving Signal App in Wired.
Future of Gaming
Epic and Fortnite founder Tim Sweeney gave an impassioned talk at the DICE gaming summit this week about the problems facing the industry as mega platforms vie for game distribution dominance. In particular, he notes the monopoly app store abuse at Google and Apple, and how Epic can essentially build a 50% operating margin platform at 12% take rate vs 30%, which is the typical 5-6x markup for Apple and Google. He also explained that game publishers need to stop being customer adversarial as well with loot boxes and pay-to-win schemes in games. Further, he noted that Fornite players that connect with friends play twice as much and spend more, suggesting that we are on the way to a metaverse in 10 years that Sweeney invisions to be open, multi-platform, and social, where game developers are in control of their monetization (at least until the Sux0rz form IOI try to take over).
Redfin Rising
The Built in Seattle Podcast had a fantastic episode with Redfin CEO Glenn Kelman, one of our favorite CEOs and culture carriers. I’ve owned Redfin from the IPO and look forward to their future accomplishments. Redfin also reported their 4th-straight quarter of accelerating real estate service sales. The biggest challenges still facing the real estate industry are record-low inventory and high friction, which are causing people to stay put and not buy/sell houses. iBuying should add liquidity, but people have to want to move, and houses need to be affordable. Increased institutional home ownership (for rentals), driven by low rates, exacerbates these problems right as we are entering a 5-year expansion of household formation/demand (more on that in my 30-Something Sneaker Wave demographics post).
Miscellaneous Stuff
Saving the Planet One Ancient Tree at a Time
Last week, professional tree climbers for Archangel Ancient Tree Archive scaled the giant Monterey pine that lords over the SITALWeek compound on the central coast of California to take cuttings and pinecone samples. The tree is one of the largest, if not the largest, known living Monterey pines (native to coastal California and Mexico), which makes it a champion specimen. The folks at Archangel are working to catalog and clone examples of many types of champion trees, which, in many cases, have a genetic makeup that has conferred superior tolerance to drought and/or other stressors. Recently, the Presidio in San Francisco planted 75 coast redwoods with the help of Archangel. It’s a great cause, which you can check out here. And, you can also donate: $100 will plant you a champion tree, and, for only $2.25M, you can plant an entire ancient tree forest (no pressure, but remember SITALWeek is free!). If you need more incentive to support trees, in this NYT article, Salesforce founder Marc Benioff talks about his trillion-tree initiative: “Trees are the ultimate bipartisan issue...Everyone is pro-tree.”
Stupendous Stupendemys
The largest, complete, fossilized turtle shell, as well as parts of a jawbone, have been found in northern South America. Males of the car-sized species, which inhabited warm lakes and wetlands 7-13 million years ago, had what appear to be horn-like weapons on their shell. The giant turtles were preyed upon by other reptilian megafauna, as evinced by a shell found with an embedded croc tooth.
New Value for the Hubble Constant
The Universe is expanding (or, at least the simulation of our Universe makes it appear to expand), but we can’t seem to figure out why it’s expanding as fast as it is. The ΛCDM standard model of expansion predicts a rate of 67.4 km/s/Mpc. A Mpc is a megaparsec or 3.3M light years (a light year is how far light travels in one Earth year, so a megaparsec is how far light would travel in 3.3 million Earth rotations around our Sun), so that means we predict that the Universe expands in every direction by 67.4 kilometers every second for every 3.3M light years away an object is. This is a little tricky, so here is an example in units that are slightly easier to get your head around. Let’s say a galaxy is 20 quintillion miles away (2x10^19), then it’s moving 42 miles further from us every second. And if a galaxy is 100 quintillion miles away (5 times farther), it’s moving away from us around 208 miles every second. Our little solar system is ~180B miles across, so it's experiencing an expansion of around .04” from everything around it every second. But, coming back to 67.4km/s/Mpc, new data using gravitational lensing (we can see around massive objects because their gravity bends the light from behind them!) puts the number closer to 73.8km/s/Mpc, or 5 standard deviations off the model. This higher measurement increasingly seems right, and it shows we still need to sharpen our models of the cosmos, especially as it relates to our understanding of dark matter and gravity. (Just in case you were wondering, the Universe that we can see is around 28,000 Mpc across edge to edge, so if you stood on one edge and looked all the way over to the other edge, it would be accelerating away at over 1 million miles a second! And, that is over 5x the speed of light, but Special Relativity only applies locally, not on Universe-scale distances.)
Stuff about Geopolitics, Economics, and the Finance Industry
Cooperation Revisited
Why do we cooperate in a competitive world? This week I re-read a paper (PDF) by Ole Peters and Alexander Adamou titled “An Evolutionary Advantage of Cooperation.” The paper explains the evolutionary advantage to cooperation as a result of noisy and multiplicative dynamics. To put it simply, compounding growth and benefits can take place in an unpredictable world at a greater rate if people cooperate, even if it means losing something in the short term. And, cooperation supports risk mitigation, as the paper shows. I think of this as the math behind reciprocal altruism, which is at the heart of non-zero-sum game theory, which is, in turn, at the heart of NZS Capital. A critical strategy for companies operating in the Information Age is creating non-zero-sum, or win-win outcomes for not just shareholders, but every constituent possible including employees, customers, society and the planet.
Understanding Complex Systems Key to Solving World’s Ills
Beinhocker and other SFI collaborators posted a long essay in Aeon this week discussing the state of the world through the lens of complex adaptive systems, addressing how physical, biological, and technological elements increasingly co-evolve in unpredictable ways. There are many echoes of topics discussed in our Pace Layers paper, but the Aeon essay is much better than our version and well worth reading. “If we are to create a socioeconomic-technological system that serves the broad interests of humanity and the other species we share our planet with, it will only be because we have sufficiently understood the complex system we live in to harness the power of evolution and shape it in that direction.”
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