SITALWeek #254
Welcome to Stuff I Thought About Last Week, a collection of topics on tech, innovation, science, the digital economic transition, the finance industry, the Zone of Galactic Obscuration, 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: grocery’s margin problems; 800G fiber and 6G wireless; home shopping network 2.0; Chipotlanes; demise of 3rd party app and web tracking; coffee consumption; the inequality of unequal reopening; offshoring on the rise; and lots more below...
Stuff about Innovation and Technology
In case you missed it, here is NZS Capital's Mid-Year Update Letter.
Click & Burrito
Chipotle is hiring 10,000 workers to staff their new drive-thru initiative known as Chipotlanes. The burrito chain’s online orders grew 81% y/y in Q1 (before lockdowns started in earnest). Online orders for in-store pickup are growing, but demand is also aided in part by investors and delivery companies subsidizing unprofitable, but delicious, delivery. As Chipotle doubles its store base, the chain is planning for 60% of its new locations to have Chipotlanes (I hope the marketing genius behind that name gets the credit they deserve!). Chipotle has completed the transition to digital rather recently, pulling out the last order-receiving fax machine in December 2019.
800G Fiber
Infinera and Windstream have sent information over a live-network fiber from San Diego to Phoenix at a rate of 800Gb/s, roughly 8x the current long-haul fiber speeds. Their method uses Nyquist subcarriers, which split each wavelength into eight components, in combination with probabilistic constellation shaping (developed by Bell Labs, now part of Nokia). If implemented broadly, this transmission methodology would be a significant increase in throughput, and therefore capacity, for the current fiber networks. But, also just think about that for a second...in that one second 800Gb could have moved across the country!
6G Wireless
Speaking of speed, Samsung is laying the groundwork (or should I say airwork?) for 6G. The next-gen wireless tech should land around 2028 and provide the necessary speeds, of around 500Mb/s, to power the transition from smartphone to augmented/virtual reality, which should be taking place in earnest around that same timeframe.
Remote Work and Border Restrictions Fuel Offshoring
Increased acceptance of remote work, combined with US anti-immigration policies and visa restrictions, is causing permanent job loss in the US to increased offshoring. It’s a huge loss for the US. From a Bayesian standpoint, this runs counter to my hypothesis that remote work will enable re-shoring of jobs to lower-cost US cities.
Blanding Video
Pilotly is a startup that works with television and movie studios to strip video art of all its value, merit, feeling, heart, purpose, and soul. The company is involved at all stages of development to wipe clean anything that makes people uncomfortable as they water down the end result (“jokes that could be insensitive...are now flagged by audiences and removed by creators”). I don’t believe my characterization is quite how the company describes its tools (which are used by NBC, ViacomCBS and Netflix, among others, to audience test throughout development and filming), it’s just my interpretation based on this WSJ article.
Amazofluencers
Ever go to amazon.com/live? Well, I wish I hadn’t – it’s a puzzling array of live and recorded, social-selling video content. Amazon is emulating the success of Alibaba’s and Tencent’s ecommerce streaming in China (which is emulating the success of QVC and the Home Shopping Network in the US!) by offering live streaming for Amazon Influencers. While I don’t deny the ability of charismatic people to drive sales of crap that consumers don’t really need, my problem here is that Amazon is a utility. Like Google search, Amazon is designed to require as little time as possible on the site/app: search, choose, buy, move on. The less time you spend on the site, the more useful it is. So, social shopping will not likely succeed on Amazon; it belongs on entertainment apps designed to convince you to spend more time on them than you want to, such as Twitch, YouTube, Wastagram, etc. In related news, Amazon is also making the live-streaming engine behind Twitch available as a service on AWS. This is a classic example of Amazon selling externally a product that it uses internally; however, the pricing is fairly steep – this example implies around $17/hour for just a couple hundred viewers. Going live on YouTube or Twitch is free.
Amazon’s Smart Grocery Cart
Amazon’s new, high-tech Dash Cart, which looks like it was designed by the same aesthetic team as the new Ford Bronco (and could possibly transform from cart to drone and fly you and your groceries home!), guides you through a store and scans items visually as you drop them into the cart. Amazon uses similar machine vision/AI in their cashier-free Go stores. In addition to an array of cameras, the cart senses the weight of items (like produce) as they are added and automatically calculates their value. The cart also looks like a handy device for Amazon or Whole Foods employees to fulfill customer orders for delivery or click & collect – the touch screen would guide them through stores, pointing to which merch to grab, and scan it.
Digital Grocery’s Margin Problem
In related grocery news, a new report from Bain highlights the lack of profits on grocery delivery and pickup. The consultancy estimates that a free delivery order currently comes with a -15% EBIT margin while click & collect has a -5% margin. In the best of times, grocers earn 2-3% margins, and much of that comes from trade promotion dollars and gasoline and/or pharmacy sales. It’s possible online margins could improve with advertising and trade dollars from the big brands vying for cart space; but, clearly, two things are true: 1) consumers want their groceries delivered or ready for pickup; and 2) the only way to do this profitably today is with robotic, purpose-built, micro-fulfillment centers and dedicated delivery routes (much like the Netherlands’ successful Picnic). I don’t see a profitable digital grocery business model in the US today. Right now, we are getting our groceries subsidized by the generosity of venture capitalists and Walmart, as well as Amazon’s willingness to lose money in the short term or bundle for Prime. (I went through some more details on this conundrum last fall in the Evolution of the Meal, if you’re looking for one more wafer-thin mint of reading on the topic of food).
Data Access Consolidation to Fuel Big Tech
Apple will be making the IDFA (the mechanism advertisers use to identify and target users) opt-in for the iOS14 this September. For each app, users will have to opt in to sharing data for ads, which seems unlikely to happen. This comes on the heels of Google’s announced elimination of 3rd-party cookies in Chrome (happening in 2022). The trend toward first-party-only data access – with the ultimate elimination of the enormous 3rd-party advertising ecosystem – will help Google, Facebook, Amazon, and Apple all get bigger and bolder in their control of the advertising industry and user data. It will surely have some negative consequences, and yet, it will also eliminate all sorts of bad behavior and data misuse that plague the Internet.
Floundering Haven
Haven, the healthcare JV between Amazon, Berkshire, and Chase has been struggling to launch for the last 30 months, according to The Information. Stat also reports that Amazon seems to be going off on its own with several healthcare initiatives, including partnering to build dedicated health clinics for Amazon workers. “Amazon’s latest efforts could be an attempt to trial their own digital health tool: a platform that would link patients with a dedicated care team or provider so as to offer the kinds of consistency and continuity that would lead to program loyalty and enjoyment.” I remember being hopeful for Haven’s success, but it seems to be another example of the impenetrable Gordian knot of US healthcare. Instead, I’m now hopeful technology will have a more positive impact via health-monitoring wearables.
Pending Arm Independence?
SoftBank’s Arm is divesting assets and raising prices to either sell the business or return as a standalone public company, according to the FT. The price increases, not uncommon when a company is artificially dressing up for short-term investors at the expense of its long-term business, come at a tricky time for the processor IP licensing company, with RISC-V open-source designs on the rise and the global smartphone market on the decline. On the positive side, Arm has seen great traction (finally) in server chips, and, of course, Apple recently announced Arm will replace Intel in its laptops. Arm is too big to fail, too important to be sold to a non-neutral 3rd party, and would be a little precarious as a standalone public company given the slowing growth, previously increased R&D costs, and open-source threat. An interesting outcome would be an acquisition by a group of customers such as Apple, Amazon, Samsung, etc. Alternatively, a potentially neutral acquirer would be one of the design-software and IP-license shops, Cadence and Synopsis; but, it would be a big bite to swallow (depending on how investors weigh the value of the business vs. the long-term threats, but I am going to guess $20B+ might be a ballpark valuation). SoftBank paid $32B for Arm in 2016.
Investors Buying SMIC’s Pipe Dream
Chip foundry SMIC’s stock soared 245% following a $6.6B equity offering on China’s STAR Board stock exchange. The event itself is an interesting move by the Chinese to shift their audacious semiconductor investment from the government to retail and institutional investors. This article in the FT does a good job going through various issues the company faces, including a pending ban on the sale of US technology to suppliers of Huawei, and no access to advanced EUV lithography tools (this article covers China’s nascent chip equipment efforts). As I said last week: “This capital raise, along with another $50B, unrestricted access to design software and manufacturing tools made exclusively in the US and Europe, and several miracles, could give SMIC a shot at being a leading-edge foundry in five to ten years time.” (For more on the semiconductor industry see: “How a Handful of Chip Companies Came to Control the Fate of the World”.)
Multi-Chip’s Bag-o-Tricks
There was an interesting interview with the chief technologist at design simulation software maker Ansys in SemiEngineering last week, discussing a variety of topics including the challenges of simulating a multi-chip package (increasingly used to skirt the end of Moore’s Law): “Now you’re stacking up other stuff around you, and you need to take into account that above you might be a memory, which typically runs cool, or it might be a SerDes, which typically runs hot. Or somebody may have decided to put some AI chiplets on top, and those are largely unpredictable. It depends on how they’ve been trained and what inferencing they’re doing.”
Miscellaneous Stuff
Goodbye Grant
IEEE covers the life of the late MythBuster Grant Imahara.
Nespresso, What Else?
Bloomberg reports that Arabica coffee futures are down 25% year-to-date as demand for home-brewed coffee isn’t offsetting the drop in consumption from shuttered cafes and restaurants (the wholesale abandonment of communal breakrooms hasn’t helped either). As a Nespresso household, I found this Guardian article interesting with regard to the scale of the business: Nespresso sells around 14B pods a year, with likely revenues around $10B, and 400 pods are pushed into machines every second. The historical perspective is also filled with fascinating factoids, like espresso's frothy crema is just rebranded scum, thanks to an inspired PR campaign. The article’s author had a clear axe to grind: “A Nespresso machine on the kitchen counter used to prove your membership of a convenience-loving global consumer coffee elite. Increasingly it suggests that you are not a serious coffee person, and that your attitude to the future of the planet is suspiciously relaxed.” I’m not so sure. The pods require less grounds to achieve the same potency, and therefore have a lower environmental impact in terms of coffee growing/processing. It’s also a little hard to say a 1 gram, recyclable, aluminum capsule has a bigger impact than a plastic-lined and lidded paper cup of Starbucks coffee. I’m not embarrassed to say that we order the pods 1,000 at a time.☕
Solar Campfires
Early images from the new ESA/NASA Solar Orbiter (the closest images taken of the Sun, from 48 million miles away, or about half the distance between the Earth and Sun) reveal lots of mini solar flares, or campfires, as the astronomers refer to them, which may help explain the extreme temperature increase of the solar corona compared to the surface of the sun. Anyone for Solar’mores? 🔥
Supersized Galactic Curtain
The ‘South Pole Wall’ is a large-scale structure of galaxies, stretching 1.4 billion light years across, that was recently found hidden in the Zone of Galactic Obscuration (an area of the Universe that is hard for us to see because it’s behind the bright, creamy center of the Milky Way Galaxy). This isn’t all that remarkable, but I wanted to write “Zone of Galactic Obscuration” in the newsletter.
Stuff about Geopolitics, Economics, and the Finance Industry
The Inequalities of Reopening
The implicit, and in some cases explicit, racism and classism of the pandemic response and rushed economic re-opening has been difficult to comprehend. This post from the WSJ’s Editorial Board criticized, in essence, California’s Governor for slowing down the reopening because COVID-19 is largely only impacting poor and Hispanic communities (also it expresses a particularly bad grasp of basic exponential math in their hospital bed capacity analysis). Huh, are these clowns for real!? It’s hard to, as the Editors suggest, take “personal responsibility to control the virus” when you live in cramped quarters, have an “essential” job, and have to choose between basic safety and necessity. Further inequality is coming in education. As evidence abounds about summer camps and early school sports programs contributing to more COVID spreading by children in the US, it increasingly looks like kids won’t be going back to school in person this fall. Bloomberg reports on the inequality of uneven distance learning experiences and well-off parents hiring tutors or forming their own mini-schools. The COVID-driven inequality could continue for years with devastating consequences – as pandemic expert Klaus Stohr, formerly of WHO and Novartis, said: “The virus will end this pandemic by burning every piece of dry wood it will find.”
Demographic Chart Toppers
A chart of shifting demographics from the Lancet shows China halving its population, from 1.4B to 732M, by 2100; meanwhile, India is forecast to become the #1 most populous nation at just over 1B (which is a ~20% projected drop from today). Four African countries (Ethiopia, Egypt, DR Congo, and Tanzania) are expected to move into 2100’s top-10, roughly tripling their collective population to 850M. Adding in Nigeria's rise from 206M to 791M, that puts the population of the African continent at over 1.6B in 2100. I'll take the under on all of these estimates. The Information Age is increasingly causing demographic, societal, behavioral, and structural downward pressures on population growth.
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The content of this newsletter is my personal opinion as of the date published and is subject to change without notice and may not reflect the opinion of NZS Capital, LLC. 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. Often I try to make jokes, and they aren’t very funny – sorry.
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