SITALWeek #261
Welcome to Stuff I Thought About Last Week, a collection of topics on tech, innovation, science, the digital economic transition, the finance industry, melittin, 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: Interactive and live content could rapidly take share from scripted; Nvidia’s impressive new products; China’s semiconductor efforts continue to struggle; 5G’s confusing spectrum; the most-excellent new Bill & Ted movie; Zoom stock lessons; and lots more below...
Stuff about Innovation and Technology
Twitch Innovates as Video Content Evolves
Twitch has shifted their innovation engine into overdrive during the pandemic as people increasingly turn to video games and life streaming for entertainment. Notably, the Amazon-owned video platform is becoming an important tool for musicians and bands to engage with fans as they enabled Twitch streams in the Amazon Music app, allowing artists to connect with fans on Twitch and Amazon Music (which has 55M subscribers). As I’ve mentioned before, Spotify has so far missed an opportunity to help artists connect with fans and pivot more fully to video during the pandemic. Over time, ambient audio is likely to become ambient video, and then eventually ambient augmented reality. Musically reports that Spotify is planning to enable TikTok-like, user-generated videos in their app, although I am not sure this is the right pivot for a consumption-oriented music app. Spotify, being largely audio only, offers a comparatively lower non-zero-sum value proposition for users and artists. I am not sure if it’s a failure to execute, a lack of vision, or some conflict in Spotify’s business model, but the market is theirs to lose if Twitch continues to execute.
Twitch also expanded its Watch Party feature – which allows groups to watch and comment on Prime Video offerings – to all creators on the platform. This move also speaks to a question I posed last week: what will be the future viewing split between scripted Hollywood content compared to life/live streaming and gaming? Given that there is no writers’ room that can keep up with the actual, insane plot lines of the real world, it increasingly seems like interactive and user-generated/unscripted content is on an irreversible rise. And, in what I am calling “Meta Confirmation Bias”©, Joseph Gordon-Levitt shared his view that video games are the future of storytelling in an episode of Hot Ones – on YouTube – where guests talk while eating spicy chicken wings. Could I find a better example to confirm my prior views!? The WSJ reports that advertisers are preparing to cancel contracts this fall, and yet sports are doing very well in their limited return so far. With the gap in scripted shows/movies combined with a still uncertain outlook for live sports, a perfect storm is brewing that may push a rapid shift to interactive media (e.g., gaming) and life/live streaming, like this octogenarian grandma with 900,000 YouTube subscribers who regularly tune in to watch her play The Elder Scrolls V: Skyrim.
GeForce is your Holodeck
Nvidia also highlighted the trend toward more streaming and gaming at their GeForce RTX 30 product launch last week, noting that there are now 20M gaming live streamers, 45M content creators, and an audience of 500M for esports around the world. Their new tools for broadcasters effectively give you an AI camera person and sound studio. And, machine learning for graphics creation is going to have a big impact on the future of entertainment. As Jen-Hsun Huang said: “I can’t wait to go forward 20 years to see what RTX started. Homes will have Holodecks. We will beam ourselves through time and space, traveling at the speed of light. Sending photons, not atoms. In this future, GeForce is your Holodeck, your lightspeed starship, your time machine.” The 40-minute GeForce RTX product introduction is worth a watch for all the amazing things Nvidia is accomplishing with their GPUs and AI engines.
Ultra-Short-Throw Laser Projector
And perhaps one of the technologies that will produce Nvidia’s (and Gene Roddenberry’s) Holodeck vision will be Samsung's new ultra-short distance projector that uses lasers to create a 130” wide screen on your wall at 2800 lumens – a brightness, according to CNET, that is good compared to other projectors (such as DLP or LCD), but still not as bright as most LED-backlit TV screens.
AI-Enhanced Drive Routing
Google Maps has partnered with Google’s Deepmind AI group to improve accuracy of ETAs for driving routes beyond their existing 97% on-time estimates. The company also discussed how they’ve adjusted the algorithm for the post-COVID 50% drop in traffic (and subsequent uneven rebound). Separately, Google Maps now also shows which intersections have traffic lights (although it doesn’t yet appear to tell you when they will be green.)
China Ditching Silicon?
China may be shifting focus from its flagging efforts in silicon chips to newer substrates, such as silicon carbide and gallium nitride. The country has been throwing tens of billions at chip development as it faces an existential threat from the US and Europe’s control of the equipment and tools necessary for chip fab and, thus, maintenance of the modern surveillance state on which communist China now runs. Bloomberg reports on the possible strategy change, noting that China will import over $300B of chips this year. It’s not clear China will be able to leapfrog the West in these more exotic substrates given that they come with their own set of complexities, and it remains to be seen how China will secure future chip supplies without significant concessions to the West. Trump is even considering cutting off the SMIC, the most advanced digital chip fab in China. We covered the history and state of semis in this article and accompanying podcast a few months ago.
5G Auction Winners: Verizon, Dish, and Cable
Joe chimes in this week on the US 5G wireless spectrum auction: With demand on wireless networks only increasing on the eve of 5G, the scarce resource that is spectrum is getting a lot of attention from traditional and new entrants alike. Accordingly, the recently ended CBRS auction drove over $3.5B in bids. Verizon was the largest winner, which was not unexpected given their need for additional spectrum (especially mid-band) and their ability to utilize their self-developed, small-cell network for deployment. However, many were surprised to see Dish’s big showing given their capital constraints and need to focus on CapEx. Additionally, cable companies signaled in a big way that they are going to be in the wireless game for the long haul and will look to be less reliant on MVNOs. This sets an interesting stage for the upcoming C-Band auction (which is sub-6 GHz), which we believe will be one of the more important spectrum auctions in the US in some time. Meanwhile, Apple’s rumored, new 5G iPhones will likely confuse consumers. Globally, most 5G runs on what is called sub-6 GHz spectrum, so compatible chips and radios are less expensive given the large volume. In the US, however, AT&T and Verizon are only launching mm-wave 5G, which requires an extra couple hundred dollars of chips and more space in the phone. Sub-6 can achieve several hundred Mbps speeds with good coverage; in contrast, mm wave can go even faster – perhaps over 1Gbps – but with more challenging coverage. Therefore, at launch, only the expensive 6.7” iPhone 12 will have 5G on AT&T and Verizon. So, if you buy one of the other models for use on another carrier (e.g., T-Mobile) that is sub-6 GHz, then you wouldn’t be able to use it on a carrier that currently only supports mm-wave 5G (however it would still run 4G on those networks). Clear as mud?
Miscellaneous Stuff
Anti-Cancer Bee Venom
A new study demonstrated that honey bee venom and one of its components, melittin, can selectively kill various types of breast cancer cells, including some that have few other treatment options. Interestingly, melittin, which kills via punching holes in cell membranes, also disrupts signaling pathways essential for cellular replication and cancer growth. Melittin also showed marked efficacy in reducing tumor growth in mice when combined with existing chemotherapeutics.
Bill & Ted Party On
Given that strange things are endlessly afoot at the Circle-K this 2020, it seemed apt timing for the third installment of the Bill and Ted franchise. The movie, Bill and Ted Face the Music, (which largely went direct to consumers amid theater shutdowns) was digitally released last week, and, I must say, I thought it was most excellent and not at all bogus. With fourth installments of the Matrix and John Wick scheduled for release, B&T will soon stand as Keanu’s best trilogy. The movie is available to buy or rent before it lands on a streaming platform (likely Epix or Starz, given that it was produced by MGM, but I haven’t seen where it’s slated to land yet). The New Yorker had an article that places the franchise neatly in GenX movie history.
Digital Womb
This OneZero article about the glimpse that COVID has given to us of our potential, isolated, tech-enabled, escapist future references a provocative 1990 quote from Timothy Leary regarding the formation of MIT’s Media Lab:
“He went on to explain his core problem with the Media Lab and the digital universe these technology pioneers were envisioning: ‘They want to recreate the womb.’ As Leary the psychologist saw it, the boys building our digital future were developing technology to simulate the ideal woman — the one their mothers could never be. Unlike their human mothers, a predictive algorithm could anticipate their every need in advance and deliver it directly, removing every trace of friction and longing. These guys would be able to float in their virtual bubbles — what the Media Lab called ‘artificial ecology’ — and never have to face the messy, harsh reality demanded of people living in a real world with women and people of color and even those with differing views.”
Stuff about Geopolitics, Economics, and the Finance Industry
CityWire Spotlights NZS
Our thanks to CityWire for highlighting NZS Capital as their boutique of the month.
ETF Transparency an Information-Age Asset
ANTs – actively-managed, non-transparent ETFs – have been slow to launch, with only a few approved despite much hype and a hard-won, eight-year effort for their inception. ANTs are a better value proposition for the average retail investor in taxable accounts (but less of an advantage for retirement accounts vs. traditional, 1940-Act mutual funds) and, in some ways, offer fewer overhead costs for mutual fund complexes. But, they do remove a bit of the personal connection, and, perhaps more importantly, don’t necessarily have a good way to track flows and pay those brokers in the middle. So, ANT investing may be a slow revolution, or the conflicts in the industry may keep it from happening, thus hastening the death of active funds in favor of transparent ETFs. Further, the slow start to ANTs and the success of active, transparent ETFs suggests that transparency has a greater value than the old-guard fund shops seem to think.
No De-escalation in Sight for US-China Relations
Biden has made it clear he will take a tougher stance on China’s human rights violations if elected. Last week, he made some official statements on Tibet and his desire to meet with the Dalai Lama and establish ties with the contested territory. Trump has largely fought his war with China over trade issues and semiconductors, but a harder stance on human rights is, in many ways, even more of an inflammatory tactic to take with China. What’s clear is that no matter who is president, US tensions with China are not likely to de-escalate.
Zoom: Wide Outcomes and Grapes
I was on CNBC Tuesday (video available to CNBC Pro subscribers), and the topic du jour was Zoom after the company’s astonishingly good earnings report. Several SITALWeek readers asked me to expand on some of the things I said in soundbite form during the segment. In technology, but increasingly in every sector, there is a spectrum of value from feature to product to platform. A platform is typically a data- and network-effect-driven, increasing-returns value proposition that, when done right, creates far more value for its constituents than for itself. A product is generally a robust, fully-featured suite of services or items that stand alone as filling a need for customers. And, finally, a feature is often an important product or service that solves a pain point well, but plugs into another product, workflow, process, or platform. Obviously, durability and resilience rise from feature to product to platform, but all are susceptible to disruption. Platforms and (to a lesser extent) products can control distribution, and thus the economics available to lesser products and features.
The question then becomes: what is Zoom? Video conferencing certainly was a feature of a broader suite of productivity tools and bigger product platforms (and, in some cases, it still is with Google Meet, Microsoft Teams, Cisco Webex, etc.). But, with COVID and WFH, video is becoming a more essential tool, and I could probably be persuaded that Zoom is something more akin to a fully-featured product these days. Certainly, if they add more communication and collaboration features to Zoom, it would look more like a product. But is Zoom a platform? There is a data advantage – more users give the company a better view of the Internet, which helps optimize latency, which is the killer feature of Zoom in my opinion. And, there is a network effect, but it’s a relatively weak one. Why is that? There isn’t much of a negative feedback loop or governor to switching between video platforms – if Zoom were barred from operating in the US, all my calendar invites would just say Teams or Meet on them instead, and my life would be little impacted. In other words, the faster a business grows, the easier it is for the next disruptor to take those customers away just as quickly! Given the low switching cost for customers to move to Zoom, there will likely be just as low of a barrier to move on to the next video product if it’s slightly better. How about the non-zero sum of Zoom? Is Zoom creating more value for its constituents? I think the answer there is yes; but, again, given that video is a free feature for G Suite and Office 365, it’s not necessarily about the dollar cost. Could Zoom be a bigger enabler of other businesses, i.e., really transform into a platform? Certainly paid events are a key area that makes sense for this definition for Zoom becoming a platform.
I got another good question re: Zoom last week that was along the lines of “what’s the lesson from missing Zoom stock?” And, my answer to this comes in two parts. First, not every stock contains a lesson. When the range of outcomes is extremely wide, as was the case with Zoom, getting the stock right was far more luck than skill. The only lesson would be if a mistake was made in determining the range of outcomes ahead of time. If a company with a narrow range of outcomes (i.e., a ‘sure thing’) was mis-analyzed as having a wide range of outcomes, that would have been a mistake. In 1998 and 1999, I met with countless newly public companies, many of which went up a lot, and many of which I didn’t own. Then they all disappeared without individual lessons to be learned (the only lesson was a broad one regarding the climate of the dotcom bubble, which is an increasingly handy bit of knowledge!). I don’t see any lessons with Zoom. And, this brings me to my second point: those sour grapes in Aesop’s “The Fox and the Grapes” aren’t just a parable, they are an existential life philosophy. You wouldn’t have enjoyed owning Zoom stock anyway. You would have agonized about whether it was too expensive and the growth rate of Teams, or you might have sold it too early, causing even more pain. So, who needs stocks that go up 400% anyway? Phooey on them.😉
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Disclaimers:
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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