SITALWeek #278
Welcome to Stuff I Thought About Last Week, a collection of topics on tech, innovation, science, the digital economic transition, the finance industry, avocado armchairs, 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: Chips in short supply; the shift in deferred payments from credit card balances to buy now pay later providers; video game viewing is growing faster than video game playing; GPT-3’s abstract images; premium scripted content comes to audio; the extraordinary grind of autonomous driving; some bubble perspective; and lots more below...
Stuff about Innovation and Technology
Epic Mall Rat
Interactive world builder and gaming engine Epic Games is taking over a distressed shopping mall in Cary, North Carolina for their new headquarters. Some of the structures may be demolished as they create a campus that combines office and recreational space. There must be a joke somewhere in this news about Dawn of the Dead, zombie-mode video games, and Epic moving to a soon-to-be abandoned mall, but the punchline eludes me.
Video Game Spectating Outpacing Playing
SuperData reported 12% growth for the video game sector in 2020 across console, PC, and mobile to $140B. Growth accelerated from 6% before lockdowns in January and February to 14% for the remainder of 2020, but that’s only marginally above the 10% growth the industry has seen for the last decade. I would have guessed higher growth given how many people were locked up at home with no place to go. In total, 55% of US residents played video games during the initial COVID lockdown. SuperData’s forecast, which I wouldn’t put much weight on, calls for only 2% growth in 2021. Growth of video gaming revenue seems to be far slower than that of video game spectating, as suggested by YouTube Gaming’s recent report of 100% growth in hours viewed from 50B in 2018 to 100B in 2020.
Sleep Monitoring via Radar
Both Google and Amazon are working to bring wireless sleep monitors to your nightstand. Google is said to be working on a new Nest Hub containing its Soli radar, which could be used to monitor sleep, or lack thereof. Amazon is working on a small device that would sit on your nightstand and use millimeter-wave radar to track sleep, including potential sleep apnea. It’s suggested that the device is part of the Alexa family, but I also wonder if it has more to do with Amazon’s accelerating ambitions in healthcare following the shuttering of the rudderless Haven joint venture with JP Morgan and Berkshire. STAT News reported on the acceleration of Amazon Care’s intentions as Haven failed to launch.
Illustrating Language
When OpenAI’s GPT-3 language model came out, I found myself in the camp of folks like Melanie Mitchell who noted the language model’s inability to analogize and make abstractions. But, I’m not an expert by any means on AI learning and language models, so I deferred any judgement to experts. Last week OpenAI extended GPT-3 with image recognition, which allows you to ask it to conjure images of things such as “an avocado armchair” or “a baby daikon radish in a tutu walking a dog”. As MIT Technology Review reports, this extension of the model seems to give some level of abstraction, or perhaps a better illusion of abstraction, which may be comparable to the best visual interpretation of language that some of us humans could ever hope for.
BNPL Takes Share
“Buy Now, Pay Later” (BNPL) is on the rise in the US during the pandemic in a period where it seems younger people are using credit cards less than older generations. According to data from Experian, total credit card debt has fallen from a 2019 record of $829B to $756B over the past year. That drop seems to perhaps be connected to the $116B reduction in spending on food/beverage and apparel (less eating/going out) that I wrote about in the final section of last week’s newsletter. I would speculate that postponed vacations also play into reduced credit card debt. So, there are certainly a host of pandemic-linked factors potentially contributing to less card-based debt burden; but, if data from Australia (where BNPL is a popular option) are any indication, the trend of shifting deferred-payment purchases from credit cards to BNPL seems plausible. The Australia data show that the number of credit cards have declined from over 16.5M to under 15M since 2017; meanwhile, BNPL volume has increased from $100M to $700M (comparing units vs. AUD is not terribly useful, but it’s a striking contrast in directional change). It will be interesting to see how credit card share of deferred payment transactions changes as the economy opens back up.
Celebrity Storytelling
The WSJ reports on actors doing podcast storytelling: “A-list celebrities like Matthew McConaughey, Kristen Wiig, Rami Malek and Cynthia Erivo are turning to scripted fiction podcasts with the production qualities of TV and film—just without the pictures”. When you combine this trend with Netflix testing audio-only for videos in its Android app, there is an emerging trend of scripted, premium audio akin to old-time radio programming. I wonder if this ambient audio trend is temporary until the slew of connected glasses are released in the coming years, in which case every podcast may have added video elements. In the meantime, the balkanization of podcasting – with certain shows becoming exclusives and various platforms being acquired (like Wondery’s sale to Amazon) – is making things harder for consumers. Clearly, a better model needs to exist to monetize the rapidly growing listening category by shifting and growing the $40B+ in global radio ad dollars.
Semi Shortage Hits Autos
The FT reports on a global shortage in semiconductors for automakers as capacity is being hoovered up by demand for leading-edge datacenter and mobile chips and the associated demand for discrete, peripheral chips that go into the same PCs, servers, phones, etc. As a result, VW is apparently cutting Q1 production by 100,000 vehicles. Likewise, Nissan and Honda will also be reducing production. Chips have become less cyclical over the last two decades as the industry has rationalized; however, it is no stranger to booms and busts caused by double ordering in good times. That said, underlying demand drivers over the next several years – from AI, cloud, IoT, 5G etc. – remain healthy. Semi Engineering posted their 2021 CEO outlook with views on growth from various industry players.
Out with “Self-Driving” in with “Fully Autonomous”
Waymo’s CEO John Krafcik described (FT) the “extraordinary grind” of rolling out fully autonomous vehicles. Note that Waymo said in this blog post that they no longer call it “self-driving”: “It may seem like a small change, but it’s an important one, because precision in language matters and could save lives. We’re hopeful that consistency will help differentiate the fully autonomous technology Waymo is developing from driver-assist technologies (sometimes erroneously referred to as ‘self-driving’ technologies) that require oversight from licensed human drivers for safe operation.” If I were cynical, which I try desperately to avoid, I might suggest that it’s quite a good idea to do high profile press about the tough slog of autonomous when the funding environment for startups is as fast and loose as it is now. Waymo’s $3.2B fund raising was “the single largest capital raise for a pre-revenue company in the history of the universe” according to Krafcik.
Miscellaneous Stuff
AI Tackling Human-Animal Language Barriers
Michael Bronstein at Imperial College and the Cetacean Translation Initiative is working to use AI to understand animal communication, according to New Scientist. Bronstein is looking to build a “sperm whale chatbot that can feed learned patterns of codas back to the animals to see how they react”...I hope we don’t accidentally offend them. Other AI language initiatives around the world include trying to detect signs of stress or pain from animals such as chickens and sheep.
Stuff about Geopolitics, Economics, and the Finance Industry
Dry SPAC Powder
The FT reports that SPACs have around $300B of acquisition firepower based on $70B raised in 2020.
Who Knows What?
Back in SITALWeek #213, I wrote a brief follow up to The Great IPO Debate about the risk of apparently legal – but questionable – trading on potential insider knowledge ahead of direct listings. Private market investors, management teams, and employees obviously have greater information on a company before it goes public (e.g., more history with the company than what can be adequately disclosed in the S1), and they are not typically subject to a lockup period if it is a direct listing. If there is relevant information that private investors possess that public market investors do not, lockups can provide public investors more time to do research before insiders and the prior private investors can sell. The traditional IPO process, while not perfect by any means, does allow for some protections that help level the playing field for insiders vs. public investors, and SPACs allow theoretically sophisticated investors to complete extensive due diligence prior to merging with a private company. Asymmetric information advantage is something to keep in mind with any type of private to public transition because at the point a company goes from private to public, many prior, private investors become short-term holders, while the new public investors become long-term holders. If I had to rank the risks of the various ways of going public for public market investors, I would rank traditional IPOs as lower risk than SPACs, and SPAC as lower risk than direct listings. Caveat emptor.
Investing Insights from a Dotcom Veteran
During the dotcom bubble, Scott Schoelzel managed the Janus Twenty Fund, a concentrated mutual fund that in many ways represented the market dynamics of the late 90s. Bloomberg’s Trillions podcast spoke to my former colleague about the parallels between twenty years ago and today in the markets. Having started my career at Janus as an intern in 1998, I can say that Scott is one of the more uniquely qualified people to provide valuable perspective. We'll discuss our market outlook including views on valuations in our year-end letter next week.
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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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