SITALWeek #282
Welcome to Stuff I Thought About Last Week, a collection of topics on tech, innovation, science, the digital economic transition, the finance industry, B. nana's, 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: What is going on with Google Cloud’s money pit? The low power hurdle for commercial EVs; RISC-V GPUs; talk radio is new again; small cells for 5G; more on chip shortages; complexity economics; and lots more below...
Stuff about Innovation and Technology
Commercial EV Fleets Have Low Mileage
Amazon’s new custom electric delivery vans from Rivian are hitting the road in 15 cities this year with hundreds of thousands to come in the next few years. The vans only have a range of 150 miles, presumably because most routes are close to distribution hubs. Given that the short range should save on batteries to keep costs down – on top of the operational savings of the electric drive trains – I expect we could see a rapid transition of fleets of all types in the coming years. That might even include police cars, as this California town tests out Tesla Model Ys, which only have to cover the department's average of 26 miles a day.
The Internet of Greens
Engineers at MIT modified spinach with nanoparticles that enable the live plants to gather information on chemicals in ground water and then send that information via email. “The plants employ a pair of near-infrared fluorescent nanosensors—single-walled carbon nanotubes (SWCNTs) conjugated to the peptide Bombolitin II to recognize nitroaromatics via infrared fluorescent emission, and polyvinyl-alcohol functionalized SWCNTs that act as an invariant reference signal—embedded within the plant leaf mesophyll. As contaminant nitroaromatics are transported up the roots and stem into leaf tissues, they accumulate in the mesophyll, resulting in relative changes in emission intensity...These results demonstrate the ability of living, wild-type plants to function as chemical monitors of groundwater and communication devices to external electronics at standoff distances.” (Nature Materials PDF)
RISC-V GPU
RISC-V supporters have begun developing a GPU based on the open-source processor architecture. The idea is to add a GPU ISA (instruction set architecture) to the RSIC-V CPU ISA for anything ranging from a microcontroller (MCU) to a full scale GPU, but developers will focus on low-cost MCUs to start. The idea isn’t to displace the giant GPUs of Nvidia or AMD, but instead to enable GPU workloads where you might not expect to use them without having to strip them down and customize the instructions.
Audio Social Media Musings
Sometimes when a portion of the analog economy goes digital it transforms into something entirely new and different, but sometimes it’s just a digital version of the same old analog behavior. The more I reflect on the rise of audio social media, the more I come back to my ‘digital audio as radio’ analogy from SITALWeek #216, “Will Podcasts Kill the Talk Radio Star”, where I discussed the $40B global radio advertising TAM: “In the radio analogy, podcasts are the digital version of talk radio (and sports radio, drive-time radio, NPR, etc.). Therefore, it seems plausible that we eventually see a large chunk of the multi-billion dollar radio advertising market map over to podcasts.” In many ways, an app like Clubhouse could be analogized as simply talk radio with the equivalent of call-in guests or a live podcast with audience interaction (with a social hierarchy overlay). Clubhouse can also be analogized as digital industry panels. In that sense, audio social media doesn't yet feel like something new, but it could certainly evolve over time. While we’re making analogies and everyone wants to fix Section 230, maybe it wouldn’t be so bad if the FCC’s Obscene, Indecent, and Profane Broadcast rules applied to streaming audio apps as well. I of course don’t actually want that, me and the late George Carlin agree on this topic. So maybe, instead, just a little more self-censorship is in order for the people who like to hear themselves talk.
Large Deal for Small Cells
Joe chimes in on small cells: there has been a lot of spirited debate regarding the attractiveness of small-cell telecom infrastructure and its returns, but in a seminal deal announced last week, Verizon signed an agreement with Crown Castle to lease 15,000 small cells over the next four years. This move signals a change in direction for the former (who has ~14,000 small cells on air today, nearly all of which they built themselves) and much needed validation to the latter, who has had to defend their large investments in the space against peers and investors alike. We at NZS have long been believers in the shared-infrastructure business model, as it lowers the cost to customers while creating attractive returns for the infrastructure owner (a true win-win scenario). Now, with telecoms and others staring down at a $95B bill for the acquisition and clearing of C-Band (which is likely to end up on both small cells and macro towers), utilizing shared economics remains imperative in order to keep budgets in the realm of reasonable.
Tech Insiders
CTO and President of Digital at Fox, Paul Cheesbrough, has started a newsletter on technology that I highly recommend. Paul is very knowledgeable on all things enterprise software, hardware, and streaming. His newsletter, produced in conjunction with Melody Hildebrandt, kicked off with a deep dive on live-streaming challenges (Fox partners with AWS for big live events like the Super Bowl). And, Paul has some insightful thoughts on new Amazon chief Andy Jassy.
Google Cloud’s Puzzling Losses
Google’s cloud business, which includes their public cloud (GCP), as well as G Suite apps, lost $5.6B on revenues of $13.1B in 2020. In the fourth quarter of 2020, Google Cloud’s overall revenue was up 47% ($3.8B total) over the prior year with a loss of $1.2B (similar to their Q419 loss). In 2016, at around the same level of annual revenues for AWS, Amazon reported $3.4B of operating profit on revenues of $12.2B, even as they were pioneering the business of cloud computing and growing at a pace of over 50% per year. Microsoft’s Intelligent Cloud segment reported $14.6B for their December-quarter 2020 revenues with $6.4B in operating profit (it’s not a direct comparison to GCP in terms of revenue mix, but I’m just using it as a proxy for a scale cloud business). I would like to speculate that G Suite, with over 6M paying customers, should be similarly profitable; therefore, I’ll admit to not being able to get my head around the implied extreme GCP losses. On Google’s conference call, the high expenses were explained due to the company tripling its salesforce and investing in the sales channel. Amazon has a large sales and customer support effort, but it’s obviously much smaller than Google’s based on spending. Are Google’s gross margins on cloud services possibly negative? There is some indication that marquis customer (Snap, TikTok?) contracts are being delivered with extremely unfavorable economics for Google, or perhaps they are giving out very large credits to customers. Sundar Pichai’s response to a question comparing Google Cloud margins to competitors might hint at that as an explanation: “one thing I would say is...we get into these long-term deals. And so over time, as you add more cohorts, that contributes to the margin structure. It is -- the scale of the product offerings, the number of areas and the number of regions in the world, there's a much more significant investment.” This would make it difficult to estimate the real cost of cloud services for companies that rely on GCP. Maybe Twitter got a great deal on their new GCP collaboration as well? Google says they are building ahead of revenue, but it should be easy to scale cloud servers and storage in lockstep with demand. If this extreme negative profit model is what it takes for Google to grow their cloud business, I am left puzzled as to what the end game is for them. On the other hand, the cloud market will ultimately be measured in the trillions, so I don’t want to lose the forest for the trees. But, why is Google Cloud’s profitability on such a dramatically different path than that of Amazon and Microsoft?
US Housing Market Flourishing
Redfin reports that the median home sales price in the US was up 15% for the month of January compared to the same period last year, hitting a record high of $318,250. Meanwhile, inventory was down 36%. In total, 22% of sales in December 2020 were new construction, also a record high.
Miscellaneous Stuff
New Nano Chameleon is Bananas
A newly discovered species of chameleon in Madagascar is the size of a sunflower seed. It’s likely that Brookesia nana, (B. nana, for short) is the current record holder for smallest reptile; although, with swiftly vanishing habitat, its title may be short lived. Miniaturization of species is an interesting phenomenon, with size limits unknown. As vertebrates get smaller, the ratio of surface area to volume increases, which makes creatures more susceptible to water loss and provides less room to pack in all the vital internal organs.
Stuff about Geopolitics, Economics, and the Finance Industry
Semis’ Achilles Heel
Last week, NZS posted an op-ed on the importance of building leading-edge chip capacity in the US. Increasingly, the global economy runs on semiconductors – from the servers in the clouds to the phones in our pockets. However, the vast majority of these chips are made in Taiwan and South Korea. With automakers shutting down factories due to shortages, which could possibly extend to critical healthcare, industrial, and military needs, the risks are everywhere. A single strategic military action or natural disaster in one location in Taiwan could cause Apple to miss quarters – or even years of iPhone shipments. I also appeared on Squawk Alley on CNBC Thursday to discuss the topic.
Complexity Economics
We at NZS Capital have long been big fans of Brian Arthur, and he has a great new Nature Reviews Physics article on Complexity Economics. Viewing systems and their agents – like an economy and its consumers – through the lens of biology and complex systems is a complete inversion of conventional economic wisdom. In complexity economics, disequilibrium is the equilibrium state. We believe that once you realize that the economy is a complex adaptive system, you can let go of any pretense of being able to narrowly and accurately predict the future and instead focus on ensuring the resiliency and adaptability of your organization/investments. This thinking should replace all the outdated and dead wrong nonsense currently taught as economics; however, you’ll note that this paper wasn’t published in an economics journal, as the establishment is not keen to admit how wrong they are. Economics, as it is traditionally taught, relies on the simplifying assumptions of perfectly rational agents who all think alike, share the same needs, have perfect knowledge, and seek equilibrium. These assumptions have little – if any – relevance to the world we experience. Most importantly, in real life, the individual’s path through time never conforms to the average collective path of all humans, in stark contrast to yet another foundational fallacy of traditional economics. As the economy continues its transition from analog to digital – from industrial to information to AI – nonlinear dynamics, positive feedback loops, and power laws will dominate, and complexity economics and complex adaptive systems are the best tools we have for successfully navigating the present and planning for the future.
“Complexity economics sees the economy or the parts of it that interest us as not necessarily in equilibrium, its decision makers (or agents) as not super-rational, the problems they face as not necessarily well-defined and the economy not as a perfectly humming machine but as an ever-changing ecology of beliefs, organizing principles and behaviours.”
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