SITALWeek #285

Welcome to Stuff I Thought About Last Week, a collection of topics on tech, innovation, science, the digital economic transition, the finance industry, laser combs, 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: casual games may move back into social apps; iBuyers driving real estate comissions down; Walmart backs down on healthcare; talent leaving Netflix; virtual avatars and robotic fast food; the close-talking fatigue of Zoom and a world that reverts back to audio; more on the rise of NFTs and a generation entering its saving years; and lots more below...

Stuff about Innovation and Technology
AI Replaces Fast Food Humans
White Castle is adding license-plate reader technology to automated drive-through ordering systems to improve customer experience by linking customers with their order preferences and speeding up transactions, according to a CNN report. The system only works for customers who opt-in via the White Castle mobile app. At Fair Oaks Burger in California, a system called PopPay uses facial recognition to allow customers to pay at the drive through. McDonald’s is rolling out AI drive-through displays that use voice recognition to take orders. We’ve previously covered Chipotle’s Chipotlanes for faster online order pickup. All this digitalization of the fast food experience is happening in a backdrop of rising pandemic-driven demand and underscores how much technology investment is needed to keep up with the rapid analog-to-digital transformation of the global economy.

Virtual Avatars Replace Video-Casting Humans
VTubing is a phenomenon started in Japan that is sort of what it sounds like: YouTubers (and the like) creating virtual avatars using facial/gesture recognition AI, animation software, and, in some cases, voice-changing software. The popularity of VTubing is spreading around the world on YouTube as well as Twitch. One popular VTuber, CodeMiko, uses an Xsens motion capture suit and the Unreal Engine to create a virtual streaming personality. With increased capabilities of AI, virtual avatars will encompass deep fakes of anyone that people want to appear as, which is going to be a real challenge for our real world brains.

Virtual Close Talking Induces Zoom Fatigue
One of the key drivers of Zoom fatigue (which is very real) is the proximity to other people’s faces, according to Stanford researcher Jeremy Bailenson in his peer-reviewed perspective published last week. He describes videoconferencing as a virtual invasion of personal space that you can mitigate by shrinking your app window or backing away from your monitor to make people appear farther away. Other tools to help with the fatigue include turning your self-view off (I highly recommend that one). A New Atlas article that reviews the Stanford research also quotes from David Foster Wallace, who, in his 1996 novel Infinite Jest, imagines a future where people revert back to audio-only after a short-lived foray into video calls:
“A traditional aural-only conversation […] let you enter a kind of highway-hypnotic semi-attentive fugue: while conversing, you could look around the room, doodle, fine-groom, peel tiny bits of dead skin away from your cuticles, compose phone-pad haiku, stir things on the stove; you could even carry on a whole separate additional sign-language-and-exaggerated-facial-expression type of conversation with people right there in the room with you, all while seeming to be right there attending closely to the voice on the phone. And yet – and this was the retrospectively marvelous part – even as you were dividing your attention between the phone call and all sorts of other idle little fuguelike activities, you were somehow never haunted by the suspicion that the person on the other end’s attention might be similarly divided.”

Gaming Coming Home to Social Apps?
Artie has created a novel Apple app-store workaround for Unity’s mobile games by partnering with Facebook, TikTok, YouTube, Snap, and others to stream games inside those apps – but in a way that takes advantage of the fact that those apps can access native graphics processing (which browser-based streaming generally cannot). This combination allows for better game experience without needing an app-store gatekeeper. The problem, as I see it, is that social apps just become the new gatekeepers, which (if history is any indication) creates a conflict of interest: those apps want to keep people engaged and not dipping out to play games natively on iOS and Android. If you will recall, way back in the prehistoric days of social networking (circa over a decade ago), Zynga rode the Facebook wave (after wiping out on the Myspace wave!) as Zuckerberg was very happy to have people playing Farmville while on Facebook. Things soured for Zynga as Zuckerberg had a change of heart and propelled people away from gaming on Facebook in favor of democracy-crushing fake news sharing (well, maybe that wasn’t the plan, but that’s how it played out in the 2010s). This move resulted in Zynga leaving Facebook in 2012. Zynga’s founder, Mark Pincus, is an investor in Artie, which I am frankly having a hard time interpreting given Zynga’s history with malevolent gatekeepers. Tim Sweeney, who runs Epic (which owns the rival to Unity and is battling Apple and Google’s app-store monopolies in high-profile lawsuits) even chimed in on Twitter to say Artie is “some very interesting tech to watch”. A shift away from polarized discourse and fake-news mind control toward casual gaming sounds like a wonderful idea to me.

Advantaged Agent-Based iBuyers?
Redfin CEO Glenn Kelman had some interesting comments on the evolving iBuyer market on the company’s earnings call last week: “There have been many iBuyers in a market like Phoenix for a long time. And they are duking it out. You have customers running auctions at the house where they've invited Opendoor, Zillow, in this case, I think Redfin is coming to Phoenix soon. We certainly see that in other markets. So I do think that iBuyers are competing with one another because it's a commodity service.” Glenn went on to highlight the advantages of having the low customer acquisition cost of the Redfin website/app as well as a market-leading efficient agent model vs. traditional brokers. Ultimately, many iBuyer prospects use an agent to sell, and then an agent to buy a new house. Perhaps even more interesting is the impact iBuyers are having driving commissions down. When iBuyers turn around to sell homes, they are putting pressure on buyer agent commissions, which are now transparent thanks to the DoJ settlement with the NAR last year: “And the portfolios of both builders and iBuyers are managed by very sharp Wall Street types who look at every cost as an opportunity to improve margin. And so they're being very aggressive about how much they're paying buyers' agents in places like Atlanta and other markets where builders or iBuyers are very prevalent. So we've seen a significant decrease in the commissions the businesses are paying buyers' agents, and we think that consumers are going to follow suit because the Department of Justice Lawsuit is allowing a website like redfin.com to publish the commission. So the secret is soon going to be out that you can pay a buyer's agent less and still have plenty of people bidding on the house, especially in an historic seller's market like this.”

Chip Supply Chain Woes Go from Blizzard to Drought
The Washington Post reported on chip shortages ahead of Biden’s declaration to broadly review supply chains – including semiconductors – and featured a small quote from yours truly: “Brad Slingerlend, an investor at NZS Capital in California and a former semiconductor analyst, said he started raising alarms about U.S. reliance on overseas chips years ago, to no avail. The auto sector’s current plight will draw more attention to the issue, he said. ‘This needs more of a spotlight on it,’ he said.” I’ve been called worse than a “former semiconductor analyst”! In speaking to the reporters, we emphasized the need for an industry-wide solution, which we discussed in more detail in this op-ed, in case you missed it. And, if geopolitical concerns aren’t enough to cause us to think about diversifying the chip supply chain, The Nikkei reports that TSMC needs 156,000 tons of water each day to make semiconductors, and has had to secure truckloads of contingent water supply as the island of Taiwan faces its worst drought in decades. This follows the deep freeze in Texas that also derailed chips supply (#284).

Another Healthcare Initiative Bites the Dust
Walmart once planned to open 4000 health clinic centers by 2029 at an estimated cost of $11B. The 2018 plan called for 125 clinics by the end of 2021. Currently, Walmart has 20 open centers and plans to add 22 more this year; but, according to Business Insider, the endeavor may be falling apart. I first mentioned this effort in SITALWeek #211, and, in #253, I mentioned that Walmart had entered the insurance business as a Medicare reseller. Walmart is a natural to disrupt the anachronistic US healthcare system given its large workforce, broad store footprint, and 4700 pharmacies. The early clinics were said to be performing well ahead of Walmart’s expectations, but the loss of a key executive and the pandemic stopped the momentum. I can’t help but compare this to the failed healthcare effort by Amazon, JP Morgan, and Berkshire Hathaway. Who will cure us of the over-regulated, highly inefficient, overpriced US healthcare virus?

Paramount+ Reboot Features New Shows, Talent
In rebooting and relaunching CBS All Access as the new Paramount+ streaming service, ViacomCBS has been luring talent away from Netflix, according to the Hollywood Reporter: “ViacomCBS has also lured a number of top creators to the service. Black-ish creator Kenya Barris is working on a show about modern relationships for Paramount+ as he negotiates an exit from his Netflix overall deal. The creators of Avatar: The Last Airbender have left the Netflix live-action remake of the cult classic to return to ViacomCBS, where they will develop an expanded universe based on the animated series.” Creators have been playing studio pinball in Hollywood for a few years, but mostly accreting to Netflix. As I mentioned in more detail a couple weeks ago (#283), consumers and the industry would greatly benefit from a consolidation/rebundling of streaming services. Also, one of the underappreciated trends in content spending in my opinion is the natural ceiling that we are approaching or perhaps surpassing. Streaming platforms and studios should be able to step down content spending from the current sky-high levels without impacting subscriber metrics. Long term, I would expect content to settle at less than 50% of revenues for streaming platforms with a focus on quality over quantity.

Credit Cards’ Digital Wallet Problems
After failing to gain any traction with competing digital wallets for online commerce, Visa, Mastercard, Discover, and American Express are combining their separate checkout efforts into a new unified button, according to Bloomberg. Previous attempts garnered perhaps 5% share at checkout compared to 70% for alternatives like PayPal. This effort makes little sense to me as a payment mechanism without the benefit of a full digital wallet or banking platform offered by competitors. As wallets like PayPal or Shop Pay gain share, the funding mix can shift away from traditional credit cards toward debit, checking accounts, or buy-now-pay-later funding mechanisms, all of which are dilutive or subtractive to the credit card companies and banks that distribute them.

Miscellaneous Stuff
High-Tech Search for Exoplanets
By analyzing years of observations of exoplanets, astronomers believe the Milky Way galaxy has billions of rocky Earth-like planets that are orbiting Sun-like stars in the habitable region that might allow life to evolve. And that is, of course, just in our galaxy; as Carl Sagan said: “The universe is a pretty big place. If it's just us, seems like an awful waste of space”. The push to resolve Earth-like exoplanets has created several new methods and designs for “cutting-edge digital detectors and sophisticated laser systems, tied to atomic clocks” as well as a Nobel-winning calibration device called a laser frequency comb, which boasts precision to less than a few parts per quadrillion. This is all in an effort to keep a detector the size of a car completely thermally stable. “Somewhere out there, another Earth is orbiting its star, which wobbles slowly in sympathy around their shared center of gravity. Over the course of a year or so, the star’s spectrum shifts ever so slightly toward the red, then toward the blue.” That extremely minute Doppler shift is what astronomers are trying to detect using advanced spectrographs, like NEID in Arizona. The spectrographic guts of NEID (which is calibrated with the laser comb) are kept at a constant temperature (to within one-thousandth of a degree) at less than one-millionth standard atmospheric pressure using, among other things, cryogenic charcoal to attract stray gas molecules. I could go on, but you get the picture – it’s high tech! Read more in IEEE Spectrum.

That’s Life
Willie dropped a delightful new album, That’s Life, of Sinatra standards last week without a single overlapping track vs. Dylan’s excellent and contrasting Sinatra standards album Shadows in the Night.

Stuff about Geopolitics, Economics, and the Finance Industry
NFTs and a New Generation of Investors
Following up on last week’s post about NFTs, I got several interesting responses from readers. This CNBC segment on NFTs, featuring digital artist Beeple, provides some good context and basics for the world of blockchain-based digital asset sales. I was also remiss in not mentioning NBA Top Shot, the official digital sports card NFTs from the NBA powered by the Flow blockchain. Two weeks ago, a LeBron James Lakers highlight clip sold for $208,000. For even more explanation of NFTs here is Mike Shinoda of Linkin Park discussing the importance of NFTs and his foray into selling the digital collectables.

I was recently reminded of a section in SITALWeek #203 from July of 2019 about the MY ratio: “The MY ratio is the ratio of 35-49 year olds compared to 20-34 year olds. This is a measure of roughly the number of people saving vs. spending – as you get older, you tend to put more in the stock market on average...The MY ratio bottomed in 2016 and is supposed to trend up for 16 years.” In other words, there is a growing demographic looking to benefit from appreciating assets. The surge in retail investors, which is frequently (and inappropriately) being tossed off as bored gamblers, is likely just the tip of the iceberg of a growing number of new investors. NFTs seem to be coming into popularity coinciding with this trend, providing an complimentary alternative to equity investing alone for this new generation of savers. If you missed last week’s discussion of NFTs and the scarcity of analog and digital assets, you can read it here at the end of SITALWeek #284.

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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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