SITALWeek #287
Welcome to Stuff I Thought About Last Week, a collection of topics on tech, innovation, science, the digital economic transition, the finance industry, pi, 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: The powerful combination of tech and AI in healthcare; combustion-free fossil fuel generator; how to subsidize our new expectations of speedy commerce; a bundle of AVOD apps could be cheaper than Netflix; Twitter’s non-zero sumness for creators; receivable factoring reimagined; inverting your logic on NFTs; volatility; and lots more below...
Stuff about Innovation and Technology
Innerspace Imaging
The NHS in the UK is conducting a trial with 11,000 at-risk patients using a 4g, 2cm-long pill-shaped dual camera to collect and wirelessly transmit bowel images. The pills are designed to take the place of the more invasive bowel scope procedure to detect gut afflictions like cancer or Crohn's disease. The first FDA-approved capsule endoscopy technology was made by Given Imaging in Israel in 2001. Given Imaging was later acquired by Covidien, which is now part of Medtronic, the maker of the PillCam used by the NHS. Beyond the physical components of the PillCams, AI and machine learning are increasingly being used to analyze images to determine real-time capsule motility and interpret results of the scans. This is a great example of how technology – a combination of chips, sensors, connectivity, cloud, and AI – can help the healthcare system emphasize and simplify early detection, and ultimately prevent disease from taking hold.
Low-Emissions, Low-Temperature Generator
Mainspring Energy has developed a linear generator that compresses air and fuel to cause reaction without a flame, thus producing almost no NOx pollution and low CO2 emissions. Energy is produced electromagnetically via reactive expansion and rebound forces that cause magnets to oscillate through copper coils. The oscillators are cushioned by air – rather than oil – as they move through the coils. Recently, utility operator and renewables investor NextEra Energy invested $150M in the company with the goal of helping with grid outages. “Packed into box-like units the size of a parking space, they can ramp up to full power within seconds and run on natural gas, biogas or hydrogen, which offers the possibility of lower-carbon or carbon-free electricity produced on-site...Two generators packaged together into a single 20 foot-long container can produce 250 kilowatts of electricity. They can power a building or be plugged directly into the grid.”
Amazon’s Domestic Bot
Business Insider premium reports that Amazon has an 800-person team working on a home robot code-named Vesta, whose namesake is the Roman goddess of domestic life. Similar to Amazon Ring’s announced flying drone security camera (discussed in #273 with Amazon’s broader surveillance efforts), Vesta may have cameras, sensors, and fire detection capabilities. Perhaps a camera with image recognition could find lost keys, the article speculates. I’m holding out for Samsung’s Bot Handy (which I talked about in #279) because I, for one, want my futuristic home robots to be able to pour drinks in addition to surveil me.
Photogrammetry
Unreal game engine owner Epic bought reality capture company Capturing Reality. Photogrammetry, as it’s called, is the science of using multiple images of real-world objects to create 3D models. It’s a shortcut for generating realistic digital objects instead of painstakingly building them from scratch using CGI tools. The deal is a part of a string of acquisitions in the photogrammetry space to help game developers create items and tap libraries for their virtual worlds. The video here of the tech shows some of the output of the Capturing Reality software tool.
How About Now?
“I want to have it so that people have access to the full back catalog of things in the world at their fingertips at any point, just like Spotify gave you access to the full back catalog of music.” I saw that quote from Zuckerberg’s appearance on The Information podcast, and it made me think of something else I heard recently (sorry, I cannot remember where): a parent was talking about how their teenager was used to getting everything instantly or delivered in an hour: Want to play a new game? Download it. Watch a movie or listen to music? Stream it. Connect with friends? Snapchat or Facetime them. Burrito? Chipotle delivery. This is a totally different set of expectations for the world than someone like me, a washed-up Gen X’er, has. When I wanted a game, movie, or album growing up, it meant a trip to the store, and only when someone had time to drive me there. To see a friend outside of school we had to schedule in advance. Burrito? Forget about it. I remember being amazed 25 years ago when I signed up for eBay and could get something delivered in a week or two that wasn’t available locally. Next-day delivery still impresses me! But, for kids today, and increasingly adults, NOW is when we expect things. Everything – the entire back catalog of the world, as Zuckerberg put it – is on-demand.
Let’s think about this idea in the context of retail. We’ve just been through a pandemic that caused a surge in retail demand at big box stores for a number of reasons and a big jump in ecommerce. The physical stores had inventory and digital systems to enable order pickup and, in some cases, delivery as people stocked up on necessities and stopped eating out. But, in some ways, it has been profitless prosperity, or, at the very least, lower ROIC earnings (with few exceptions). It’s difficult to take something the consumer was doing on their own dime and time (driving to a store, shopping the aisles, checking out, and driving back home), transfer that cost burden to an already low-margin business, and still expect to make money. We’ve covered that issue in past newsletters (as well as in The Evolution of the Meal whitepaper). Is there a line to be drawn between 1-hour and 1-day (or longer) in terms of the type of merchandise and how fast we expect it? For example, it’s hard to imagine the long tail of fashion (every style in every size) available in one hour – this seems like a 1-day or longer expectations category. But, for much general merchandise and grocery (and prepared meals), 1-hour or scheduled same-day delivery seems like the trend.
Is there a way to standardize fast delivery in which the retailer can shoulder that labor cost transfer and still make money? Because, if there isn’t, then “get it now” seems like it’s a small market for the minority of households that can pay the premium. To make this a mass market, the winner will need ways to subsidize the low-margin sales. The best ways to do this would be: 1) purpose-built warehouses and logistics capabilities shipping a mix of high- and low-margin items, 2) vertical integration, 3) memberships, 4) broad and deep technology experience, and 5) advertising revenue stream. The ways to be disadvantaged in the “get it now” paradigm? Using existing store formats, partnering with third parties on delivery, not having a membership program, lacking tech experience, and not having a robust digital ad platform. This last point may be the most important – trade promotion is a ~$500B/year industry, almost as large as media advertising (not all of it targeted at retail though). Brands pay a lot to get in front of consumers across many channels. Owning logistics and spreading the cost of delivery out by efficient routing multiple drops with an increased diversity of items in the “shopping basket” will be a winning strategy. And, memberships with added benefits will also help. Does this sound familiar? It sounds like Amazon. Who would click and collect when it might cost the same to “get it now”? The middle is getting squeezed out of retail (a phenomenon we’ve been talking about for every industry for years), and what’s surprising is a retailer as large as Walmart might be stuck in the middle (this BI premium article discusses a leaked internal slide deck of Walmart’s challenges). On the opposite end of the distribution there’s a long tail of “deferred gratification” small businesses with specialized customer service or product curation (local mom and pop shops, Shopify merchants, Etsy, etc.) that should, as a whole, continue to do well. While I’ve mainly been talking about retail here, I think many of the concepts apply to food sales and delivery as well, where we will see a destruction of the middle as large chains vertically integrate and spend in technology, reimagining kitchen space and physical locations.
Ad-Supported Streaming FTW
We appear to be gravitating to ad-supported streaming apps. These cheaper alternatives often cost about half of the no-ads version, and the growing ad-based tech platforms are monetizing the subscribers at higher rates all-in vs. the folks paying to not see ads. This higher monetization likely portends meaningful price increases for ad-free streaming as ad rates rise even higher with improved targeting over time – which could push even more viewers to the with-ads versions. The Information talks about the trend of ad-supported streaming, citing Deloitte data that 65% of people in the US want either free ad-supported or ad-subsidized apps. Magnite reports that, in the UK and across Europe, 85% of folks prefer paying less in return for watching ads (covered last week by Fix newsletter). It’s not hard to imagine the power of a bundle of ad-subsidized streaming apps. Currently Hulu, Paramount+, and Peacock are $5.99, $4.99, and $4.99; meanwhile, HBO Max will be launching an ad-subsidized product soon. Given churn is the enemy of subscription products like these, a bundle would help everyone to stick with them month after month and create a combined data/advertising platform that could subsidize an even lower price point. Just adding up the four ad-supported apps (assuming HBO Max is in the same ballpark), it’s ~$22/mo compared to Netflix Premium at $17.99/mo in the US. Could this bundled AVOD subscription be offered cheaper than Netflix? (Digression: I have no emotional connection to anything Netflix has made themselves or the Netflix brand, yet I have a deep connection to a lot of content produced by the other studios mentioned here; maybe Netflix has proven that when you give artists too much rope...well, let's just say those “notes” from producers at the traditional Hollywood studios can add a lot of value.) As I wrote last week, this bundle is painfully obvious, so let’s see if egos can step aside and make it happen. Meanwhile, YouTube has an audience of 120M viewers on connected TV screens and is focusing on building tools for advertisers and collecting data on viewership/ratings, which in part drove 46% growth in Q4. And, FAST (free ad-supported TV) apps like Pluto from ViacomCBS are also doing extremely well. The US TV ad market is around $70B, much of which (both streaming and old-style linear TV on set-top boxes) is poised to become targetable and more valuable in the very near future.
Merchant Arm Server Chip
Internet security and content-delivery platform Cloudflare has long been waiting to port their software stack from x86 chips to Arm. Qualcomm exited the Arm server business just as Cloudflare was getting ready to test it out. Recently, Cloudflare attempted to quantify how Ampere’s Altra might stack up to Amazon’s Graviton2 Arm processor. Cloudflare, which is working with Ampere to define an Arm edge server, concluded the Altra could “attain a theoretical advantage between 20% to 50% due to Altra’s higher operating frequency and core count while taking inherent overheads associated with increasing core count into consideration, primarily scaling out the mesh network.”
Twitter’s Non-Zero-Sum Customer Focus
In this insightful interview with Twitter’s head of product, Kayvon Beykpour, I took note of their high-level non-zero-sum approach to adding a “Super Followers” direct payment utility, which will allow creators on Twitter to monetize through newsletters, audio chats (Spaces), and other interactions. Twitter’s goal is to not make money on these products, but instead to drive the ecosystem’s overall value. Notably, Beykpour also implied that the 30% cut Apple and Google will take is not something they are worried about, and that the platforms are enabling creators to monetize and providing other benefits, a view not shared by many others in the app world. However, it seems clear that the 30% app store fee eats into any fee Twitter might otherwise charge. I also thought Beykpour’s characterization of the customer-focused Jobs to be Done framework that’s applied to new Twitter features was helpful to understanding their thought process.
Miscellaneous Stuff
BeeDar
Beekeeper and radar engineer Herbert Aumann developed a two-part sensor comprising a 24-gigahertz Doppler radar and a piezoelectric transducer to monitor, respectively, bees coming/going and vibrations within the hive. The system, called Janus after the Roman god of doorways, is designed to detect both swarming events and when a rival hive is raiding the honey coffers. Swarming is when around half of a hive clusters together briefly before departing to find a new home; using the Janus monitor system and acting quickly, beekeepers can capture and relocate the swarm to a new hive. With a raid, quickly closing the hive off from rival bees can help save it.
Stuff about Geopolitics, Economics, and the Finance Industry
Receivable Factoring Reimagined
Pipe aims to create an exchange for buying and selling receivables for companies with recurring revenues. Pipe is a reboot of accounts receivable factoring with a modern-day marketplace twist, and, in some ways, it’s sort of like turning annual recurring revenue into something that looks more like traditional software license sales. The factoring gives companies more cash today to spend on growing the business, making it an alternative to venture capital or other types of loan structures. I can’t tell if this is a brilliant evolution of an old business model, yet another side effect of low rates, or a clear sign of a plateau in hyped up cloud investing (cloud companies pulled in an astounding $186B in VC money last year). Maybe it's a little bit of each. Alex Danco, who predicted this development a year ago, has a post on Pipe here: “It looks like factoring, it looks like debt, but it isn’t any of those things. It’s a new tradeable asset class with revenue contracts as the atomic unit.”
Working Backwards to NFTs
A couple of weeks ago, I wrote about NFTs (#284, #285) and mentioned the NFT digital art that Beeple had for sale. His “5000 days” collage ended up selling for $69,346,250. In the final moments, 22M viewers were watching the auction live. It’s easy, and perhaps lazy, to think this is an anomaly to be ignored. Of course it could end up being an anomaly, but what if it’s not? I think it’s very difficult for our analog, linear, human brains to get perspective on this new frontier. Here is an inversion that might help: it's the year 2050, and $100T+ of economic activity is being digitally transacted – nearly the entire economy has moved from seashells to Fiat currency to digital bits. Every transaction, whether it’s for something in the real world (like a car or a house) or in the digital metaverse, requires a “receipt” as proof of ownership and validation against piracy. It's all being transacted as NFTs in some blockchain currency – maybe Ethereum, or maybe something not yet created in 2021. Now, work backward from that to today, and you get Beeple selling a digital work of art for $69M. Of course, that’s just one possible version of the unpredictable future, but one that makes it worth keeping an open mind today.
Jane, Get Me Off This Crazy Thing!
It’s hard for me to remember this much day-to-day flip-flopping volatility around such a specific scenario that is, frankly, not that hard to get your head around: short- and long-term inflation. To use one high-beta example, the Philadelphia Semiconductor Index (known as the SOX) last week between daily highs and lows was down ~5.5%, up ~6.9%, down ~3.3%, up ~4.8%, down ~2.3%, and then finished the week up slightly. I’ve written a lot on inflation (#257, #258), so I won’t exhaustively repeat myself, but to summarize: the technology-driven deflationary forces of the last 40 years are still present, and, if anything, are accelerating from the pandemic and the shift from the Information Age to the AI Age. Yes, the economy is going to see a rebound in growth like nothing hardly any living investors can remember, and yes, we are going to have some inflation, but I don’t believe it has any risk of changing the long-term, tech-fueled trajectory. That said, we’re good Bayesians, and we are keeping an eye out for evidence the deflationary trends could stabilize or reverse, or for signs of structural changes (e.g., labor force size, climate, de-globalization/war). Because one person’s debt is another person’s asset, structurally higher rates would collapse the economy. Getting back to volatility, I wonder how much of the recent dramatic swings are a result of the increasingly small part of the market that is active, as passives have continued to gain share for the last decade? We like to remind people that volatility is not risk, it’s opportunity. But perhaps we could do with a little less opportunity than we had last week.
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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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