SITALWeek

Stuff I Thought About Last Week Newsletter

SITALWeek #297

Welcome to Stuff I Thought About Last Week, a collection of topics on tech, innovation, science, the digital economic transition, the finance industry, bi-directional Lightning, 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: battery-powered trains; trucks that power your house; stale air sensors; TV’s fall lineup isn’t funny; from TelePresence to Starline to AR; Microsoft is going zero trust; ransomware will spur a seachange in enterprise security; NZS partners with Harbor Funds; and lots more below...

Stuff about Innovation and Technology
Electric Choo Choo
BNSF Railway and Wabtec have developed a battery-electric locomotive (BEL) that cut greenhouse gas emissions by 11% in a real-world test. The BEL, with 2.4 megawatt hours of battery storage in 18,000 lithium-ion cells, traversed over 13,000 miles of hilly California terrain between Stockton and Barstow alongside two Wabtec Tier 4 diesel-electric engines. Wabtec, encouraged by the results, is planning a 2nd-generation prototype with six megawatt hours of batteries that could reduce carbon emissions by up to 30%.

Battery-Powered Lightning
Ford debuted the electric F-150 Lightning last week. The truck, which boasts a large frunk where the engine used to be, can also power a house for potentially days due to bi-directional charging. Because EVs tend to last longer and require less service, vehicle sales/service will be a shrinking market as we transition away from ICEs (after a period of incentivized EV sales), and legacy automakers will need to shift business models or evolve to maintain profits. Ford is focused on increasing vertical integration, like insourcing a lot of engineering – including software and autonomous features (for which they used to rely on suppliers) – and adding services like fleet management and vehicle charging for the commercial segment. Ford is also looking at a disruptive per-mile rental business model where people just pay for mileage rather than owning the cars, with potential revenue from app store sales and in-car ads (Ford signed a partnership with Google’s Android automotive operating system as well). As with other industries that undergo the analog-to-digital transition, we are likely to see a very concentrated number of winners in each geographic region and a completely transformed industry. Autos could fall along national lines with heavy incentives to buy patriotically. In general, it’s becoming easier to make EVs, and the industry could quickly look like a traditional auto market – i.e., not a lot of profits to go around. Where will the battle be fought for EV market share: range, autonomous features, charging network, user interface, fleets, government subsidies, and/or form factor?

First Responder Drones
Chula Vista police send out a drone in response to nearly every 911 call. The drones lift off dozens of times each day in the California town to provide a bird’s eye view of the potential emergencies. So far, the drones have flown 5,400 missions and procured evidence for 650 arrests. The drones reportedly show up before police in a quarter of cases, allowing law enforcement to preview the situation, affording more opportunity for de-escalation. The Chula Vista police believe the program has been an enormous success, but it’s likely we will need more data on the effectiveness of drone usage and whether there are situations where the presence of the buzzing machines could make things worse on the ground.

CO2 Sensor Canary
Physicist Lidia Morawska of the Queensland University of Technology believes we should measure air quality with the same frequency and standards we apply to drinking water. The easiest way to know if you are getting proper air movement is simple CO2 sensors, as CO2 accumulation signals stale air. Schools in Germany have been using a red/yellow/green-light system for CO2 measurements to indicate when fresh air supply is needed. As we’ve discussed before, given the consequences of stale air (not just for COVID, but all sorts of problems) there is a need for a revamp of current systems – including more outside air exchange and filtration – which will increase energy burdens.

Linear Snooze Fest
For the first time since the 1950s, the NBC network will not have any sitcoms this fall. Fox has also wiped sitcoms from its lineup. In general, there is a dearth of new shows – only a dozen across the four broadcasters – and some of those are just reboots/reimaginings of older shows. Comedian and ABC late-night host Jimmy Kimmel referred to the lack of new shows as “Disney-minus”. And that’s spot on: the channels are instead focusing their budgets and efforts on originals for their streaming apps as they race to gain subscribers and shift viewers to direct relationships. And, as people are increasingly favoring ad-supported streaming apps (see #287), this direct relationship will drive the data to drive ad rates higher, shifting budgets away from linear TV at an even faster pace and higher ROI. But, as we often lament in SITALWeek, we are left with too many apps and no good way to unify them: we need a rebundler. In the meantime, after stopping for a cup of coffee in the AT&T cafeteria, WarnerMedia is moving on to merge with reality-cooking-show-maker Discovery. This deal will effectively fetter the Warner properties, which have some of the best content the world has ever seen, with the producers of what is arguably the lowest common denominator ambient TV. The deal does not strike me as creating an asset with much more scale in streaming than WarnerMedia had on its own. I’d wager the merger will benefit Netflix, Disney, ViacomCBS, and NBCUniversal on the recruiting front. The next most likely combination would be NBCUniversal and ViacomCBS, which would leave consumers with four primary apps encompassing the majority of the premium content viewed outside of live sports. By buying MGM, Amazon is making an important – but nearly insignificant – move in the larger chess game. It would be compelling to see them target a larger content king like ViacomCBS as well. Fire up the Excel spreadsheets and PowerPoint slides – bankers will be staying busy as this multi-hundred-billion-dollar industry undergoes an Information-Age-driven consolidation.

Prime Diagnostics
Amazon is creating a new home diagnostic testing business for COVID, STDs, and clinical genomics, according to Business Insider. A COVID test kit may come as early as this June’s Prime Day. Amazon developed its own lab testing capabilities for employees during the pandemic, and the same group is launching this external business (a classic Amazon strategy). BI points out that, although this new initiative could still fail to launch, it’s part of Amazon's broader push into healthcare with pharmacy, telehealth, wearables, and other projects.

Starline HoloPortal
I remember my first TelePresence with John Chambers at Cisco in 2008. The high-definition video conference, which required expensive new hardware on both ends of the conversation, aimed to eliminate many of the problems of legacy solutions. I don’t think it was ever much of a commercial success, and, while it was better than what existed, it still felt a little disjointed since you weren’t quite looking people in the eye. Today, of course, we are all expert video conferencers and we put up with a variety of substandard, emotionally draining experiences. Google’s Project Starline aims to create a more realistic interaction. Using a new light field display, which creates a sense of volume and depth without the need for special eyewear, combined with computer vision, AI, and compression technology, Google claims it feels like you are sitting right across from someone and looking them in the eye. Like TelePresence, Starline also requires expensive custom hardware on both sides of the call. Google began developing the system five years ago and has been using it internally. Later this year, they will be deploying it with enterprise partners, but it’s likely years away from becoming a mass-market technology; meanwhile, in that timeframe, we could see breakthroughs in AR achieve similar results with less expensive hardware. Google’s Clay Bavor, who oversaw the development of Starline, said it feels real enough that you remember the interaction as being real and not long distance. Further, he says his recall of the meetings is much better than a typical video conference. For 13 years, our attempts to virtually simulate in-person meetings have met with only mixed results because, the reality is, anything short of reality is, well, not real. And, that matters because we humans aren’t yet ready to make the leap from our biological cell-based existence to a purely electronic one.

Hybrid Work Spurs Zero-Trust Adoption
Microsoft is taking the big step of ditching their corporate networks in favor of zero-trust security. We’ve been writing about zero-trust security and the companies that enable it for a while (see #267), and Microsoft’s milestone will likely pull many of their enterprise customers out of their legacy systems, causing a refocusing of security budgets. Microsoft lacks many of the products in house to offer a robust zero-trust solution to their customers, which suggests they should be on the hunt for acquisition targets or partners. You can read about the change, along with a host of other adaptations related to hybrid work environments, in Microsoft’s The Hybrid Work Paradox on LinkedIn.

Ampere Awareness
Microsoft is working with Ampere to utilize the startup’s Arm-powered server chips. Ampere is an Arm architectural license customer, which means they can craft custom silicon in a similar fashion to what Apple does with its A- and M-series processors. Ampere also boasts Oracle, Cloudflare, Tencent, and ByteDance as partners. This partnership essentially creates a two horse race between Amazon’s captive Graviton Arm server chip and Ampere, as many others have exited the market. However, many of Ampere’s potential customers might also do their own custom Arm processors like Amazon has chosen to do.

Miscellaneous Stuff
That’s a Spicy Photon
The most supercharged photons ever observed – packing 1.4 petaelectronvolts, 100x more energy than what our most powerful atom smasher, the Large Hadron Collider, can impart – were detected as they collided with air molecules in the upper atmosphere, leaving a faint blue afterglow called Cherenkov light. These PeV photons were emitted by ultra-high energy cosmic rays as they shot past Earth at near the speed of light. By inferring trajectory data from the collisions, we can get a sense of where in the universe the cosmic rays originated. The key PeV photons were observed at China’s Large High Altitude Air Shower Observatory (LHAASO), which sits on the Tibetan plateau at 4,410 meters above sea level and consists of 5,000 high-altitude detectors and 1,000 underground muon detectors to filter out background radiation. LHAASO scientists identified around a dozen “cosmic ray factories”, including some usual suspects (e.g., the Crab nebula, home to an ancient supernova) as well as some surprises (e.g., the Cygnus Cocoon, a stellar nursery). While supernovas (explosions of dying stars) were long thought to be the main progenitors of the cosmic rays, this new data suggest that regions of newly forming stars may be an alternate, or even primary, source. It’s hypothesized that winds from newborn giant stars could generate a sufficiently powerful shock wave to boost cosmic rays into the realm of ultra-high energy.

Stuff about Geopolitics, Economics, and the Finance Industry
Democratizing PE Investing
Vanguard will begin offering its private equity fund to accredited individual US investors this summer in a push to make the institutional darling asset class more broadly available. If podcast ads are any sort of reliable harbinger, then there are a variety of startup platforms targeting the democratization of private asset investing (a topic covered in #265, #284, and #281), including Fundrise for real estate and Yieldstreet for multiple asset classes, including real estate, consumer and commercial lending, art, etc. (I don’t know anything about these startups beyond hearing their ads, so this is not an endorsement!).

Insurance Liability Urges Zero-Trust Migration
The WSJ reports that ransomware payments, enabled by Bitcoin, quadrupled in 2020 to $348M. Insurance giant AXA was hit with a ransomware attack shortly after it said it would no longer underwrite ransomware insurance in France. The ironic attack was likely a result of a ransomware technique whereby, once inside a hacked corporate network, the attackers quickly look for a document detailing how much ransomware insurance a company has. This info allows hackers to set the ransom demand right at the policy limit so the payment doesn’t hurt the victim’s bottom line. Cyber insurance provider CNA was also hacked earlier this year as ransomware pirates were looking to obtain a list of companies that have ransomware insurance. CNA paid a $40M ransom to get their data back. Going forward, cyber security insurance could be too expensive to justify, given that companies can just take funds otherwise dedicated to insurance premium payments and instead get better cyber security or move to a cloud/zero-trust security architecture. Escalating costs of ransomware attacks, combined with Microsoft going zero trust (Google has been zero trust for years), suggests security modernization is gathering momentum.

Disruptive Innovation Fund
We are excited to announce that NZS Capital will be partnering with Harbor Funds for their multi-manager Disruptive Innovation Fund later this year. From the prospectus: “The Fund seeks to invest in what it believes to be disruptive and innovative companies of any market capitalization. The Fund defines disruptive and innovative companies as those generating secular growth tied to accelerating shifts in the global economy.”

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. 

I may include links to third-party websites as a convenience, and the inclusion of such links does not imply any endorsement, approval, investigation, verification or monitoring by NZS Capital, LLC. If you choose to visit the linked sites, you do so at your own risk, and you will be subject to such sites' terms of use and privacy policies, over which NZS Capital, LLC has no control. In no event will NZS Capital, LLC be responsible for any information or content within the linked sites or your use of the linked sites.

Nothing in this newsletter should be construed as investment advice. The information contained herein is only as current as of the date indicated and may be superseded by subsequent market events or for other reasons. There is no guarantee that the information supplied is accurate, complete, or timely. Past performance is not a guarantee of future results. 

Investing involves risk, including the possible loss of principal and fluctuation of value. Nothing contained in this newsletter is an offer to sell or solicit any investment services or securities. Initial Public Offerings (IPOs) are highly speculative investments and may be subject to lower liquidity and greater volatility. Special risks associated with IPOs include limited operating history, unseasoned trading, high turnover and non-repeatable performance.

jason slingerlend