SITALWeek #302
Welcome to Stuff I Thought About Last Week, a collection of topics on tech, innovation, science, the digital economic transition, the finance industry, swamp gas, and whatever else made me think last week. Please grab me on Twitter with any thoughts or feedback.
Click HERE to SIGN UP for SITALWeek’s Sunday EMAIL
In today’s post: the downsides of being in the office; the big maintenance savings on EV fleets; cookie wars; Microsoft’s assault on app stores; the struggles of gig workers and the flight of leisure sector employees; PayPal’s puzzling pricing; companies seeking long-term investors; puffy sails; and lots more below...
Stuff about Innovation and Technology
Reinventing the Sail
Michelin has created inflatable sails for ships that could reduce fuel consumption by up to 20%. The Wing Sail Mobility (WISAMO) is a “puffy, inflatable structure [that] towers over the vessel, resembling an enormous meringue with a spine of stiff peaks. At sea, it cuts through the wind like an airplane wing, sending the sailboat flying across the water. Now Michelin wants to fit the technology onto cargo ships. The goal is to harness wind energy to reduce the use of diesel fuel—and thus curb greenhouse gas emissions.”
Open Office Creates Tunnel Vision
Tony Hsieh used to advocate for ad hoc collisions – random run-ins that connect people/concepts and lead to creative, innovative paths that might not have otherwise been traveled. Hsieh even calculated that his schedule allowed for 1,000 “collisionable hours” per year back in 2013. It seems intuitive that these sparks of insight would happen more often when you are around other people, rather than sitting at your desk, isolated in your home office, or zoned out on Zoom. However, the NYT would like to dispel this myth with data: having employees physically in the office doesn’t appear to lead to more innovation. But what about those open floor plan offices with rows of desks and cubicles? Surely they foster more creative interaction and improved results? Nope. Ethan Bernstein, professor at Harvard Business School, found that open offices decreased face-to-face interaction by 70% as people found them too distracting and opted to don headsets and focus on their screens instead. It’s possible that removing distractions, increasing the potential for a diverse workforce (rather than pulling from the comparatively small pool of people willing and able to commit to full-time in-office work within a ~20-mile radius or relocate), and increasing inclusivity of all views/opinions might be at least as good with remote vs. in-office, and perhaps better. I am reminded of John Cleese’s great speech on creativity from 30 years ago: creativity may come from childlike play and isolation, two things that are antithetical to being in an office (please excuse Cleese’s jokes, which feel a little off color from our perch in the 2020s). Time will tell if remote work is actually better than in-office long term, but I am excited so many companies have decided to run the experiment, which, shorter term, will be a competitive recruiting advantage over the luddites still milking dying businesses from the 1800s and 1900s.
EVs Save Fed $78M in Maintenance
The US government, which owns the largest electric vehicle fleet globally, reports that the cost to maintain EVs is 40% lower than gas vehicles. With 2B miles driven in 2019, the 4c per mile savings amounts to $78M per year, and that’s just maintenance without accounting for the cheaper fuel (or the environmental benefit of lower emissions). The costs that were similar were brakes, tires, wipers, headlights, multi-point inspections, and shocks, while the cost savings came from all the traditional problems with the extra 10,000 parts of an ICE: transmission, spark plugs, oxygen sensors, belts, oil changes, etc. This seems accurate for fleet vehicles driven many miles. For personal EVs with much lower utilizations, the cost savings over the ownership period (as opposed to the per-mile period) I believe are vastly greater. We’ve been driving the same Nissan Leaf since 2013, and the only costs have been tires and tire rotations, which basically round to zero. Dutch grocery delivery company Picnic recently discussed its high tech electric vans and how increased efficiency can be gained by matching driver style with routes and precision charging algorithms that extend battery life.
Twitch Musicians Minting Money
A new report titled Twitch’s Rockonomics, from the former Chief Economist at Spotify, identifies several musicians making significantly more money on Twitch than on music streaming services (it's worth noting that Twitch appears to have sponsored the report, but it is still interesting). I discussed the various dynamics of the music labels, streaming, and how artists can increasingly fund their careers directly with fans in SITALWeek #300 (section titled “Beat It Mr. Tambourine Man: Record Labels are Glorified Banks”).
Ultra-Low-Power Gigabit Transmission
RFID works through a radio technology called backscatter. Instead of creating an RF signal, a backscatter radio is a scavenging device, repurposing ambient RF signals for powering and encoding its own transmissions. An antenna detects incoming RF signals, converts them to small amounts of power, and then uses that power to alter the signal and reflect it back out. Traditionally, backscatter radios, like the ones in RFID tags, can only transmit kilobits per second of data; however, newer techniques are demonstrating transfer rates up to hundreds of megabits, and even gigabits, per second. The new devices use millimeter-length signals over shorter distances but could greatly increase the ability to extract data from IoT devices with very little power. The transistors involved are also so simple they can be cheaply printed with silver nanoparticle ink.
Google Grants Cookie Reprieve
Google is delaying third-party cookie blocking in Chrome browsers until the end of 2023. The two-year delay comes as a surprise. Google said the delay is over concerns that small publishers, who rely more heavily on third-party tracking to serve ads, would be harmed unless better alternatives are available for serving anonymously targeted ads. Further, until an alternative is in place, less availability of cookies could increase an ad industry practice known as fingerprinting, which can be done with even less control by, and transparency to, users. Various players in the ad tracking sector are struggling to come together with a plan to protect privacy. Meanwhile, Apple continues to exert control over the iOS platform in a way that emphasizes privacy (the rising adoption of iOS 14.5 and 14.6 is causing a significant shift of ad dollars from iOS to Android, according to Digiday). Users can of course turn off third-party cookies on their own in the browser’s settings (which I personally recommend) or use alternatives like the Brave browser. Brave also introduced a search engine last week that competes with Google. Notably, the company created its own search index rather than relying on Google, Bing, or privacy-focused alternative engines such as DuckDuckGo. Brave also blocks FLoC, which is the alternative tracking mechanism Google proposed to replace third-party cookies. Unless Google steps up its privacy protections, the lines are clearly being drawn between Apple’s walled fortress approach and Google’s conflicted, ad-driven business model. Meanwhile, as the value of first-party data rises, Amazon has removed third-party ad platforms, like The Trade Desk, from its Fire TV video service. We should expect this trend of creating walled gardens around proprietary data to continue (see #300 for a little more on this topic, including why it’s not necessarily bad for consumers).
Nadella’s Non-Zero-Sum Strategy
In a series of announcements about the new Windows 11, Satya Nadella lays bare the hypocrisy and problems of the current iOS and Android app store policies: “In our case at Microsoft, I’ve always felt that, at least the definition of a platform is: if something bigger than the platform can’t be born, then it’s not a platform. The web, it grew up on Windows. Think about it. If we said, ‘All of commerce is only mediated through us,’ Amazon couldn’t exist, if we had somehow said, ‘We’re going to have our own commerce model.’” Microsoft cut its app store fees to 15% and announced Android apps would run on Windows 11 via the Amazon app store to start; and, eventually, any Android app store will be able to run on Windows with its own payment terms and fees for developers. This Verge interview with Satya has a lot more about Satya’s views and strategy. There is no valid justification for the way Android and Apple are running and controlling their app stores. The only businesses that can make these high fees work are ones with high margins, which means a ton of interesting businesses are either missing from our mobile world or are forced to live off of advertising.
Gig Economy’s Negative-Sum Game
This Wired magazine profile – of the difficulties of making it as a gig worker – is an eye-opening read. There is nothing new here, but it puts a spotlight on the problems in the industry. The Venn diagram of the three financial sides of these businesses – gig economy platform profits, gig worker wages, and consumer budgets – have virtually no overlap in reality without heavy subsidization from VCs and public market investors. If workers are going to make enough to keep doing the job, the requisite price increases would likely significantly shrink the pool of customers who can afford the services. There are pockets, like pizza delivery, where vertical integration and food specialization (e.g., turning food into salted cardboard) seem to allow for a decent-sized market, but general gig businesses, as they exist today, are a real head scratcher for me. Even when I apply the evergreen argument of “just wait until they scale up”, I still get confused. We couldn’t have had a better testcase than last year for delivery to prove itself viable for all three sides, and I’m left underwhelmed. However, I am still optimistic about vertically-integrated delivery services with purpose-built fulfillment centers, their own delivery vehicles/agents, and delivery models that include routing, subscriptions, and membership.
Regardless of how the non-overlapping Venn diagram plays out, the labor issue remains a big conundrum, with service jobs across the economy underpaying vs. the perceived value of the job for workers. WaPo reports that 649k workers left the retail industry just in the month of April in search of better paying jobs where they don’t have to deal with belligerent customers. And, it’s not just retail; according to WaPo’s The Lily magazine: “Restaurant workers have been leaving their industry — which is predominantly staffed by women — in droves, with the April quit rate for the accommodation and food service sectors reaching 5.6 percent, the highest of any recorded industry since at least December, according to the U.S. Bureau of Labor Statistics.” Disney is offering $1,000 signing bonuses and has reinstated its paid summer intern program as it tries to hire back previously laid off cast members at Disney World.
PayPal’s Antiquated Pricing Logic
I am admittedly perplexed by PayPal raising their fees for small- and medium-sized merchants in the face of new competition from Shop Pay and others. The fees will rise from 2.9% plus 30c to 3.49% plus 49c. Personally, I still avoid the PayPal button even though they’ve improved the experience a little over the years, but I don’t hesitate to pay with Shop Pay, Amazon Pay, Square, or Google Wallet whenever they are available on the web, in apps, or IRL because the experience is so good. PayPal reports that shoppers are three times more likely to complete a checkout when PayPal is an option, but these stats from wallet providers always seem dubious to me – people who often use wallets are more likely to convert to begin with. In an interview with Reuters, PayPal’s SVP for small and medium businesses, Dan Leberman, said: “We are changing prices to help our customers understand even more clearly where we provide value”, which is a pretty funny way to pitch a price increase. In general, at NZS we think pricing power is more representative of a vulnerability than a strength in the Information Age. Companies that take share of the economy as it goes from analog to digital are those that offer more value for less, not less (or equal) value for more. It seems like PayPal is overplaying a mediocre hand at a time when there’s no shortage of challengers providing more/equal value for less.
Miscellaneous Stuff
Pale Blue Dot in Plain Sight
As we eagerly await the full government report confirming various UFO sightings are in fact unidentified flying objects rather than “Swamp gas from a weather balloon [that] was trapped in a thermal pocket and reflected the light from Venus”, MIT Technology Review discusses a new Nature paper suggesting 1,715 nearby stars have been in a position to spot signs of life on our pale blue dot over the past 5,000 years. While we’ve only been pumping radio waves into space for the last century, signs of life, like oxygen and methane, are detectable from long distances with the right technology. As Carl Sagan wrote in Contact, “The universe is a pretty big place. If it's just us, seems like an awful waste of space.”
Stuff about Geopolitics, Economics, and the Finance Industry
Focus on Non-Zero Sum to get Long-Term Shareholders
Twilio and Asana will do a dual listing on the Long-Term Stock Exchange (LTSE). Both companies, whose CEOs are also coincidentally investors in LTSE, are able to craft their own mission statement for listing on the LTSE, which touts the goal of aligning companies and investors that think long term. If only there were some other large, liquid stock exchange where listed companies could create and communicate long-term incentive plans to help potential investors decide whether to become long-term shareholders. Just think how much better it could have been for Amazon if Jeff Bezos could have focused on the long term and had long-term shareholders. I am, of course, joking. It’s not clear to me why any company would add the expense and complexity of a less liquid exchange that accomplishes nothing more than ESG virtue signaling. Companies earn the shareholders they deserve through communication and execution regardless of where the shares are listed. Volatility is opportunity – not risk – so, to the extent investors are short-term focused on normal stock exchanges, it creates opportunities for long-term investors (and for companies that repurchase their own shares). We dive into how we think companies can create long-term value in more detail in our 2019 whitepaper: Non-zero Outcomes in the Information Age: Broadening the Definition of Fiduciary Duty for the Mindful Investor and Company.
✌
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.