SITALWeek #307
Welcome to Stuff I Thought About Last Week, a collection of topics on tech, innovation, science, the digital economic transition, the finance industry, time crystals, 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: pushing buttons; YouTube’s theoretical content budget now rivals that of Netflix and the Hollywood studios; taking a flexible approach to hybrid work; time crystals; China viewed from the lenses of freedom, equality, innovation, and regulation; and lots more below...
Stuff about Innovation and Technology
Complexifying Button Pushing
As we’ve learned from The Jetsons, the future is all about button pushing. Well, now there exists a prototype, WiFi-enabled button pusher designed to interface with all the analog, mechanical switches, knobs, levers, etc. languishing without advanced IoT connectivity. The IoTIZER, developed by researchers at Korea’s KAIST, is showcased in this concept video. The demonstration seems rather tongue in cheek, but it highlights the ongoing struggle taking place everywhere analog meets digital in our increasingly connected world, where technology often seems to make things more complicated instead of improving our quality of life (I am looking at you, QR codes!).
Charging While Driving
Magment, developed by the eponymous German startup, is a concrete doped with magnetic particles that can inductively charge electric vehicles (e.g., scooters, fork-lifts) when driven/parked on the electrified substrate, with a reported 95% transmissivity. Now, Purdue and Indiana’s DOT plan to test whether or not magment can charge EVs as they drive on a quarter-mile section of electrified test road. I am not sure customizing roads for inductive charging will ultimately make sense, but we are likely to continue to see a world of ambient charging as everything becomes electrified.
Netherlands’ ‘Food Valley’
The Netherlands is the second largest agricultural exporting country in the world, owing to its long-running focus on efficiency and significant investment in agtech and greenhouses post WWII. For example, a Dutch greenhouse can grow a kilogram of tomatoes with four liters of water compared to the average 214 liters, and, by locating greenhouses in proximity to cities, transportation costs can be dramatically reduced. Despite the potential for significant advancements, Sifted reports that the greenhouse sector is relatively unloved by venture investors.
YouTube Rivals Studios
With Alphabet reporting $7B in ad revenue for YouTube in Q2 2021, content creators could have netted $3.85B (55% revenue share), if all of the ads were paid out to creators who had enabled monetization (which is not necessarily the case). If I translate that max potential revenue share into a hypothetical annual run rate, $15.4B is in the ballpark of the non-sports content spend at the major streaming companies (Netflix is projected to spend around $17B in 2021, and, while precise numbers excluding sports rights aren’t available for the other studios, each is likely to spend somewhere between ~$13B to ~$19B for the year). The 84% y/y growth in YouTube ad revenue also means it’s currently one of the fastest growing pools of money for content creators. As noted in Google’s 10-Q filing: “The increase in other cost of revenues from the three and six months ended June 30, 2020 to the three and six months ended June 30, 2021 was primarily due to increases in content acquisition costs primarily for YouTube as well as data center and other operations costs.” Meanwhile, Netflix’s share of demand for original streaming series has gone from 71% in 2017 to 46% in Q2 of 2021, coinciding with rising competition for streaming (note: market share is obviously influenced by the timing of new content release, but demand even for Netflix’s new content seems to have lagged.) In related news, after reading that Netflix’s film boss gave the greenlight to Yes Day 2 and signed a broader production deal with Jennifer Garner, I feel like I’ve simultaneously lost both my faith in Netflix and humanity. The first Yes Day (“aiming for family fun but settling for harmlessly mediocre”) is a good example of what happens when a studio doesn't provide enough guidance and production oversight for creative talent, an evident blind spot in many of Netflix’s originals. In yet another example of content shifting from professionally-produced to user-generated, the WP notes that folks are consuming Olympic clips on TikTok and social media rather than waiting for the broadcast (primetime Olympics ratings on NBC are down 50%!).
Cloudflare’s Paradigm Approach to Future of Work
I thought this blog post from Cloudflare regarding the future of hybrid work was one of the more thoughtful approaches I have seen so far. Notably, under remote work conditions, Cloudflare has seen improved productivity and participation from previously underrepresented groups. “Just as it’s important to have genetic diversity in a species, having diversity on every dimension in hiring makes us a stronger, more creative company. Prioritizing a diverse team is the right strategy if you're optimizing for innovation, like we are at Cloudflare.” As such, they are sticking to a meeting policy whereby everyone is either digital or everyone is in person, which I agree is a better way to run meetings in a hybrid work scenario. Cloudflare is taking a flexible approach, keeping a very open mind, and collecting data as they (and others) run experiments in remote, office, and hybrid work models. As I’ve said in the past (and as the WSJ noted last week), being flexible and open minded about the future of work is likely to give tech companies an even bigger leg up against the Industrial Age dinosaurs.
Miscellaneous Stuff
Time Crystals
Time crystals are a phase of matter, like solid, liquid, or gas, but they aren’t found in the natural world. Instead of existing in a state of equilibrium, time crystals are a stable state of disequilibrium, cycling back and forth between different states without consuming/producing any energy, like a perpetual motion machine (which, incidentally, is a violation of the second law of thermodynamics). Time crystals were first conceptualized by physicist Frank Wilczek in 2012. Now, Google researchers, along with their collaborators, have leveraged the company’s quantum computer to purportedly create an elusive time crystal. It would be truly mind blowing if the time crystal were a closed system; however, it appears to need an external driver to promote the periodic switching. Time crystals are esoteric, but a potentially important step if quantum computers are ever going to materialize (which remains a low probability). And, for everyone who is wondering, yes, I do hope time crystals become a plot device in a future time travel movie, even though one has nothing to do with the other!
Stuff about Geopolitics, Economics, and the Finance Industry
China's Widening Range of Outcomes
In SITALWeek #226, back in January 2020, in a paragraph entitled “How I Learned to Stop Worrying About China” I wrote the following:
“China’s been trying to catch the West in semiconductors for decades and has little to show for it despite $100B’s in targeted spending. Why? Because monopoly platforms and profits can’t thrive in China. This is why China lost the trade war with the US – they rely on foundational technology and creativity that could only be created under Western incentives...Innovation requires free expression of creativity without fear. For a period of time, China did allow Alibaba and Tencent to create monopolies and monopoly-like profit pools, which caused them to pull ahead of the Western Internet platforms in terms of innovation. But, then they reversed course as Jack Ma relinquished his control of Alibaba and the government took increased control of the sector through board seats, censorship, etc. The West can maintain the innovation that will continue to create more progress and solve more problems for the entire planet by taking a smart approach to balancing monopoly formation with regulation.”
While the sentiment regarding the CCP's misguided intentions in that paragraph still resonates for me, the market seems to be taking a longer time to digest the consequences of the CCP’s plans (it's important to separate the actions of the CCP from the well-intentioned citizens of China). While some of the larger Chinese tech companies, like Alibaba and Tencent, have underperformed broader indices over the last 18 months (Alibaba is down around 9% and Tencent is up around 29% compared to the S&P 500, up 37%, and the MSCI ACWI, up ~32%, as of July 30th, 2021; at one point in February, however, both stocks were up 4x vs. the broader indices before their dramatic retracement!), a broader measure, such as the Invesco China Technology ETF, is up around 33%, putting it between the S&P 500 and the MSCI ACWI indices over that period. The question is how to think about a group of market-leading companies that are increasingly restricted to operating in a single country and look more like state-controlled entities than management-led/investor-influenced autonomous organizations. I think often about a topic I articulated in #214:
“Throughout human history, there has been a spectrum of freedom and equality: if you have 100% freedom, you tend to end up with extreme inequalities; if you have 100% equality, you tend to end up with very little freedom. Capitalism, on the one hand, has tended toward freedom, thus causing ever-rising inequality, while Communism strives for equality by suppressing freedom. There is some threading of the needle of equality and freedom that we still need to do as a global society, but for now the path isn’t yet clear. I’d suggest the ultimate tact to take for companies and investors struggling to make sense of the China situation is to support rising freedom over the long term.”
I have the same viewpoint today as what I’ve articulated over the last few years: with the CCP increasingly quashing entrepreneurship and capitalism, the range of outcomes has widened for Chinese companies on multiple vectors over the last few years, which requires a critical analysis of position sizing for investors interested in that group of stocks. This higher degree of uncertainty is perhaps true not just for Chinese companies, but also for Western companies relying on the domestic Chinese market for growth. Longer term, I think value creation will follow innovation, and I think innovation thrives with freedom and dies with fear. But, like I say often, I am wrong about almost everything. For those interested in the counterpoint, Ray Dalio continues to preach the bull case for China (Ray: if the CCP has kidnapped your dog, blink twice next time you are on TV!). The final point I want to make here is that some of China’s targeted regulation has parallels to the consolidation of power of the large Internet platforms in the West, and we should pay close attention to those experiments so we can create better outcomes through regulation and incentives for our own mega platforms.
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Disclaimers:
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