SITALWeek #319
Welcome to Stuff I Thought About Last Week, a personal collection of topics on tech, innovation, science, the digital economic transition, the finance industry, Eight-Nozzled Elephant-Toted Boom Blitzes, and whatever else made me think last week.
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In today’s post: the rise of specialized robots will change the world around us; should iBuying be a marketplace or vertically integrated?; the defense industry is overdue for a crucial Information-Age makeover, and ESG investing is holding it back; a space rock on a pillow; we wear costumes on Halloween to blend in; and much more below.
Stuff about Innovation and Technology
Help Us Kitchen Robots, You’re Our Only Hope
One of the most dramatically impacted industries from COVID is restaurants. Fast food and larger chains, which were more able to adopt technology and absorb costs from reduced patronage and a shift from dine-in to take-out, fared much better than the independents. And, as patrons reemerged from lockdown, the pandemic-precipitated labor shortage maintained pressure on technology adoption. As a result, restaurants continue to be on the leading edge of experimentation with automation and robots – from basic digital ordering to the more exotic burger-flipping machines. However, it’s becoming more clear that the labor dearth isn’t simply an acute phenomenon, and its persistent nature suggests a structural shift, namely due to demographics and immigration policies, as I discussed last week. The CEO of Domino’s Pizza also called for US immigration reform. If you want your pizza delivered, you have three choices: 1) overhaul immigration; 2) go back in time 20 years and have more kids; or 3) sit tight and hope your local ‘za chain is deploying technology and automation. The first two of these options seem fairly close to impossible. That means we are left with choice number three. Restaurants are the poster child for an industry adopting technology in the face of human shortages. The NYT reports on the trend, quoting an executive from White Castle: “This is the toughest labor market we’ve encountered since World War II”. To help, the Servi robot, made by Bear Robotics, can bring plates to and from tables, freeing up servers’ time. And, some robots are cleaning bathrooms, while others – like Makr Shakr – mix drinks (shaken or stirred, with garnish). Buffalo Wild Wings is using Miso Robotics’ Flippy Wings chicken-wing-fryer bot. I don’t believe anyone has invented Rick’s butter-passing bot, but surely someone will. The big takeaway here is that there is a massive set of very specific use cases for robots and automation. Robotics is still a highly fragmented industry with a lot of specialization that needs to be very close to customers to better understand what pain points need to be addressed and the feasibility of different solutions. That’s perhaps why we have not yet seen a vertically-integrated platform for robotics emerge. It also highlights just how damn efficient humans are at everything. We’ve optimized our entire world around our unique ability to communicate verbally and non-verbally, manipulate objects with extreme dexterity, and utilize a metabolic system that supports phenomenally efficient neural supercomputing and muscle usage. Until someone perfects the human android, we will likely see thousands of specialized solutions, both in hardware and software. Over time, the world will adapt and become more customized for robots than for us humans. By the time someone can make a human-like android, the world may already have morphed into something humans today wouldn’t recognize. But, in the meantime, it’s a fascinating co-evolution of humans and robotics.
iBuying’s Potential Paths to Platformhood
One of the topics we write a lot about is the characteristics of a business that matter when an industry goes from analog to digital. A couple weeks back, I addressed this theme in the context of Walmart. Things like vertical integration, network effects, data, adaptability, non-zero-sum business models, etc. are the defining characteristics of digital-age platforms. This past week, I’ve been thinking about this trend as it relates to the digital transformation of the real estate industry in the US. Zillow, Redfin, Opendoor, and Offerpad have been building various degrees of iBuying businesses, essentially trying to create a lower friction marketplace to buy and sell houses in the band of low-to-median priced homes. The concept relies on an ability to take a highly fragmented (and very localized) market and turn it into a platform. Profiting from fixing and flipping houses requires extensive local market expertise and access to an array of local contractors to paint, patch, and facelift properties. In other words, it’s messy and hard, and it involves a lot of people. And, people are messy and hard to deal with, unlike software that always does what it's told on time. If, for example, we contrast the digital transition of real estate with that of the automobile, its fragmented and individualized nature presents a very different set of challenges than building mass-produced EVs in a couple of centralized factories and selling them directly to customers. Zillow paused their purchase of homes recently, citing, in part, high demand maxing out their flipping capacity. Construction labor shortages, similar to other industries, are one of the snags for Zillow. As noted above, these labor shortages are only partly related to the temporarily overheated post-COVID-lockdown economy and may persist in the US due to the reduced number of domestic and immigrant workers in their 20s. It’s also possible that Zillow’s purchasing hiatus is part of a larger growing pain as the rapidly expanding industry digests an overheated housing market. Or, perhaps the pause indicates fear about the direction of home prices more so than a labor shortage. If it’s a scaling problem related to the labor and local elements of the business, it suggests a different approach to iBuying might make more sense. I have long argued that iBuying would work best as a marketplace business, whereby consumer real estate portals could aggregate and leverage a large home buying and selling audience and hand off qualified leads to a diversified group of local and national buyers. In other words, iBuying would take a cut and leave the messy worker scheduling, painting, patching, and reselling to the analog world. Or, the industry could go to the other extreme and become a single-family rental business, buying houses to own and lease rather than resell. Marketplace or REIT – those might be the platform plays in real estate’s analog-to-digital transition, with a middle road (like what is currently being pursued) ultimately presenting more challenges. Time will tell; for now, it’s way too early to know which path the industry will follow. Having the broadest menu of options for consumers, being adaptable, and providing the highest non-zero-sum outcomes will determine who gains or loses share as real estate, and many other analog markets, digitize. Some industries will favor complete vertical integration, others will be better served by marketplace platforms. But, in the case of complex industries like real estate, the technology transformation wave might be an unstoppable force meeting an immovable object.
Digital-Only Rx Failure to Launch
STAT reports that Amazon’s prescription share is likely to stay low as long as they are digital only. This might be another example of an unstoppable digital force meeting an immovable (and highly regulated) object. The article notes that Amazon could go faster by adding pharmacies to Whole Foods locations (I think there is some space to be leveraged on a few of those nutraceutical shelves) or by doing a large acquisition (which is off the table in the current regulatory climate). I certainly would have expected a bigger impact from Amazon pharmacy by now given the bad customer experience of going to a drugstore, especially when sick.
Alexa: Tell Me About Alexa
The SVP of devices at Amazon, Dave Limp, who oversees 10,000+ Alexa employees and Amazon’s other hardware initiatives, was on the Verge podcast (transcript). Limp described some different types of decision making processes at Amazon, such as one-way or two-way doors (i.e., irreversible or reversible decisions) and work backward, the popular Amazon strategy of starting with the end product and working back to today’s development focus and decisions. Amazon gives their acquisitions, like Ring, Eero, Blink, and Zoox, freedom to run and/or adopt Amazon tools and techniques where it makes sense. I learned that Ring is the first home security camera to allow end-to-end encryption (here is how to enable it). In discussing the definition of a robot with regard to the Astro home device, Limp said he’s partial to a combination of problem solver and companion.
Miscellaneous Stuff
Falling Sky
A meteorite crash landed on a pillow next to a sleeping Canadian woman, Ruth Hamilton. I was certain the story was clickbait, but it seems like it really happened. Afterall, it was in the NY Times, and they have all the news that’s fit to print. According to Victoria News: “Hamilton says that her insurance company will be doing a walk-through to see if roof holes cause[d] by space debris are covered”. Humans have a large impact on the planet, but we occupy a small percentage of the surface area, so a strike this close to a person is quite rare.
Frightening Irish 🎃
Modern, commercialized Halloween originated, at least in part, in a 2000-year-old Celtic tradition known as Samhain (pronounced Sow-in) celebrated in Rathcroghan, Ireland. October 31st for the pagans marked the end of the farming year. During the accompanying festival, animals were sacrificed to the spirits of the underworld, some of whom left their realm via the Oweynagat cave to make the land ready for winter. To avoid being kidnapped, festival goers would disguise themselves as fellow ghouls and goblins and light fires on the nearby hills. National Geographic reports that elements of the tradition arrived in the US in the 1800s via Irish immigrants. Today, of course, costumed trick-or-treaters are sent on their way with sacrificial candy rather than the more traditional bloody offerings. The Rathcroghan area is yet to be excavated (although it has been mapped with remote sensing tech), and Nat Geo explains there is a movement underway to preserve and explore this birthplace of Halloween. If you've ever been in a packed neighborhood of trick-or-treaters after dark there is an indescribable energy to the spectacle that carries the weight of thousands of years of humans celebrating the changing of seasons and the mystery of the unexplained.👻
Stuff about Geopolitics, Economics, and the Finance Industry
Yooks vs. Zooks
Returning to the topic of what drives success when an industry transitions from analog to digital, I wonder if the wrong approach is being taken by the defense industry in the West. My sense is that the defense industry has become an Industrial-Age relic, i.e., horizontal to a fault, where a focus on cost savings and outsourcing has ended up sacrificing innovation and waterlogged the system with a morass of bureaucracy, subcontractors, and processes that slow down progress. Although not directly defense related, I think you can look at the success of SpaceX compared to the ongoing problems with Boeing’s Starliner crew launch vehicle as an example. With the rapidly changing pace of global threats and disruption from evolving technologies, today’s military and defense feel uncomfortably vulnerable. A vertically-integrated, tech-focused defense contractor would likely accomplish far more over a shorter period of time. As long as we have ideological differences around the planet, the goal of defense technology spending should be to assure the peaceful, ongoing stalemate of mutually-assured destruction. If one or more regions pull ahead because they take an Information-Age approach while the rest doggedly pursue an Industrial-Age path, then we lose that all-important equal footing. The nature of increasing returns and non-linear disruptions in the digital age could mean that one region runs away with an uncatchable lead. Defense technology development is one example where the ESG investing wave, which generally shuns the sector, might be doing more long-term harm than good for society. The ultimate win in the game theory of war is to avoid war, which requires symmetric capabilities. As long as technology is advancing, and as long as humans find reasons to disagree with each other, failing to invest enough resources to keep all sides at parity could be devastating. I learned this lesson as a child from my favorite Dr. Seuss book, The Butter Battle Book. Seuss’ Zooks and Yooks find themselves in an escalating arms stalemate over which side of a slice of bread should be buttered. In the end, both regions develop the Bitsy Big-Boy Boomeroo, a device that, if deployed, would eliminate all bread, butter, and people.
Calling All Social Poets
In a recent broadcast (transcript) to “social poets”, Pope Francis colorfully laid out what sounded a lot like an ESG manifesto, noting that the current capitalist system, “with its relentless logic of profit, is escaping all human control. It is time to slow the locomotive down, an out-of-control locomotive hurtling towards the abyss.” Highlighting problems with banks, environmental polluters, weapons makers, exploitative tech platforms, post-truth media conglomerates, and more, the pontiff also recommended shorter work weeks and UBI. Remaining optimistic, he said it’s not too late, and the time for action is now.
Don’t Worry, Invest
Bill Miller’s latest quarterly letter marks forty years of letters for the investor, and he says it will be his last (letter, that is, he continues to invest). It’s short and sweet and worth a read: “When I am asked what I worry about in the market, the answer usually is ‘nothing’, because everyone else in the market seems to spend an inordinate amount of time worrying, and so all of the relevant worries seem to be covered. My worries won’t have any impact except to detract from something much more useful, which is trying to make good long-term investment decisions.”
✌-Brad
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