SITALWeek #321
Welcome to Stuff I Thought About Last Week, a personal collection of topics on tech, innovation, science, the digital economic transition, the finance industry, adaptability, and whatever else made me think last week.
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In today’s post: spatial computing will be driven by applications, not technology, and it represents a special challenge for human brains; the iBuying threat that wasn't, and the importance of experimenting and adapting in the Information Age; turning exhaust into animal feed; rapid restaurant expansions; labor's upper hand is getting stronger; driver-out trucking; humans' diverse past; NZS Capital on the Acquired podcast; and much more below.
Stuff about Innovation and Technology
Flip to Frying
Longtime readers are surely tired of me starting off SITALWeek by discussing Flippy the burger-flipping robot and droning on and on about how restaurants are the crucible of the analog-to-digital transformation of the global economy. Well, I am going to change things up today and talk about Flippy’s baby, Flippy 2, which is “lighter, faster, better, and cheaper” than its predecessor restaurant robot kitchen helper. Miso Robotics’ focus on Flippy 2 moves the company away from burger flipping toward fryer operation. Flippy 2 can take frozen products from the container through cooking over and over again. Buffalo Wild Wings is testing the new Flippy Wings robot, which has a 10-20% increase in food production speeds while also reducing risk of human injury and oil spillage. Agot, which makes surveillance tools to monitor human fast food workers for mistakes and efficiency, thinks robots are a decade away from being a mass market. I think I’d rather work alongside Flippy than have a camera recording every move I make. It’s certainly not clear how quickly robotics can make an impact on the labor shortages and inflation facing restaurants. In the meantime, triple-digit growth in digital orders has the restaurant industry rapidly expanding both locations and the amount of technology deployed. It’s questionable how this digitally-disrupted sector is going to find enough employees and enough equipment and technology to actually open all the new locations, let alone serve out of the existing ones.
Turning Exhaust into Protein
Chinese scientists are able to transform carbon monoxide, carbon dioxide, and nitrogen into proteins for animal feed using Clostridium autoethanogenum bacteria. The tech, which researchers say works at scale, would displace soybean imports for livestock feed and aid in China’s decarbonization program.
Singles Day Single-Day Record
Livestreamer Li Jiaqi sold $1.9B of products on the first day of Alibaba’s annual November shopping event. The record haul, which included sales of Shiseido cosmetics and Apple AirPods, was watched by 250M people, more than 10x vs. a normal day.
Autonomous Long-Haul on Horizon
Self-driving truck company TuSimple has seen a 13% fuel savings over 160,000 test miles between 55-68 mph. By my crude calculations, with typical fuel efficiency of ~6mpg, current gas prices, and average long-distance truck travel of 50-100k miles a year, that’s only around $5,000-6,000 in savings per truck per year. The bigger cost savings would likely need to come from removing the driver for long-haul miles, a feat that TuSimple claims could happen on its Phoenix-to-Tucson route, in conjunction with partner UPS, possibly before the end of this year. “Driver out” trucking remains early days, with a lot of technology yet to be proven, but the promise of caravans of self-driving semis on long stretches of rural roads seems potentially within reach this decade.
Twitch Reinvents MTV
Warner Music is partnering with Twitch to launch individual artist channels. Debut channels will feature round-the-clock content from Bella Poarch, Saweetie, or Sueco and include exclusive and behind-the-scenes footage. Basically, it’s like MTV from 30 years ago, but each artist has their own channel. It’s an interesting evolution of the always-on fan model. I am not clear why this is exclusive with Twitch – it seems like, just as with a cable network like MTV that is available on cable, satellite, streaming, etc., you could broadcast the Warner Music channels on YouTube, Instagram Live, and other video platforms. I expect most labels will follow suit and set up channels for popular artists. While it seems like we are already in content overload with social, streaming, games, and more competing for our time, the acceleration of new things to watch is not slowing down.
The Meta-mess
I’ve long been a follower and proponent of the shift from screen-based computing to, call it whatever you like, spatial/ambient/x-verse/AR/VR/MR/etc. computing. It’s a natural progression as chips and connectivity improve speed and power to provide augmentation of the real world with information and interactive visuals. There are many elements of this platform shift already in operation, largely thanks to gaming companies. Snap and Niantic (Pokémon Go) have made significant progress in phone-based AR. Microsoft and Magic Leap have produced, and continue to improve upon, compelling technology that can already make you question the foundations of reality. Over the next decade, I expect we will see some great new platforms emerge for spatial computing, all of which will likely rely on the smartphone as a hub. For the foreseeable future, those phone hubs are controlled by the iOS/Android duopoly, barring some huge regulatory shift that transforms those companies into utilities like power or telecom companies. That means anyone that wants to have a shot at building a spatial computing platform needs to either be subservient to Apple or Google, or they need their own phone platform and end-to-end developer and hardware ecosystem. Android, being open source, offers the best way to jump start a phone platform. Microsoft has been experimenting with Android phones, but we would need to see a complete phone platform from a company like Meta, Epic, or Roblox to take on Apple and Google. I don’t know that a gaming-centric approach to spatial computing will ultimately solve for enough use cases, but if someone were to make a killer gaming-based phone and spatial computing platform, like an Xbox phone, it might have a shot at becoming a third platform. It would be inspiring if the next computing platform was more open, more creator driven, and more distributed, but odds favor incumbents controlling spatial computing with the same potential problems we experience today.
We have a vision of spatial computing, like all other technology shifts, thanks to sci-fi writers. And most of those visions are dark. And, many of those visions stem from the imagination of one person, e.g., Snow Crash author and definitive creator of the term metaverse, Neal Stephenson, said in a 2017 Vanity Fair interview: it was “just me making shit up”. If you are in need of a refresher on the dark visions for the metaverse, rewatch the disturbing Strange Days (and see #312 for more on the 1990’s vision of VR). Advances in tech hardware are typically not what drives a platform shift; rather, it’s the applications, most of which are unknown until years after the hardware is mature, that cause the real shifts in usage. The obvious examples today are games. And, fitness apps seem to be a natural fit. Communication might emerge as a killer app if something can beat Zoom without giving me a headache. But, most likely, standing here today with our headsets on, we don’t know what the transformative apps for spatial computing will be. If the metaverse is just gaming, it probably won’t constitute much more of a market than today’s game console industry.
The stakes are high in the transition from screen to spatial computing because every shift in technology – from print, radio, TV, Internet, and smartphones, to altered reality – brings with it a faster pace of disruption that, increasingly, far outpaces humanity's ability to co-evolve. We have not come close to adapting to living alongside the Internet, and yet we are hurtling toward an even more disruptive technology shift. If you spend much time learning about ancient Greece, you realize that while the color palette and mediums of discourse have changed, everything else with humans has pretty much been status quo for millennia. Whether it's Plato’s world, Shakespearean times, the Renaissance, the Enlightenment, or modern day, we worry about the same things. We dream, fight, love, hate, resent, envy, and argue the same ideological questions. The Enlightenment's scientific revolution marked one of the only material changes in the last 3,000 years in human thinking, when it became possible to say “I don’t know” and then investigate why things are the way they are. While this is a Euro-centric example, diverse cultures around the globe have followed sufficiently similar paths such that all humanity shares common, basic parameters for interacting with new technology – namely, a few early adopters tend to wield dominant control over a spellbound (or brainwashed) audience before reverence dissipates, diversity reasserts itself, and usage slowly evolves to benefit the masses. What has changed the most over history is how quickly the new medium (i.e., technology platform, from stone tablets to VR goggles) for communicating ideas and artistic expression can have a viral impact (especially while still in the hands of a few dubious autocrats). Globally, it's not how, but what, we choose to communicate that matters as we go from screens to glasses. If we aren’t careful, we will continue to amplify all the worst of humanity's past, both ancient and recent, instead of shining a light on the best of our traits. Whatever the winning spatial compute platforms are, I hope the popular applications they spawn come with a goal of usefulness and kindness instead of just exploiting our fears and biases to sell more ads.
iBuying Course Correction
Zillow announced this past week they would be exiting the direct iBuyer business in favor of offering a broader choice of options – provided by other marketplace participants – to home sellers. If we go back a few years, there was an existential risk that a large platform would create a liquid marketplace for homes that would ultimately lead to a disruption of Zillow’s core real estate portal business. It was hard to put a probability on that risk, but it was high enough to warrant co-founder Rich Barton’s experiment in iBuying. Today, it appears the risks involved with the experiment outweighed the actual threat to the core Zillow business, and it makes sense to unwind and shift strategies again. While some investors might see this as a blunder, we see their bold experimentation and prompt course correction (see also Chapter 5 of Complexity Investing) as exactly what good management teams should be doing when their business faces disruption – and every business will face disruption to some degree in the analog-to-digital transformation of the global economy. I wrote a lot about Zillow’s pivot in early 2019 in Zillow Disrupts Itself, and I’ve suggested in the past that iBuying may make more sense as a marketplace offering rather than a vertically-integrated product due to the messy and complex nature of the housing industry (see #319 for more details).
If we back up to first principles for real estate transactions, sellers need to unlock their home equity – to take something illiquid and make it liquid for a short period of time. Before the housing crisis in the US, it was fairly easy to get bridge loans to do so. Going forward, I suspect there will be a variety of solutions, including bridge-loan type offerings as well as offers to buy houses from local and national investors. I think it’s smart to offer the most comprehensive menu, and, importantly, to focus on customer outcomes. Redfin’s strategy of providing the most options, including a broker-assisted transaction, appears to be validated by the latest shift at Zillow. We always look for two main characteristics when evaluating potential business investments: non-zero sumness and adaptability. Who can offer more value than they take while also quickly changing to meet customer and market needs? iBuying may not be a positive-sum solution because it enables a class of institutional investors with a lower cost of capital to increase housing prices to such a degree that ownership is out of reach for individuals with less ability to borrow cheaply or access their own equity. Maybe that loss of affordability was inevitable with or without iBuying, but it sure seems like iBuying has been accelerating the problem (we’ll need more time and data to know for sure what the impact is, since any mechanism that decreases friction might increase prices, so blaming iBuying might end up being unfair). The other takeaway for investors from Zillow’s strategy shifts is to always match position size with the range of outcomes for the business. When the range of outcomes is widening, you want to reduce your portfolio weighting accordingly. For a longer discussion on this strategy, see Investment Portfolio Gardening at the end of #259.
In Zillow Disrupts Itself from February 2019, I wrote:
“This is a classic example where Bayesian logic will inform an investment decision. Put a flag in the ground today on your scenarios and objectively analyze each new incremental data point to move your credence up or down with as little cognitive bias as you can humanly muster – that means you need to find a partner in your analysis who will hold you accountable for remaining objective to the facts. This is also a classic example of a complex adaptive system where the outcome is unknowable with any certainty. Therefore, as you gain more confidence that you are making fewer predictions for your world view to come true, own more, and if instead you are making more specific predictions with a wide range of outcomes, own less or sit on the sidelines. We discuss this type of analysis and portfolio construction process in our investing white paper and there is an excellent and brief overview of Bayesian logic you can find here. Lastly I want to say this one more time: Zillow’s bold move to disrupt their own business and industry is what many companies are facing across many industries around the world today. While it’s the right strategy to undertake, most of the time it will fail. It takes a strong leadership team and culture of innovation and adaptability to have a shot, and that means Zillow has a shot, but only time will tell.” I think this analysis from nearly three years ago is still applicable today, and, with the new strategy shift, Zillow still has a shot at continuing to adapt and provide more value for all its constituents.
Stratospheric Chip Design
A Cadence blog post details the massive scale of Google’s chip design efforts. Google designs completely in the cloud (obviously!), with some projects using over 100k cores overall, and up to 6 terabytes of memory on a single machine. Google uses 6 petabytes of SSD memory for silicon development. In addition to Google’s custom TPU chip, the company also developed a VCU, or video encoding unit, to accelerate the global videos served by YouTube.
Miscellaneous Stuff
Ancestral Middle Earth
Our human ancestors were much more physically diverse than modern humans: “For most of our evolutionary history, we did indeed live in Africa – but not just the eastern savannas, as previously thought. Instead, our biological ancestors were distributed everywhere from Morocco to the Cape of Good Hope. Some of those populations remained isolated from one another for tens or even hundreds of thousands of years, cut off from their nearest relatives by deserts and rainforests. Strong regional traits developed, so that early human populations appear to have been far more physically diverse than modern humans. If we could travel back in time, this remote past would probably strike us as something more akin to a world inhabited by hobbits, giants and elves than anything we have direct experience of today, or in the more recent past.”
Alzheimer’s Cure on Hand?
If animal studies translate to humans, we may have an Alzheimer’s remedy that’s been readily accessible for decades. Mouse models suggest a combined treatment with the once-popular cholesterol-lowering drug gemfibrozil and the vitamin A derivative retinoic acid may be the answer. The combination appears to target the brain’s abundant astrocyte “maintenance” cells, forcing cleanup of the toxic Αβ fibrils.
Beyond 💩 Humor
Actor, comedian, and alien-hunter Dan Aykroyd had some articulate comments on comedy in The Hollywood Reporter: “There is enough range in humor where you don’t have to go scatological and you don’t have to go pulling any divisive cards to get a laugh. There is so much in the world to comment on that is outside the realm of offensiveness. As a writer, you can go to other areas and have successful creative endeavors. Scatological humor is fun. It’s easy laughs. But there is more intelligent writing that can happen if you stay away from the offensive material that should be rightly canceled for its hurtfulness.” Personally, I am all for being offended by comedy (see Laughter is the Best Medicine), but only when it’s making an insightful point or illuminating observation, rather than going for the cheap, cynical laughs.
Stuff about Geopolitics, Economics, and the Finance Industry
Digital Yuan Ascending
140M digital wallet users have spent just under $10B in digital yuan in China. This record experiment in digital sovereign currency has 1.55M merchants that can accept the eCNY payments. Governments around the world are increasingly in competition with alternative currencies, from stablecoins to crypto. It’s an unusual instance of the private sector competing directly against a service that is typically only provided by a government, and it remains to be seen to what extent those governments will regulate, or even shut down, the burgeoning currency competitors.
Advantage: Labor
John Deere union workers have turned down a contract that included an immediate 10% pay hike plus an $8,500 bonus and a 5% raise in 2023, an additional 5% raise in 2025, and 3% bonuses in 2022 and 2024. That looks like a staggering 25-35% combined wage and bonus inflation over the next four years that apparently wasn’t enough to satisfy the bargaining power of workers in the US. I believe this situation is compounded by the smaller group of folks in their twenties (compared to the size of the Millennial generation), the early retirements from COVID, and the declining immigration numbers, all of which range from very difficult to impossible to resolve.
Acquired's Taste of Semis
Jon and Brinton joined the crew at the Acquired podcast last week to talk about Complexity Investing, NZS, and chips, including the history of how we acquired semi tech from Roswell aliens.🛸
✌-Brad
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 an informal gathering of topics I’ve recently read and thought about. I will sometimes state things in the newsletter that contradict my own views in order to provoke debate. Often I try to make jokes, and they aren’t very funny – sorry.
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