SITALWeek #346
Welcome to Stuff I Thought About Last Week, a personal collection of topics on tech, innovation, science, the digital economic transition, the finance industry, Parton Pizza, and whatever else made me think last week.
Click HERE to SIGN UP for SITALWeek’s Sunday Email.
In today’s post: digital interfaces evolve to remove our ability to choose; digital aggregation of demand creates power law platforms that confront many companies with major dilemmas – Shopify and restaurants are the latest examples; plastic-eating enzymes; China waffles on supporting Russia with technology; the best way to understand the world today is to time travel to 2019; and, much more below...
Stuff about Innovation and Technology
AI, Take My Brain
“Just give me the answer” is a growing trend in design and user interface. Presenting recommendations on a platter is a response to the increasingly overwhelming choices we face on a daily basis. Fatigue from infinite selection results in an overwhelming desire for the algorithms to narrow things down to a very small subset – or decide for us all together. For example, there’s “Amazon’s Choice” in ecommerce search results or the newer “Surprise Me” button on Netflix. The latest case is the new Airbnb interface, which is focused on “vibes” rather than traditional location-based vacation search. Show me a well-lit real estate photo so I can decide where to vibe out for a bit instead of having to look through a million options. I just want to click my heels and be transported to a new home that feels good without overthinking it. Of course, the problem is the algorithms operate in a way that removes our own agency, as I wrote about in more detail in the Algorithmic Threat to Illusion of Free Will. We don’t know what factors play into Amazon’s Choice (often I note that the top recommendation is also a paid advertiser for the same search query on Amazon). It’s not clear why Netflix wants us to watch a certain show over another or why Airbnb thinks we’ll like an A-frame in Rockbridge, Ohio, a spaceship in Joshua Tree, California, or a box perched over the ocean in Navidad, Chile. Algorithms now impact everything from who you date, to where you work and live, whether your struggles in life send you to church or rehab, and even how much you smile. The mysterious, integrated algorithms of our own brain and the global web dictate every move we make and every thought we have, with no conscious awareness. There are a few things we can do to take a little agency back, as I outlined at the end of Algorithmic Threat to Illusion of Free Will (see prior link).
Virtual CC Numbers
Google announced forthcoming virtual credit cards for Google Pay at their developer conference last week. The technology will submit a randomized card number, not tied to your actual card, during online checkout. It’s a nice feature to have automatically available (it’s already an option from other financial services companies if you go through some extra steps). Integrating it into major digital wallets could go a long way toward decreasing credit card fraud online, and fees charged by credit card companies for card present/not present should also converge over time.
Third-Party Delivery Exacerbates Labor Shortage
When it comes to the rise of digital ordering from restaurants in the aftermath of the pandemic, the data are mixed. One report indicates that orders have gone from 12% before the pandemic to 33% today. However, delivery service providers are also competing for labor with their restaurant customers and taking a large cut of those restaurants’ profits. On the whole, it seems like third-party food delivery continues to be a classic example of a negative-sum business proposition. The Papa John's pizza chain in the US is using apps like DoorDash and Uber Eats to help take and deliver orders. However, do they realize they are funneling money into companies dipping into the same labor pool and thus exacerbating their own hiring and retention issues? The restaurant loses profits and faces higher labor costs for an order they would have very likely received and fulfilled directly before. Given the perpetually constrained labor pool, we can’t continue to see delivery grow and restaurants grow profitably – something has to give in this parasitic relationship.
To Buy or Not to Buy with Prime
Shopify is grappling with whether or not to integrate Amazon’s new “Buy with Prime” offering for third-party ecommerce companies, which allows vendors to add a Buy with Prime checkout option to their own DTC website. As The Information reported: “Shopify CEO Tobi Lütke said on an analyst call that he was ‘thrilled’ with Amazon’s decision, and happy to integrate Buy with Prime into Shopify’s offerings for online sellers. But a Shopify spokesperson later told The Information that the CEO was only sharing his opinion on the matter, and the e-commerce company still needed to gather more details before deciding what to do. Meanwhile, an internal debate has been raging over the past two weeks.” In Heller’s Catch-22, fighter pilots couldn’t get out of flying missions by pretending to be crazy, because only sane people would not want to fly suicide missions. Shopify, like the restaurants that are choosing to use delivery platforms, is yet another company facing a Catch-22 as the Internet causes a power law distribution in the actual distribution of goods and services. The sane choice is for Shopify to fully embrace Amazon’s new Buy with Prime service for Shopify’s sellers because it would increase business for those sellers that want to use Amazon. However, Shopify would also have to be insane to let Amazon become a bigger direct partner to their sellers because eventually everything can just be sold on Amazon. Maybe Shopify needs a deal with Milo Minderbinder’s M&M Enterprises to fend off Amazon. We previously saw this same distribution power law taking place in video content. Streaming's direct-to-consumer model itself is a response to the old distribution power of cable and satellite. Then Netflix, for a brief period, had a chance at creating a new digital distribution power law, but the other Hollywood studios are fighting back with their own growing apps and content. This shift to digital distribution will continue to happen industry by industry, creating existential dilemmas for many companies.
Miscellaneous StuffResearch Revs Up Recycling
Scientists have found a new way to quickly break down plastics like single-use water bottles and other polyethylene terephthalate (PET) products, which reportedly make up 12% of global waste. Using machine learning, they found a protein that can break down the building blocks of PET into the original monomers in one week, which can then be reassembled to make PET again. This method is more robust than melting plastic for recycling, which takes energy and eventually degrades the material. Importantly, this FAST-PETase enzyme can break down over 50 types of PET under a variety of conditions. Researchers keyed off natural plastic-eating enzymes that have been discovered in the last couple of decades (which we wrote about here). National Geographic also recently reported on the rise of microplastics being found throughout the human body, e.g., in organs and blood. We ingest the bits of plastic as they flake off our clothes, carpets, bottles, and food processing equipment/packaging materials. It’s not yet clear what long-term health impacts ingested plastics might have. Maybe we can take a FAST-PETase pill to flush the plastic out of our bodies.
Mexican ‘Za’s Triumphant Return
The peak of human culinary achievement was the Taco Bell Mexican Pizza. We have tragically had to live without this taste explosion since November 2020 when Taco Bell killed the menu item due to “environmental” concerns. The fast food chain is bringing back the creation on May 19th and celebrating with Mexican Pizza: The Musical, featuring Dolly Parton, a big Taco Bell fan and the patron saint of all things great. The PR-stunt musical will appear live on TikTok on May 26th. It's another notable example of TikTok garnering the attention of major brand advertisers.
Fentanyl-Fueled Fatalities
107,000 people died from drug overdoses in 2021, up 15% from 2020. It’s the first time the annual number has crossed into six digits. Fentanyl-tainted drugs are said to be the major force behind the rise in deaths. Of the one million deaths since 2000, more than half have come in the last seven years, the WSJ reports.
Android vs. iPhone Safety Divide
Apparently, Android users are better drivers than iPhone users, no matter which group of people you compare (adjusting for age, education, credit rating, gender, etc.). The data come from car insurance company Jerry and are based on 20,000 users driving over 13M km. Android users outperformed in all safety metrics, including overall safe driving, speeding, distraction, turning, braking, and accelerating. The difference was especially evident in the distracted driving category, where iPhone users were much more likely to be on their phones while driving. The stat that caught my eye was the widest gap, which was between Android users with the highest credit scores, coming in at a safety rating of 85, and the Apple cohort, with a rating of only 65. The explanation is still elusive, but researchers have suggested Android users are more conscientious and less emotional. Surely there’s a more nuanced explanation for this categorization, right? Rather than point fingers and make excuses, I suggest iPhone and Android users just try to get along, no matter how different we may seem!
Stuff about Geopolitics, Economics, and the Finance Industry
Chit Chat Cloudflare
Joe appeared on the Chit Chat Money podcast last week to talk about Cloudflare and cyber security.
Tech’s Martial Menace
In an interview with the FT, Henry Kissinger had this to say on the rising pace of technological advancement in weapons: “We are now [faced] with technologies where the rapidity of exchange, the subtlety of the inventions, can produce levels of catastrophe that were not even imaginable. And the strange aspect of the present situation is that the weapons are multiplying on both sides and their sophistication is increasing every year. But there’s almost no discussion internationally about what would happen if the weapons actually became used. My appeal in general, on whatever side you are, is to understand that we are now living in a totally new era, and we have gotten away with neglecting that aspect. But as technology spreads around the world, as it does inherently, diplomacy and war will need a different content and that will be a challenge.” The 98-year-old Kissinger was also optimistic that China would not want to be shunned by the world like Russia: “I would suspect that any Chinese leader now would be reflecting on how to avoid getting into the situation in which Putin got himself into, and how to be in a position where in any crisis that might arise, they would not have a major part of the world turned against them.” The WSJ reported that Chinese tech companies are pulling back from supplying Russia despite guidance from Beijing to ignore sanctions. For now, the stakes remain far too high for China to do something that causes a Russia-like global backlash.
Think Like It’s 2019
As I’ve scanned the vast amount of information from people who think they know what they are talking about, but probably don't, as they try to make sense of recent market volatility, I keep seeing this interesting recurring behavioral bias: no one can fully come to grips with the basic fact that the pandemic has had no significant lasting impact to the way the world functions. Clearly, I am not saying the 20M excess deaths globally are meaningless. Rather, all the stress, tumult, and craziness we all experienced didn’t change much, if anything, about our behavior or the basic functional systems in the world around us. I wrote about this pandemic “non-event” in detail last November, just after the peak of the stock market, and I think it’s worth repeating that post here:
Predicting the future is impossible – that’s the lesson from complex adaptive systems. Therefore, you want to focus on adaptability and win-win outcomes, which are the ancient truths that guide long-term evolution in any complex system like the global economy. There have been many predictions since the start of the pandemic about what might or might not change, what will stick or bounce, and where the world will end up on the other side. The jury is still out on many predictions, such as the rise in ecommerce as a percent of total retail spending, which has turned out to be not far off the pre-pandemic trendline (see #323). Other pandemic changes seem to have been somewhat temporary, such as telehealth, which is being rolled back in some US states. Indeed, most changes happening in the economy since the pandemic started may simply be a result of all the fiscal and monetary stimulus. In other words, excessive spending in all corners of the economy might be masquerading as behavior changes related to the pandemic. So far, evidence of long-term structural changes is muted or even scarce, with two notable exceptions. First, the pandemic has driven a difficult-to-reverse increase in our addiction to our smartphones thanks to their plethora of distracting social media, gaming, and video apps. Second, there has been a significant compositional change to the labor force. Some meaningful percent of workers (in the US, UK, and parts of Europe) have either left the workforce or shifted to different types of jobs (e.g., from working in a restaurant to doing customer service from home). As we’ve discussed ad nauseum, a combination of early retirements, shift to single-income households, relocations, rising work from home, declining immigration, increasing deaths, and changing demographics (see #320) have reshaped the labor force over the last two years. These labor changes also seem to be closely tied to the pandemic-related prediction of accelerated technological use/implementation across the economy: a fear of labor shortage and risk of rising wages have companies searching high and low for ways to automate jobs, both blue and white collar.
Most tax-filers who survived the pandemic seem to be financially better off following many months of government payments and low interest rates. While the rising economic tide lifted most boats, allowing millions to exit the labor force, it also preferentially inflated the bigger boats and increased the gap between the asset-owner economy and the asset-renter economy (e.g., rapidly rising home prices favoring owners over renters). When, or perhaps it’s still ‘if’, the money flows back out of the economy with a decline in government stimulus, we may see that the world still looks a lot like it did in 2019. Like the butterfly-effect in chaotic, complex systems, it wasn’t the pandemic itself but rather the unpredictable, emergent impact on the labor force and our increased addiction to screens that may boost the automation of jobs over the long term and accelerate the analog-to-digital transition of the global economy.
It seems unthinkable we could have had a global economic shut down, uncertainty, death, and everything else, and we’re back where we started (inflation adjusted!) with not much to show for it. We want some sort of prize in the form of a new world for having gone through the tumult of the pandemic, but all we get instead is more expensive prices for the same things we had three years ago. I am not sure which cognitive or behavioral biases keep us from seeing this reality, but their success is (quite literally) mind-boggling. Humans must have some sort of belief system, programmed by natural selection, to place enhanced importance on events that deviate significantly from the norm. Perhaps major changes trigger a reevaluation of our basic assumptions to help us reassess threats to ensure that we are not zeroed out by the evolutionary fitness function. As storytellers and lovers of tradition, we might need this impetus to force adaptation if the alternative is death. But, in this case, no adaptation is needed – there’s no new existential threat in our world that didn’t exist three years ago. And, this is cause for optimism because it means we know the cause and solution for the uncertainty in the markets (see the end of last week’s note for more). In the post above from last November, I conceded that the only things that seemed to have changed were participation in the labor market and our deepening relationship with (and reliance on) technology. I might still try to loosely grip onto those speculations; but, if you press me, I am not even sure the pandemic will end up having more than a temporary impact even in those areas. So, here we are in 2022, which is structurally similar to 2019, but we have this sense that we are in some parallel universe where everything is different. I think the best way to overcome this weird mental bias is to consciously reassert our 2019 mindset whenever we are trying to understand something in the world or make a decision. This trick is a form of mental time travel, which I discussed in more detail in Time Travel to Make Better Decisions. The fact that you might have trouble remembering what you were thinking three years ago sort of adds to my point. We have a propensity toward amnesia, even for the recent past, which allows us to recover from what may have seemed like a seismic event at the time and get right back to “normal” living.
✌️-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.
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.