Welcome to Stuff I Thought About Last Week, a personal collection of topics on tech, innovation, science, the digital economic transition, the finance industry, and whatever else made me think last week.

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In today’s post: robots playing ping pong; paying with multimodal AI will change the payments industry; and, the ominous ringing sound of layoffs at Dell.

Stuff about Innovation and Technology
From Atari to Embodied
Google’s DeepMind engineers have created a ping-pong playing robot that beat all its beginner-level opponents and 55% of the intermediate players it faced. The bot lost to all advanced players, thus avoiding (for now) the tabletop game’s AlphaGo moment. According to the paper, one weak spot was insufficient reaction time, which might require innovations in the hardware mechanisms, such as “faster communication protocols between the robot’s sensors and actuators”. Indeed, our super-fast human muscle reactions are a marvel. 
 
New Ways to Pay
The largest sector in the world will be digital payments once we reach the point that every consumer and business transaction is no longer antiquated and analog. Historically, when a sector goes digital, we see the emergence of a small number of power-law winners. This pattern occurs because natural monopolies are typically the highest non-zero-sum (win-win) outcome (e.g., see last week’s Search Win-Win). Currently, however, the overly complex pyramid of payment companies continues to over earn and resist power lawing (besides the card networks like Visa and Mastercard, which have never been more ripe for disruption than they are today). One development I have been watching keenly is the shift to real-time payments (RTP), enabled by governments and industry consortiums like FedNow and The Clearing House, which has become a global phenomenon (Plaid has a good overview). RTP’s advantage lies in its high speed and low cost. The various RTP vendors cover consumer-to-consumer, consumer-to-business, and business-to-business payments. I have personally seen a large increase in US service providers eschewing credit cards in favor of Zelle or Venmo, which you can think of in part as RTP payment platforms. In an impressive feat, Zelle, which is operated by a consortium of US banks, appears on track to surpass $1T in transactions this year. My current best guess is that RTP is going to keep taking share of consumer and business transactions. And, while this incursion may not directly impact today’s large payment providers, it will at least take the incremental growth away from vendors across the entire stack (from merchant acquirer to rails to credit cards, etc.).
 
We’ve also seen multiple companies try to disrupt payments at the point of sale, but, again, no one company is running away with that market. If anything, the competition is multiplying. In-store payments have yet to be disrupted despite efforts like Amazon’s Just Walk Out (which debuted in 2016, but more recently has been decommissioned), as well as self-checkout providers that use AI to assess purchases without consumers needing to scan items (side note: self-checkout is still reaching record revenues despite misleading headlines about shoplifting). The next decade will see the birth of a new power-law platform take over in retail payments with a next generation of self-checkout technology powered by multimodal AI. Whether it's using a phone’s camera or more sophisticated wearables (like earbuds with cameras or smart glasses), it seems clear that leading-edge AI models (like Gemini 1.5 and GPT-4o) could easily “see” what you are buying and facilitate a seamless, low cost RTP transaction. While Google Wallet and Apple Pay are currently lost in a sea of competitors trying to gain share in payments, this shift to multimodal payments could enable them (and/or other large language model providers or mobile apps) to power law retail payments. Further, AI operating inside large companies could automate billing and receivables and seamlessly transact B2B payments and consumer billing. We are still within a highly competitive evolutionary fitness function for digital payments; but, reading the tea leaves today, the future appears to involve a combination of RTP and LLMs automating transactions across the economy, likely anointing new payment monopolies. 

Stuff About Demographics, the Economy, and Investing
For Whom the Dell Tolls
Dell is reportedly reducing its staff by around 20,000 people to 100,000 (the numbers are unconfirmed by Dell, but reported by BI). According to the BI report: “Dell has been trialing AI tools internally since October 2023 and is now putting the plan into action, applying AI across product development, content management, sales tools, and customer service. The tools will make staff more efficient and free up their time for more important tasks, corporate strategy SVP Vivek Mohindra told BI.” The company is also gearing its sales effort toward selling AI products to customers. I’ve discussed the Catch-22 of AI multiple times in the past: the faster AI displaces jobs, the more negative its potential impact on the economy. Every technological transition comes with displacement followed by innovation that ushers in new waves of job creation. While AI could provide the same net employment benefit long term, the speed of the transition will determine whether we tilt downward in an economic spiral à la Charlie Brooker’s Black Mirror or, conversely, tilt upward toward Gene Roddenberry’s Star Trek utopian-verse. The magnitude of the purportedly AI-driven downsizing at Dell is alarming. The irony for Dell is particularly acute because much of their business is selling computers and software to workers of the flesh-and-blood variety. Everyone laid off at Dell likely had a laptop and numerous software licenses. Any tech company, from Dell to Microsoft, that sells seat-based tools for information workers faces this paradox. And, even if tech companies are able to value-price AI such that it overcomes the losses in hardware/licensing revenues, their customers will still have to contend with the fact that a large swath of unemployed, middle-class consumers will eventually negatively impact their toplines (not to mention the economy more broadly). Will the marginal savings and productivity gains be worth the topline shrinkage? We have certainly seen situations before in the market where an obsessive focus on short-term EPS growth for the benefit of executive comp payouts has caused companies to sacrifice their futures. As I’ve said before, I am much more interested in the use of AI to drive an accelerated scientific revolution entailing new technologies/solutions for today's seemingly intractable challenges (in healthcare, medicine, food, energy, climate, etc.) as well as a new digital, agent-based economy. I believe the eventual displacement of many information-based jobs today in the workforce is unstoppable, but slowing it down would be prudent (e.g., a major risk for developed economies would be a loss of wage-based input into long-term savings plans like social security). One path forward would be to incentivize worker retention with taxes on automation and promote innovation with R&D grants. Deglobalization incentives would be another way to offset potential AI job losses. In the meantime, there is no shortage of companies claiming to reduce jobs by deploying AI.

✌️-Brad

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