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: lithium ion's surprising origin story; narrative is dictating reality at higher velocities; Meta's potential to win or lose with chatbots; the power law in music streaming; people are becoming stingier; as the agenda shifts on chips sanctions against China, I now see these efforts as counterproductive; the Peters Coin Toss; and, much more below.
Stuff about Innovation and Technology
Exxon’s Lithium Circle
IEEE looks back on the history of the lithium ion battery, which was invented by researchers at Exxon in the 1970s. Yep, you read that right. After failing to find a market, Exxon discontinued work on the technology. In recent news, Exxon is looking to become one of the biggest producers of...lithium.
Desiccant Cooling
An article in Technology Review on air conditioning caught my eye amid the news coverage of Phoenix, AZ breaking the temperature record for days above 110°F/43°C (31 days, besting 1974’s 18 days). The article discusses energy efficient cooling methods that rely on adding a separate, dedicated dehumidification process (i.e., in contrast to our century-old standalone “vapor compression” A/C methodology). In particular, one startup is using desiccants to try and improve efficiency: “Transaera, an MIT spinout founded in 2018, is developing a hybrid system that uses a type of material called metal organic frameworks. Adding the materials to vapor compression-based air conditioners could allow the company’s system to use 35% less energy than average models, according to Transaera CEO Sorin Grama."
Digital Runs
When Silicon Valley Bank failed, one of the things that caught the Fed off guard was the speed with which the bank run took place (one could argue that the folks overseeing the banking system should be aware of the Internet by now, but I digress). Companies have always been subject to pressure from unhappy customers, but historically, such conflicts would play out over relatively long time periods because the customers could not conspire at the speed of social networking. Today, however, I think it’s possible that “digital runs” could start affecting a wider swath of businesses, especially as the economy continues to polarize. As I read about the bankruptcy of trucking company Yellow Corp, I wondered if social media chatter caused many customers to preemptively pull their business out of fear their cargo could get stuck on trucks, hastening the company’s demise? Any bankruptcy is going to be complicated and long in the making, and Yellow, in the middle of union negotiations (averting a strike on July 23rd), may have arrived at insolvency for a number of interrelated reasons. I don’t have any specific evidence that the death of Yellow was sped up by social media (but that probably won’t stop The Information from crediting it to me); however, as the strike loomed in July, I did see several cautionary posts on X (aka tweets on Twitter) from individuals in the shipping and logistics industry. Reportedly, Yellow’s shipping volumes subsequently fell 70% in the final week of the month, leading to the bust. In another potential example, Bud Light lost its 22-year crown as the top-selling beer to Modelo just two months after debuting a new marketing campaign featuring a transgender influencer. (This example of customer backlash seems related to the notion that social networking is dividing people into two separate economies). We are likely to see social media’s inflammatory sway rise even more as AI takes over the algorithms that shape our reality, increasing both the cadence and punch of information that directs consumer behavior. This idea of the narrative dictating reality will perhaps have large consequences for the investing industry as well, something I talked about back in John Henry vs. Lee Se-dol.
Will She be a Llama?
Recent developments and rumors suggest we shouldn’t discount Meta as a potential leader in the race to create the equivalent of Her, despite a plethora of competition that includes Google, Microsoft, and a legion of startups focused on AI companion bots (see AI Companions from January 2022). Meta’s efforts with their LLM Llama, as well as a rumor reported by the FT that they are working on several chatbots for their social media apps, suggest they might have a shot. Meta has a user base of billions of people already engaged in app-based conversations, creating a natural launching point for an AI companion chatbot (e.g., perhaps more natural than web search). Rumored chatbots from Meta merit attention because a powerful LLM is likely to become the new center of all digital activity. I’ve covered this concept in more detail in #341 and #377, and this excerpt from #384 is particularly germane here:
There is a chance that chatbots (and AI broadly) will evolve into a new fabric for everything – a replacement for the Internet and apps we have today. It’s a complete shift in user interface – like the mouse or multi-touch smartphone screens. Further, LLMs offer access to a new information layer, much like the Internet. Thus, I think it’s best to view chatbots as a completely new platform that will have entirely new use cases and applications. Rather than chatbots integrating into or augmenting search, think of search as just one part of a chatbot platform with a far greater set of functions. Given the capacity constraints, the early release LLMs from Google and Microsoft are primarily an attempt to lure the developers who will determine the winning platforms of the AI Age. Due to the classic innovator’s dilemma that prevents many established companies from embracing new technologies, it’s entirely plausible a startup emerges with the winning chatbot platform, with the existing cloud giants providing the underlying infrastructure for the apps. Releasing products early to drum up interest is the key to winning the developers in any platform shift. Recall the first iPhone was limited in functionality and the App Store came later, once developers had a chance to see the potential of multi-touch. In a few years, when search is eventually subsumed by a new, personalized conversational AI that is trained daily for each individual person, it will have major ramifications for the entire Internet.
The key for success over Google and Microsoft (which, incidentally, is the technology platform for Meta’s Llama!) will be two-fold: 1) offering the highest win-win or non-zero-sum outcome to users; and 2) attracting the bulk of developers. Meta has burned developers in the past with rapid shifts in strategy (like when they torched Zynga by shifting away from games like Farmville around a decade ago). And, while they may have some success with Oculus developers, Meta is likely not the first choice for most developers. Microsoft is largely seen as developer-friendly under CEO Satya Nadella, and, while Google seems to win some and lose some in this court, it does have its massive, global base of Android users to appeal to developers. Apple is also allegedly building an AI chatbot, but, according to Bloomberg, the company has no idea what they are going to do with it. And, Snap has also been trialing an AI assistant for a few months in its app, although it doesn’t appear to me that their particular implementation has gained much traction. If Meta’s motivations are to get people to spend more time on Meta to see more ads, I’d discount their odds of success; however, if they have a broader goal of helping their users with true AI companions, I’d keep an eye on the effort.
Super Listener Power Law
I am a sucker for a good power law relationship, so a recent report from Spotify stating that 2% of music streamers account for 18% of streams grabbed my attention. The underlying data turned out to be quite interesting. Spotify has created a new audience segment for artists to target called “super listeners” based on a series of metrics that elucidate the most diehard fans. The more popular an artist overall, the more super listeners they have. For megastars with 25M+ monthly listeners, super listeners make up 5% of the artists’ listener base but account for 30% of the artists’ total streams. The percentage drops for the 5-25M fan-base cohort, with superfans (3%) accounting for 20% of streams, bottoms for artists with 10K-1M listeners, where superfans (1%) are responsible for 13% of streams, then jumps back up with niche artists (<10K listeners) who get 22% of their streams from their super listeners (1%). Of note, artists with the fewest listeners see their superfans index at 20x while megastars see a 6x over-indexing of listening. The report has some great visuals laying out all of this and more. The questions I have are: is everyone who streams music a super listener of their favorite artist(s)? Or, is there a bifurcation of streamers with superfans on one end and well-rounded people with more diverse tastes on the other? The questions are relevant, as Billboard explains: "The study comes amid an industry-wide conversation about streaming royalties, how exactly they should be allocated and whether a mechanism should exist to reward artists with dedicated fan bases, and how that should be implemented." Spotify has a few more interesting stats in their report, such as super listeners accounting for 52% (!) of artists’ merchandise sales. There are still unanswered questions about how much listening is done by bots trying to drive up streaming numbers (and, of course, increasingly “artists” are AI music generators…I wonder how their superfan base compares to that of flesh and blood humans). When our companion chatbots from Meta get their own Spotify subscriptions, just imagine the power laws…AIs with AI superfans!
Emergent Grace
Wired magazine ran a book excerpt about embodied intelligence called: Can Robots Evolve Into Machines of Loving Grace? With a title like that, I’m sure the book hits all of the SITALWeek drinking game cues. The excerpt also conjured memories of one of my favorite songs, “Jed the Humanoid” by Grandaddy.
Miscellaneous Stuff
Tipping Points
According to a Bankrate survey (PDF), while 83% of Boomers always tip their server, only 35% of Gen Z always open up their wallets after a meal. Further, consistent tippers are dwindling, with the percentage now at 65% (down from 73% in 2022) for sit-down restaurant diners. Hair stylists took the biggest blow this year vs. last, with consistent tippers dropping from 66% to 53%. While there has been media speculation of tipping fatigue, it's not entirely clear to me why these numbers dropped so much in 2023. Inflation no doubt is likely a factor impacting people's desire to tip. I can’t think of a time I didn’t leave a tip after a meal or haircut, so, I guess, like my friend Vinnie Antonelli, it’s not tipping I believe in, it’s overtipping.
“I Know You Are, But What Am I?”
I have great admiration for performance artists, especially those who create lifelong characters that pull people into their realities. Paul Reubens was a comedy hero of mine since before I understood comedy or heroes. If I had an AI chatbot, it would be a combination of Chairy, Globey, and, of course, Jambi. During the first pandemic lockdown, I happened to bump into Cowboy Curtis while walking our dog along the beach. While it was a thrill to meet Morpheus in the flesh, I was more excited to be talking to Pee-wee’s pal. What I loved about Pee-wee was his ability to be subversive and whimsical at the same time (and this classic, late-career SNL short still makes me laugh out loud). Reubens is up there with my favorite character artists of all time, like the amazing Gilbert Gottfried. Today, it’s hard for me to determine who is intentionally creating a sincere and enduring character and who is merely playing a role for attention, but I hope humanity hasn’t tapped out the creative well that produced Paul Reubens, Gilbert Gottfried, Fred Willard, Andy Kaufman, and all the great performance artists still out there forcing us into a reality of their own creation.
Stuff About Demographics, the Economy, and Investing
From Defense to Greed
When the US embargoed advanced chip-making equipment sales to China, Beijing doubled down on establishing a large amount of manufacturing capacity at trailing-edge nodes, such as 28nm. Now, according to Bloomberg, US and European chip makers are concerned about this potential glut of legacy chips that go into everyday things like appliances, industrial equipment, automobiles, etc. Thus, what started out as a legitimate effort to keep potentially dangerous technology from being deployed against Western nations is evolving into a classic protectionist agenda by companies scared of the competition. However, given that we are still working through pandemic-era supply shortages, it’s clear that the world needs more of these mundane – but critical – chips. So, we should welcome this new capacity of legacy chips. I take the point that we don’t want to become even more dependent on China for supply of anything, but, for chips at least, the West still controls the inputs and methodology of manufacturing. At this point, if the US also cuts off China’s access to trailing-edge capabilities, it’s no different than limiting smelter access because Western companies are scared aluminum prices are going to take a hit. Cheap aluminum is good for everyone, and since we are about to see an AI-driven explosion of use cases for robotics, automation, and all sorts of new things we can’t even imagine, an excess of lower cost chips could be a big enabler of production and progress. I’ve been writing about the importance of being thoughtful about China’s chip access and the dramatic importance of Taiwan for nearly seven years now, but my tune is changing. I believe AI is going to ultimately facilitate advanced computing without the need for large quantities of leading-edge chips, so even advanced sanctions might end up being a waste, depriving US and European chip equipment companies of revenues while failing to achieve the ultimate objective. And, I cannot get on board with more sanctions just because US and European chip makers are afraid of competition. If there are certain products that China makes that violate Western IP, then those claims should be litigated and those chips should be banned from import. But, beyond that, the focus on chips has now become a distraction, and attention should be placed elsewhere to fend off economic and military threats from China.
Dialing Down Drone Exports
In an apparent bid to help Russia, China is imposing limits on drone exports in the wake of Ukrainian attacks in Moscow. Back in February, I wrote about the proliferation of cost-effective drones from Turkey making their way to the battlefield:
Garmin’s GPS receiver isn’t designed for military use, but it’s being widely used in mass-market drones for military purposes, along with several other chips and components not intended to fuel foreign adversaries’ arsenals. As a result, the TB2 drone made in Turkey comes at a cost of around $5M, far less than the US' $28M Predator drone. The consumerization of military weapons is something governments and companies need to collaboratively short circuit. I wrote about this important and easily solvable issue in more detail in Chip-Fueled War.
The Peters Coin Toss
Ole Peters has a new post explaining the Peters Coin Toss and the profound ramifications of ergodicity breaking – i.e., when the individual’s experience over time deviates from the expected value. Applying ergodic assumptions to non-ergodic systems continues to be the biggest overlooked mistake in all of economics (and many other areas of life). I recommend reading the post and playing around with the simulators until the significance really sinks in. If you’re looking for more, I’ve covered ergodicity here and here. From Peters:
The significance of this ergodicity breaking cannot be overstated. First, all living processes, including economic growth processes are similar to the coin toss in the sense that they rely on self-reproduction. The number of rabbits, or viruses, or the dollars in your trading account, grow in a self-reproducing noisy multiplicative way (until some carrying capacity is reached), just like wealth in the Peters coin toss. Second, most mainstream economic decision theories are based on the concept of expected value, and all of that has to be questioned in the presence of ergodicity breaking. Third, one core problem of economics and politics is to address conflicts between an individual, for example a citizen, and a collective, for example a state. This is the question of societal organization, institutions, Rousseau’s social contract and so on. This problem can seem puzzling, and it often attracts naive answers, because the collective consists of individuals. How, then, can the interests of the individual be misaligned with those of the collective? One important answer is ergodicity breaking.
✌️-Brad
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