Curated Insights 2019.07.26

The amazing story of Guidewire Software

Let’s find something that’s unglamorous. Let’s find something that’s substantial and vertically specific. Let’s find an area where really quality software engineering can create deep definitive economic value. That led us more or less like a beeline straight to property and casualty insurance. It’s about a $2 trillion industry in terms of total revenues and they pay out about 60 or 70% of that every year in claims. That’s what they do. They intermediate risk and then they pay out to claimants. There’s an asymmetry between the fact that the average claims worker is paid maybe $40,000 a year, but is writing out checks for $2 or $3 million a year and doing it in 1980s COBOL mainframe systems and buried in paper with all kinds of manual processes, et cetera. Our thesis was that these individuals, as hardworking as they may be, were making systematic errors that were causing dead weight economic loss. It’s not just the better software would make their lives more ergonomic and productive, that they would actually prevent errors that were dead weight lost to their own companies. That there would be a very compelling economic value proposition there.

He says, “When I was in college, there was a guy who managed somehow to date every beautiful woman who went to our school, and he was very ordinary looking and very average in every sense. When I asked him what his secret was, he said, I’m just the guy that asks the most. I’m going to be the guy that asked the most, and I have no problem being rejected.” He says, “I’m going to be that guy and we’re going to be that company. We’re going to be the company that asks the most.”

There are other businesses that people don’t imagine that have enormous economic value to them, but they’re standing behind a huge barrier to entry. There’s nothing particularly technologically innovative of what we’re doing, but we’re going to climb this huge barrier to entry and get to the other side. The reason that you don’t see other companies doing this is because that barrier is so high. If you believe in competitive markets, there’s no such thing as a fantastic market with no competitors. The reason that this market is not populated with others is that this barrier to entry is so damn high and we’re going to be climbing it for a long while and we’re 10% up the mountain.” Some version of that message was what we used. That’s also how we comforted ourselves when it felt like we had no shot.

How deal for SABMiller left AB InBev with lasting hangover

Nevertheless the numbers are undisputed: to get the deal approved by regulators and then to manage debt, AB InBev has sold off parts of SABMiller worth nearly one-third of the target’s one-time enterprise value of $122.5bn. In doing so, AB InBev lost just under half of the $7.1bn in earnings before interest, tax, depreciation and amortisation that it acquired through the SABMiller, according to Jefferies analyst Ed Mundy. The average multiple fetched by the disposals was 10.2 times ebitda, against the 17.3 times that AB InBev paid for the brewer.

One bright spot from SABMiller is that AB InBev is now among the top four brewers in Africa, where the population is largely young and expected to drink more beer as economic growth gathers pace. It acquired a 20 per cent stake in the Africa business of privately held Castel, which is widely seen as a potential takeover target if the 92-year-old French billionaire owner ever wants to sell. In Colombia, it commands a near monopoly position.

Part I: A history of VisaPart II: An overview of Visa

The beauty of Visa’s business model is that they get paid every time one of their cards are used—a flat fee of $.07, plus 0.11% of the transaction amount (and more for international transactions). So the more dollars that flow through Visa’s network, and the more transactions that they process, the more money they make. Visa makes money three ways: service fees, data processing fees, and—if the transaction involves banks in two different countries—cross-border fees.

Curated Insights 2019.07.19

Disneyland makes surveillance palatable—and profitable

Despite these familial concerns, Disney’s data mining never faced the sort of scrutiny that Silicon Valley has. The reason is fairly simple: Disney World is the real-world manifestation of a walled garden, a family-friendly environment without a perceived risk of children being exposed to inappropriate content like on YouTube or Twitch. Wired once called this data-driven customer relationship “exactly the type of thing Apple, Facebook and Google are trying to build. Except Disney World isn’t just an app or a phone—it’s both, wrapped in an idealized vision of life that’s as safely self-contained as a snow globe.”


Ray-Ban owner in talks for GrandVision at $8 billion value

By adding GrandVision, which sells prescription glasses, contact lenses and other eyecare products, EssilorLuxottica would gain more than 7,000 stores in more than 40 countries. GrandVision operates under retail brands including Brilleland and For Eyes. In addition to its well-known sunglass labels, including Oakley, EssilorLuxottica owns store chains like LensCrafters and Pearle Vision.

EssilorLuxottica’s interest in GrandVision comes only two months after the company defused a leadership dispute that weighed on its shares. The eyecare maker, the result of a merger of France’s Essilor and Italy’s Luxottica, said in May that it would seek a new chief executive officer — an effort to find a compromise between Chairman Leonardo Del Vecchio and Vice Chairman Hubert Sagnieres. The dispute flared up after the companies sealed their $53 billion merger last year, with Del Vecchio saying he wanted to appoint his deputy as CEO and Sagnieres countering that the Italian was making false statements in an effort to seize control of the group.


Shopify and the power of platforms

This is how Shopify can both in the long run be the biggest competitor to Amazon even as it is a company that Amazon can’t compete with: Amazon is pursuing customers and bringing suppliers and merchants onto its platform on its own terms; Shopify is giving merchants an opportunity to differentiate themselves while bearing no risk if they fail.

Curated Insights 2019.07.12

Spotify’s moats, management, and unit economics

Podcasting is a relatively nascent industry that is booming. As the #2 podcast player in the world, Spotify should benefit greatly from this trend. While Apple continues to dominate podcasting, their share has quickly fallen from 80% to 63% the past few years. Meanwhile, Spotify has been gaining share every year.

Around 85% of Spotify’s content is controlled by the three big record labels, plus MERLIN (a digital rights agency that represents thousands of independent labels). It’s great when a company has captive customers that results in pricing power. It’s not great when a company is a captive customer of their suppliers and thus has less control over their costs. With that being said, Spotify has a lot of power over the record labels as well.

In 2018, streaming accounted for 47% of global recorded music revenue—and Spotify has almost 70% market share of global streaming revenue. Look at the below chart showing industry revenues over time (purple is streaming revenue). If the major record labels want to continue enjoying the growth they’ve experienced the past few years, they have to work with Spotify.

China’s total number of births dropped over 10% last year

The total number of births in China last year dropped by 2 million from 2017, the National Bureau of Statistics announced at a news conference on Monday. The massive drop — from 17.23 million to 15.23 million — indicates that China’s birth rate last year was the lowest the country has seen since famine-stricken 1961.

Curated Insights 2019.07.05

How Honda survived a trade war with the US and won over Americans

Today, Honda, Nissan (NSANF), Toyota (TM) and Subaru (FUJHF) all operate manufacturing plants across the United States, with Toyota and Mazda planning a new $1.6 billion auto assembly plant in Alabama that will employ around 4,000 people when it opens in 2021. Last year, Japanese car makers created 1.6 million jobs in the US, according to the Japan Automobile Manufacturers Association.

While Japanese car makers claim to build one third of all vehicles in the United States, and purchased $61.2 billion in US auto parts in 2018, many of those cars use imported Japanese parts, which were worth $16 billion last year.

Air conditioning is the world’s next big threat

Because of the combination of population growth, rising incomes, falling equipment prices and urbanization, the number of air-conditioning units installed globally is set to jump from about 1.6 billion today to 5.6 billion by the middle of the century, according to the International Energy Agency.

BNEF expects electricity demand from residential and commercial air conditioning to increase by more than 140% by 2050 – an increase that’s comparable to adding the European Union’s entire electricity consumption. Air conditioning will represent 12.7% of electricity demand by the middle of the century, compared to almost 9% now, it thinks.