Curated Insights 2018.04.22

Disneyflix is coming. And Netflix should be scared.

But in film, as in television, Disney relies on middlemen to deliver its content—and middlemen always take a cut. To buy a ticket to see a Disney film in theaters, you pay an exhibitor that keeps about 40 percent of the ticket price. What if Disney bypassed the middlemen and put a highly anticipated film like Black Panther on its streaming service the same day it opened in theaters—or made the film exclusive to subscribers? In the short term, sacrificing all those onetime ticket buyers might seem financially ruinous. But the lifetime value of subscriptions—which renew automatically until actively canceled—quickly becomes profound. If the film’s debut encouraged just over 4 million people to sign up for an annual subscription to a $10-a-month Disneyflix product—about the same number of subscribers that Netflix added the quarter it debuted its original series House of Cards—Disney would earn a net revenue of nearly $500 million in just the first year. Black Panther was a massive hit as a theatrical release; it could have been even bigger had it been used to transform onetime moviegoers into multiyear Disneyflix subscribers.

The math might make this seem like an easy call for Disney, but let’s not underplay how radical this move would be, and how seismic the effects on the existing entertainment industry. In recent years, the theatrical-release business has been carried by blockbusters—and Disney has been perhaps the most reliable producer of those. From 2010 to 2017, films earning more than $100 million have grown from 48 percent to 64 percent of the domestic box office, according to the research firm MoffettNathanson—and Disney has made the year’s top-grossing film in six of the past seven years. If Disney moves its films, en masse, to a proprietary streaming platform, it would smash movie theaters’ precious window of exclusivity and leach away crucial revenue. Exhibitors such as AMC and Regal may find themselves on an accelerated path to bankruptcy or desperate consolidation.

In this vision, Disneyflix wouldn’t just be Netflix with Star Wars movies—it would be Amazon for Star Wars pillowcases and Groupon for rides on Star Wars roller coasters and Kayak for the Star Wars suite at Disney hotels. That’s a product that could rival Netflix and create the kind of profits Disney has enjoyed during its unprecedented century of dominance. The company just has to destroy its own businesses—and the U.S. entertainment landscape—to build it.

Zillow, aggregation, and integration

To quickly summarize, I wrote that Aggregators as a whole share three characteristics:

  • A direct relationship with users
  • Zero marginal costs to serve those users
  • Demand-driven multi-sided networks that result in decreasing acquisition costs

This allows Aggregators to leverage an initial user experience advantage with a relatively small number of users into power over some number of suppliers, which come onto the platform on the Aggregator’s terms, enhancing the user experience and attracting more users, setting off a virtuous cycle of an ever-increasing user base leading to ever-increasing power over suppliers.

Not all Aggregators are the same, though; they vary based on the cost of supply:

  • Level 1 Aggregators have to acquire their supply and win by leveraging their user base into superior buying power (i.e. Netflix).
  • Level 2 Aggregators do not own their supply but incur significant marginal costs in scaling supply (i.e. Airbnb or Uber).
  • Level 3 Aggregators have zero supply costs (i.e. App Stores or social networks)

Remember, Zillow is in nearly every respect already an Aggregator: it is by far the number one place people go when they want to look for a new house, and at a minimum the starting point for research when they want to sell one. They own the customer relationship! What has always been missing is the integration with the purchase itself — until last week. Zillow is making a play to be a true Aggregator — one that transforms its industry by integrating the customer relationship with the most important transaction in its respective value chain — by becoming directly involved in the buying and selling of houses.

Here, though, Zillow’s status as an almost-Aggregator looms large: we now have years’ worth of evidence that realtors will do what it takes to ensure their listings appear on Zillow, because Zillow controls end users. It very well may be the case that realtors will find themselves with no choice but to continue giving Zillow the money the company needs to disrupt their industry.


Facebook to put 1.5 billion users out of reach of new EU privacy law

If a new European law restricting what companies can do with people’s online data went into effect tomorrow, almost 1.9 billion Facebook Inc users around the world would be protected by it. The online social network is making changes that ensure the number will be much smaller.

The change affects more than 70 percent of Facebook’s 2 billion-plus members. As of December, Facebook had 239 million users in the United States and Canada, 370 million in Europe and 1.52 billion users elsewhere.

In practice, the change means the 1.5 billion affected users will not be able to file complaints with Ireland’s Data Protection Commissioner or in Irish courts. Instead they will be governed by more lenient U.S. privacy laws, said Michael Veale, a technology policy researcher at University College London. Facebook will have more leeway in how it handles data about those users, Veale said. Certain types of data such as browsing history, for instance, are considered personal data under EU law but are not as protected in the United States, he said.


Why all my books are now free (aka a lesson in Amazon money laundering)

One reader forwarded this article on Amazon Money Laundering written by Brian Krebs. He argues that serious money laundering is going on with stolen credit cards: “Reames said he suspects someone has been buying the book using stolen credit and/or debit cards, and pocketing the 60 percent that Amazon gives to authors. At $555 a pop, it would only take approximately 70 sales over three months to rack up the earnings that Amazon said he made.”

My guess is eventually you’ll see the government step in, fine the crap out of Amazon, which will then be followed by a multi-billion dollar class-action lawsuit.

The iPhone X generated 5X more profit than the combined profit of 600+ Android OEMs during Q4 2017

The iPhone X alone generated 21% of total industry revenue and 35% of total industry profits during the quarter and its share is likely to grow as it advances further into its life cycle. Additionally, the longer shelf life of all iPhones ensured that Apple still has eight out of top ten smartphones, including its three-year-old models, generating the most profits compared to current competing smartphones from other OEMs.

Apple remained the most profitable brand, capturing 86% of the total handset market profits. Further splitting profits by model, the top 10 models captured 90% of the total handset profits.

Car dealerships face conundrum: Get big or get out

Dealers say they need to as much as triple revenue in the next half-decade to offset shrinking margins and increasing competition from companies that didn’t exist a decade ago…These developments have helped fuel consolidation of the 16,800 U.S. dealerships into the hands of fewer owners. The top 50 dealer groups are poised to book more than $175 billion in revenue this year, compared to $144 billion when Mr. Buffett’s Berkshire Hathaway Inc. entered the sector four years ago.

Your future home might be powered by car batteries

By allowing car batteries to serve as a residential power source, Nissan says its vehicle-to-home service cuts utility bills by about $40 per month. Still, only about 7,000 car owners have adopted the system in the six years since it started, a tiny number compared with the 81,500 Leaf EVs that Nissan has sold so far in the country.

A small test this winter showed how hard it is just to get people to charge their cars at the right time. (Selling power back to the grid is a separate can of worms.) Nissan and the utility convinced 45 of their own employees to install home chargers and try monitoring electricity demand on weekends, using a smartphone app. Even though volunteers got free shopping points on Amazon as a reward for buying power when there was glut, only about 10 percent succeeded.

It’s a slow beginning, but Nuvve Chief Executive Officer Gregory Poilasne says vehicle-to-grid systems could eventually speed up the adoption of electric vehicles once people realize their batteries can earn them money. Poilasne says his clients make more than $1,000 per car each year by trading power to the spot market.


Blockchain is about to revolutionize the shipping industry

Should they succeed, documentation that takes days will eventually be done in minutes, much of it without the need for human input. The cost of moving goods across continents could drop dramatically, adding fresh impetus to relocate manufacturing or source materials and goods from overseas.

“This would be the biggest innovation in the industry since the containerization. It basically brings more transparency and efficiency. The container shipping lines are coming out of their shells and playing catch-up in technology.”

In 2014, Maersk followed a refrigerated container filled with roses and avocados from Kenya to the Netherlands. The company found that almost 30 people and organizations were involved in processing the box on its journey to Europe. The shipment took about 34 days to get from the farm to the retailers, including 10 days waiting for documents to be processed. One of the critical documents went missing, only to be found later amid a pile of paper.

Chinese money floods U.S. biotech as Beijing chases new cures

Venture-capital funds based in China poured $1.4 billion into private U.S. biotechnology firms in the three months ending March 31, accounting for about 40 percent of the $3.7 billion that the companies raised in the period overall, according to data provider PitchBook. At the same time a year earlier, Chinese funds invested $125.5 million, only about seven percent of the total.

China once lagged other countries in drug spending despite its large population, but outlays have expanded over the past decade. In 2012, China surpassed Japan to become the second-largest global drug market behind the U.S., according to a report from health-technology firm Iqvia, formerly known as QuintilesIMS. It could spend as much as $170 billion by 2021, compared to $116.7 billion in 2016, the firm said.

Selling drugs in China is also getting easier. Western companies usually waited for approval elsewhere before starting clinical trials in China because of the country’s cumbersome rules. But those restrictions have been relaxed, leading U.S. companies to view China as a more important market, and making Chinese investors hungry for to share in the returns from new therapies.

Technique to beam HD video with 99 percent less power could sharpen the eyes of smart homes

Backscatter is a way of sending a signal that requires very little power, because what’s actually transmitting the power is not the device that’s transmitting the data. A signal is sent out from one source, say a router or phone, and another antenna essentially reflects that signal, but modifies it. By having it blink on and off you could indicate 1s and 0s, for instance.

Assembly and rendering of the video is accomplished on the receiving end, for example on a phone or monitor, where power is more plentiful. In the end, a full-color HD signal at 60FPS can be sent with less than a watt of power, and a more modest but still very useful signal — say, 720p at 10FPS — can be sent for under 80 microwatts. That’s a huge reduction in power draw, mainly achieved by eliminating the entire analog to digital converter and on-chip compression. At those levels, you can essentially pull all the power you need straight out of the air.

Casualties of your own success

I valeted at a hotel in college. We parked 10,000 cars a month. And we banged one of them up every month, like clockwork. Management found this atrocious. Every few weeks we’d be scolded for our recklessness. But one accident in 10,000 parks is actually pretty good. If you drive twice a day, it’ll take you 14 years to park 10,000 times. One bent fender every 14 years is a driving record your insurance company won’t bat an eye at. The only reason we seemed reckless is because we parked so many cars. Size (or volume) put a negative spotlight on us that being less busy with the same parking skills would have masked. Big companies deal with this too. Chipotle sells half a billion burritos a year. You, at home, washing everything in bleach, could never make one carnitas burrito a day for half a billion days (1.4 million years) and expect to avoid a foodborne illness.

One is that everything moves in cycles. You can’t extrapolate the benefits of growth because growth comes attached with downsides that go from annoying at one size to catastrophic at another. Rising valuations that come with investment growth is the clearest example, but it’s everywhere: Headcount, media attention, AUM, and influence have downsides that can eventually grow faster than their benefits. Remembering that volatility is attracted to outlier growth puts many things about business and investing in context.

The second is size is associated with success, success is associated with hubris, and hubris is the beginning of the end of success. Some of the most enduring animals aren’t apex predators, but they’re very good at evasion, camouflage, and armour. They’re paranoid. I always come back to the time Charlie Rose asked Michael Moritz how Sequoia Capital has thrived for three decades, and he said, “We’ve always been afraid of going out of business.” Paranoia in the face of success is extremely hard but in hindsight it’s the closest thing to a secret weapon that exists.

Debt recycling

By investing a total of $55,097.13 I was able to purchase 3 properties over a 5 year period, with a combined value of just over $1,000,000. Two years later I sold one of the properties, using the proceeds to reduce the leverage of the remaining portfolio. I was able to recover my $55,000 of cash contributions, and still be left with equity worth over $473,000. At that point I could have sold a second property and used to proceeds to fully pay off the mortgage on the remaining property. This could have provided me with rent/mortgage free accommodation for the rest of my life, or alternatively contributed $26,000 in annual free cash flow towards covering my own lifestyle costs.


Why ‘sleep on it’ is the most useful advice for learning — and also the most neglected

Walker relates problem solving to the REM phase of sleep, demonstrating that it is in this critical stage of unconsciousness that we form novel connections between individual chunks of knowledge. REM sleep is where our ideas crystallise and recombine into new, creative thoughts.

The premise of adaptive timetabling does not fit will with a standardised model that runs on a fixed clock. Sleep does not lend itself to the measurement paradigms of today’s education system. Education is mired in empiricist dogma, hell-bent on measuring whatever it can, and then assigning importance only to what has been measured. It should be evident that the nature of problem solving, so much of which is rooted in unconscious thought, is holistic and beyond the blunt tools of written assessment. Any timed exam that seeks to capture students’ problem solving skills within a fixed period is, by the findings of neuroscience, a contradiction in terms.

Curated Insights 2018.04.15

Mark Zuckerberg: “We do not sell data to advertisers”

There is a very common misconception that we sell data to advertisers, and we do not sell data to advertisers. What we allow is for advertisers to tell us who they want to reach and then we do the placement. So, if an advertiser comes to us and says, ‘Alright, I’m a ski shop and I want to sell skis to women,’ then we might have some sense because people shared skiing related content or said they were interested in that. They shared whether they’re a woman. And then we can show the ads to the right people without that data ever changing hands and going to the advertiser. That’s a very fundamental part of how our model works and something that is often misunderstood.


Sen. Harris puts Zuckerberg between a rock and a hard place for not disclosing data misuse

So to sum up: in 2015, it became clear to Facebook and certainly to senior leadership that the data of 87 million people had been sold against the company’s terms. Whether or not to inform those users seems like a fundamental question, yet Zuckerberg claimed to have no recollection of any discussion thereof. That hardly seems possible — especially since he later said that they had in fact had that discussion, and that the decision was made on bad information. But he doesn’t remember when this discussion, which he does or doesn’t remember, did or didn’t take place!


Google and Facebook can’t help publishers because they’re built to defeat publishers

Here’s the problem: No matter how hard Google and Facebook try to help publishers, they will do more to hurt them, because that’s the way they’re supposed to work. They’re built to eviscerate publishers.

Publishers create and aggregate information and present it to users in return for their attention, which they sell to advertisers. And that’s exactly what Google and Facebook do, too: Except they do a much better job of that. That’s why the two companies own the majority of digital ad dollars, and an even bigger chunk of digital advertising growth. (Yes, those numbers can change — but if anyone displaces Google or Facebook, it will be another tech company.)

Amazon’s next mission: Using Alexa to help you pay friends

Mr. Bezos gave employees a mandate last year to push financial services as a key initiative, according to a person briefed on the matter. The company also restructured internally to add its digital wallet, Amazon Pay, to its team that focuses on Alexa as part of plans to make voice commands the next wave of commerce, according to other people familiar with the company’s plans.

If Amazon can move more transactions to its own rails or get better deals from card companies, it could save more than an estimated $250 million in interchange fees each year, Bain & Co. consultants say.


Is Amazon bad for the Postal Service? Or its savior?

An independent body, the Postal Regulatory Commission, oversees the rates that the Postal Service charges for its products. By law, the agreements it cuts with corporate customers like Amazon must cover their “attributable costs” that directly result from their use of the postal network.

While the Postal Service is subject to Freedom of Information Act requests, there is an exemption in the federal law that allows it to avoid releasing particulars of its deals with private businesses like Amazon.


Amazon is not a bubble

Thanks to its significant time-lag between selling an item and paying a supplier (estimated at 80 days by Morningstar) Amazon has been able to self-fund its growth almost entirely from cash from operations over its 25-year corporate history. In fact they last tapped the equity markets for funding in 2003, and in the last quarter of 2017 reported $6.5bn of free cash flow.

Ensemble Capital Q1 2018: Netflix

In the US, it has more subscribers than all of the cable TV companies combined, and it has a penetration rate of about 40% of all US households. And it’s still growing. Based on its massive global subscriber base, Netflix is now the 2nd largest pay TV service in the world behind just China Radio & TV. Yet Netflix is still growing subscribers at a 20% clip.

None other than the “Cable Cowboy”, John Malone, the business genius who pioneered the development of cable TV, shares our view on this topic. Talking to CNBC last year, Malone said that the most important question in the TV industry is “Can Netflix get enough scale that nobody really can challenge them?” and then went on to say that in his opinion the traditional pay TV companies no longer have any chance of overtaking Netflix. When the interviewer asked if the pay TV industry could band together to create their own Netflix-like service as Malone had been urging for years, he simply replied “It’s way too late.”


Apple now runs on 100% green energy, and here’s how it got there

At the moment, this conversation involves a healthy dose of education. “What we say is that we’ll be there with you,” Jackson recounts. “We’ll help you scout deals, we’ll help you evaluate whether they’re real, we’ll help you know what to negotiate for, because most of these folks, they’re trying to make a part, and so what we can do for them is be sort of their in-house consulting firm.” But she adds that there will likely come a time where Apple will require suppliers to run their businesses on clean energy as a condition of a business relationship.


[Invest Like the Best] Pat Dorsey Return – The Moat Portfolio

Chegg is a company we own right now where the historical data looks awful and it’s because they just sold a business, and the performance of this asset intensive textbook rental, that’s what’s in the historical data. The performance of the asset light, super high incremental margin study business is buried in the segment results…

The legacy business for Chegg is textbook rental…of course, this is a business that’s fairly easily replicable, there are very low barriers to entry and so Amazon and Barnes and Noble essentially crushed them in the textbook rental business. The founders were fired by the venture capitalists who poured $220mn into the business, a new CEO was brought in, and he realized that the only asset Chegg had at that point was a brand. They had 60%, maybe 70% unaided name recognition on college campuses…so, they invested in a bunch of other businesses and the one that’s worked out really well for them is essentially building a digital library of step-by-step answers to end of chapter study questions. So, if you took engineering or math or organic chemistry, there’s going to be a series of questions at the end of the chapter, so did you understand what you just read, and if you didn’t you probably won’t do so well on the test. What they’ve done is gotten exclusive licenses for 27,000 ISBNs and answered every single question and indexed it on Google, that being pretty important because the college student today copies and pastes. They copy the question and they put it in Google and search on it. Chegg comes up as the first organic result, which is how their user base has gone up 2.5x in 3 years with marketing costs being the same as they were 3 years ago…

Now Chegg has to pay money, big money, for those licenses to get that content, and so to some extent the publishers – Pearson and McGraw Hill – do have a lever over Chegg in that respect. We think those relationships are good, they recently renewed one of their licenses at similar cost to what it was a few years ago, largely because the publishers themselves are struggling and this is a very high margin source of income for them. And most college students, they’ve never heard of Pearson, that name means nothing to them. So if Pearson were to take all their textbooks and try to do this themselves, we think the marketing costs would be enormous…you do have some crowd sourced competitors to Chegg, where students basically post their own answers but here’s the thing. When you think about the value to a student of getting a 3.5 instead of a 3.0 GPA or passing a certain class that’s required of their major, the marginal benefit of paying $14.95/month for Chegg and knowing it’s the right answer…vs. just crowd-sourcing it on reddit, it’s a good cost-benefit.

So Workiva, they have 96% client retention, 106% revenue retention because they keep upselling clients. And what they did is create a product that lets companies do SEC filings much more efficiently than the old way, which was mark up a pdf and send it to RR Donnelley and the Donnelley sends it back to you and then you mark it up and send it back to them…so needless to say, [Workiva] went from 0% to 50% share in 6 years. In fact, the people who do external reporting – they’ve got 80% share of the Fortune 500 right now – people actually won’t go to work for another firm that doesn’t use Workiva…

It’s not an easy product to create because essentially what they had to do was replicate Excel in the cloud and enable it for scores of simultaneous users. There’s no check-in/check-out the worksheet. And then also the data points get linked inside your enterprise and so you might way we need to report this EBIT line, well that’s the function of Bob here and Jane over there, and their numbers roll up into mine and I link that inside my enterprise, so if you had a new product you’d have to break all those links and re-integrate it. So, not impossible but external reporting teams, even Wal-Mart, a huge company, their external reporting team’s like 20 people, so it’s feasible to do a rip-and-replace. But where things get interesting for this business and where the TAM gets much larger is internal reporting, where you’re rolling up data across the entire enterprise and then putting it together for the CFO/CEO or whatever, because then the linkages get much greater and the number of users becomes much bigger and the more users you have within an entity whose workflow would be disrupted if you got a new product, the stickier the product becomes…

In Workiva’s example, their customer acquisition costs really spiked about a year and half, two years ago because instead of going after the broader internal reporting market, they tried to pivot going from the SEC market to the Sarbanes Oxley market, SOX reporting, which didn’t work very well because with external reporting you were just saying ‘hey, you should just use Wdesk instead of Donnelley or Merrill…our product is superior’. Customer goes ‘why, yes it is.’ There is no SOX product, there is no product for SOX reporting, it’s a whole bunch of cludged together internal processes, so that’s a much harder sale, going in and saying ‘pay money for a product that is replacing an internal process that you’re not actually paying money for, it’s just sort of wasting people’s time’. That’s harder to put a number on if you’re a CFO or CEO, so that really spiked up their customer acquisition costs. Once they pivoted back to enterprise sales and frankly just reorganized their sales force geographically instead of functionally – which means less travel – customer acquisition costs came back down.

The U.S. states most vulnerable to a trade war

How to understand the financial levers in your business

Whatever your business, build a business model that includes all of your assumptions — and build the model so you can pressure-test variables and find your levers. Once you’ve identified them, build MVPs to test those assumptions in more detail. It’s really important to experiment early and get some good data on what works (and what doesn’t), before you start ramping up and pouring lots of money into marketing and execution. Some changes can have exponential effects — for better or for worse.

Want to keep your wine collection safe? Store it in a bomb shelter

Shipping wine in the country is tightly controlled by a web of state laws, and it is illegal for individuals to ship wine themselves across state lines. Having wine storage in different states can ensure that collectors get the wine they want regardless of where they live.

Storage fees can be as low as $1.25 a month per case of wine, which holds 12 regular bottles or six magnums. Of course, wine collectors rarely store just one box, and they are not putting it there for just a month.


What it takes to out-sleuth wine fraud

Ms. Downey offered advice and provided counterfeit-detection tools for seminar participants, including a jeweler’s loupe, a measuring tape, a UV light and UV-visible pens. She outlined her authentication process, which begins with careful scrutiny of the wine bottle—the loupe proved handy here—notably the label, the paper it’s printed on and the printing method and ink, as well as other components such as the capsule and the cork. Ultra-white paper, detectable under UV light, wasn’t in commercial use until the 1960s. With the aid of a microscope, one could detect if the paper was recycled, which would mean the wine couldn’t have been produced before the 1980s, when recycled paper was introduced for labels.

Above all, she emphasized that wine fraud isn’t a victimless crime. “It affects people who work very hard to make good wine, who are proud of their wines and their appellation,” she said. “It ruins their reputation and it destroys all their hard work.” With the right tools and a gimlet eye, she believes, we can all play a part in protecting that work.

Curated Insights 2018.04.01

Amazon is already reshaping health care

All three of the biggest U.S. PBMs will be tied to three of the country’s biggest insurers. CVS, Express Scripts, and UnitedHealth process more than 70 percent of all U.S. prescriptions. Post-merger, three companies will insure more than 90 million people in some capacity, process more than 3.5 billion prescription claims, and generate more than $500 billion in revenue.

The merging companies have claimed huge cost savings will flow to consumers from these deals, but I’m skeptical. Research suggests costs can actually end up rising in some cases of health-care consolidation. Less competition means more pricing power for the companies that remain. Markets with more insurers have lower premiums, while prices rise when hospitals buy physician groups. Though these are vertical deals, they will add to the market power of major players in already heavily consolidated industries, which seems like a recipe for monopolistic behavior.

Regulation could protect Facebook, not punish it

If the government instituted new rules for tech platforms collecting persona information going forward, it could effectively lock in Facebook’s lead in the data race. If it becomes more cumbersome to gather this kind of data, no competitor might ever amass an index of psychographic profiles and social graphs able to rival Facebook’s.

We’ve already seen that first-time download rates aren’t plummeting for Facebook, its App Store ranking has actually increased since the Cambridge Analytica scandal broke, and blue chip advertisers aren’t bailing, according to BuzzFeed. But Facebook relies on the perception of its benevolent mission to recruit top talent in Silicon Valley and beyond.


Facebook knows literally everything about you

But my favorite thing is probably peer-to-peer payments. In some countries, you can pay back your friends using Messenger. It’s free! You just have to add your card to the app. It turns out that Facebook also buys data about your offline purchases. The next time you pay for a burrito with your credit card, Facebook will learn about this transaction and match this credit card number with the one you added in Messenger. In other words, Messenger is a great Trojan horse designed to learn everything about you.

There’s one last hope. And that hope is GDPR. Many of the misleading things that are currently happening at Facebook will have to change. You can’t force people to opt in like in Messenger. Data collection should be minimized to essential features. And Facebook will have to explain why it needs all this data to its users. If Facebook doesn’t comply, the company will have to pay up to 4 percent of its global annual turnover. But that doesn’t stop you from actively reclaiming your online privacy right now.


How Facebook helps shady advertisers pollute the internet

Those who were caught and banned found that this was only a minor setback—they just opened new Facebook accounts under different names. Some affiliates would buy clean profiles from “farmers,” spending as much as $1,000 per. Others would rent accounts from strangers or cut deals with underhanded advertising agencies to find other solutions.

Affiliates say Facebook has sent mixed signals over the years. Their accounts would get banned, but company salespeople would also come to their meetups and parties and encourage them to buy more ads. Two former Facebook employees who worked in the Toronto sales office said it was common knowledge there that some of their best clients were affiliates who used deception. Still, the sources said, salespeople were instructed to push them to spend more, and the rep who handled the dirtiest accounts had a quota of tens of millions of dollars per quarter.

How Alibaba and Tencent became Asia’s biggest dealmakers

The reach of Tencent and Alibaba in their home market dwarfs that of the big tech groups in the US. While the latter accounts for less than 5 per cent of all venture capital flows in their home market, Alibaba and Tencent account for 40-50 per cent of venture capital flows in mainland China, according to data from McKinsey.

The downside is that their new investors might have different agendas than simply the financial performance of the new companies. The risk is that Alibaba and Tencent might be willing to sacrifice their interests in the companies they back if their own goals shift.

But he worries that entrepreneurs might also be forced to prematurely choose sides in the rivalry between the competing ecosystems of one or the other internet giants in ways that can leave a young company exposed.


SoftBank Vision Fund CEO explains plan to build the biggest network of tech companies in the world

The fund aims to be the largest shareholder in 100 technology companies around the world after it has finished investing all of its money, he said. The goal is to create the biggest ecosystem of tech companies in the world.

Part of the strategy will include investments strategically moving operations beyond their home markets and into other countries, where they can be linked with other holdings in the fund, Misra said. The fund will actively push many of its investments to work with each other, creating a web of companies controlled, or heavily influenced, by SoftBank and its CEO Masayoshi Son, Misra said.

Dropbox and Box were never competitors

Vast majority of Dropbox’s combined business and consumer revenue of more than a $1 billion came from consumers. Dropbox has always offered an attractive consumer storage tool. “Dropbox is primarily a consumer company with 500 million users, [with] only about 300,000 teams using their business offering.” For now though, even with this business push, Pelz-Sharpe points out that most of Dropbox’s business customers are small teams of 3 or more people with a dash of larger implementations. “Nor are people building much on top of Dropbox in the way of business applications – it remains primarily a very efficient file sharing system,” he explained.

This in contrast to Box, which has been working primarily with large enterprise companies for years to solve much more complex problems around content. Aaron Levie from Box said he’s absolutely rooting for Dropbox, but they have always been going after different markets, since Box decide to go enterprise about two years into its existence. “We are fundamentally building two very different companies. Both are large markets. While there is no limit to the scale they could become, we have built a very different business around how do you serve [large companies] and deal with unstructured company data — and it’s a very different product set [from Dropbox],” Levie told TechCrunch.


Micron: You don’t know how big this memory stuff is, says Instinet

DRAM and NAND storage have become the choke point in system level performance across multiple applications; cloud vendors, for example, are boosting memory content to speed up performance. These cloud companies are very sophisticated about hardware architecture. Vendors are spending tremendous amounts of capital to reduce wait times in servers. This means maximizing the amount of memory around the processor and greater use of NAND flash.

Robots could replace surgeons in the battle against cancer

Moll says he focused on lung cancer for two reasons. It’s the deadliest cancer, killing 1.7 million people a year globally, according to the World Health Organization. (That’s double the next-highest total, for liver cancer.) And it’s the perfect proving ground, he says, for medical robots.

No medical regulator in the world has approved fully robotic surgery, so for now surgeons who sign up for Auris’s pilot program will drive the bot. The doctor guides the scope through the lung, starting in the trachea, with a video screen to help navigate. A camera view is on the screen’s left side, and a CT-scan-created map and turn-by-turn directions are on the right. Auris tracks the probe’s precise location, in part, by comparing data from the camera view to the 3D map, and by using an electromagnetic sensor that works a bit like a miniature GPS. The idea is to collect data after every surgery and feed it back into the navigation software, improving it over time.

Say goodbye to the information age: it’s all about reputation now

We are experiencing a fundamental paradigm shift in our relationship to knowledge. From the ‘information age’, we are moving towards the ‘reputation age’, in which information will have value only if it is already filtered, evaluated and commented upon by others. Seen in this light, reputation has become a central pillar of collective intelligence today.

Curated Insights 2018.03.18

Remember to look up at the stars and not down at your feet. Try to make sense of what you see, and wonder about what makes the universe exist. Be curious. And however difficult life may seem, there is always something you can do, and succeed at. It matters that you don't just give up. -- Steven Hawking (1942-2018)

An Apple R&D bonanza

Much of this focus mantra is driven by the fact that Jony Ive and his Industrial Design group oversee Apple’s product vision and the user experience found with Apple products. With only 20 or so members, Jony and team can only do so much at any given moment. In a way, Apple’s organizational and leadership structure serve as safeguards preventing Apple from spreading itself too thin and doing too much. Instead of trying to expand the design team in order to work on more products, Apple’s strategy appears to be to do the opposite and place bigger bets on a few products.

These bigger bets come in the form of owning the core technologies powering Apple devices. Apple wants to reduce dependency on others. We are quickly moving to the point at which every Apple product will be powered by core technologies developed in-house. Such a reality would have been a pipe dream just a few years ago. Apple believes this strategy will give them an advantage in the marketplace. It’s a new twist to the Alan Kay line about “people who are really serious about software should make their own hardware.” We are moving to the point at which companies serious about software should design their own silicon. Having $285 billion of cash on the balance sheet gives Apple the freedom to pursue this ambitious goal. It is this motivation to control more of the user experience while pursuing new industries to enter that is driving the remarkable increase in Apple R&D expenditures.


Apple goes from villain to coveted client with this Finnish firm

Created through a merger of Sweden’s Stora AB and Finland’s Enso Oyj in 1998, the company has spent billions shifting from the declining paper business — as people increasingly switched to digital from printed newspapers — to focusing on innovative wrappings made from tree and plant fibers. More than a third of its sales now come from consumer board and packaging solutions, up from a fifth two decades ago.

Apple has undergone its own shift, away from plastic packaging. For its recent iPhone 8 launch, Apple used a fiber-alternative instead of the polypropylene wrap around the power adapter. The packaging for the iPhone 7 used 84 percent less plastic than the previous version.


Intel fights for its future

“…Broadcom is already an Apple parts supplier, and it wouldn’t want to jeopardize a good relationship with a negotiation over royalties. The exact percentage that Qualcomm charges in royalties is of the utmost importance to a standalone Qualcomm…But for a merged Broadcom-Qualcomm, the exact amount of the royalty would be less important than a good working relationship with Apple.”

If the dispute is settled, Intel loses its wireless modems deal with Apple. No mobile CPUs + no modems = nothing of substance. Broadcom would be in charge — they would hold all the cards.


Google wants to impose order on India’s street address chaos

Google is tackling the project as part of its own search for the next billion users. Non-standard addresses now increase the costs of running all types of commerce from ride-hailing to online retailing and food delivery. Plus Codes — in a ‘6-character + city’ format — can be generated and shared by anyone on Google Maps, while apps that use location services can incorporate those codes on their own platforms. And a user can enter the Plus Code into searches to call up a location. Google Maps is also adding voice navigation in six more Indian languages, after introducing Hindi three years ago.

WhatsApp could shake up digital payments in India

At stake is an Indian digital payments market that Credit Suisse Group AG estimates could be worth $1 trillion within five years and has homegrown and global players jostling for dominance. WhatsApp joins Google, Alibaba-backed Paytm, a unit of local e-commerce leader Flipkart and dozens of others already vying for customers as smartphone adoption surges. Mobile payments caught fire at the end of 2016 when the government’s demonetization temporarily took 86 percent of all paper currency out of circulation to tackle corruption.

“WhatsApp is likely to change the digital payments scenario by cannibalizing other wallets’ users and adding new converts,” said Satish Meena, an analyst at Forrester Inc. “Its base of 200 million users, a daily active usage that’s about 20 times higher than Paytm’s, and the fact that Indian users spend a lot more time on WhatsApp than even on parent Facebook has huge advantages,” said Meena.


Amazon turbocharged Audible’s domination of audiobooks

Audible accounts for about 41 percent of all audiobooks sold, including digital and physical formats, according to researcher Codex Group LLC. Amazon also sells audiobooks directly through its website and, with Audible, accounts for more than half the market. Audible doesn’t disclose financial information, but says its annual subscriber growth is in double digits. Most customers pay $15 for a monthly subscription that comes with a single audiobook. (A la carte, they often cost more than $20.) The company’s library includes 400,000 titles.


How Amazon’s bottomless appetite became corporate America’s nightmare

For many companies, perhaps what’s scariest is that Amazon has lots of room to grow, even in retail. In the U.S., more than 90 percent of all retail sales still happen in physical stores. In some big categories, including home furnishings, ­personal-care products, toys, and food, the brick-and-­mortar numbers are even higher. As the share of online shopping continues to increase, Amazon seems likely to benefit the most. It’s responsible for roughly 44¢ of every dollar Americans spend online, and it’s now mixing in retail stores.

Amazon is far from invulnerable. All the same old red flags are there—a puny 2.7 percent e-commerce profit in North America, massive outlays to establish delivery routes abroad—but few are paying attention. Anyone buying a share of Amazon stock today is agreeing to pay upfront for the next 180 years of profit. By one measure, it’s generating far less cash than investors believe. And its biggest risk may be the fear of its power in Washington, New York, and Brussels, a possible prelude to regulatory crackdown.


Netflix’s secrets to success: Six cell towers, dubbing and more

Why Netflix almost never goes down. The company’s service achieved an availability rate of 99.97% in 2017, according to Netflix engineering director Katharina Probst. Part of that is due to the fact that Netflix learned from outages early on, and now uses Amazon’s AWS data centers across three regions. When one of those regions does go down, Netflix automatically redirects all of its traffic to the two other regions.

In fact, the company even tests this fall-back regularly by just taking a region offline itself — something the company calls chaos engineering. “We intentionally introduce chaos into our systems,” explained Probst. Up until recently, it took Netflix up to an hour to successfully redirect all requests in case of such a massive failure. More recently, the company was able to bring that time down to less than 10 minutes.

Amex to woo retailers with biggest fee cut in 20 years

At a presentation for investors in New York last week, the company said the global average of the fees it charges merchants — known as its discount rate — would decline five or six basis points this year, to about 2.37 per cent. Each basis point is equivalent to about 11 cents of earnings per share, said Don Fandetti of Wells Fargo Securities.

The fee cuts for 2018, which are about double previous guidance, are the latest sign of competitive and regulatory pressures on the biggest US consumer finance company by market value. American Express is facing questions from Wall Street about competition from US banks, which use the rival payment networks Visa or MasterCard. Big-spending Americans have flocked to premium cards issued by banks.


SoftBank looks to invade Wall Street’s turf

Until recently, SoftBank’s fledgling investment arm was little more than a group of analysts in Tokyo and London sifting through possible deals. Buying Fortress provided the group with a template to use as it moved to becoming an actual institution, with a formal investment committee, compliance department, trading desk and investor relations unit. The new entity is now 1,000 people strong.


How China’s Huawei killed $117 billion Broadcom deal

Huawei uses Broadcom’s chips in networking products such as switches that direct data traffic between connected computers. Qualcomm also works with Huawei. The two said on Feb. 21 they completed testing on technology that advances faster 5G mobile services. Under one envisioned scenario, wireless carriers may be forced to turn to Huawei or other Chinese companies for cutting-edge telecoms gear. That’s unacceptable for a U.S. government that, concerned about the security of Huawei’s gear, has already blocked the sale of the Chinese company’s smartphones on American carriers’ networks.

Government officials and industry executives have long harbored suspicions that the closely held Huawei works primarily for Chinese government interests, especially as it sells increasing amounts of critical telecoms infrastructure to Europe, Africa and the Middle East.

WordPress is now 30 per cent of the web

Public data recorded that WordPress’s share of the top 10 million websites had ticked over from 29.9 per cent to 30 per cent. The firm put some context on that data by noting that 50.2 per cent of the world’s websites don’t run a content management system (CMS) at all. That means WordPress has over 60 per cent share among websites that do run a CMS. That’s a dominance few products in any category can claim. It’s also notable that WordPress has nearly ten times the market share of its nearest competitor, Joomla, which has 3.1 per cent share of all websites and 6.3 per cent of the CMS-using population.

Share buybacks work better in theory than in practice

The top 20 companies in terms of buybacks accounted for almost 50 percent of total expenditures.

The main problem with buybacks is that effects of bad decision-making don’t become clear until much later. To paraphrase Jeff Macke, stock buybacks are an allocation decision that has a hypothetical value to shareholders, but a real explicit value to option-holding executives. These people are supposed to be managing companies for the long term but get compensated over the short term. This misalignment if incentives should be a concern. It does seem like those with a vested short-term interest in stock prices put a thumb on the scale away from investments or dividends and towards buybacks.

Diving into the detail, the top culprit was Biotech companies, with 97% of biotech IPOs in the loss making camp. Second place, no prizes for guessing, was Technology companies at 83%. But interestingly enough that left 'all other companies' at 57% - which is actually a record high.

What’s the biggest trade on the New York Stock Exchange? The last one

Last year, 26% of all trading activity on the NYSE’s flagship exchange took place in the last trade of the day, up from 17% in 2012, exchange data shows. Last year, trades at the close accounted for more than 8% of trading volume in S&P 500 stocks, nearly four times what it was in 2004, according to Credit Suisse .

At least $10 billion worth of shares are traded in the NYSE’s closing auction on an average day, with a final tally of stock prices typically listed by 4:05 p.m.

A fund manager such as Vanguard, for instance, might need to buy millions of shares at a time. Making such a big purchase in the middle of the day could dry up supply, causing the price of the stock to jump—bad for Vanguard. By waiting to trade at a time when there are millions of shares being bought and sold, the risk of moving the price is reduced, saving Vanguard money.

Last year, the NYSE collected $87 million—45% of its net revenue from the exchange’s core stocks-trading business—from trading at the close, according to the research firm Equity Research Desk. The NYSE’s maximum fees for trading at the close have gone up 16% over three years, according to regulatory filings.


Is the US stock market overvalued? Depends on which model you ask

The Fed model was valid during the period from 1958 to 2010. Since after 2010 there has been no relationship between the stock’s earnings yield and the bond yield, the Fed model cannot be used to judge whether the US stock market is overvalued. In other words, the Fed model cannot support the high current CAPE ratio on the grounds of the low-rate environment.

The Shiller model is over-simplistic. It is justified only on the grounds that there is an empirical inverse relationship between the CAPE value and the subsequent stock market return over horizons ranging from 10 to 15 years. What is less known about the validity of the Shiller model is that it has forecasting power only for real returns.

The other serious problem with the Shiller model is that it cannot be successfully used to time the market. If the investor believes in the validity of the Shiller model, this investor should buy the stocks in the early 1970s. However, in this case, the investor would be highly disappointed because the stock prices had been decreasing till the early 1980s. Similarly, if the investor uses the Shiller model, this investor would sell stocks in the early 1990s, missing out on huge net gains over the full bull/bear cycle.

Pozen Priorities

“The common practice we found among the highest-ranked performers in our study wasn’t at all what we expected. It wasn’t a better ability to organize or delegate. Instead, top performers mastered selectivity. Whenever they could, they carefully selected which priorities, tasks, meetings, customers, ideas or steps to undertake and which to let go. They then applied intense, targeted effort on those few priorities in order to excel.”


Ironies of luck

If risk is what happens when you make good decisions but end up with a bad outcome, luck is what happens when you make bad or mediocre decisions but end up with a great outcome. They both happen because the world is too complex to allow 100% of your actions dictate 100% of your outcomes. They are mirrored cousins, driven by the same thing: You are one person in a 7 billion player game, and the accidental impact of other people’s actions can be more consequential than your own.

In investing, a huge amount of effort goes into identifying and managing risk. But so little effort goes into doing the same for luck. Investors hire risk managers; no one wants a luck consultant. Companies are required to disclose risks in their annual reports; they’re not required to disclose lucky breaks that may have led to previous success. There are risk-adjusted returns, never luck-adjusted returns.

Here’s why Stephen Hawking never won the Nobel prize in physics

It takes decades to build the scientific equipment to test theoretical discoveries; to put this into context, Einstein’s theory of gravitational waves in space, which he first proposed in the 1920s, was only recently proven in 2016.

One of Hawking’s most important finds was “Hawkings Radiation,” the theory that black holes are not completely black after all, but emit radiations that ultimately cause them to disappear. The issue is, the technology needed to observe this radiation will take years and cost millions before Hawking’s theory can ever be verified.

Curated Insights 2018.03.11

Warren Buffett is even better than you think

What makes Buffett special, however, is that he has outpaced the market by a huge margin, even after accounting for those profitability and value premiums. The per-share market value of Berkshire has returned 20.9 percent annually from October 1964 through 2017, according to the company. That’s an astounding 9 percentage points a year better than a 50/50 portfolio of the Fama/French profitability and value indexes for more than five decades.

It’s a feat that can’t be dismissed as mere luck. For one thing, Buffett has been shockingly consistent, beating the 50/50 profitability/value portfolio during 40 of 44 rolling 10-year periods since 1974, or 91 percent of the time. Also, Buffett’s margin of victory is “statistically significant,” as finance aficionados would say, with a t-statistic of 3.1. That’s a fancy way of saying that there’s an exceedingly low likelihood that his outperformance is a result of chance.

How Amazon can blow up asset management

In addition to its home page, Amazon is rich with the most important resource in asset management: trust.

Amazon’s hidden advantage is its ruthless commitment to per customer profitability. I’m willing to bet that the firm has our number. It knows our lifetime value as customers and how we stack up against our cohorts by age, zip code, film preference, etc. Similarly, Amazon has shown that it doesn’t hesitate to fire unprofitable customers who abuse the return privilege. If it exercises the same discernment in avoiding the worst clients, incumbent asset managers stand to lose. Amazon has no legacy costs and no legacy relationships in asset management. Furthermore, it will not plead for such relationships. If you’re a 3rd party fund manager, for instance, getting on Amazon’s platform will be like the Godfather’s offer you can’t refuse. To me, asset management is the type of utility business that Amazon could easily disintermediate, for both its own benefit and the benefit of average investors worldwide. If you thought the overbuilt status of bricks and mortar retailing provided the kindling to the Amazon explosion in retail, the abundance of asset managers (especially active asset managers) provides the uranium for an apocalypse that could be much worse.


Lloyd Blankfein’s big, tricky, game-changing bet

Blankfein insists such pessimism is unwarranted in the long run. Within five years, he thinks, Marcus has the potential to dominate the refinancing of credit card debt by offering clients interest rates that are half of the penalties charged by card issuers. “The big banks have no incentive to do this — to offer a product that competes directly with their credit cards,” he says.

Blankfein insists investors will once again favor Goldman because the market forces behind its model are timeless. “We buy things from people who want to sell and sell things to people who want to buy, when in the real world, those buyers and sellers don’t usually match up,” he says. “Those things have been going on since the Phoenicians.”

Why Spotify won’t be the Netflix of music

Licensing deals are negotiated every couple of years, so investors will have to wait for the next chance to strike a new bargain. Growing bigger should help Spotify cut incrementally better deals, but won’t resolve the basic problem that ownership of must-have content is concentrated in so few hands. The big three plus Merlin accounted for 87% of songs streamed on Spotify last year.

But music is different: Apart from the concentration of rights ownership, new albums don’t have the same marketing pull as a new TV series. Spotify’s prospectus argues that “personalization, not exclusivity, is key to our continued success.” Competing with the record labels to get a better deal just doesn’t seem a viable option.

Why software is the ultimate business model (and the data to prove it)

The Demand for Software is very strong and stable — Spend on software has grown at ~9% for about a decade. Looking forward Gartner estimates show that the Software category is expected to grow 8–11% versus the U.S. economy at 2–3% and broader technology spending at 3–4%. Software is a GOOD neighborhood to live in.

Signals from the Stock Market: “In the short term the market is a popularity contest; in the long term it is a weighing machine.” — Warren Buffett. Over many years, the market reflects the true substance of a business — here you can see that over the last 15 years, a broad basket of software companies has created meaningfully more value than a broad basket of businesses.


Analysing software businesses

Business models are increasingly moving to SaaS business models because it benefits the customer. Even though the total cost of ownership of the software between the two is similar, the cash flow profile for the customer is different. SaaS shifts laying out cash for a license (capex) to an ongoing pay-as-you-go model (opex).

Investors also prefer SaaS models for two main reasons: 1. Higher predictability of future cash flow – SaaS has higher recurring revenue than license model. This provides a more consistent stream of cash flow with less ‘renewal’ risk at the end of every license. 2. Cost structure – the larger the upfront license cost, the larger the sales team required. SaaS models usually have a lower sales and distribution expense than license models.

Another reason SaaS businesses are popular with PE is because software economics match the return profile of of both VC and PE investors. Firstly, the original product with a fixed cost base plus increasing returns to scale earns a high ROIC and can scale with little capital. This matches the low-hit / high multiple return rate VC crave as they can pick the correct product and then sale with little marginal cost. PE then acquires from VC and provide the capital to acquire new products to bundle with the original offering. This strategy also matches the return profile of PE as they can acquire and add various products to the platform over the 5-7 average holding period of PE portfolio companies. Although the economics are not as good as VC stage due to the capital required, the risk is relatively lower as you have product-market fit and sticky customers.

‘Success’ on YouTube still means a life of poverty

Breaking into the top 3 percent of most-viewed [YouTube] channels could bring in advertising revenue of about $16,800 a year. That’s a bit more than the U.S. federal poverty line of $12,140 for a single person. (The guideline for a two-person household is $16,460.) The top 3 percent of video creators of all time attracted more than 1.4 million views per month.

Ideas that changed my life

Room for error is underappreciated and misunderstood. It’s usually viewed as a conservative hedge, used by those who don’t want to take much risk. But when used appropriately it’s the opposite. Room for error lets you stick around long enough to let the odds of benefiting from a low-probability outcome fall in your favor. Since the biggest gains occur the most infrequently – either because they don’t happen often or because they take time to compound – the person with enough room for error in part of their strategy to let them endure hardship in the other part of their strategy has an edge over the person who gets wiped out, game over, insert more tokens, at the first hiccup.

Your personal experiences make up maybe 0.00000001% of what’s happened in the world but maybe 80% of how you think the world works. People believe what they’ve seen happen exponentially more than what they read about has happened to other people, if they read about other people at all. We’re all biased to our own personal history. Everyone. If you’ve lived through hyperinflation, or a 50% bear market, or were born to rich parents, or have been discriminated against, you both understand something that people who haven’t experienced those things never will, but you’ll also likely overestimate the prevalence of those things happening again, or happening to other people.

Curated Insights 2018.02.18

Amazon’s latest ambition: To be a major hospital supplier

The pilot is customized for the hospital system’s catalog of supplies, the official said, allowing employees to compare prices the system negotiates with its distributors against those in the Amazon Business marketplace. In response to questions about these efforts, Amazon said it is building technology to serve health-care customers, and seeking to sell hospitals on a “marketplace concept” that differs from typical hospital purchasing, which is conducted through contracts with distributors and manufacturers.

So far, some hospitals have been reluctant to buy supplies from Amazon Business, for reasons including lack of options and lack of control over purchases and shipping, which hospitals closely safeguard to ensure prompt arrival of goods.

Hospitals typically contract for assurances that products will be available and delivered securely, she said. “It’s a little different than being out of a size 6 dress. I can’t be out of a six French catheter,” said Ms. McCready, who oversees the hospital system’s $3 billion annual budget for supplies, contract services and pharmaceuticals. Ensuring continuity of product supply is also crucial, said Donna Drummond, Northwell’s senior vice president of consolidated business services. When doctors and nurses reach for a familiar product, they know its specifications. Jumping online to look for the best deal could disrupt that continuity, she said. Northwell is “not ready to move from our current model,” Ms. Drummond said, but added: “We are open to a competitive market.”

Fees and administration, marketing and shipping costs account for an estimated 20% to 30% of health-care supply costs, according to a November research report by Citigroup Global Markets Inc. “There’s a lot of people with fingers in the pie,” said Rob Austin, an associate director with Navigant Consulting Inc. and former hospital supply-chain executive. “There is a huge opportunity.”


Amazon threat has Maersk racing to stop clients becoming rivals

It’s not just a question of a smooth delivery, said Skou. Giant retailers like Amazon also want better information about shipments to manage supply chains as effectively as possible. Maersk is rolling out a new digitization strategy to modernize an industry in which bookings often still take place by phone. Last month, it formed a joint venture with IBM to develop the use of blockchain technology to manage and track cross-border trade.

“The ability of Maersk to understand the market and integrate with a big company like Amazon is very clever,” Benito said. “They realize that Amazon can be a disruptor, so it’s better to try and work together.”

How delivery apps like Seamless and Uber Eats may put your favorite restaurant out of business

In 2016, delivery transactions made up about seven per cent of total U.S. restaurant sales. In a research report published last June, analysts at Morgan Stanley predicted that that number could eventually reach forty per cent of all restaurant sales, and an even higher percentage in urban areas and among casual restaurants, where delivery is concentrated. Companies like GrubHub maintain that the revenue they bring restaurants is “incremental”—the cherry on top, so to speak, of whatever sales the place would have done on its own. They also argue that delivery orders are a form of marketing, exposing potential new customers who might convert to lucrative in-restaurant patrons. The problem is that as consumers use services like Uber Eats and Seamless for a greater share of their meals, delivery orders are beginning to replace some restaurants’ core business instead of complementing it. (In the Morgan Stanley survey, forty-three per cent of delivery patrons said that a meal they ordered in was replacing one they would have otherwise eaten at a restaurant.) And, as delivery orders replace profitable takeout or sit-down sales with less profitable ones—ostensibly giving restaurants business but effectively taking it away—the “incremental” argument no longer holds. “It’s total bullshit, and you can quote me on that,” Justin Rosenberg, the C.E.O. of the Philadelphia-based fast-casual chain Honeygrow, told me. “I’ve spoken to C.F.O.s of bigger fast-casuals, and they’ve said the same thing.”

It’s worth noting that, even while charging restaurants steep rates, most delivery platforms are not yet profitable, either. Their hope is that order volumes will one day become high enough—and couriers will deliver enough orders per hour—to push them into the black.


Airbnb reportedly built an internal hedge fund that makes $5 million per month

According to Bloomberg, Tosi “quietly built a hedge fund within the company’s finance department. He used a portion of capital from the balance sheet to buy stocks, currencies, and fixed-income securities, mimicking the treasury fund he ran at Blackstone. The side project represented 30 percent of the company’s cash flow last year and made about $5 million a month for Airbnb, the people said.”

New DNA nanorobots successfully target and kill off cancerous tumors

“Using tumor-bearing mouse models, we demonstrate that intravenously injected DNA nanorobots deliver thrombin specifically to tumor-associated blood vessels and induce intravascular thrombosis, resulting in tumor necrosis and inhibition of tumor growth,” the paper explains.

DNA nanorobots are a somewhat new concept for drug delivery. They work by getting programmed DNA to fold into itself like origami and then deploying it like a tiny machine, ready for action.

Saving for old age: the global story (part II)

This country for old men and women would have had 222m people in it, assuming it was launched at the end of 2015. Assume all Chinese move there on their 60th birthday, and by 2025 you would expect the population of Oldland to be 300m.

It is well known that savings rates in China are already high. If greater portions of these savings are shifted into a funded pensions infrastructure which looks anything like that of the US, this would boost demand for the kinds of assets pension funds usually buy: stocks and bonds.

It may already be happening. The Willis Towers Watson report states that China has the fastest compound annual growth rate of pension assets over the past five years, at 18 per cent. The second highest, at 13 per cent, is South Korea. The third is Hong Kong, at 10 per cent (HK also has the fastest 10 year growth rate — there is no such figure for China).

Audio boom: how podcasters make a living

The defining year for podcasting was perhaps 2014, when NPR launched Serial, a true-crime series that became a global phenomenon and the fastest podcast to reach 5m downloads on iTunes. It triggered a wave of wannabes. That year, Apple installed the podcast app into its operating system — suddenly iPhones had podcasts on the home screen. Today there are more than 500,000 active shows on iTunes, including content in more than 100 languages.

In 2006, only 22 per cent of Americans had heard the term “podcasting”, according to Edison Research and Triton Digital. Last year it was 60 per cent. Thirty-one per cent of 25- to 54-year-olds said they had listened to a podcast in the past month compared with 16 per cent four years earlier. Networks such as Gimlet, or the crowdfunded Radiotopia, have helped to professionalise podcasts by attracting large audiences and advertising revenues.


An ‘iceberg’ of unseen crimes: Many cyber offenses go unreported

To many criminologists, academics and law enforcement leaders, crimes like car theft are anachronisms in a modern era in which the internet’s virtual superhighways have supplanted brick-and-mortar streets as the scenes for muggings, prostitution rings or commercial burglaries. They see dips in traditional violence and larceny as offset by a twin phenomenon: A surge in the evolving crimes of the digital era, and the fact that they are not fully captured in law enforcement’s reporting systems.

The wealth of Sapiens

True wealth is not money. It’s the option to buy what you truly need. If money can’t buy what you need, you’re on even footing with the poorest person out there. Wealth is a society where you can trust complete strangers with your child’s life. Wealth is having friends, colleagues and family who support you. Who take care of the things you can’t, without hesitation. Wealthy is when strangers rent you cars for 1-way trips at 3am over the internet.

Curated Insights 2018.02.04

Ingvar Kamprad, Ikea’s Swedish billionaire founder, dies at 91

Kamprad was known for driving an old Volvo, recycling tea bags and taking home little packets of salt and pepper from restaurant visits. He was known as “Uncle Scrooge” and “The Miser” in the Swiss village of Epalinges, near Lausanne, where he moved in the 1970s before returning to Sweden a few years ago. He also avoided wearing suits and ties and traveled coach when flying.

Ikea’s corporate culture mirrors Kamprad’s celebration of frugality. Executives of the company travel on low-cost airlines and lodge in budget hotels. Its employees follow a basic pamphlet written by Kamprad in 1976, “The Testament of a Furniture Dealer,” which states that “wasting resources is a mortal sin,” and stipulates Ikea’s “duty to expand.”

The name Ikea is made up of the founder’s initials and the first letters of the Elmtaryd farm and Agunnaryd village where he was raised. His flat-pack furniture was invented by Ikea employee Gillis Lundgren in 1956 when he tried to fit a table into the back of a car. Realizing the table was too bulky, Lundgren removed the legs. Storing and selling Billy book shelves or entire kitchens in pieces has let Ikea cut storage space and fill its trucks with more goods. The concept of having customers pick up most of their own furniture in adjacent warehouses and transport it home for self-assembly also helped drive down costs.

How Amazon’s ad business could threaten Google and Facebook

But Amazon has a huge set of data that Facebook and Google can’t access—namely, its own. Already, more than half of all online searches for products start on Amazon, and of those a majority end there, according to various surveys. That figure has grown every year that pollsters have tracked it.

The Amazon Advertising Platform lets advertisers manage ad buys across multiple advertising exchanges, and it has quietly become as familiar to marketers as its equivalent from Google-owned DoubleClick.

Amazon also needs to expand the number of places it can sell advertisements, which is one reason the company bought videogame-streaming behemoth Twitch and is investing so heavily in its own streaming-video offerings.

How Apple built a chip powerhouse to threaten Qualcomm and Intel

…by designing its own chips, Apple cuts component costs, gets an early jump on future features because it controls research and development and keeps secrets away from frenemies such as Samsung…Those ultimately failed or stumbled because chip-making is the sport of kings: It’s brutally expensive and requires massive scale. Apple has wisely focused on designing its silicon (for its system on a chips, Apple uses reference designs from Arm Holdings Plc). Manufacturing is left to others, including Taiwan Semiconductor Manufacturing Co.

An investment pro who’s seen it all still sees upside for stocks

Over 40% of Standard & Poor’s 500 revenues now comes from abroad.

No other country is shrinking its equity base to the extent we are. We’re now in our ninth year of share buybacks equal to 3% of the market value of all S&P 500 stocks, based on Laszlo Birinyi’s work.

For 20 years, the average price/earnings ratio has been 19.3. If you go back 50 years, it’s 15.6 times. In periods where inflation grew 3% or less—which is 22 of the past 50 years—the P/E of the market was 19.7.

AlphaZero and the curse of human knowledge

Using self-play to recursively improve an agent’s ability to play a game isn’t new. Why hasn’t this method yielded a champion chess or Go engine until 2017? Historically, systems that improve via self-play have been very unstable. Previous attempts often ended up in cycles, forgetting and relearning strategies over and over rather than improving to superhuman levels. Or sometimes the agent would get stuck, failing to improve after achieving moderate success.

AlphaZero’s main contribution was solving these problems. After lots of experiments, DeepMind developed a series of new tricks and discovered a value function and tree search that reliably learned through self-play alone. They then leveraged their engineering talent and infrastructure resources to demonstrate that the system could work on the massive scale required to master complicated games such as chess and Go (the version that played Stockfish employed 5,000 custom machine learning chips).


Even if you knew the cards…

One of the (many) reasons I stopped heeding the macro forecasts of others and quit trying to come up with my own is that even if you knew what the future data would be, you’d still not be able to predict how people would react to it. You could certainly try, but markets are set up to confound us, not confirm our hypotheses.

Curated Insights 2018.01.28

Amazon Go and the future

In every case a huge amount of fixed costs up front is overwhelmed by the ongoing ability to make money at scale; to put it another way, tech company combine fixed costs with marginal revenue opportunities, such that they make more money on additional customers without any corresponding rise in costs.

To be both horizontal and vertical is incredibly difficult: horizontal companies often betray their economic model by trying to differentiate their vertical offerings; vertical companies lose their differentiation by trying to reach everyone. That, though, gives a hint as to how Amazon is building out its juggernaut: economic models — that is, the constraint on horizontal companies going vertical — can be overcome if the priority is not short-term profit maximization.

Amazon, though, having started with a software-based horizontal model and network-based differentiation, has not only started to build out its vertical stack but has spent massive amounts of money to do so. That spending is painful in the short-term — which is why most software companies avoid it — but it provides a massive moat. That is why, contra most of the analysis I have seen, I don’t think Amazon will license out the Amazon Go technology. Make no mistake, that is exactly what a company like Google would do (and as I expect them to do with Waymo), and for good reason: the best way to get the greatest possible return on software R&D is to spread it as far and wide as possible, which means licensing. The best way to build a moat, though, is to actually put in the effort to dig it, i.e. spend the money.

As for Amazon, the company’s goal to effectively tax all economic activity continues apace. Surely the company is grateful about the attention Facebook is receiving from the public, even as it builds a monopoly with a triple moat. The lines outside Amazon Go, though, are a reminder of exactly why aggregator monopolies are something entirely new: these companies are dominant because people love them. Regulation may be as elusive as Marx’s revolution.

People are using Netflix, Hulu, and Amazon Prime in very different ways

Diet Coke’s moment of panic

A growing consumer focus on health has clearly dented soda’s dominion. Beyond widespread concerns of the dangers of artificial sweeteners, government research has found that daily drinkers of diet soda are at higher risk for strokes and other “vascular events.” While Diet Coke’s new can designs are tall and slender—a possible reference to the body type a diet-beverage drinker seeks—more of them simply don’t trust any kind of soda to be a part of a healthy diet. Between 2000 and 2015, switching from sodas to other beverages saved the country an estimated 64 trillion calories in total—that works out to 71 fewer calories per day, per drinker.

The role of hydration has been outsourced to bottled water and sports drinks, like Gatorade. Getting a jolt of energy has been outsourced to coffee and energy drinks, like 5-Hour Energy. And the satisfaction of a cold liquid fizzing on one’s tongue? That’s been outsourced to the trendy crop of flavored seltzers, like LaCroix.


Nvidia, Western Digital at chips’ frontier

At the same time, Mobley, interestingly, asked if the ISA itself could be an “alternative” to a GPU or a digital signal processor (DSP). O’Connor seemed to indicate that was the case, saying “As they exist today, if you start implementing that kind of functionality — such as vector instructions, for example — you can implement all that functionality using the set of RISC-V extensions, instead of a proprietary instruction set architectures that might have existed up until now.”

That raises an interesting question for Nvidia as it rolls RISC-V out in chips in its next iteration of Falcon. Will an open, shared, standard ISA erode any of the lock-in that Nvidia gets for its GPUs? Or is the “CUDA” programming environment really the important software layer that helps Nvidia maintain and extend its dominance in programming?

Big bets on A.I. open a new frontier for chip start-ups, too

The explosion is akin to the sudden proliferation of PC and hard-drive makers in the 1980s. While these are small companies, and not all will survive, they have the power to fuel a period of rapid technological change.

Nvidia was best known for making graphics processing units, or G.P.U.s, which were designed to help render complex images for games and other software — and it turned out they worked really well for neural networks, too. Nvidia sold $143 million in chips for the massive computer data centers run by companies like Google in the year leading up to that summer — double the year before.

By early 2018, according to a report by Forbes, Cerebras had raised more than $100 million in funding. So had four other firms: Graphcore; another Silicon Valley outfit, Wave Computing; and two Beijing companies, Horizon Robotics and Cambricon, which is backed by the Chinese government.

It is still unclear how well any of these new chips will work. Designing and building a chip takes about 24 months, which means even the first viable hardware relying on them won’t arrive until this year. And the chip start-ups will face competition from Nvidia, Intel, Google and other industry giants.

Sony falls as JPMorgan questions bull case for image sensors

Sony is the global leader in the production of image sensors, camera chips which convert light into digital pictures and videos. Despite a cooling in the smartphone industry, it has benefited from a trend to include multiple image sensors in each phone — a technique used to create better-looking pictures and to power simple augmented-reality functions.

Weak demand for the new iPhone X will hurt Sony, which gets half of its image sensor revenue from Apple, Park wrote. He also said the trend for adopting dual cameras is not as strong as first believed, including among Chinese phone makers, which will further hit Sony’s sales.

In Sony’s latest quarter, image sensors accounted for 9.4 percent of revenue and 22 percent of operating profit.

The biggest electric vehicle company you’ve never heard of

Though it operates in similar sectors as Tesla, the companies are very different strategically. For instance, as Elon Musk’s Boring Company tunnels under cities to address congestion, BYD eyes elevated transportation.

Chinese tariffs and taxes on imported electric vehicles also benefit domestic manufacturers, which capture 93% of the market. BYD has an estimated 30% share. Tesla has 6% share, delivering an estimated 10,000 to 12,000 vehicles to China in 2016. Overall, electric vehicles represent less than 2% of total auto sales in China. Officials, however, aim to phase out fossil-fuel vehicles. BYD chairman Wang Chuanfu was quoted as saying that all vehicles will be electrified by 2030.

Although President Donald Trump has threatened a trade war with China, automobile manufacturing is less susceptible than other industries. Owing to freight rates, manufacturing cars locally within distribution markets makes economic sense. Still, BYD doesn’t currently have plans to sell consumer cars in the U.S. Owing to governmental policies and low fuel prices, Li said the U.S. market isn’t as welcoming to new energy vehicles as China, India, and Europe are.


Electricity from all forms of renewables will be consistently cheaper than fossil fuels by 2020

Today, fossil-fuel power typically costs between $0.05 to $0.17 per kWh. By comparison, consider the global-weighted average cost of electricity generated by various forms of renewables in 2017, as calculated by Irena: hydropower ($0.05 per kWh), onshore wind ($0.06 per kWh), bioenergy and geothermal ($0.07 per kWh), and solar photovoltaics ($0.10 per kWh).

Offshore wind and solar thermal power aren’t yet competitive with fossil fuels, but that should change by 2020, Irena predicts, with the cost of solar thermal falling to $0.06 per kWh and offshore wind to $0.10 per kWh. The drivers will be technology development, competitive bidding systems, and large base of experienced project developers across the world.


Bigger, higher and floating — advances that make wind a better power source

It accounted for close to 40 per cent of Denmark’s electricity mix in 2016 and about 10 per cent across the EU. Wind farms were the leading source of new electricity generating capacity in Europe, the US and Canada in 2015, and the second largest in China.

Despite this, less than 4 per cent of the world’s electricity came from the wind in 2015. That is nowhere near enough to help shift the global economy away from the climate-warming fossil fuels that still supply most of the world’s energy.


The three stumbling blocks to a solar-powered nation

Every hour, our sun bombards the Earth with enough light to satisfy humanity’s energy needs for an entire year.

Cell cost: For solar power to meet 30% of the world’s electricity needs, it will need to fall from its current cost of a dollar per watt of electricity to 25 cents per watt…Perovskite cells can be made from materials that could be radically cheaper than conventional silicon. They can also take on novel forms, such as a tint on windows or thin printable sheets. But they still face significant barriers to commercialization: They tend to rapidly degrade when wet, and scientists can’t create large cells with the same efficiency as the small ones they can make in a lab.

Energy management: It isn’t hard to get to the point where solar is producing too much power at some times of day, and none at all when it’s needed most. The first solar panel added to the grid helps offset midday consumption, but the last one to be added might be completely unnecessary, because the grid might already be saturated when it’s capable of producing the most power.

Soft utility costs: The Energy Department estimates that soft costs contribute as much as 64% of the cost of a solar installation. The rest of the cost is split between mounting hardware for solar panels and the cells themselves.

Why 2017 was the best year in human history

Every day, the number of people around the world living in extreme poverty (less than about $2 a day) goes down by 217,000, according to calculations by Max Roser, an Oxford University economist who runs a website called Our World in Data. Every day, 325,000 more people gain access to electricity. And 300,000 more gain access to clean drinking water.

Curated Insights 2018.01.07

The $100 billion venture capital bomb

Son must deploy $20 billion, or a fifth of the fund, every year for the next five years to meet investors’ terms and their expectations in a market that many already consider overvalued.

Son explained to Hauser that there was a big new wave of computing coming — the sixth, in Hauser’s estimation, following on from the mainframe, the minicomputer, the workstation, the PC, and mobile. This next wave would automate processes in industrial manufacturing and on consumer devices. Son said Arm could uniquely capitalize on this new order as the leading processor manufacturer behind the Internet of things.

“This is the company,” Son said in a televised interview. “No one can live on the earth without chips — it’s in cars, refrigerators, everywhere. So if chips are the things everyone needs, and one company has a 99 percent market share, there must be a barrier. They’re not monetizing well enough. But if I own it, we can monetize it much better. I think the company is going to be more valuable than Google.”

Aside from its 95 percent domination of smartphones, Arm has 34 percent of the global processors market. There are currently 110 billion Arm processors in the world. The company has forecast a total of one trillion by 2035. As the applications get more advanced — be that a car, a washing machine, or a drone — they demand smarter processors, which are more expensive to produce in-house. “We price our fee at a tenth of the cost of what it would cost to develop it yourself,” Thornton notes. “So when you’re staring down the barrel of $100 billion and ten years to develop that processor yourself, we can say it will cost $10 billion from us and you can have it instantly. This is why we have expanded so rapidly over 20 years. One by one, design team by design team, we will become the processor of choice in those markets.”

“Arm Holdings has an insight into the future. When Arm makes a contract with a new business venture, providing the Internet of things for automobiles or farming, Arm will know what is in the pipeline for the Internet of things two years ahead.” SoftBank, in turn, gets a head start on funding companies for a market that doesn’t yet exist.

Analysts say SoftBank, which declined to comment for this article, is at work on vertical integration: Foxconn builds devices, Arm supplies the chips, and SoftBank-owned Sprint and OneWeb, an Internet satellite company, operate the networks on which the devices run. Vision Fund portfolio companies will reap the benefits of these partnerships. SoftBank sits in the middle, introducing high-growth prospects from the fund to one another and to the infrastructure on which their success rides.

Units of time are the new currency

Buffett’s not wrong, but technology has changed the nature of competition. While businesses were once considered only as valuable as the dividends they paid out, the “impenetrable” moats that let companies spit off excess cash are dwindling. A moat today is simply a temporary buffer that helps a company get ahead of the next innovation cycle. When you compound time, you’re creating and recreating value faster than the current innovation cycle.

This is the formula for compounding time into a utility and beyond: 1) Reduce friction for your customers and yourself. Use the time you save to build your utility. 2) Compound time by investing in the ecosystem and getting other companies to integrate with your product. Other companies will integrate with you to save themselves time, building on top of your platform and giving you time to invest in the next great business. 3) Buy other people’s time to defend your utility and stay relevant. Smartly acquiring new products helps you maintain your utility.

Jeff Bezos: “All service interfaces, without exception, must be designed from the ground up to be externalizable. That is to say, the team must plan and design to be able to expose the interface to developers in the outside world. No exceptions.” While this created more work in the short-term, it broke Amazon down into hundreds of micro-services that communicated via APIs. By making all services accessible via API, Amazon drastically reduced the time it took to deploy new features and functionality.

Google’s machine-learning algorithms are reportedly five to seven years ahead of the competition. By keeping TensorFlow to itself, Google would have maintained its lead time — similar to how moats are created by stockpiling assets. But by taking the opposite approach and giving TensorFlow away for free, Google created a utility.

Building a traditional moat will be antithetical to building a great business. The only way to survive is to extract the core of your business and spread it out to compound returns on time. First, you have to save time for your customers and even yourself. Then, you have to invest it forward by co-operating with other products in your ecosystem. Finally, you have to acquire new innovation to maintain your lead.


Why has Waymo taken so long to commercialize autonomous taxis?

To estimate the rate at which passengers will tolerate autonomous taxi errors, we analyzed the manually driven car statistics to set the hurdle. On average human driven cars break down roughly once every 50,000 miles and crash once every 240,000 miles,2 thus offering perspective on acceptable tolerance rates for autonomous vehicle SIFs and UFs.

Supporting this hypothesis, its cars seem to have had difficulty making left turns. One possible explanation is that it has chosen not to vertically-integrate, outsourcing vehicle production to partners like Fiat Chrysler and then taking engineering shortcuts by integrating its sensor suite into a product manufactured away from its controls. In contrast, Tesla’s and Cruise Automation’s (GM) manufacturing operations are vertically-integrated, which could become an important source of competitive advantage.

We are skeptical of that negative conclusion for a number of reasons. Today, Waymo probably is trying to maximize its failure rate to identify faults and root them out. Some stretches of road are trickier and some intersections more difficult to navigate than others.

Getting my fix of Starbucks

SBUX has been successful engendering loyalty from its customers as well- Starbucks Rewards has 13.3mm members in the US and an incredible 36% of all dollars tendered in the stores is transacted through the loyalty program (US Company operated stores).

In the US- the average new SBUX location generates revenue of $1.5mm (average unit volume or AUV) and generates a year 1 store profit margin of 34% or $510k. Based on an average store investment of $700k in the US, this results in an ROI of ~75%. Compare this to a McDonalds with an ROI of ~30%, an average fast casual operator at ~40% or even Chipotle (at its peak before the food illness issues) at ~70%. This means that the average SBUX store earns back its investment a third of the way into its second year – very compelling unit economics. The math likely changes with higher investments in Reserve stores and premium Roasteries in the coming years but if these seek to elevate the overall SBUX experience and thus drive pricing power through the entire system, it’s the right move for the long term.

Starbucks is a well-positioned company led by a smart management team playing “the long game”. While store growth in more mature markets and continuing competition in premium coffee may be a drag to future growth, Starbucks benefits from a moat in the form of a strong brand and a loyal, repeat customer that can be extended into more markets and into more than just coffee. And I believe that this moat is sustainable under the right leadership team that understands that Starbucks delivers an experience that extends far beyond just selling coffee. The sustainability of the moat is predicated on continued investment to elevate the store experience and thus drive pricing power. Management has demonstrated a willingness and enthusiasm to invest and has ample runway to do so while also rewarding shareholders with share repurchases.

How big tech is going after your health care

Now, as consumers, medical centers and insurers increasingly embrace health-tracking apps, tech companies want a bigger share of the more than $3 trillion spent annually on health care in the United States, too. The Apple Heart Study reflects that intensified effort.

Each tech company is taking its own approach, betting that its core business strengths could ultimately improve people’s health — or at least make health care more efficient. Apple, for example, has focused on its consumer products, Microsoft on online storage and analytics services, and Alphabet, Google’s parent company, on data.

Last year, Facebook made it more appealing for pharmaceutical companies to advertise their medicines on the platform by introducing a rolling scroll feature where drug makers can list their drug’s side effects in an ad. Such risk disclosures are required by federal drug marketing rules.


Western Digital, Nvidia on board with ‘RISC-V,’ so pay attention, says Benchmark

Any investor interested in learning how adoption of RISC-V stands to disrupt the CISC and RISC processor domains, including discrete processors and/or processor IP (cores and architectures) embedded within simple MCUs as well as advanced ASICs. Additionally, RISC-V stands to disrupt R&D development roadmaps for merchant and captive SoC companies. For example, if Western Digital truly intends to adopt RISC-V in storage products, Marvell will need to reconsider usage of Arm cores. This could lower the upfront licensing and royalty costs for Marvell; however, it may require a revamping of Marvell’s storage controller design flow. Processor IP companies such as Arm Holdings, Synopsys, Cadence Design, Imagination Tech and even CEVA, Inc. could see an impact.

China removes 1,400 baby formula products from shelves

The regulations, effective Jan. 1, require factories making formula to register those products with China’s Food and Drug Administration and pass safety inspections. Plants are limited to working with three brands, and those brands can make only three different products each. China’s FDA has approved 940 infant-formula products from 129 factories so far, the agency said. That compares with more than 2,300 formulations available to parents before Jan. 1.

That vaulted Nestle, Danone and Reckitt Benckiser Group Plc into the top spots in the $20 billion market, according to Euromonitor International.

Capturing those families will be crucial. With the relaxation of China’s one-child policy, Reckitt Benckiser anticipates about 20 million babies being born annually, which could trigger an annual growth rate of at least 7 percent in the infant-formula category during the next five years, said Patty O’Hayer, a spokeswoman. The company bought Mead Johnson for $16.6 billion last year, and its Enfa and Enfinitas brands were approved for sale. Asia generated half of the Enfa lineup’s $3.7 billion in sales for 2016.

The Paris-based company wants to deploy technology such as laser printing to make tampering more difficult and QR codes to ensure traceability of a product back to the factory — moves intended to assure Chinese parents concerned about food safety.

Cancer deaths fall to lowest rate in decades

While a number of breakthrough, high-cost drugs have improved the outlook for people with some deadly cancers, the biggest cause of the decrease in deaths is that Americans are smoking less. The report found decreased smoking rates, and improved detection and treatment, have led to sharp declines in the rate of lung, breast, prostate and colorectal cancer deaths.

How blockchain technology is redefining trust

‘Regulators will like that blockchain-based transactions can achieve greater transparency and traceability– an “immutable audit trail”,’ Masters says. In other words, it could help eliminate the kinds of fraud that come from cooking the books.

How do typical loans work? A bank assesses the credit score of an individual or business and decides whether to lend money. The blockchain could become the source to check the creditworthiness of any potential borrower, thereby facilitating more and more peer‑​to‑​peer financing.

Consider traditional accounting, a multi-billion industry largely dominated by the ‘big four’ audit firms, Deloitte, KPMG, Ernst & Young, and PwC. The digital distributed ledger could transparently report the financial transactions of an organization in real time, reducing the need for traditional accounting practices. And that is why most major players in the financial industry are busy investing significant resources into blockchain solutions. They have to embrace this new paradigm to ensure it works for, not against, them.

In the patent, Goldman describes SETLcoin as having the potential to guarantee ”nearly instantaneous execution and settlement“ for trades. It would mean all the capital the bank is required to keep in reserve, to hedge against the risk of transactions if they don’t settle, would be freed up.

The blockchain raises a key human question: How much should we pay to trust one another? In the past year, I’ve paid my bank interest and fees, some hidden, to verify accounts and balances so that I could make payments to strangers. I’ve spent thousands of dollars on lawyers to draw up contracts because I am not quite sure how another person will behave (and to sort out a few incidents where trust broke down). I’ve paid my insurance company to oversee the risk around my health, car, home, and even life. I’ve paid an accountant to reconcile an auditing issue. I’ve paid an estate agent tens of thousands of dollars essentially to stand between me, the prospective buyer, and the current owner to buy a house. It would seem we pay a lot for people to lord over our lives and double-check what’s happening. All these ‘trusted intermediaries’ are part of the world of institutional trust that is now being deeply questioned.

Today, it is circa 1993 for blockchain technologies. Even though most people barely know what the blockchain is, a decade or so from now it will be like the internet: We’ll wonder how society ever functioned without it. The internet transformed how we share information and connect; the blockchain will transform how we exchange value and whom we trust.


Bitcoin-is-Worse-is-Better

It’s not the decentralized aspect of Bitcoin, it’s how Bitcoin is decentralized: a cryptographer would have difficulty coming up with Bitcoin because the mechanism is so ugly and there are so many elegant features he wants in it. A cryptographer’s taste is for cryptosystems optimized for efficiency and theorems; it is not for systems optimized for virulence, for their sociological appeal. Centralized systems are natural solutions because they are easy, like the integers are easy; but like the integers are but a vanishingly small subset of the reals, so too are centralized systems a tiny subset of decentralized ones. It may be that Bitcoin’s greatest virtue is not its deflation, nor its microtransactions, but its viral distributed nature; it can wait for its opportunity. If you sit by the bank of the river long enough, you can watch the bodies of your enemies float by.

Gyms ditch machines to make space for free weights

In recent years the 420-location chain has scaled back cardio and weight machines to 50% of floor space from about 66%. The gym devotes the other half of floor space to free weights and functional training, which includes things like kettlebell swings and body-weight exercises with TRX suspension straps. It has also expanded its studio group-exercise classes.

“I prefer to do classes, because the teacher pushes me farther than I would push myself,” she says. “I get bored on cardio machines or on the weight machines.”

The shift away from machines is even more pronounced overseas. In 54 gyms of varying price levels in the U.K., members’ time spent on cardio machines dropped 7% between 2013 and this year, even as the total number of gym visits increased, according to an analysis from Edinburgh-based tracking firm GYMetrix.

The Remarkable Early Years of Warren Buffett (Part 1)

The risks of buying a home that’s too big

“The biggest house isn’t necessarily the best house or even the best investment. An older, smaller home with a shorter commute, bigger lot or greater remodel potential may appreciate more. In fact, many fancy new homes can lose value quickly if a developer builds newer homes nearby, while older areas may have more enduring land value.”

“You want enough space to live comfortably, but you don’t want to heat, clean and pay taxes on space you aren’t utilizing.”

Long-term returns. The money saved in buying a right-size home could pay dividends in the future—literally. A $20,000 savings each year over the life of a 30-year mortgage could result in a nearly $1.2 million nest egg if invested in a stock market portfolio earning 4% a year, Ms. Adam says. The annual savings, when compounded over time, is likely to exceed the appreciation in your home’s value over the term of the mortgage.

Curated Insights 2017.12.24

Why Tesla wants a piece of the commercial trucking industry

But above all, it’s business opportunity—and trucking is the physical embodiment of a thriving economy. Trucks moved more than 70% of all U.S. freight and generated $676 billion in revenue in 2016, according to the American Trucking Associations. Some 33.8 million trucks were registered for business purposes in 2016. Almost 4 million of them were categorized Class 8, denoting the largest freight trucks.

Other autonomous trucking startups are in hot pursuit. TuSimple, a company that has operations in China and San Diego and is backed by Nvidia and Sina Corp., plans to test fleets on two routes: one 120-mile stretch between Tucson and Phoenix and another segment in Shanghai. Meanwhile Nikola Motor is designing and building its own driverless, hydrogen fuel cell–powered Class 8 truck—“the iPhone of trucking,” says CEO Trevor Milton. “In the next eight years, you’re going to see a complete transformation of trucking,” he adds.


In China, a three-digit score could dictate tour place in society

In 2015 Ant Financial was one of eight tech companies granted approval from the People’s Bank of China to develop their own private credit scoring platforms. Zhima Credit appeared in the Alipay app shortly after that. The service tracks your behavior on the app to arrive at a score between 350 and 950, and offers perks and rewards to those with good scores. Zhima Credit’s algorithm considers not only whether you repay your bills but also what you buy, what degrees you hold, and the scores of your friends. Like Fair and Isaac decades earlier, Ant Financial executives talked publicly about how a data-driven approach would open up the financial system to people who had been locked out, like students and rural Chinese. For the more than 200 million Alipay users who have opted in to Zhima Credit, the sell is clear: Your data will magically open doors for you.

Zhima Credit is dedicated to creating trust in a commercial setting and independent of any government-initiated social credit system. Zhima Credit does not share user scores or underlying data with any third party including the government without the user’s prior consent.”

The State Council has signaled that under the national social credit system people will be penalized for the crime of spreading online rumors, among other offenses, and that those deemed “seriously untrustworthy” can expect to receive substandard services. Ant Financial appears to be aiming for a society divided along moral lines as well. As Lucy Peng, the company’s chief executive, was quoted as saying in Ant Financial, Zhima Credit “will ensure that the bad people in society don’t have a place to go, while good people can move freely and without obstruction.”

For those with good behavior, Zhima Credit offers perks through cooperation agreements that Ant Financial has signed with hundreds of companies and institutions. Shenzhou Zuche, a car rental company, allows people with credit scores over 650 to rent a car without a deposit. In exchange for this vetting, Shenzhou Zuche shares data, so that if a Zhima Credit user crashes one of the rental company’s cars and refuses to pay up, that detail is fed back into his or her credit score. For a while people with scores over 750 could even skip the security check line at Beijing Capital Airport.


Tencent and Alibaba go abroad to push for growth and know-how

“[Tencent] are willing to look at anything they think will help them to export what they know in China to other countries,” he says, describing the company’s efforts as a China-inspired “third way” of doing M&A. “The deals they are doing tend to be very strategic, and the size of the deals is typically hundreds of millions of dollars or single-digit billions, whereas those by Anbang, HNA and the rest are tens of billions of dollars and unrelated with nothing strategic about it,” says one banker.

Meituan-Dianping, the biggest company in food delivery, ticketing and other services that was valued at $30bn in its latest fundraising, gives Tencent access to swaths of merchants and customers in physical restaurants and stores. “This capability is not something Tencent has in-house, but it’s something that will be beneficial to help it grow its ecosystem. We can push Tencent payments, and small merchants to work with Tencent platforms. And Tencent can bring their traffic to us, provide infrastructure, mapping, cloud services. So this is very complementary.”


Facebook: The bear case will only gain momentum, says Moffett Nathanson

Bull case is predicated on its massive scale […] 2.1 billion monthly users and 1.4 billion daily active users, representing 58% and 39% of the globe’s Internet users […] the level of scale, reach and gigantic trove of data that comes with it clearly has immense value for targeted marketers […] still growing MAUs at respectable rates […] growth is even more impressive in the developing regions [….] 17% CAGR in the Rest of World over the past three years has and has sourced more than a third of its growth from here over that period […] immense base of advertisers […] staggering 6 million advertisers in November of 2017 […] this diversification is a huge asset […] very different than traditional media where, in areas like Network TV, the top 100 clients generally represent 2/3 of ad dollars […] still has a huge opportunity in international and messaging […] in every country except France, Canada, China, the U.S., and the U.K., WhatsApp is the dominant IM platform with more than 60%+ penetration […] We think that if it can get the formula right, it already has a significant user foothold and runway for ramping revenue quickly […] Street estimates look too conservative [for 2018] Street’s conservatism in forecasting despite years of outperformance is a result of Facebook’s aggressive expectation management […] It’s still really cheap! Facebook currently trades at 19x 2018 EV/Ebitda […] By comparison, Priceline (PCLN) is trading at 18X.

Facebook’s video strategy remains a mystery [….] It hosts this content in its standalone Watch Tab […] We don’t think it has been terribly successful here, and wonder how many users even realize or opt to click the Watch Tab when on Facebook […] Facebook hasn’t been aggressive in approaching studios or smaller video creators for content. It appears that Facebook is slowly trying to tiptoe […] Facebook has really frustrated producers by continually changing what it is looking for […] Engagement amongst younger demos has been waning […] Facebook’s video push is more than simply nice to have, it’s now a must have if it wants to stave off further engagement declines […] Facebook has apparently hit the upper bound of its ad load on core Facebook […] The story has moved from a largely volume driven one to a largely pricing driven one […] businesses that have years of significant double digit volume growth ahead of them certainly look more appealing and greenfield other things being equal than those that have moved into the pricing growth phase of their lifecycle […] Despite the significant traction for Messenger and WhatsApp globally, Facebook’s ability to meaningfully monetize them still remains a major question mark […] [Congressional investigations into Russian advertising, etc.] are just the beginning of a bigger regulatory review of Facebook’s influence on our society and political process. As a result, it could spell years’ worth of incremental investment to help police the problem […] With 82%+ of analysts with a Buy rating on Facebook for the last 3.5 years […] any hiccups in growth or profitability could lead to a downside reaction that is amplified.


Amazon hasn’t figured out drugstores yet. But it will have to

Even so, many shoppers prefer get their medications from a store, which offers peace of mind that their order is correct and the opportunity to speak with a pharmacist. Mail-order prescriptions fell 23 percent from 2012 to 2016, according to Adam Fein, CEO of the Drug Channels Institute, with mail pharmacies dispensing only 10 percent of all 30-day equivalent prescriptions in 2016. And the cash generic-drug market for the uninsured — once eyed by Wal-Mart — is considerably smaller thanks to Medicare Part D and Obamacare. The cash market makes up about 7 percent to 8 percent of all prescriptions, and has been declining slowly along with the number of uninsured people, according to Fein. Revenues from cash-paid prescriptions are about $25 billion a year, he said.The most promising window for Amazon may be the rising out-of-pocket costs shouldered by those with prescription-insurance plans. About half of all insurance plans had deductibles on prescription drugs in 2016, up from 23 percent in 2012, according to Pharmaceutical Research and Manufacturers of America. If insured drug-takers become more cost-conscious, Amazon could attempt to bring convenient online price transparency to a complex industry that makes it difficult for customers to shop around. Amazon could be encouraged to push through the complexities to increase the value of Prime membership. Two-thirds of Prime members would fill prescriptions through Amazon if the company offered them, according to research by Cowen Inc.

The loopholes drug companies use to keep prices high

The expiration date for the main Revlimid patent will be 2019. But Celgene’s business tactics, also used by other drugmakers, could allow the company to put off unrestricted competition from generics until 2026. That would cost Americans an extra $45 billion just for Revlimid, according to I-MAK, a consumer advocate.

Among the shenanigans: Securing new patents that extend old ones. Keeping brand-name drugs under wraps so generic makers can’t copy them. Filing so-called citizen petitions that gum up the FDA approval process for rivals. Negotiating restrictive deals with drug plans that crowd out less expensive drugs.

Citizen petitions are another way brand-name drug companies delay approval of competitors’ products. The petitions were designed to elicit public concerns about the drugs. The FDA is required to divert resources to address each one. From 2011 to 2015, brand-name drugmakers filed 108 citizen petitions during the approval process for cheaper versions, and 91 percent were denied, according to a paper by Rutgers University Law Professor Michael Carrier. The petitions “can play a crucial role in delaying generic entry,” he wrote. The introduction of cheaper generics can be delayed even after a brand-name patent has been invalidated in court.


A hospital giant discovers that collecting debt pays better than curing ills

The amount of past-due medical debt in the U.S. is about $75 billion, spread among 43 million people, according to estimates from economists at MIT, Northwestern University and the University of Chicago.

As Tenet and other hospital companies struggle to make money providing medical care, they are turning to the profitable and growing business of collecting debt. Most hospitals have finance departments or outside companies that try to ensure they get paid by insurers and patients. But Tenet has gone a step further than most, turning its operation into a separate business line called Conifer and contracting its services to other medical providers.

Collecting payment has become more important as hospitals’ traditional revenue streams come under pressure. Looming cuts to Medicare reimbursements may make as many as 60 percent of U.S. hospitals unprofitable, compared with about 25 percent currently, according to a 2016 Congressional Budget Office analysis.


Blow to Uber in Europe as top court rules it’s a transport service

The judgement means Uber must comply with individual Member States’ transportation regulations, and cannot claim its p2p ride-hailing services are only governed by less restrictive EU-wide ecommerce rules.

In its ruling the court writes that Uber’s “intermediation service… must be regarded as being inherently linked to a transport service and, accordingly, must be classified as ‘a service in the field of transport’ within the meaning of EU law. Consequently, such a service must be excluded from the scope of the freedom to provide services in general as well as the directive on services in the internal market and the directive on electronic commerce. It follows that, as EU law currently stands, it is for the Member States to regulate the conditions under which such services are to be provided.”


Asimov: Engineering biology

Not only do such biological circuit design automation tools give bioengineers the ability to debug biological circuits much like we debug software — with complete detail of what the simulated circuit is doing — but Asimov engineers have also developed modular biological circuit components that don’t have adverse reactions to other parts of the cell. Why does this matter? It’s akin to a computer programmer designing code that is then injected into a running program or existing operating system. These biological building blocks can be easily used downstream by circuit designers — the bio advance in turn facilitates the computer science advance, namely the accurate simulation of biological circuits.

With Asimov’s approach, high-accuracy simulation, and circuit building-blocks, we can greatly speed the development of biological circuits — decreasing their cost, and greatly increasing their sophistication and complexity.

Because biology is everywhere, living cells have applications in everything from food and materials to agriculture to healthcare. In fact, 7 of the top 10 drugs today are biologics, i.e., proteins that have therapeutic properties. These proteins are manufactured in cells at the cost of billions of dollars. Asimov’s technology could drive a dramatic reduction in cost to patients — enabling these drugs to be in the hands of more and more people.

Auctions & power

This results in decaying economics to the advertisers, as more advertisers join the auction to bid on keywords and clicks become more expensive. Google hides behind the overall statistic that its cost-per-click has been routinely getting cheaper on the aggregate even though this is a direct result of the mix shifting from desktop to mobile, where clicks are nearly ⅔ lower than on desktop.

Since Google is effectively a toll road on the internet, capturing over 90% of the searches performed in nearly every country it touches, advertisers are forced to play ball. But they’re not happy. Not many bidders to an auction come away saying, “wow, we got such a great deal.” In fact, the entire online travel industry is starting to find television advertising an equally compelling offer for their businesses over time. Even in real estate transactions, even if there are just two parties bidding on the property, the auction is designed to capture the highest value from the buyers.

The worst case scorched-earth scenario is far worse for Priceline. It’s a particularly bad time for booking.com to open up space for hotels to be bidding on clicks in TripAdvisor’s auctions. At the same time, ctrip.com is getting more aggressive in western markets and third party OTA supply on TripAdvisor has been building, with >80% of listings having a third, fourth or fifth OTA option. Because booking.com charges considerably higher commissions than TripAdvisor, hotels are highly incentivized to divert traffic away from Priceline’s channels.


China’s $189 billion giant of finance reveals a huge bet on tech

In the first nine months of 2017, Ping An got more than 70 percent of its earnings from insurance, with banking and asset management each contributing about 15 percent. Profit from its fintech units amounted to 1 percent of the group’s total, a proportion that Bloomberg Intelligence analyst Steven Lam estimates could increase to 3 percent to 5 percent in five years.

One risk for Ping An is that China’s tech companies are building their own financial services ecosystems. Alibaba and Tencent already dominate the online payments industry and are expanding rapidly into areas including asset management, lending and insurance. Ping An’s Tan argues that the company’s massive cache of financial data (it has nine petabytes of the stuff), combined with its offline resources, make the company’s products “fairly difficult” to replicate.


Beijing’s electric-car push could produce a world-class Chinese auto brand

China already leads globally in EV sales, passing the U.S. in 2015. Sales of new-energy vehicles, or NEVs (EVs, plug-in hybrids, and fuel-cell vehicles), may top 700,000 units in 2017 and 1 million in 2018, says Xu Haidong, assistant secretary-general of the China Association of Automobile Manufacturers. Almost all those cars are Chinese brands. The government has set a target of 7 million vehicles by 2025. To reach that goal, it’s doling out subsidies and tightening regulations around fossil-fuel cars.

“With electric cars, the cards are being reshuffled,” says Wolfgang Bernhart, a senior partner at Roland Berger Strategy Consultants in Munich. “We’ll see significantly more competition.” That could happen far from the mainland. “It’s obvious that Chinese carmakers want to sell their cars abroad,” says Klaus Rosenfeld, chief executive officer of German parts maker Schaeffler AG. “China’s manufacturers know that it will be tough for them to compete on combustion engines in our home market. But the shift to more and more electric cars may become an opportunity for them.”


China is building some of the world’s biggest packaged food companies

Having American brands gives WH Group a way to reach upscale consumers in the country that eats about half of the world’s pork, said Kenneth Sullivan, chief executive officer of Smithfield Foods and an executive director of Hong Kong-listed WH Group.

Chinese per-capita consumption is 39.4 kilograms (87 pounds) a year, and domestic hog farms can’t keep up with demand. U.S. pork exports to China and Hong Kong totaled 545,000 metric tons last year, a 61 percent increase from 2015, according to the U.S. Meat Export Federation.

Smithfield can’t export sausage, ham and bacon from its U.S. factories because China prohibits imports of processed meat. So WH Group opened an 800 million-yuan ($116 million) factory in Zhengzhou that will produce 30,000 metric tons of those meats when it reaches full capacity next year.

Truth from zero?

The achievements in Go and Shogi—the Japanese game whose higher depth in relation to Western chess we discussed three years ago—strike us as greater than AlphaZero’s score of 28 wins, 72 draws, and no losses against the champion Stockfish chess program. One measure of greatness comes from the difference in Elo ratings between the machine and the best human players. AlphaGo Zero’s measured rating of 5185 is over 1,500 points higher than the best human players on the scale used in Go. In Shogi, the paper shows AlphaZero zooming toward 4500 whereas the top human rating shown here as of 11/26/17 is 2703, again a difference over 1,500. In chess, however, as shown in the graphs atop page 4 of the paper, AlphaZero stays under 3500, which is less than 700 ahead of human players.

Although AlphaZero’s 64-36 margin over Stockfish looks like a shellacking, it amounts to only 100 points difference on the Elo scale. The scale was built around the idea that a 200-point difference corresponds to about 75% expectation for the stronger player—and this applies to all games. Higher gains become multiplicatively harder to achieve and maintain. This makes the huge margins in Go and Shogi all the more remarkable.

Bitcoin billionaires may have found a way to cash out

The U.S. Securities and Exchange Commission rejected the use of the Gemini exchange to determine bitcoin prices — which Cboe is using for the daily settlement of bitcoin futures — and has expressed doubts about using an index of exchanges — which CME is using. This creates the possibility that a few million dollars of actual bitcoin transactions, assembled in untested ways, will drive hundreds of millions of dollars of derivative settlement payments, which in turn could set the price for potentially tens of billions of dollars of ETFs.

If, say, 1 percent of all bitcoin were taken off the market and held as option collateral, 4 and financial investors put up cash in one-year derivatives, that could do a lot to stabilize the market. That means both reducing price volatility and giving confidence that market prices represent true trading prices for institutional quantities of bitcoin. This, in turn, could make Cboe and CME cash-settled futures more attractive, and thereby represent a solid base for bitcoin ETFs.

On the other hand, if bitcoin billionaires stay out of the market, institutional investment in bitcoin will remain problematic. Individuals will be able to trade small amounts in a fragmented market of loosely regulated exchanges, but futures and ETFs will not be securely backed by physical bitcoin — their prices will be pushed around by betting sentiment of people who own no bitcoin.

What Is Ethereum?

Note that because every single operation on the EVM is executed by every node, computing on the EVM is expensive. Therefore — and according to Ethereum’s development tutorial — the best current use-cases for Ethereum are for running business logic: “if this, then that.” Other use cases might be prohibitively expensive. Due to current issues around scalability and the size of Ethereum’s blockchain, more computationally-intensive programs will find it difficult and expensive to operate on the EVM.

Here’s another way to think about it: where Bitcoin could help users avoid banks, Ethereum could help users bypass platforms like Facebook, Amazon, or any number of more complex middlemen. Once upon a time, developers of a game or a collectible like CryptoKitties might have launched a Farmville-style game on Facebook, or a physical product on Amazon. Today, instead of doing that or building their own blockchains from scratch, developers can use the EVM to create their own decentralized applications – like Cryptokitties.

Can this man build a better bitcoin?

Vitalik Buterin grasped the significance immediately. Prior to creating Ethereum, Buterin covered the San Jose Bitcoin conference as a correspondent for Bitcoin Magazine, a publication he cofounded. The wunderkind programmer interviewed Ben-Sasson about his breakthroughs, and it left an indelible impression. “Personally, I think zk-SNARKs are a hugely important, absolutely game-changing technology,” Buterin tells Fortune. “They are the single most under-hyped thing in cryptography right now.”

In January 2009, Wilcox became perhaps the first person ever to blog about Bitcoin in a post titled “Decentralized Money” on his personal blog, Zooko’s Hack Log. Satoshi Nakamoto returned the favor several weeks later, linking to Wilcox’s write-up in an addendum to a preliminary release of the Bitcoin software on Bitcoin.org, the newly created project’s home page. Wilcox was one of only three people to receive an honorable mention in the “related links” section. (The others were Nick Szabo, inventor of “bit gold,” and Wei Dai, creator of “b-money.”)