Curated Insights 2018.08.31

What will always be true

Think about how profound this is. One of the shortest lived mammals and one of the longest lived both have the same expected number of heart beats at birth. The term for differently sized systems displaying similar behavior is known as scale invariance and can be applied to non-biological systems as well.

As the number of employees increases, company revenue increases slightly exponentially/superlinearly. To be exact, every time the number of employees doubles (a 100% increase), revenue goes up by 112% (more than double). This corresponds to the slope of the line above at 1.12 (on a log-log scale). Note that this does not imply causality between these two metrics, but that, in a successful business, they tend to move together in some organic fashion.

For example, Netflix prides itself on being “lean”, Amazon hires thousands of warehouse workers, and Apple has a large retail presence, yet they all seem to adhere to some natural law related to company size and revenue as seen by their similar slopes. I found the same thing when comparing the number of employees to total assets as well, except the scaling exponent was slightly higher at 1.25:

Even if we cured cancer, we only add 3 years to life expectancy. Of course this is still a noble goal because it would prevent so much pain for so many people, but it doesn’t change the fact that life leads to death. It doesn’t change what will always be true. So take your 2.2 billion heart beats and make them count. They are the only ones you will ever get.

How TripAdvisor changed travel

Over its two decades in business, TripAdvisor has turned an initial investment of $3m into a$7bn business by figuring out how to provide a service that no other tech company has quite mastered: constantly updated information about every imaginable element of travel, courtesy of an ever-growing army of contributors who provide their services for free. Browsing through TripAdvisor’s 660m reviews is a study in extremes.

Researchers studying Yelp, one of TripAdvisor’s main competitors, found that a one-star increase meant a 5-9% increase in revenue. Before TripAdvisor, the customer was only nominally king. After, he became a veritable tyrant, with the power to make or break lives.

As the so-called “reputation economy” has grown, so too has a shadow industry of fake reviews, which can be bought, sold and traded online. For TripAdvisor, this trend amounts to an existential threat. Its business depends on having real consumers post real reviews. Without that, says Dina Mayzlin, a professor of marketing at the University of Southern California, “the whole thing falls apart”. And there have been moments, over the past several years, when it looked like things were falling apart. One of the most dangerous things about the rise of fake reviews is that they have also endangered genuine ones – as companies like TripAdvisor raced to eliminate fraudulent posts from their sites, they ended up taking down some truthful ones, too. And given that user reviews can go beyond complaints about bad service and peeling wallpaper, to much more serious claims about fraud, theft and sexual assault, their removal becomes a grave problem.

By 2004, TripAdvisor had 5million unique monthly visitors. That year, Kaufer sold TripAdvisor to InterActiveCorp (IAC), the parent company of the online travel company Expedia, for $210m in cash, but stayed on as CEO. For the next few years, TripAdvisor continued to grow, hiring more than 400 new employees around the world, from New Jersey to New Delhi. By 2008, it had 26 million monthly unique visitors and a yearly profit of $129m; by 2010, it was the largest travel site in the world. To cement its dominance, TripAdvisor began buying up smaller companies that focused on particular elements of travel. Today, it owns 28 separate companies that together encompass every imaginable element of the travel experience – not just where to stay and what to do, but also what to bring, how to get there, when to go, and whom you might meet along the way. Faced with such competition, traditional guidebook companies have struggled to keep up. In 2016, Fodor’s, one of the most established American travel guide companies, was bought by a company called Internet Brands.

By 2011, TripAdvisor was drawing 50 million monthly visitors, and its parent company, IAC, decided that the time had come to spin it out as a separate, publicly traded entity. Its IPO was valued at $4bn, but in December, on the first day of trading, shares fell. TripAdvisor was in new and uncertain territory, and no one knew how the company would fare on its own.

Even so, TripAdvisor is still worth only half of what it was in June 2014, and its shares dropped again in August after it missed its revenue forecast. Booking.com and Expedia, which together accounted for 46% of TripAdvisor’s annual revenue last year, largely due to marketing deals, cut back on their advertising spending. Where Maffei saw positive results, the travel industry news site Skift saw warning signs. TripAdvisor had grown by only 2% in the second quarter of 2018, it pointed out, using the words “anaemic” and “sluggish” to describe its situation. Over time, TripAdvisor has grown so large that it has become difficult to explain what it is, exactly: it’s not quite a social network, though it encourages users to “like” and comment on each other’s posts; nor is it a news site, though its business is staked on aggregating legitimate sources to provide an up-to-date portrait of the world; nor is it simply an online marketplace like its competitors Expedia.com and Booking.com. When TripAdvisor first started, consumer reviews were a new and exciting thing; now they are everywhere.

How Hollywood is racing to catch up with Netflix

“The modern media company must develop extensive direct-to-consumer relationships,” AT&T chairman-CEO Randall Stephenson told investors last month. “We think pure wholesale business models for media companies will be really tough to sustain over time.”

“The single worst thing Disney could do is launch a DTC product that consumers find underwhelming,” analyst Todd Juenger of Bernstein Research wrote this month. “We struggle to see how Disney can simultaneously make this [sustained] investment while also de-leveraging, even in a stable macro environment. We fear they will either underinvest in the DTC product, or fail to delever.”

Tucows: High reinvestment rate to drive cash flow growth

“First, and probably most importantly, all of our business lines are significantly recession proof. Relatively speaking, low price items, whether they are domain names or mobile phone service or home Internet, they are core needs, things that people cannot do without. They are not luxuries. They are, in the context of today’s world, necessities. And so we believe our business to be relatively recession-proof.”

“When looking at the Ting Internet pipeline, there are a few things that I want to reiterate up front. First, we are not cash constrained. We are not opportunity constrained. We are resource constrained. There is plenty of opportunity out there.” – TCX CEO August 21, 2018


Fiat Chrysler’s cheapskate strategy for the future of driving

The role of supplier to a bleeding-edge innovator has its perks. Fiat Chrysler is currently in talks with Waymo to license the software it would need to sell full self-driving cars to retail customers. Waymo CEO John Krafcik has said he envisions sharing profits from the robotaxi business with automaker partners in the future. “We’re not disrupting this industry—we are enabling this industry,” Krafcik told Bloomberg in an interview last month.

There are also partnerships with BMW AG and auto supplier Aptiv Plc to bring limited autonomous features, such as automated steering and lane changes, to Fiat Chrysler’s Jeep, Ram, Maserati and Alfa Romeo brands starting in 2019. In that way, without paying billions for research, Fiat Chrysler may end up with access to much of the same technology as big-spending leaders in the field.

More than money, Berkshire’s Todd Combs coming on Paytm board is the best outcome: Vijay Shekhar Sharma

I will say something which in counterintuitive here; in India, distribution is king over data. I think the distribution of Paytm, the reach of Paytm is the reason of the network effect that creates its value, not necessarily the outcome of data which we have not started using yet. I could say that different verticals of our business will use it differently versus the plan that we have in terms of our distribution. Our plan is to distribute it across every nook and corner and get a larger number of consumers. That is the first success that we will have and when we build on top of it as the next set of things.

The massive popularity of esports, in charts

In terms of viewership, the big esports events post even more impressive numbers. The 2017 League of Legends world championship, held in Beijing, drew a peak of over 106 million viewers, over 98 percent of whom watched from within China, according to industry analyst Esports Charts. That’s roughly on par with the audience for the 2018 Super Bowl.

Newzoo estimates that by 2021 esports will be a $1.7 billion industry worldwide. A 2018 Washington Post-University of Massachusetts Lowell poll found, for instance, that 58 percent of 14- to 21-year-olds said they watched live or recorded video of people playing competitive video games, with a similar percentage reporting that they played such games themselves. Among adults overall, just 16 percent said they watched competitive video gaming.

The business of insuring intangible risks is still in its infancy

“Today the most valuable assets are more likely to be stored in the cloud than in a warehouse,” says Inga Beale, chief executive of Lloyd’s of London.

Intangible assets can be hard to define, let alone translate into dollars (under international accounting standards they are defined as “identifiable non-monetary asset[s] without physical substance”). Yet their growth has been undeniable. In 2015, estimates Ocean Tomo, a merchant bank, they accounted for 84% of the value of S&P 500 firms, up from just 17% in 1975. This does not merely reflect the rise of technology giants built on algorithms; manufacturers have evolved too, selling services alongside jet engines and power drills, and crunching data collected by smart sensors.

As the importance of intangibles has grown, so has companies’ need to protect themselves against “intangible risks” of two types: damage to intangible assets (eg, reputational harm caused by a tweet or computer hack); or posed by them (say, physical damage or theft resulting from a cyberattack). However, insurance against such risks has lagged behind their rise. “The shift is tremendous and the exposure huge,” says Christian Reber of the Boston Consulting Group, “but the insurance industry is only at the early stage of finding solutions to close the gap.”

The biggest antitrust story you’ve never heard

Since 1970, the share of the American stock market owned by large investment firms has grown from 7% to 70%. Collectively, the three biggest private funds — BlackRock, Vanguard, and State Street — own more than any other single shareholder in 40% of the public companies in the U.S. That means they are often the most influential shareholders of companies that are supposed to be in competition with each other. Such “horizontal shareholding,” as it’s called, may erode competition, boost consumer prices, and possibly violate long-standing antitrust laws.

Respect the predictive power of an inverted yield curve

The silver lining in prior yield curve inversions is a recession did not occur immediately. On average it was 19 months before the onset of a recession. Additionally, the average return for the S&P 500 Index from the date of the inversion to the recession was 12.7%. For investors then, one need not panic at the first instance of an inversion; however, thought should be given to one’s portfolio allocations and make any necessary adjustments during the ensuing months. In short, respect should be given to the potential economic impact of a yield curve inversion.

Curated Insights 2018.08.17

Not enough people are paying attention to this economic trend

Haskel and Westlake outline four reasons why intangible investment behaves differently:

  • It’s a sunk cost. If your investment doesn’t pan out, you don’t have physical assets like machinery that you can sell off to recoup some of your money.
  • It tends to create spillovers that can be taken advantage of by rival companies. Uber’s biggest strength is its network of drivers, but it’s not uncommon to meet an Uber driver who also picks up rides for Lyft.
  • It’s more scalable than a physical asset. After the initial expense of the first unit, products can be replicated ad infinitum for next to nothing.
  • It’s more likely to have valuable synergies with other intangible assets. Haskel and Westlake use the iPod as an example: it combined Apple’s MP3 protocol, miniaturized hard disk design, design skills, and licensing agreements with record labels.

For example, the tools many countries use to measure intangible assets are behind the times, so they’re getting an incomplete picture of the economy. The U.S. didn’t include software in GDP calculations until 1999. Even today, GDP doesn’t count investment in things like market research, branding, and training—intangible assets that companies are spending huge amounts of money on.


How Box conquered the enterprise and became a $1.7 billion company in a decade

However, what most people failed to understand—and continue to misunderstand to this day—is that Dropbox was never launched as a competitor to Box. The use cases were completely different. Box.net and Dropbox may have shared some similar underlying technologies (and an uncomfortably similar name), but the focus of Dropbox was cloud-based file management for the consumer market. Box was focused on file sharing. By the time Dropbox launched in 2007, Box.net had already largely abandoned the consumer market in favor of the enterprise. There were other key differences between the two products, such as the necessity of installing a dedicated Dropbox directory on a user’s local machine versus Box.net’s entirely cloud-based interface. Additionally, the two companies’ target markets and business models couldn’t have been more different.

Levie knew SharePoint was Box’s biggest competitor, so he did what any inventive, irreverent entrepreneur would do—he took out a billboard advertisement on a stretch of highway on Route 101 between San Francisco and Silicon Valley. The ad promised SharePoint users that Box would pay for three months of SharePoint access if they didn’t prefer Box. In February 2009, Box went one step further in its media assault on Microsoft by erecting another billboard, this one highlighting the many aspects of SharePoint that were most unpopular among its user base.

While the enterprise market represented a unique chance for Box to pivot away from the increasingly competitive consumer market, essentially shifting the focus of the entire company was no small undertaking. Until that point, Box had used a freemium business model. This worked fine for the consumer market, but it was completely unsuitable for the enterprise. This meant Box would not only have to radically redesign its product from the ground up but also restructure its entire business model.

By acquiring Increo, Box immediately gained access to Increo’s innovative document collaboration tools. This was crucial. It wasn’t enough for Box to offer cloud-based storage or integrations with Salesforce and Office. It had to offer additional value as competing tools vied for dominance.

The consumerization of enterprise IT driven by Box and other forward-thinking companies wasn’t merely an attempt to cultivate a unique value proposition or drive adoption. It reflected much broader shifts in computing in general. The advent of Web 2.0 apps created a new design paradigm that placed emphasis on ease of use and accessibility across multiple devices over complex file management tools. Smartphones fundamentally changed the way we think of computing. For an enterprise software company like Box to be at the forefront of trends in usability was impressive.

OneCloud was an excellent example of how consumer-focused design informed Box’s broader strategy. The company had built a platform for developers in 2011 known as the Box Innovation Network, which functioned similarly to an app marketplace. OneCloud was an extension of this idea, only it was intended exclusively for mobile devices. This would later become a predictable cycle in Box’s development. New features were added to the product to meet emerging needs, and those features were presented to users in ways that directly mirrored those of consumer apps and sites.

What’s more important, however, is how well Box converted its free users to paid subscribers. Consumer apps like Evernote convert free users to paid plans at a rate of approximately 3%. Box was converting free users to paid plans at a rate closer to 8%, including major corporate customers such as Bank of New York and ambient advertising powerhouse Clear Channel. As a result, Box achieved revenues of more than $11M in 2011.

Because most of Box’s sales calls came from companies that had already been using the product, Box’s sales teams were typically able to close 60% of those deals within two weeks—an impressive figure, especially considering the often months-long sales cycles typically associated with the enterprise market.

Box has done an excellent job of not only carving out its own niche in an increasingly competitive space but also by applying design and UX principles of consumer-focused SaaS products to redefine how enterprise software looks, feels, and works. With its keen focus on usability, ease, and simplicity, Box has become a leading force in the consumerization of the enterprise and has shaped how other enterprise software companies approach their products.

Ad tech firm poised to surge 50%

Bid factoring is essentially a linear equation that enables marketers to apply multipliers to different targeting parameters. This approach makes it easier to value each user individually and dynamically, allowing marketers to more easily reach their target users. Bid factoring saved time for marketers through automation and removed the need to store tons of line item permutations, therefore lowering data storage costs.

When Green started The Trade Desk, his goal was to “build a company for the next 100 years.” He did not want to follow the same mistakes that other companies in the space made such as having a conflict of interest by being on both the buy and sell side. Green decided to build a demand side platform because he believed the demand side of the advertising transaction will always have the advantage. In advertising it will always be a buyer’s market because it is easy to add supply by having an extra impression on a web page or additional 30-second spot to a commercial break to meet increased demand. This basic economic reality means advertising supply is more elastic than demand and will forever put the buy side in the power position.

The Trade Desk would also be transparent and not charge unsustainable take rates. Green believed once the digital advertising industry matures, total transaction costs to purchase a digital ad would be $0.20-$0.30 for every $1.00 spent, with roughly $0.15-$0.20 going to the DSP and $0.05-$0.10 being split between the SSP and the ad exchange. The Trade Desk could have charged much higher take rates but decided to charge customers what it believed would be the fair end-state price for their services. While take rates could become lower as competition potentially increases, similar to what happened with discount stock brokerages, barriers to entry and the DSP’s ability to provide increasing value to advertisers overtime should preserve prices.

As the ad market has grown, the number of auctions has increased exponentially. In order for a DSP to win an auction, it now takes many more looks. For each ad campaign, costs have increased while revenues remained fairly flat, increasing operating leverage. DSPs that have half the ad spend as The Trade Desk will struggle because they will incur the same amount of expense per ad campaign but monetize less, making it much more difficult to be profitable if you are a smaller player and don’t have the scale.

Every day The Trade Desk’s customers log into their platform to use the data and analysis to value ad inventory and run marketing campaigns. Advertisers provide their customer data and publishers provide their user data, which The Trade Desk uses to help advertisers value media for their specific needs. As The Trade Desk accumulates more data over time, its insight and analysis add more value to its customers, creating a self-reinforcing virtuous cycle.


Nvidia’s new Turing architecture is all about real-time ray tracing and AI

Nvidia describes the new Turing architecture as “the greatest leap since the invention of the CUDA GPU in 2006.”

“Hybrid rendering will change the industry, opening up amazing possibilities that enhance our lives with more beautiful designs, richer entertainment and more interactive experiences,” said Nvidia CEO Jensen Huang. “The arrival of real-time ray tracing is the Holy Grail of our industry.”

The new RT cores can accelerate ray tracing by up to 25 times compared to Nvidia’s Pascal architecture, and Nvidia claims 10 GigaRays a second for the maximum performance.

With NGX, Nvidia today also launched a new platform that aims to bring AI into the graphics pipelines. “NGX technology brings capabilities such as taking a standard camera feed and creating super slow motion like you’d get from a $100,000+ specialized camera,” the company explains, and also notes that filmmakers could use this technology to easily remove wires from photographs or replace missing pixels with the right background.


Tesla’s autonomous opportunity is severely underappreciated

We estimate that net revenue for autonomous platform providers – those companies that own the software technology stack for autonomous ride-hailing services – should exceed $2 trillion by 2030, roughly equal to our expectations for automaker revenue at that time. Unlike their auto-manufacturing peers, however, autonomous platform providers should see software-like margins, be less capital-intensive, and enjoy network-effect-driven regional competitive dominance. So, while autonomous platform providers may generate the same revenue as automotive manufacturers, ARK believes these providers will generate six times the operating earnings and consequently will prove to be substantially more valuable. In fact, ARK estimates autonomous platforms will be worth more than the entire $4 trillion global energy sector.

An enhanced Autopilot package with the ability to self-drive costs $5,000 upfront or $6,000 for customers who choose to wait and buy later. Payment for this feature alone can be thought of as nearly pure profit on every Tesla sold. In addition, once Tesla launches the Tesla Network, its autonomous ride-hailing network, it could collect platform fees, similar to Uber’s model today, from every autonomous ride charged to the consumer. Given a rate of $1 per mile to the end consumer and over 100,000 miles per year per vehicle, Tesla could benefit from $20,000 in high-margin platform fees per car per year. Over a five-year lifetime, a single Model 3 could generate $40,000 in net cash flow. Even investors optimistic about Tesla’s prospects project the Model 3 cash flow at $4,000 and one-time in nature. In effect, each Model 3 sale could generate 10 times more cash flow than investors currently understand.

Google’s targeted ads are coming to a billboard near you

Digital outdoor ad spending is growing at 15 percent annually, and will overtake traditional outdoor outlays by 2020, according to PwC. But Google is the 800-pound gorilla that’s not yet in the room. It would give the company another major edge over Facebook, which doesn’t have the same access to location-based mobile data.


Alibaba tweaks a controversial legal structure

There are three problems with VIEs. First, key-man risk. If the people with nominal title die, divorce or disappear, it is not certain that their heirs and successors can be bound to follow the same contracts. Second, it is not clear if the structure is even legal. China’s courts have set few reliable precedents on VIEs and the official position is one of toleration rather than approval. Third, VIEs allow China’s leading tech firms to be listed abroad, preventing mainlanders from easily owning their shares and participating in their success.

Alibaba’s proposed change is aimed at tackling the first problem, key-man risk. At the moment four of its five VIEs are nominally owned by Jack Ma, the firm’s leader, and Simon Xie, a co-founder and former employee. After the restructuring, the two men will no longer be the dominant counterparties. Instead the VIEs will be owned by two layers of holding companies, which will sign contracts with Alibaba. These holding companies will ultimately be nominally owned by a broader group of Alibaba’s senior Chinese staff. The idea is that if anyone gets run over by a bus, then the scheme will not be disrupted, because nominal control is spread among a wider group of people. The new approach is far from perfect but it is an improvement. If all goes to plan it will be completed by 2019. Other tech firms may feel pressure to follow.

$1b+ market map: The world’s 260 unicorn companies in one infographic
60+ startups disrupting IKEA in one market map

SoftBank’s Son says WeWork is his ‘next Alibaba’

It is rare for Son, who casts a wide net with his startup investments, to commit so much resources to a single company. But he said WeWork is more than just a renter of office space: it is “something completely new that uses technology to build and network communities.”

The use of shared space to forge connections is not unique to WeWork. The company’s edge lies in the steady flow of data it collects on members, which is shared with other locations and can be accessed by users of the WeWork app around the world. The idea is that more data means more innovation — a model that underlies Son’s excitement about the company.

What MoviePass can teach us about the future of subscription businesses

Pricing is so powerful that playing with it requires great skill and precision. MoviePass should have done its price experimentation at the outset and on a local basis. It could have optimized the price points and tested alternative pricing models quietly, instead of jerking millions of customers around. Even a slight tweak — such as moving to a club pricing model like Costco’s — might have solved its cash-flow problems.

These kinds of tweaks could also have enabled the company to consider regional pricing strategies, given that its cost of goods (the full price of movie tickets, which it pays theater operators) varies from $8 in Nebraska to over $15 in New York. This case is also a good reminder that the United States has local profit pools. It is silly to think that a one-size-fits-all national strategy is the right approach for a market as ethnically and economically diverse as the United States.

MoviePass failed to recognize how the behavior of superconsumers, customers who are highly engaged with a category and a brand, differs from that of average consumers — and how, if not anticipated, this difference can create problems for a company’s cost model. It can especially be a problem if the company uses a “buffet” model of fixed price and unlimited quantities, as MoviePass did.

Quantum computers today aren’t very useful. That could change

Quantum computers are, however, far more prone to errors than binary machines. Instead of using electric signals to generate a series of zeros and ones like a conventional computer, quantum computers rely on the real-world, mechanical behavior of photons, which are packets of microwave energy. The machines require a complex, multi-layered refrigeration process that brings quantum chips to a temperature just above absolute zero. By eliminating certain particles and other potential interference, the remaining photons are used to solve computational problems. The true magic of this system is how photons can become entangled and produce different but related results. Scientists only partially understand why it works the way it does.

A quantum chip doesn’t look like much with the naked eye. Through an optical microscope, though, you can see the quantum logic gate that makes everything possible. The team here is working on a process of stringing together 16-qubit chips to execute on the 128-qubit design. Essential to this is a new kind of quantum chip that communicates results in three dimensions instead of the current two, which allows Rigetti to fit the chips together like puzzle pieces and turn them into a single, more powerful computer. “What we’re working on next is something that can be scaled and tiled indefinitely,” Bestwick said.

Why the future belongs to ‘challenge-driven leaders’

The consensus view of Mr. Marchionne, relayed by hundreds of tributes, is that he possessed an unusual blend of vision, technical expertise, analytical rigor, open-mindedness and candor. The remembrances also agreed on something else: he was a bona fide eccentric. “God bless you, Sergio,” Morgan Stanley analyst Adam Jonas told Mr. Marchionne during a January conference call. “We’re never going to see anyone like you again.”

The trajectory of great ideas

“Being right is the enemy of staying right because it leads you to forget the way the world works.” – Jason Zweig. Buddhism has a concept called beginner’s mind, which is an active openness to trying new things and studying new ideas, unburdened by past preconceptions, like a beginner would. Knowing you have a competitive advantage is often the enemy of beginner’s mind, because doing well reduces the incentive to explore other ideas, especially when those ideas conflict with your proven strategy. Which is dangerous. Being locked into a single view is fatal in an economy where reversion to the mean and competition constantly dismantles old strategies.

Survivorship bias on wheels

One last thing: When it was introduced as new in 1984, the 1985 Testarossa listed for $90,000 (but dealers charged huge premiums over list due to “Ferrari fever.”) You can still find Testarossas for that original list price — meaning the net returns over 43 years has been precisely zero — before maintenance, storage and repair costs.

As a comparison, in 1985, the benchmark S&P500 was about 200, and it closed yesterday at 2,821.93. That generated an average annual return of about 8.5%, returning 1,400% price appreciation since then, and, with dividends reinvested, over 3,000% total return (in nominal terms, like the chart above, neither is adjusted for inflation).

Selecting investments after the fact is easy; ask yourself this question: What car do you want to buy as an investment for the next 34 years to be sold in 2052?


Curated Insights 2018.06.10

Laying the pipes of a post-advertising world

Brands have always fought for a place in consumers’ hearts, and then relied on their loyalty for repeat business. Pipes are structural relationships that don’t rely on such fickle factors. They are built on more vertically integrated distribution channels and behave more like utilities — a way into people’s homes and lives attached to an account.

Amazon is the ultimate pipe. Their entire value is that they bring things to you — the things can change as necessary: movies, pickles, sneakers. They own the interface, the invisible moving parts, and the household. They understand your preferences intimately and have become arbiters of choice in many homes. Alexa, buy batteries. You get a big pack of generic batteries, rated 4.5 stars for a good price delivered to your home. Do we really need brands with brand managers and media agencies competing for our attention or do we just need batteries for the remote? If pipes offer simplified decision making, better value and validation — then brands as we know them lose their value.

Advertising was unsustainable from the beginning, for two key reasons. Firstly, when a market fills up, everyone needs to shout louder to get heard, until the noise drowns everything out and a vicious cycle sets in to the detriment of all. Secondly, advertisers pay to reach people, but the audience also pays, with perhaps the most precious resource of all, their attention. You pay attention, and our attentions are more burdened than ever. This is the perfect recipe for people to opt out, should we give them a way to, and we have. In a very short span of time, ads have gone from having captive audiences to being avoidable. Social feeds are designed to skip over anything that doesn’t interest you. Fast forwarding over TV ads is great, but watching ad free content (Netflix) is even better.

Not adapting carries the risk of becoming a price taker in the long run. Adapting can be either through building your own pipe infrastructure, not an easy task and especially difficult for companies not born out of technology, or renting someone else’s pipe and ceding power to them and again facing the potential of long term decline. Disney has chosen the former. Soon they will launch their subscription video competitor to Netflix. With a lot on the line, a transformation of epic proportions lies ahead. Whether it’s successful or not, it speaks volumes that the owner of the most magical brands in the world is entering the pipe race.

The list of advantages pipes and subscriptions have over brands and ads is overwhelming: more consistent income and cash flow, lower marketing costs, better access to customers, more flexibility and control of customer experience, better valuations and access to capital, better quality data and potential for AI. As these factors compound, the shift in the balance of power will accelerate.

Spotify uproar points to the power of the playlist

The furor reflects a reality of today’s music business: Playlists are the new radio, helping major artists rack up millions of streams and connecting lesser-known acts with new fans.

But the findings highlight how influential Spotify can be in determining which songs, albums and artists succeed in the streaming era, he adds. Justin Barker, group director of streaming strategy for PIAS, a U.K.-based group of record labels that works with musicians such as Father John Misty, says that for the majority of its new artists, roughly 60% to 80% of streams are on playlists owned and operated by Spotify.

Spotify has become “a very powerful intermediary,” Mr. Waldfogel says. “The music industry used to get bent out of shape about how much market share Walmart would have. This makes that seem quaint.”


Here’s what Fiat Chrysler’s five-year road map looks like

Adjusted Ebitda will rise to between 13 billion and 16 billion euros by 2022, up from about 6.6 billion in 2017. The 2017 figure excludes the Magneti Marelli parts unit that Fiat Chrysler plans to spin off at the beginning of 2019. Fiat Chrysler also said it will spend about 45 billion euros on capital investments as it tries to harness an evolving automotive market place driven by electrification, connected services and self-driving cars.

Fiat Chrysler plans to form a captive financial unit in the U.S. The company has an option to buy out its existing partner, Santander Consumer USA Holdings Inc., and has initiated discussions, Palmer said. Such a move could add $500 million to $800 million in incremental pretax earnings within four years, he said. Fiat could also start its own business, in which case the company envisions about $100 million in incremental profit. A captive finance unit will allow Fiat Chrysler to “participate more fully in capturing value from emerging platforms,” Palmer said, for example by securitizing vehicle fleets and offering access to service providers on a per-mile basis.

Jeep is targeting 1/12 of all sport utility vehicle sales worldwide by 2022, implying a will more than doubling of deliveries to as many as 3.3 million units, based on Bloomberg calculations from the presentation. Maserati will target Tesla Inc. with a full-electric sports car that reaches more than 186 miles per hour. All Maserati powertrains, including the electric ones, will be supplied by Ferrari NV, the supercar maker spun off from Fiat Chrysler in 2016.

Google emerges as early winner from Europe’s new data privacy law

The reason: the Alphabet ad giant is gathering individuals’ consent for targeted advertising at far higher rates than many competing online-ad services, early data show. That means the new law, the General Data Protection Regulation, is reinforcing—at least initially—the strength of the biggest online-ad players, led by Google and Facebook Inc.

Havas SA, one of the world’s largest buyers of ads, says it observed a low double-digit percentage increase in advertisers’ spending through DBM on Google’s own ad exchange on the first day the law went into effect. On the selling side, companies that help publishers sell ad inventory have seen declines in bids coming through their platforms from Google. Paris-based Smart says it has seen a roughly 50% drop. Amsterdam-based Improve Digital says it has experienced a similar fall-off for ads that rely on third-party vendors.

It took a $1 billion IPO for people to see why Adyen matters

By 2017, Adyen was processing in excess of $122 billion in payments for the year, an increase of 61 percent from the year before, and generated $1.2 billion in revenue, according to financial filings. Uber Technologies Inc., Netflix Inc., Spotify Technology SA, and Facebook Inc., are all customers.

Despite its success so far, Adyen still has some ways to go to catch up with the largest payments firms — Vantiv, Chase Paymentech and First Data each handle about $1 trillion annually — but Adyen differs from many of its rivals in a number of ways: Its transaction processing fees are typically lower than those of other young e-commerce oriented payments firms such as Stripe or Square, and it can handle transfers in more currencies and payment types than Chase Paymentech or Vantiv.

Olivier Bisserier, the chief financial officer at Booking.com, an Adyen customer, told Bloomberg in 2016 that he liked that Adyen was willing to “think like a tech company” rather than a bank. When Booking.com expanded into Argentina, Adyen helped build its payments processing gateway for that market at a time when larger payments processors were refusing to do so until the travel site could show significant sales volumes from the new geography.

Janitors are becoming millionaires thanks to this stock’s 9,500% rally

Sunny Optical’s affluent employees have benefited from the largesse of Wang Wenjian, who started the company in Yuyao, a small city on China’s eastern coast, in 1984. When Sunny Optical restructured from a so-called village and township enterprise into a joint-stock company in the 1990s, Wang took the rare step of distributing stakes beyond top management and later organizing the holdings into a trust that now has about 400 holders and owns 35 percent of the Hong Kong-listed company. Leaving a 6.8 percent stake for himself in 1994, Wang allowed quality inspectors, company cooks and cleaners to subscribe for shares at a negligible cost based on their position and years of service.

“When money gathers, people will be apart; when money is scattered, people will gather.”

Curated Insights 2018.06.03

How will GDPR affect digital marketers?

  • Organisations with an existing marketing database must re-solicit every person’s consent (via an explicit opt-in) since individuals may have been added to the database without their consent.
  • All opt-out consent boxes must be replaced by opt-in (without the box being pre-checked).
  • Collection and processing of data to deliver your core service (e.g. fulfil orders) can continue unchanged, but if you wish to use historical data for marketing purposes, you need consent.
  • Personalised ad targeting based on an individual’s specific behaviours, such as that offered by many programmatic media companies, is illegal without active content. However, targeting based on broad interest-based audience segments is permissible so long as individuals cannot be identified.
  • The purchasing or sharing of personal data (such as email lists) is prohibited unless each person in the list has expressly permitted their details to be passed on to third parties. Event organisers, for example, can no longer share lists of attendees with sponsors.
  • Where data must be passed to another organisation for legitimate business reasons, you should ensure they are also compliant with GDPR. This is particularly important if data is passed to organisations outside the EU who may be less familiar with its data protection obligations.
  • Your customers now have the right to ask what data you hold and to have their data deleted permanently.
  • Any breach of personal data integrity (e.g. through theft, hacking, or incompetence) must be notified to the authorities within 72 hours. Organisations should audit who has access to personal data and ensure they are aware of their GDPR security obligations.

The iPhone may not be what finally pushes Apple over $1tn

The performance of this services division, largely overseen by senior vice-president Eddy Cue, has been a model of consistency when placed next to the feast-or-famine performance of the iPhone. Since 2006, it has grown at an average rate of 23 per cent year on year, according to Gene Munster, a veteran Apple analyst turned investor at Loup Ventures.

If it was valued like other “software as a service” companies such as Adobe, Dropbox or Intuit, Mr Munster reckons, at a multiple of 10 times 2018’s estimated revenues, Apple’s services business would be worth $381bn all by itself. 

For Google, all roads lead back to search

Underpinning this is the mobile business, which has given Google’s search engine a new lease of life. With smartphone users carrying out more frequent internet searches, the “paid clicks” — the number of times users click on its advertisements — jumped 59 per cent in the first three months of this year, continuing an acceleration seen over recent quarters. Even with average ad prices falling 19 per cent, the result has been a pick-up in growth.

The question now is whether Google’s newer businesses will extend this momentum into new markets in the years to come. Foremost among them is YouTube. The online video arm already has $20bn in annual revenue and could grow at 20-30 per cent a year for the next five years, forecast Mark Mahaney, an analyst at RBC Capital Markets. The potential is enormous: YouTube’s revenue represents only around 10 per cent of the amount spent globally on traditional TV advertising.

Google’s cloud computing business, meanwhile, could represent an even bigger opportunity. The cloud market is projected to be worth nearly $250bn by 2021, according to tech research firm Gartner.

That could one day make driverless cars a huge business for Google. Analysts at UBS forecast that Waymo’s technology lead will translate into revenues for Alphabet in 2030 that are equivalent to 80 per cent of its entire group revenue in 2020.

Marchionne’s finale entails expanding Jeep, shrinking Fiat

Jeep — which accounts for more than 70 percent of profits, according to analysts’ estimates — will increasingly become the focal point of the group. Marchionne is set to target doubling the brand’s sales volume by 2022 from about 1.4 million vehicles last year. The growth is based on expanding Jeep’s presence in Asia, Brazil and Europe as well as widening its product offering with hybrid variants starting next year. Marchionne has already indicated that he sees chances to double the group’s profit in the coming five years on booming Jeep sales.

Buffett proposed $3 billion Uber investment but deal crumbled

Under the proposed agreement, Berkshire Hathaway would have provided a convertible loan to Uber that would have protected Buffett’s investment should Uber hit financial straits, while providing significant upside if Uber continued to grow in value, said the people, who spoke under condition of anonymity because the discussions were private. Buffett’s initial offer was well above $3 billion, one of the people said.

During negotiations Uber Chief Executive Officer Dara Khosrowshahi proposed decreasing the size of the deal to $2 billion, one person said, hoping to get Buffett’s backing while giving him a potentially smaller share of the company. The deal fell apart after the two sides couldn’t agree on terms, one of the people said.


Airbnb founders go it alone in China after refusing merger offer

Tujia remains keen to cut a deal—although both sides deny formal talks—and says it’s simply waiting for Airbnb executives to accept reality. “We would love to issue shares in Tujia in exchange for Airbnb’s China operations,” says Tujia Chief Financial Officer Warren Wang. Until Airbnb is ready, “we will prove ourselves and show our muscle,” he said. “If Airbnb needs more time to understand that they or any other foreign tech companies just can’t do that well in China without a local partner, once we show them they’ll sit down and talk about a deal.”

Home-sharing in China differs from the U.S. and Europe, where travelers are accustomed to a rich bed-and-breakfast culture and many hosts rent out their primary homes while they’re away. In China, hosts don’t want strangers in their own homes. Instead, home sharing has thrived because a national building boom left a glut of empty apartments in the hands of real estate firms and property investors. With homes vacant, local home-sharing companies are tapped to clean, list and manage properties.

Initially, Airbnb operated a skeleton operation in China with 30 people, focused on attracting mainlanders going overseas. Chinese tourists took 131 million overseas trips and spent $115 billion abroad last year, according to the China National Tourism Academy. But after noticing a surge of Chinese tourists using Airbnb abroad and thriving local home-sharing apps, the company in 2015 decided to expand its domestic China business. It’s a market well worth chasing: The domestic tourism industry took in 4.57 trillion yuan ($710 billion) in 2017, up 15.9 percent from the year before, according to the China National Tourism Administration. Unlike small hotel rooms, home stays let Chinese travel with extended families, cook Chinese fare and bring pets.

A Fed report this week found that gig work is a very small share of family income. For over 75% of gig workers, these activities account for 10% or less of their family income. This picture is also confirmed when looking at the ride-sharing market, see first chart below. The total number of Uber drivers in the US is 833,000 and translated into full-time full-year jobs there are about 100,000 Uber drivers. Comparing these numbers with US economy-wide employment of 148mn shows that the gig economy is more myth than reality. Another way to look at it is to think about how small a share of your total income goes to car services. If you still are not convinced, take a look at the second chart below, which shows the share of people who are self-employed. Why is the gig economy getting so much attention? It is probably because many people in Manhattan now use ride-sharing apps and mistakenly think that what they are seeing is representative for the rest of the economy.

Curated Insights 2018.03.04

The #1 reason Facebook won’t ever change

Google’s core DNA is search and engineering, though some would say engineering that is driven by the economics of search, which makes it hard for the company to see the world through any other lens. Apple’s lens is that of product, design, and experience. This allows it to make great phones and to put emphasis on privacy, but makes it hard for them to build data-informed services.

Facebook’s DNA is that of a social platform addicted to growth and engagement. At its very core, every policy, every decision, every strategy is based on growth (at any cost) and engagement (at any cost). More growth and more engagement means more data — which means the company can make more advertising dollars, which gives it a nosebleed valuation on the stock market, which in turn allows it to remain competitive and stay ahead of its rivals.

Facebook’s challenge is that their most lucrative market — the US and Canada — are saturated. And to keep making money in these markets — already a ridiculous $27 in ARPU for the last three months of 2017 — they need us to give more time and attention to them. This is a crisis situation for Facebook because it doesn’t make as much money from markets outside of the US and Canada. For the same three months, it made $2.54 in ARPU in Asia-Pacific, $1.86 in rest of the world, and $8.86 in Europe.


Netflix

And if you’re dependent upon advertising you’re done. The public will not sit for it, only the cheapest individuals will endure ads, and then the ads don’t work on them, because they’re so damn tight. No, the people advertisers want to reach are the spenders, which is why everybody’s now advertising on Amazon, check it out, that’s where the dollars change hands.

So the networks and other ad-supported channels are on life support. They’re dependent upon hits, which come and go, and what do I always say…DISTRIBUTION IS KING!

So, just having good content is not enough, you’re reinventing the wheel every season, you’re only as good as your last hit.

As for HBO… That’s a dying model. If the outlet were smart, they’d band together with Hulu or another player and release all episodes on the same day. People don’t like to wait, appointment viewing is passe. We want it all and we want it NOW!

As for Hulu, forget about it, it doesn’t have critical mass, and unlike Netflix, it’s only in America. Sure, the “Handmaid’s Tale” burnished the outlet’s image, but Netflix has more than that, “Narcos,” Stranger Things,” 13 Reasons Why,” “Wormwood”… A record company can’t survive on one act, you need a steady flow of product, which Netflix has. And it’s a virtuous circle, they keep adding subscribers to the point they’ve got more money and they spend it on the best creators! So they end up with the lion’s share of the viewers. Which is why Fox wanted out, why it sold to Disney.

Nobody wants to let Google win the war for maps all over again

The companies working on maps for autonomous vehicles are taking two different approaches. One aims to create complete high-definition maps that will let the driverless cars of the future navigate all on their own; another creates maps piece-by-piece, using sensors in today’s vehicles that will allow cars to gradually automate more and more parts of driving.

Alphabet is trying both approaches. A team inside Google is working on a 3-D mapping project that it may license to automakers, according to four people familiar with its plans, which have not previously been reported. This mapping service is different than the high-definition maps that Waymo, another Alphabet unit, is creating for its autonomous vehicles.

Mobileye argues that it’s more efficient and cost-effective to let the cars we’re driving today see what’s ahead. In January, the Intel Corp. unit announced a “low-bandwidth” mapping effort, with its front-facing camera and chip sensor that it plans to place in 2 million cars this year. The idea is to get cars to view such things as lane markers, traffic signals and road boundaries, letting them automate some driving. Mobileye says this will take less computing horsepower than building a comprehensive HD map of the roads would.

Hidden profits in the prescription drug supply chain

Analysts at Bernstein tried to get a better picture of how profitable these companies are by excluding the cost of the drugs that are included in their revenue. The analysts compared the rate at which gross profit converts into earnings before interest, taxes, depreciation and amortization for pharmacy-benefits managers and other pieces of the drug supply chain, including drug distributors, insurers and pharmacies.

By this analysis, pharmacy-benefit managers are exceptionally profitable; 85% of their gross profit converted into Ebitda over the past two years. Drug distributors converted 46% of their gross profit, while health insurers and pharmacies achieved about 30%.


Sergio Marchionne’s final lap

Few people in automotive history have as impressive a legacy of wealth creation as the 65-year-old Marchionne: Henry Ford, Billy Durant, Karl Benz and Kiichiro Toyoda among them. But those titans were like the industry’s farmers — cultivating businesses from scratch and nurturing them into today’s automaking giants. Marchionne, in contrast, has been the fireman — running into the ruins of once-great companies, putting out the flames and rebuilding something better than before.

“In 2004, when you were first introduced to the auto industry, a lot of people were thinking, ‘Who the hell is this guy?’ Right? I was one of them, frankly,” Morgan Stanley analyst Adam Jonas told Marchionne during FCA’s Jan. 25 quarterly call with analysts. “We hadn’t seen anything like you. You took $2 billion, roughly, and you’ve turned it into around $72 billion, and more important than that, there are many hundreds of thousands of families across many nations that are better off because of you and your team.”

In 2009, Marchionne inherited a mess. Daimler and later Cerberus Capital had largely failed to invest in necessary product improvements or modernize the company’s industrial footprint. Morale among employees who had survived constant cost-cutting, including several rounds of layoffs, and then the bankruptcy could not have been lower. Marchionne offered the automaker’s disheartened employees a path back to potential health — one that demanded long hours, hard work, humility and sacrifice. The employees accepted the challenge. They set to work fixing many of the things that had gone so wrong with Chrysler and its products — improving quality, overhauling 16 vehicles in 19 months, banning rat-gray interiors and fixing manufacturing plants. Their level of commitment and dedication to restore the company to some semblance of health continually surprised Marchionne.


Didi Chuxing took on Uber and won. Now it’s taking on the world

With 400m registered customers in more than 400 Chinese cities, it delivers 25m rides a day, roughly twice as many as Uber and all the other global sharing apps combined. In the future, Liu imagines an even larger purpose, as Didi uses big data and machine learning to fix the many problems that snarl-up urban areas. “When you redesign the transportation system, you basically redesign the whole city,” Liu says. “You redefine how people should live.”

AI currently matches thousands of riders and drivers each minute, as part of a decision-making platform the company calls “Didi Brain”. This already predicts where riders are likely to want cars 15 minutes ahead of time, guessing right 85 per cent of the time. As it seeks out more patterns, Zhang says, the system will see forward an hour, or even a full day, using reinforcement learning, a powerful AI technique in which computers learn via experimentation, much as a child might use trial and error.

But for Didi, machine learning helps solve more basic problems, like traffic signals. “They’re sometimes manually operated every 90 seconds by someone sitting in a room,” Liu says. In the eastern city of Jinan, Didi algorithms now power “smart” traffic lights, which optimise patterns based on real-time car data, cutting congestion by ten per cent. Similar projects are under way in dozens of cities, along with plans to improve traffic lane management and bus systems.


Dyson bets on electric cars to shake up industry

Dyson has worked extensively on lightweight materials, leading several people to speculate the first vehicle may be substantially comprised of plastics rather than metals, something usually reserved for high-end supercars. This would make the cars lighter — important because of the weight of electric batteries — but also allowing for more inventive designs. When announcing the project last September, Sir James said the first car would look “quite different” to any currently on the market.

Dyson aims to lean less heavily on suppliers than traditional carmakers, partly because of a penchant for making components in house, and partly because electric cars contain substantially fewer bits than their combustion engine counterparts. The group already produces electric motors, which turn the wheels, as well as battery cells in-house, and is investing heavily in software development, an increasingly important part of modern cars.


SpaceX joins race to make web truly worldwide

If successful, however, SpaceX has said it plans to start launching its first commercial satellites next year, with a constellation of more than 11,000 circling the earth in low-earth orbit by the time the network is complete in 2024.

The satellite trial points to an impending space race that has drawn in powerful backers. Google, which once looked at developing its own satellite-based network, became one of SpaceX’s biggest backers when it led a $1bn investment round three years ago. Meanwhile, SoftBank and Richard Branson are among the backers of OneWeb, a European rival that hopes to start providing broadband internet next year.


Driverless cars: mapping the trouble ahead

“Everyone is trying to develop their own in-house HD map solution to meet their self-driving needs, and that doesn’t scale,” says Mr Wu of DeepMap. “It’s all reinventing the wheel, and that’s wasting a lot of resources. That will probably be one of the reasons to block self-driving cars from becoming a commodity.” Because companies do not share mapping data and use different standards, they must create new maps for each new city that they plan to enter. “It will delay the deployment in certain geographies,” Mr Wang says.

Willem Strijbosch, head of autonomous driving at TomTom, says the maps needed for driverless cars are different from the current map applications because they will need to “serve a safety critical function”, rather than just being used for navigation. “Another change is that you can no longer use GPS as your only means of localisation in the map,” he adds, because the global positioning system is not precise enough for self-driving cars.


Eyes in the sky: a revolution in satellite technology

Farmers can use the imagery to estimate crop yields around the world, investors are counting the number of oil storage tanks in China and estimating consumption trends, while human rights campaigners have used it to map the flight of the Rohingya population from Myanmar. On a daily basis, we can now study the shrinkage of glaciers, the expansion of cities, the deforestation of remote wildernesses and the devastation of armed conflict in intense detail.

“Seeing the whole Earth as a single entity is not new,” says Martin Rees, Britain’s astronomer royal. “But what is happening now is that we are monitoring it on a daily basis at high resolution. Satellites have enough resolution to observe every big tree in the world every day.”

Planet now has a fleet of 190 satellites in orbit, including 13 SkySat satellites. That network provides a steady feed of imagery — more than 1.3 million photographs a day — that can be combined with other data streams to create a comprehensive “space data processing platform”. The company includes feeds from the Sentinel satellites, which operate as part of the EU’s Copernicus programme, and the US Landsat 8 satellite, adding infrared and radar capability.

Over the past two years, Planet has sold its data services to hundreds of customers in about 100 different countries, including the US, UK and German governments and big companies such as Bayer, Monsanto and Wilbur-Ellis. Planet says it has strict ethical guidelines and vets its customers as best it can to ensure that sensitive images do not end up in the wrong hands.

The number

Dr. Edward Deming once said that the numbers that best define a company are two factors that do not appear on any financial statement. These factors are the value of a satisfied customer and the value of a dissatisfied customer. These factors must be multiplied by every other number in a financial statement in order to assess the prospects of the business. A high satisfaction leads to repeat purchases and referrals, growing the business; while a low satisfaction leads to ending relationships and a repulsion of potential new customers. These numbers determine everything about the future and nobody quite knows what they are.

Stocks are more similar to bonds than you think

The table demonstrates that stocks have done an admirable job diversifying negative returns in bonds over time, showing losses only in three out of the 16 different times that bonds had down years. The spread between the two averaged more than 16 percent. It should also be comforting to those who practice diversification that even when both have fallen in the same year, bonds typically don’t get crushed like stocks do and instead tend to only show minor losses.

Companies pay workers to get savvier with money

Carrie Leana, a professor of organizations and management at University of Pittsburgh, said participants reported significant declines in their financial worry and increases in both their physical and psychological health.

To tackle this, companies are using incentives to boost participation in financial-wellness programs. These typically combine financial education with customized advice delivered by mobile apps and human advisers. The goal: to teach employees basic money-management skills and remind them—via text messages, emails or one-on-one meetings—to stick to budgets, pay bills and save more for everything from emergencies to retirement.

“We know that stress is the No. 1 cause of health-related issues, and the No. 1 cause of stress is money,” said SunTrust CEO William Rogers Jr. “If we can attack financial stress, we can improve our employees’ physical well-being as well.”

Curated Insights 2018.01.21

JD.com’s Richard Liu decodes the Chinese consumer

No one wants to take a bag, and put it on a table when a lot of ladies have the same bag with the same style. They want to find something special. Something you cannot find in your circle…But if you look at China, there are more and more young people, and their income is relatively very small, but they want to spend time to find fashion, maybe not as expensive as luxury brands, but still very fashionable. Maybe not big brands, [but rather] small brands, or niche brands.

Commerce platforms for them are the best way to convert their customers to buying. And at the same time, for JD, we are not just a sales platform; we are a brand-building platform. We spend more and more resources to help build the brand — to strengthen the brand is as important as the sales side.

We will use two different ways to cover the entire globe. The first is our South [East] Asian channel. We will set up [a] subsidiary there and copy the Chinese business model. Build a local team, buyer team, logistics system and last mile delivery team, everything the same as in China. In Indonesia we have been operating for almost two years, and we will go to Thailand very soon.

But for Europe and [the] US we will use a cross-border business model. We have been thinking about this for many years. If you just copy another model or local players do exactly the same thing as them, you cannot find an advantage. So we will cooperate with Chinese local brands and bring them to the US and Europe. They need us, and we also need them, because the brand quality is very good and price is not as high. We will choose them, pick them up and bring [them] to the US and Europe. I think people will love these kinds of Chinese brands.


Alibaba’s AI outguns humans in reading test

“That means objective questions such as ‘what causes rain’ can now be answered with high accuracy by machines,” Luo Si, chief scientist for natural language processing at the Alibaba institute, said in a statement. “The technology underneath can be gradually applied to numerous applications such as customer service, museum tutorials and online responses to medical inquiries from patients, decreasing the need for human input in an unprecedented way.”


Keyence: Leading Japan’s new wave of tech giants

Keyence is a beneficiary of the AI, robotics, and industrial-automation boom. Sales of its factory automation sensors have been particularly strong in China, where labor costs are rising. As manufacturing grows more data intensive, factories require more sensors and vision systems to collect data and become “smarter.” Plus, a large proportion of Internet of Things spending is on sensors and connectivity. “Keyence has the highest exposure to upgrade-and-innovation demand,” says Jay Huang of Sanford C. Bernstein. Keyence, with its diversified customer base, is one of least exposed to cycles of single trends like the iPhone, he says, and has more than half the global market share for 3-D vision systems —a market growing 30% a year—and rising sales in China.


Facebook’s motivations

The key thing to remember about Facebook — and Google’s — dominance in digital ads is that their advantages are multi-faceted. First and foremost are the attractiveness of their products to users; that attractiveness is rooted not only in technology but also in both data and people-based network effects. Second is the depth of information both companies have on their users, allowing advertisers to spend more efficiently on their platforms — particularly on mobile — than elsewhere. The third advantage, though, is perhaps the least appreciated: buying ads on Google and Facebook is just so much easier. They are one-stop shops for reaching anyone, which means competitors need to not have similar targeting capabilities and user engagement, but in fact need to be significantly better to justify the effort.


Adapt or die is Marchionne’s stark farewell message to carmakers

Carmakers have less than a decade to reinvent themselves or risk being commoditized amid a seismic shift in how vehicles are powered, driven and purchased. Auto companies need to quickly separate the stuff that will be swallowed by commodity from the brand stuff.

While the car industry has always been tough — Chrysler and GM both went bankrupt during the financial crisis — in the past the mistakes were self-induced, Marchionne said. Now the tumult is being driven by outside forces, and it’s coming faster than people expect, he said — a surprising view, given that Fiat is perceived to be behind some competitors in adapting. He said the company is positioned well, and rather than pour money into competing with Silicon Valley, the industry should try to identify the best solutions coming from tech companies and reduce its exposure to products that aren’t going to be easily defended.


Ensemble Capital: Prestige Brands update

Owning these strong brands, in small niche markets, results in Prestige generating the highest profit margins in their industry. While Procter & Gamble and Johnson & Johnson might be a lot more well known, Prestige Brands turns every dollar of revenue into 34 cents of profits while P&G and J&J manage to squeeze out just 26 cents of profits.

It is important to recognize that Prestige is a brand management company more than a product producer. They outsource most of the capital-intensive production aspects of the business. This capital light, outsourcing approach means the company only employs 520 people, generating an amazing $1.7 million per employee. In comparison, most health care and consumer staple companies do closer to $500k per employee and Apple, which has the highest revenue per employee in the technology industry does only slightly more at $1.9 million. Until their acquisition of Fleet a year ago, Prestige had only 259 employees and was doing an amazing $3.1 million per employee.


How Roku morphed from a quirky hardware startup to a TV streaming powerhouse

For about two years, Roku considered building its own TV set in-house. “Then we decided: No, that’s a way to lose a lot of money,” remembers Wood. Instead, the company teamed up with Chinese firms looking to enter the U.S. market and willing to undercut the competition with budget-priced TV models — a strategy Sappington calls “a very smart decision.” And with millions of active users and growing brand awareness, Roku was able to talk to TV makers eye-to-eye and demand that they not change a thing about its software. “We had a big enough brand that they were willing to do those kinds of deals,” Wood says.

But to really understand Roku, you have to look beyond the streaming boxes, sticks and even TVs. “People think of Roku as a hardware company,” says Martin. “It is not.” Rather, the firm is leveraging hardware to acquire users, which can then be monetized via advertising and licensing fees. “The goal was always to generate revenue by monetizing the platform,” says Wood. “As our scale started to approach 5 million active accounts, that’s when we said, ‘Now we can start focusing on monetization.’”

Still, his message to Hollywood is clear: Roku is already in the content business, and it wants to be top of mind as studios think about windowing their content. “We are a very viable outlet,” says Holmes. “We should be one of their first calls.”


China’s top movie ticketing app said to plan $1 billion IPO

China’s box-office receipts rose 15 percent last year to 52 billion yuan ($8 billion), making it the world’s second largest movie market after the U.S. Almost 80 percent of movie tickets in the country are sold through mobile apps, and Maoyan Weying is the largest ticketing provider with a 52.5 percent market share as of the third quarter 2017, according to researcher Analysys.


Didi has a brilliant plan to contain the threat of China’s bike-sharing services

Already, Ofo and arch rival Mobike have chipped away at Didi’s share of short journeys and struck deals with local governments with the aim of solving congestion problems. Now, they are looking to expand beyond that. Mobike, for example, has tested ride-sharing services. Mobike and Ofo both claim over 100 million registered users, so action is best taken sooner rather than later. The question is whether Didi’s move is too late.

This devilish strategy works because Ofo and Bluegogo have no choice but to be a part of the platform due to their ties with Didi. Ofo counts Didi as an investor and is already integrated into its app, while Didi swooped in to save Bluegogo after it went broke. It’s no surprise that Mobike, the other bike-sharing unicorn which no Didi connection, didn’t elect to be a part of the program.

Techmate: How AI rewrote the rules of chess

No top chess player would take such a big risk, he says. But this computer seems to have “such control over the board, it’s almost as though it has an intuition something good will happen”. His verdict on its overall game-playing ability: “It’s incredible. It’s hard for me to get my head around it.”

All computers before this, as he describes it, worked by brute force, using the intellectual equivalent of a steamroller to crack a nut. People don’t operate that way: “Humans are flexible because we know that sometimes we have to depart from the rules,” he says. In AlphaZero, he thinks he has seen the first computer in history to learn that very human trick.

Predictions about the imminent rise of the machines have always turned out to be wildly over-optimistic. Herbert Simon, one of the pioneers of AI, forecast in 1965 that computers would be able to do any work a human was capable of within 20 years. When today’s experts in the field were asked when that moment would come, only half picked a time within the next 30 years.


This army of AI robots will feed the world

If robots can prevent herbicides from having any contact with crops, it means that 18 classes of chemicals previously considered too damaging to be widely sprayed suddenly become viable. “We’re both ratcheting down the volume of chemicals that need to be used, but also expanding how many types can be used,” Heraud says. In other words, Blue River’s success might be the worst thing that could happen to the herbicide industry, or it could open up an avenue to sell new products.

His next step, with Deere’s backing, will be to move Blue River’s robots beyond herbicides to fertilizers, the culprits behind toxic algae blooms, which are killing fish and making lakes unswimmable. Farmers typically spend up to 10 times more annually on fertilizers than weed killers—about $150 billion a year. But the shift is a big leap for a robot. It must gather a range of visual signals—the colors, sizes, and textures of a plant’s leaves—and from this data extrapolate the plant’s health and how much nourishment it needs. “It’s a ton more processing power, but it’s doable,” Heraud says.

The next link in this technological chain could be a kind of agricultural Swiss Army knife: a robot that can apply not only herbicides and fertilizers but also insecticides, fungicides, and water all at once, delivering only as needed.

The implication of plant-by-plant—rather than field-by-field—farming is not just the prospect of vast reductions in chemical usage. It could also, in theory, end monocropping, which has become the new normal—cornfields and soybean fields as far as the eye can see—and has given rise to the kind of high-calorie, low-nutrient diets that are causing heart disease, obesity, and Type 2 diabetes. Monocrops also leach soil nutrients and put food supplies at risk, because single-crop fields are more susceptible to blight and catastrophe. Modern farmers have been segregating crops in part because our equipment can’t handle more complexity. Robots that can tend plants individually could support intercropping—planting corn in with complementary crops such as soybeans and other legumes.

Bright outlook for the economy and stocks

But I worry that this tax cut is happening at a time when the U.S. economy doesn’t need fiscal stimulus. And longer term, what will tax cuts do to the federal deficit? The deficit was going to be rising as a percentage of GDP anyway, partly for structural reasons relating to the aging of the baby boomers. A $1.5 trillion tax cut will add an additional $300 billion to $400 billion interest-rate burden in the next few years.

In the past 10 years, American companies made an inordinate effort to think about how to move people or structures outside the U.S. for nonproductive purposes—basically, to increase earnings per share. By moving toward a territorial system of taxation and bringing our corporate tax rate in line with the rest of the world’s, we can get back to having managers focus on productive investments, greater efficiency, and value creation. This will unlock the strength of America and drive GDP growth. Simply, the absence of a major negative is a positive. This is a generational change. While inflation potentially is a fear for the stock market, you have to be positive on the S&P 500, even though we are 102 months into an expansion.

Having covered the auto-parts industry for 50 years, I am seeing more companies announce that they are going to relocate to the U.S. And the U.S. is a magnet not only for American, but also for foreign companies locating here because the U.S. is a big market.

But now the Fed is starting to allow $30 billion of Treasuries, more or less, to mature into the market each month. There is a chance—I’d call it a base case—that the rhetoric and actions of the ECB will have to become more hawkish, given economic growth in Europe. That means the ECB might start to pull back on quantitative easing. Central-bank balance sheets could start to decline, in the aggregate, sometime during 2018. If that happens, the stock market will go down. Quantitative easing, cumulatively, has been highly correlated to the gains in the S&P 500 and global stock markets. Central-bank footings, or assets, went from $6 trillion pre-financial-crisis to $22 trillion subsequently. Bankers are talking about bringing that down to $16 trillion or $17 trillion. Maybe it drops more quickly. It is undeniable that central-bank asset buying has been a prop for the markets.


Some great thoughts on network effects from Anu Hariharan on Twitter:

Often misunderstood – Network Effects is not the same as scale

One simple way to test for that is ask this question – what is the “barrier to exit” for the user?

If the barrier to exit for the user is low, then there is no network effect. This implies it is easy for users to switch from your service

Ride sharing services (Uber, Lyft) don’t have a network effect (in other words demand side economies of scale). Users often switch apps if it takes longer than 5 mins ETA or if there is surge pricing on one

However ride sharing does have supply side economies of scale and therefore opportunity for select players to have monopolistic share in a market

On the other hand apps like Facebook, LinkedIn have very strong network effect – because the barrier to exit for the user is really high!

A user has invested time and effort in building a social graph on these platforms with connections, history of exchanges and in some cases even maintain them. It is not easy for customers/ users to switch easily and therefore the “barrier to exit” for the user is really high

What if everyone got a monthly check from the government?

Kela’s researchers originally envisioned the experiment as the first in a series that would help them understand the implications of expanding basic income nationwide. “With basic income, there will be a lot of winners, but there will be a lot of losers also,” Kangas says. “We have to study the losers.” For one thing, he points out, to provide Finns with the level of financial security they enjoy under their current system, basic income payments would have to be at least twice those of the trial. And to pay everyone, the country would have to change its tax structure.

The wealthiest would be relatively unaffected by such a change because their taxes are already high, but a swath of middle- and upper-middle-class Finns would pay more in taxes than they’d get back in basic income. In national polls, when the possibility of a 55 percent flat tax was raised, the percentage of Finns who supported basic income dropped from 70 to about 30. “We would need to implement another study for the whole population to understand it,” says Miska Simanainen, a tax specialist who was part of Kangas’s team. No such studies are planned.

Trust is perhaps the most radical aspect of basic income. Handing out money requires a government to have faith that people know what’s best for themselves—that, on the whole, they have enough intelligence and foresight to put their financial resources to good use. In almost every basic income study conducted so far, this faith has been borne out. The little money wasted on vices is more than offset by what is spent on groceries or child care. But trusting that this will hold true universally requires an even bigger leap of faith. In 2016, Switzerland’s citizens overwhelmingly voted down a proposal that would’ve given them each the equivalent of $2,555 a month. Surveys showed they didn’t think it was right for people to be given something for free.


Savvy Investor Awards 2017: The Best White Papers

Savvy Investor is the world’s leading research network for institutional investors. Since the site launched in 2015, the Savvy Investor research team has curated over 20,000 investment and pensions papers, placing it in a unique position to judge the best white papers of 2017. The official announcement of winners was made on December 5.

The accolade of “Best Investment Paper 2017” is awarded to the CFA Institute Research Foundation for the paper, “Financial Market History: Reflections on the Past for Investors Today.”


Why dolphins are deep thinkers

One day, when a gull flew into her pool, she grabbed it, waited for the trainers and then gave it to them. It was a large bird and so the trainers gave her lots of fish. This seemed to give Kelly a new idea. The next time she was fed, instead of eating the last fish, she took it to the bottom of the pool and hid it under the rock where she had been hiding the paper. When no trainers were present, she brought the fish to the surface and used it to lure the gulls, which she would catch to get even more fish. After mastering this lucrative strategy, she taught her calf, who taught other calves, and so gull-baiting has become a hot game among the dolphins.

How to guard against moat erosion

A wet moat, called a douve or wet ditch, formed a very efficient obstacle against the assaulting army. However, wet moats could be something of a mixed blessing; they were inconvenient in peacetime, which meant that unofficial bridges were often erected – with subsequent argument and indecision about the right moment to chop them down in an emergency. Besides, water might dangerously erode the base of the wall, and stagnant water might be a year ‘round health hazard for the inhabitants of the castle.

Earnings Call Digest 2017.10

Taiwan Semiconductor Manufacturing Company (Q3 2017 Results) – Earnings Call Transcript

10-nanometer process technology contributed 10% of total wafer revenue during the third quarter, up from only 1% in the second quarter. The combined revenue from 16 and 20-nanometer accounted for 24% and 28-nanometer was 23%. Advanced technologies, defined as 28-nanometer and more advanced, accounted for 57% of total wafer revenue, up from 54% in the second quarter.

New advanced technologies such as voice recognition, on-device AI, AR, VR, 4G to 5G, et cetera, are driving silicon content for smartphone to continue to increase. We also see those high-end features continuously proliferate to mid, low-end smartphones.

The AI will be a fast growth, because in the datacenter it is a closed ecosystem. Once it goes to the client edge, it’s an open system. So innovators will come in easily, so has higher growth potential.


Fiat Chrysler Automobiles (Q3 2017 Results) – Earnings Call Transcript

On the FCA, BMW, Intel, et cetera partnership, we’re contributing both capital, resources. We’re a full participant in the venture. So it’s going to cost us some money, it’s built into our R&D plan. But it’s the safest bet, the safest way for us to get into that market. We’re doing it with a reputable organization and there are reputable suppliers at the table too. So, I think we’ve put that issue to bed.

And there was a big issue. I’ve read a couple of the comments that people continue to make which I think probably reflect a very poor understanding of the state of the industry. But we’re not laggards here, we had just chosen our spots very carefully before we started playing, because I think that you can destroy a lot of value by chasing your tail in autonomous driving. We wanted to make sure that we did it with the right people.

And I don’t want to start chasing rainbows here, because if you chase rainbows, you’re going to fall off the cliff. And I’ve seen enough ridings now, I’ve seen enough sort of accusations of being behind in this rat race. The reality is that this is going to require a lot of discipline and a lot technical knowhow, which will take time and it will take dedication and perfect execution to get to an answer. Don’t believe the fluff, let’s just stick to the knitting and deliver an outcome, there is no shortcut to this.

Certainly in the case of Alfa Romeo the question of getting distribution because we have very little on the ground. So I think there’s a huge amount of work that needs to go on to get coverage, geographical coverage in China. And that started, it’s underway, and I think it is going to require – certainly it’s a multi-year project as it is here in the United States because this thing is starting from nothing. We haven’t had sort of the ability to work ahead of the curve in the U.S. The China is behind in that development, but I think we will – it will quickly catch up.

There is – the question that you’ve asked about whether demand is matching our expectations in China. The answer is fundamentally, yes. We need to be very, very careful that this distribution exercise, that we don’t end up creating either perceived or actual oversupply in the market that will depress pricing. That is something that we cannot afford to do.


Amazon.com (Q3 2017 Results) – Earnings Call Transcript

I think over time, you’ll see more cooperation and working together between AmazonFresh, Prime Now, and Whole Foods as we can explore different ways to serve the customer.

The head count grew 77% year-over-year in the quarter. That includes the impact of the Whole Foods and Souq acquisitions. Without those, without that head count, the base Amazon grew 47%, which is still up from 42% in Q2. So a lot of the additional pickup in Q3 was tied to our ramp for the holidays. We continued to hire a lot of software engineers. We continued to hire a lot of sales reps and it’s tied directly to our major investment areas of AWS, Prime Video and devices.


Alphabet (Q3 2017 Results) – Earnings Call Transcript

YouTube now has over 1.5 billion users. On average, these users spend 60 minutes a day on mobile. But this growth isn’t just happening on desktop and mobile. YouTube now gets over 100 million hours of watch time in the living room every day, and that’s up 70% in the past year alone. YouTube Red, our first foray into the subscription market, is on track to release over 40 original shows this year and YouTube TV, our live TV subscription service, continues to expand into new markets. It now covers two-thirds of U.S. households and is available in 15 metro areas.

While mobile has given rise to an unprecedented amount of data and complexity for advertisers, we think that machine learning will help it make – will help make it easier for advertisers to reach consumers. But even as we give advertisers incredible scale and reach across our ad platforms, we know consumer attention is scarce. That’s why we are pleased YouTube ads continue to deliver the highest viewability rates in the industry. YouTube now has a 95% ad viewability rate, which is significantly higher than the average 66% viewability rate of other video ads. We continue to see the industry shift to six second bumper ads and so greater adoption this quarter.


Intel (Q3 2017 Results) – Earnings Call Transcript

Early in the quarter, we closed the Mobileye transaction a full four months ahead of schedule. So far this year, Mobileye has won 14 ADAS [Advanced Driver Assistance Systems] designs across 14 automakers, a pace well ahead of the 12 wins they recorded all of last year. These designs provide for typical features like automated emergency braking, lane keeping, and adaptive cruise control. But several also include next-step functionality like highway autonomous driving. We’re also winning marquee designs for Level 3 and higher levels of autonomy, including our strategic partnership with BMW and Fiat Chrysler.

Most recently, we announced that Waymo’s newest vehicles, the self-driving Chrysler Pacifica Hybrid minivans, feature Intel-based technologies for sensor processing, general compute, and connectivity. With 3 million miles of real-world driving, Waymo cars with Intel technology inside have already processed more self-driving car miles than any other autonomous fleet on the U.S. roads.

Intel and Mobileye provide the auto industry with unmatched product breadth, the architectural flexibility to support open and closed implementations, and technology leadership. Our progress in just a few short months illustrates the benefits of our combination. And together, we can deliver the promise of autonomous driving in a safer, collision-free future.

In Q3, Microsoft announced that it would use our 14-nanometer Stratix 10 FPGAs for its accelerated deep learning platform that’s code named Project Brainwave. And as part of a broadening engagement between our companies, Alibaba is using Intel FPGAs to power the acceleration of the service of Alibaba Cloud. We’ve made tremendous progress in AI and advanced computing technologies over the last few months. In addition to our FPGAs and autonomous driving wins, we launched the Movidius Myriad X, the world’s first vision processing unit with a dedicated neural compute engine to deliver artificial intelligence capabilities to the edge in a low-power, high-performance package.


Microsoft (Q1 2018 Results) – Earnings Call Transcript

We now have 120 million monthly active users of Office 365 Commercial. We have more than 530 million LinkedIn members. Dynamics 365 customers grew 40% year over year. Azure Compute usage more than doubled this quarter and revenue grew 90%, and Windows 10 Commercial monthly active devices grew 90% year over year.

Microsoft 365 is our core offering to address this $500 billion-plus market. We are bringing together Office 365, Windows 10 and Enterprise Mobility + Security as a complete integrated solution for organizations of all sizes. It represents a profound shift in the way we design, build and deliver our productivity solutions, moving to a people-centered approach, spanning all their devices to unlock creativity and inspire teamwork while simplifying security and management.

We’re seeing record levels of engagement. LinkedIn is on target to surpass 21 billion sessions this calendar year and has seen its fourth consecutive quarter of 20%-plus sessions growth. Engagement across the platform is strong, with 65% year-over-year growth in jobs, visitors across mobile and desktop, 60% growth in feed update views and nearly 40% growth in messages sent, driven by more ubiquitous messaging.

Azure Cosmos DB is the first globally distributed multimodal database that enables developers to write apps for IoT and other event-based serverless applications. We’re accelerating our innovation to help every developer be an AI developer with approachable new tools from Azure Machine Learning Studio for creating simple ML models to powerful Azure Machine Learning Workbench for the most advanced AI modeling and data science.

Our ongoing data center expansion brings Azure to 42 regions globally, more than any other cloud provider and 69 compliance offerings and the most comprehensive compliance coverage in the industry. And new Azure availability zones provide new levels of resiliency for high-availability apps within a region and across regions.


Oaktree Capital (Q3 2017 Results) – Earnings Call Transcript

I think Howard Marks describes it best in his recent cautionary memo There They Go Again, Again, which portrays the current investment environment as excessive and ripe for a correction due to the following reasons. It’s an environment where the uncertainties are unusual in terms of number, scale and insolubility, where prospective returns are just about the lowest they have ever been, where asset prices are high across the board and where pro-risk behavior is commonplace. It’s impossible for us to predict what will catalyze the market’s correction, how severe it might be and when it will occur. We are not however waiting around for fat pitches and we continue to look for attractive investment opportunities in select areas including industries experiencing stress or competitive issues.

Management fees in the third quarter declined by $8 million or 4% from the same period a year ago and were down 6% year-to-date. As was the case in the first two quarters of the year, these declines were driven by our closed-end funds where we have been a net seller of assets given the current investment climate. In this environment, our management fees have been pressured by realizations reducing the cost basis and therefore management fee basis of funds in liquidation, and slower deployment impacting the management fees of funds that charge on drawn capital and delaying the start of the investment period for funds that charge on committed capital. However, this same environment provides an attractive backdrop for growing the value of our net accrued incentives and our balance sheet investments, which bodes well for future distributable earnings.

Earnings Call Digest 2017.07

Taiwan Semiconductor Manufacturing Company (Q2 2017 Results) – Earnings Call Transcript

AI is indeed getting to smartphone. That’s for sure. And that is — actually, AI is going to every segments in our growth sectors. AI is getting to mobile. AI is getting to high-performance computing like deep learning. AI will go into automotive, which is ADAS and so forth. And AI will go to simple IoT, MCU also. So this AI is a general application driver of momentum — put this way, one of the driver — driving momentum, and it is ubiquitous.

Our top 10 customers account for 64% in 2015. And that number went up to 69%, as you can see from our annual report. This is mainly because there are consolidations among customer base. For this year, we expect the concentration will come down a little bit. But I want to say that people may feel customer concentration is not a good thing. But we feel the other way. It’s not really a bad thing, because when you have a bigger customer, that means the dependency for them to TSMC as the customer and for us to then as the supplier needs to be stronger, the relationship collaboration needs to be stronger, which is in favor of a foundry business model. So we view that as a positive thing.


Netflix (Q2 2017 Results) – Earnings Call Transcript

I think we’re just seeing that the rewards of doing great content focused on the quality of the service are paying off.

You ask about how we prioritize? Generally, when we see success, we try to add on to that until we reach a point of diminishing returns. And so, if we’re going to see success in some markets, we may up the content budget in those markets.

We’re such a small player in our viewing compared to linear TV, compared to YouTube. So we’ve got a long way to go to have more and more content to please more and more members and continue to grow.

…matching the program into local taste is really the key and we’ve seen it in our expansion through Latin America, our expansion into Europe. And as we look to Asia, we have to get better and better matching those tastes. And those tastes are not as easily aligned with Western tastes. So we’ll invest more time and energy in Asia putting some people on the ground in Asia that we haven’t historically, but well within how we’ve looked at the size of the teams generally but locating them more likely outside of the U.S. as we continue to grow for local audiences in Asia and throughout the rest of Europe.

I think Internet television is an enormous space and there’s going to be lots of competition. And as they come in, they’re going to bid up the cost of the best stuff which is great. It’s great for consumers, because more things get made. And it’s great for creators because they’re more buyers at the table. So we expect the content cost to go up on the top premium things, but I think, as I said, I think that’s a good result for everybody.


International Business Machines (Q2 2017 Results) – Earnings Call Transcript

The cognitive opportunity is a global one, it’s not centered in New York or Boston or Silicon Valley; but you can’t just look and listen in those places. In healthcare alone, you’d miss that this quarter the first healthcare provider in Latin America is deploying Watson for oncology, and Baheal Pharmaceutical Group is bringing Watson for genomics to clinicians across China. In fact, 80% of the hospitals who’ve adopted Watson for oncology are outside of the U.S., and that’s just healthcare, we have Watson deployed with other leaders like Berdasco [ph], Honda and Vodafone as well. So across industries and around the world our clients realize that data, in fact their own data is the route of competitive advantage for all companies.

80% of the worlds data is owned by enterprises, it’s not searchable on the worldwide web, it’s customer data, and patient data, clinical data, supply chain data, transaction data and companies want to unlock and exploit that data; and so that’s why enterprises will move to cognitive on the cloud with someone they trust who has leading tools and industry expertise and a data model and business model consistent with their goals, that is the IBM cloud plus Watson.


Qualcomm (Q3 2017 Results) – Earnings Call Transcript

The pending NXP acquisition will provide us greater scale in automotive IoT security and networking with their highly complementary product and world class sales channel, serving the long tale of customers that are driving growth. The combined company will be a technology and semiconductor leader with future annual revenues projected to be more than $30 billion.

ASPs probably a moderating even the ASP declines are moderating even more than we expected meaning the declines are less than we would have expected going into the year. And that’s largely being driven by strength in China as well as increasing ASPs by many of the Chinese OEMs as they build their businesses outside of China, which are couple of the important trends that we highlighted starting 2 or 3 years ago of why we believe we would see long term growth in the market. So again, if you wrap that all up end market will continue to grow, we think it can continue to grow meaningful.


Microsoft (Q4 2017 Results) – Earnings Call Transcript

Azure revenue accelerated this quarter, growing 97% year-over-year. CIOs and Business Decision Makers increasingly prefer Azure as they make decisions about their cloud strategy. They value our hybrid consistency, developer productivity, AI capabilities, and trusted approach. And we keep investing in cloud computing to create broader economic benefit and opportunity, as we’ve done with our South Africa datacenter expansion, bringing Azure to 40 regions globally – more than any other cloud provider.

The core currency of any business going forward will be the ability to convert their data into AI that drives competitive advantage. It all starts with having support for the comprehensive data estate spanning Azure Database, Cosmos DB, Data Warehouse, Data Lake, combined with SQL Server. Azure Cosmos DB is the industry’s first globally distributed database service. It enables customers to securely and reliably power data-intensive applications at unprecedented scale and performance from IoT to AI to mobile and much more.

Retailer Jet.com is using Azure Cosmos DB to process trillions of transactions every day. Customers are infusing AI into their products & services using Azure AI infrastructure and services such as Bot Framework and Cognitive Services. Sabre, a leading technology provider to the global travel industry, is piloting AI-powered solutions for travel agencies to better serve customers. And Dixons Carphone is using Azure and our Cognitive Services to boost customer engagement and provide a more consistent, seamless experience across online and in their stores.

If you look at some of the most exciting things that are happening in the cloud, is cloud applications that actively require an edge Azure IOT, or Azure Stack are becoming the runtimes of the edge where you do need not only the ability to do compute and storage, but to run the AI inference and the edge. So to me that’s what we’re building to. It’s actually a big architectural shift from thinking purely as a migration to some public cloud to really thinking of this as a real future distributed computing infrastructure and applications, but I quite frankly feel very, very good about leading and so in that context our server license revenue will fluctuate based on what the macro is and these transitions and mix shifts, but from a forward-looking perspective, I want us to be very, very clear that we anticipate the edge to be actually one of the more exciting parts of what’s happening with our infrastructure.


Alphabet (Q2 2017 Results) – Earnings Call Transcript

The increase in both Sites TAC as a percentage of Sites revenues, as well as Network TAC as a percentage of Network revenues, continues reflects the fact that our strongest growth areas, namely mobile search and programmatic, carry higher TAC. Total TAC as a percentage of total advertising revenues was up year-over-year as a result of an increase in the Sites TAC rate, driven by the shift to mobile, which was again partially offset by a favorable revenue mix shift from Network to Sites, which carries lower TAC.

One focus area for us this quarter has been enabling our machine learning algorithms to learn and improve our products much faster. One such research initiative auto ML enables us to pursue approaches to automate the design of machine learning models. Our ability to rapidly deploy the best machine learning in all of our products enabled us this quarter to launch all sorts of new smart features, to help moderate comments, suggest smart replies in Gmail and improved translations. We rolled out new machine learning features in Google Maps, YouTube, Gmail and Google Photos, which now has more than 500 million monthly users who backup 1.2 billion photos and videos every day.

YouTube now has 1.5 billion monthly viewers and people watch on average 60 minutes a day on their phones and tablets. That’s incredible and it helps 1000s of passionate video creators make money. The fastest growing stream for YouTube is in the living room. YouTube watch time on TV screens has nearly doubled year-on-year.


Corning (Q2 2017 Results) – Earnings Call Transcript

When announcing Valor at the White House last week, Merck’s CEO, Ken Frazier, said biologic medicines and vaccines remain on the leading edge of scientific innovation, and Valor Glass represents a similar advancement in materials science, a glass that is purpose-built for medicines and vaccines. Merck plans to convert several injectable products to this exceptional new glass packaging solution, pending appropriate regulatory approvals.

And Pfizer’s CEO, Ian Read, stated we believe that our collaboration with Corning is a game-changer. The glass industry represents about $4 billion in expenditures for the pharmaceutical industry. But subsequent issues, potential shards or breakages require strong quality control to ensure that it doesn’t get through to patients. The subsequent costs are multiples of the glass cost, to ensure that we deliver a high-quality product to patients. So Valor is a major innovation, a major way that we can be more competitive.

Valor also provides a powerful example of what happens when our focused and cohesive portfolio meets a customer opportunity. We started out with major customers from our life science vessels platform. We reapplied our expertise in glass science, optical physics, vapor deposition, precision forming and extrusion to develop a breakthrough product that we believe has the potential to power Corning’s growth for the next decade and beyond.


Facebook (Q2 2017 Results) – Earnings Call Transcript

This quarter we reached an important milestone for our community. 2 billion people now use Facebook every month, and more than 1.3 billion people use it daily.

For the past decade, we focused on making the world more open and connected. We have a lot more to do here to give people a voice and help everyone stay connected with their family and friends, but now I believe we have a responsibility to do even more. Our new mission is to bring the world closer together. A big part of this mission is building communities.

…a quick update on what we’re building over our three time horizons: making our existing services more useful now; building new ecosystems over the next five years around our products that a lot of people already use; and creating foundational technologies to achieve our mission over the next ten years.

Instagram Stories now has more than 250 million people using it daily, and WhatsApp Stories also now has more than 250 million people using it daily.

We’re finding AI is both delivering consistent improvements to many of our systems, like News Feed, search, ads, security, and spam filtering and more. But more than just improving these existing experiences, I expect AI to change the way that we do business in some important ways. So for example, today to keep our community safe, we rely on people flagging content that might violate our community standards for us to review. In the future, AI will be able to help flag more of this content faster before people have even seen it.

On the business side, we’re seeing a large shift in the way that marketing works. In the first wave of marketing, people would buy ads and media they thought their customers might watch like a TV show that had similar demographics, but they wouldn’t know who saw their ads. The Internet gave people the power to target their messages to people who actually might be interested and to measure results much more precisely, and that was a big improvement. And now AI is taking this a step further. Now you can put a creative message out there, and AI can help you figure out who will be most interested. A lot of the time you don’t even need to target now because AI can do it more precisely and better than we can manually. This makes the ads that you see more relevant for you and more efficient for businesses.

Messenger and WhatsApp both have large communities, and they’re growing quickly, with 1 billion people now using WhatsApp daily. It is still early on the monetization side here, although we have started showing ads to a small number of people on Messenger.

Given the size and engagement of our audiences, Facebook and Instagram are the best platforms to reach people and drive business results. We have over 70 million businesses on Facebook, and I’m excited to announce today that we now have more than 1 5 million business profiles on Instagram.

People consume content faster on their phones, and marketers are increasingly recognizing that this behavior is different from other media. This means that developing short-form snackable content is a big opportunity on mobile. We’re working hard to help marketers adopt mobile-first video ad strategies for Facebook and Instagram.

We’re focused on growing the user base, first and foremost. And then secondly, it’s about building organic connections between businesses and consumers. And then third, it’s about how do we build monetization around those relationships.

I would really just point to the overall dynamics of the system. And again, what we’re seeing is with slower supply growth, that’s going to play out to higher pricing. And again, are we effective? And we’ve been effective at delivering good return on investment for our advertisers and getting better at converting what we have as inventory into what they care about as outcomes. And that from a systemic point of view is what’s playing through there.


Cimpress (Q4 2017 Results) – Earnings Call Transcript

(July 2017 Letter to Investors)

Well, we really like the team at Albumprinter. Several of the key executives now in Cimpress overall came from Albumprinter. It’s a great business, we believe, with a strong future for the team that’s taking it out with a private equity purchase. As much as I’d like to say, it’s been a great success. We think this is a – it hasn’t been a big failure for us financially, but it hasn’t been a great success. We basically, depending if you’re looking at euros or dollars, are floating around our 8.5% cost of capital. And that’s not a success in terms of deployment of capital.

Now, we wish we could’ve done better. Now, I think, why not continue in that and improve the business? Because obviously with the competitive process and we had multiple people bidding, and the buyer believes that they can create great value going forward. So, I guess, what’s the question you’re bringing up is, why do we believe we shouldn’t have kept that and achieve those returns that the PE firm believes they can make in the future.

I think, the reality is that when we look at our strengths of where we are as a business, I’ll just take in the European market where Albumprinter plays, it is very strong in the Benelux and Nordics market. But there are very strong players in – particularly two large players, one in Germany and other parts of Europe and one more in France and the U.K. So we don’t believe that we would ever become the clear market leader in Europe, and it’s a business where we never found a way to bring it into the United States.

So we think that be it Shutterfly or others as great companies in the U.S. who really own that market. So, it was really a question of the old adage. I think, going back to to be number one or two in a market or not be in the market. And we look at other places in the promotional product space, in the Upload and Print, in the Vistaprint space, in Mall where we’re investing and we believe that we have a stronger chance of really becoming the number one or two player in those markets.

And in a world of constrained capital, we go to where we think the biggest opportunity is, which is, in summary, why we came to the decision it would be best to divest the asset right now.

Now, we also obviously keep central those things which must be done central, this call and other types of things. But everything else we’ve decentralized. Now, does that mean we are going away from the economies of scale? No. Because, what it does mean is that, take the example of National Pen versus Vistaprint. They are both very, very strong in different types of mass customized products. And the scale of National Pen in customized writing instruments is vastly larger than Vistaprint and vice versa for component and products that Vistaprint does.

So, now, through the interface of the mass customization platform, Vistaprint and National Pen, as just two examples of many, can exchange value internally to Cimpress, but (30:50) between each organization. And the benefits of scale that National Pen have in the production, in the supply chain, in the product development, can be a benefit to Vistaprint. Those types of point-to-point connections happen between our Upload and Print businesses, between Vistaprint and Upload and Print, between – in any different direction.

So, we believe that this new structure, at the highest level, will allow us to get the majority or, potentially, the vast majority of the benefit of scale, yet, greatly mitigate or hopefully eliminate the vast majority of the cost of centralization. And by cost, it’s not just the dollars we spend on centralization, but it’s the cost of having to manage across a $2 billion plus revenue business and make decisions which, on average, may be right, but for each of the individual businesses, are not optimal.


Starbucks (Q3 2017 Results) – Earnings Call Transcript

The evidence is clear that the pace of retail transformation is accelerating with a common theme: extending the in-store experiences to include relevant digital scenarios. It is the driving force behind combinations including Walmart’s acquisition of Jet.com, the combination of PetSmart and Chewy.com, and last month’s announcement of Amazon’s intent to acquire Whole Foods. Each of these combinations demonstrate that pursuit of enhancing the physical retail experience with a relevant and complementary digital experience.

We will not shy away from expanding our presence in markets that evidence strong growth opportunities at scale. We entered China almost 18 years ago, and today recognized as among the most respected brands in that country; along the way, establishing relationships, relationships with millions of customers, tens of thousands of partners, and a meaningful presence in 130 communities. Starbucks’ opportunity for growth in China is unparalleled and our purchase of the remaining 50% of our East China JV is a significant milestone, reflecting our long-term commitment to China and our unwavering optimism about our future in that key long-term growth market. And we are just getting started.

Tea is a large fast-growing category and a key addressable market and core focus for us. Since acquiring Teavana, we have built the business into a well-recognized, super-premium global brand. We expect to sell over $1.6 billion of Teavana branded, handcrafted beverages through Starbucks stores around the world this year. Overall, our tea business has grown 40% since we launched Teavana in the U.S. five years ago, and it is up over 60% since launching in China and Japan roughly one year ago.

We continue to open roughly 500 new stores in China every year at a rate of new store growth that will accelerate over time. Our newest class of stores continue to outperform and deliver record AUVs, now nearly 700,000 per unit, and world-leading returns. In fact, given our performance and success in China and the momentum we are seeing across the country in both retail and CPG channels, we now see the opportunity for Starbucks in China being even greater than we originally thought.


Fiat Chrysler Automobiles (Q2 2017 Results) – Earnings Call Transcript

…if the market deteriorates, the market will come down from these peaks. It is not a single downturn, and we’ve seen indications of the market softening in the first half of 2017 and I think you will see softer market conditions…The fundamental difference between us and most of the other people is that we have not built inventory into the pipeline. We’ve been incredibly disciplined and it’s something that we continue to do in managing our position with the U.S. dealers. We have no intention of building excessive inventory that will ultimately translate into pricing pressures. We have shown, I think, a willingness to take that capacity if the market is not there, I think we will continue to do so.

I mean everybody knew that this market was going to come down and so we have made the right strategic choices in terms of exiting the passenger car market. We’re now left with the majority of our productive assets being concentrated on pickups and SUVs. And I think that’s what the market is and I think that we’ll play to our strengths. I think we’ll just write it out, but I think we’re, today, probably in the most enviable position of all U.S. automakers. It took us a while to get here, but I think it’s time for us to reap the benefits of that effort.

…one of the things that we need to come to grips with is whether all the activities that are currently within the FCA world are required to run a proper OEM. And if the answer is not, then I think we have an obligation to purify that portfolio. And if they’re viable enough and large enough and sufficiently capable of carrying on their activities is to give them a space in the sun on their own merits. Because from a valuation standpoint, I can tell you honestly, I’ve been in this business long enough, I have never seen an industry which is as little loved as being an OEM today. For a period of time I thought that banking had reached the bottom but I think we have now surpassed them in terms of dislike.

Let me carve out Ferrari from all this because – and I had this view right throughout my tenure at FCA, I’ve confirmed it now. Ferrari lives and breathes in a different type of atmosphere. And so for it – and there is not – with all due respect to the other alleged contenders to that market, there’s nobody else who lives and breathes the same air. We’re dealing with a completely different concept, level of exclusivity, which is unparalleled, and intimacy with the customer base, which is also unmatched. And it’s a way of life, which I think takes you 70 – I mean we’re celebrating 70 years for Ferrari this year. It will take you 70 years to try and emulate it.

 Ferrari, on the other hand, is a self-sufficient, probably in my view, one of the most technologically advanced manufacturers of a car in the world. It has knowledge which is old, it’s deep and wide. And that knowledge is
something that you don’t acquire overnight. And I think it gives it the legitimacy to make the statement that it makes today. I’m not sure that that’s common to everybody else.


O’Reilly Automotive (Q2 2017 Results) – Earnings Call Transcript

Our focus on maintaining an extremely high standard of customer service when business is soft allows us to build long-term relationships, ultimately reinforcing our industryleading position.

In the second quarter, we successfully opened 46 net new stores, bringing our year-to-date total to 1 05 net new stores. We’re well on our way to achieving our new store growth target of 190 stores for 2017. As we have for several quarters now, our store growth in the second quarter was spread across the country with openings in 23 different states. We remain pleased with the performance of our new stores which continue to open strongly as compared to both our historical averages and our internal expectations. We’re very confident in the strength of the long-term prospects for our business and in our strategy of investing capital in new store growth at a high rate of return for our shareholders. Our success in opening profitable stores in new diverse market areas, as well as continuing to fill out existing markets we’ve operated in a long time, is a confirmation of the success of our business model. Our ability to leverage our extensive distribution network to provide industry-leading inventory availability allows us to replicate our success and capture market share as we expand into new markets.

If a customer walks into our store and they are buying a product and they bring to our attention that Amazon or RockAuto or whoever it may be has it priced for less, obviously, they need the part that day and they want to buy it that day, or they wouldn’t be in our store. We work with them to come up with a price that makes sense for them to walk out of the store with the part. We don’t walk customers over pricing relative to Amazon and online pricing pressure.

75% of it is picked up in store, the remainder is bought online. So, I think we have a pretty seamless process now. When a customer orders a part, buy online, pick up in store, it works pretty slick. There’s not a lot we could do to make it work better unless we knew their license plate number and ran out and gave it to them when the pulled up or something, and we may do that someday. But right now, we’re not doing that. They come into the store. I might mention, the majority of our online business is actually B2B. We have a huge business in B2B where we’re integrated into the shop management systems. We have a great browser product that allows shops to order parts using a browser that we’ve deployed that allows them to see pricing and availability and get information that they might need to work on cars, and so forth. So, omni channel, both on the do-it-for-me side and DIY side, is a significant focus for us right now.


Intel (Q2 2017 Results) – Earnings Call Transcript

We expect to close the acquisition of Mobileye in the third quarter, several months earlier than expected. Autonomous driving is a massive compute workload that will disrupt industries and save lives and we are investing to win in this important segment. I’m excited to welcome the Mobileye team to Intel. Together, we expect to be the global leader in the $70 billion autonomous driving systems, data and services market opportunity by accelerating auto industry innovation and delivering cloud to car solutions faster and at a lower cost.

We’re executing well to our strategy to transform from a PC-centric company to a data-centric company that powers the cloud and billions of smart and connected devices. The PC TAM is down more than 1 5% versus four years ago. Despite that headwind, our revenue is up more than 15% and our operating profit has grown more than 30%. More than 40% of our revenue now comes from our datacentric businesses outside the PC sector. And those businesses together are growing at double-digit rates.


Amazon.com (Q2 2017 Results) – Earnings Call Transcript

…the biggest impact on the margin that you’re seeing in Q2 is really around the 71 % increase in assets acquired under capital leases. Most of that is for the AWS business. So we’ve really stepped up the infrastructure to match the large usage growth and also the geographic expansion. And that is showing up in tech and content.

Prime Now is now available in 50 cities across eight countries. We do learn. It’s something to do in every city and has different – slightly different shapes and sizes of those buildings and different density profiles. And so we are learning as we go, learn as we grow internationally as well. That is a service that customers love. That’s not an inexpensive service, though, and we also have – so we’re constantly working on our cost of delivery and our route densities. And again, we like what we see and we’ll continue to expand that and we’ll be working very hard on making that not only a valuable Prime offering, a Prime benefit, but also a lower-cost operation as well.