Curated Insights 2018.06.24

Tails, you win

Correlation Ventures crunched the numbers. Out of 21,000 venture financings from 2004 to 2014, 65% lost money. Two and a half percent of investments made 10x-20x. One percent made more than 20x return. Half a percent – about 100 companies – earned 50x or more. That’s where the majority of the industry’s returns come from. It skews even more as you drill down. There’s been $482 billion of VC funding in the last ten years. The combined value of the ten largest venture-backed companies is $213 billion. So ten venture-backed companies are valued at half the industry’s deployed capital.

The S&P 500 rose 22% in 2017. But a quarter of that return came from 5 companies – Amazon, Apple, Facebook, Boeing, and Microsoft. Ten companies made up 35% of the return. Twenty-three accounted for half the return. Apple alone was responsible for more of the index’s total returns than the bottom 321 companies combined. The S&P 500 gained 108% over the last five years. Twenty-two companies are responsible for half that gain. Ninety-two companies made up three-quarters of the returns. The Nasdaq 100 skews even more. The index gained 32% last year. Five companies made up 51% of that return. Twenty-five companies were responsible for 75% of the overall return.


16 years late, $13B short, but optimistic: Where growth will take the music biz

The primary problem, however, is how the major labels monopolize royalty payments. Spotify and Apple Music take roughly 30% of total revenues (which goes to operating costs, as well as customer sales tax and platform fees), with the remaining 70% paid out in royalties. Out of this remainder, the major labels keep roughly 70%, with 15% going to performers and 15% to composers. And remember, a hot song often boasts a handful of writers and several performers, each of whom will share in the net royalty (Spotify’s most streamed track in 2017, Ed Sheeran’s “Shape of You,” counts six writers; Kanye West’s 2015 hit “All Day” had four performers and 19 credited writers).

A common rejoinder to this argument is that growth in subscriptions will solve the problem – if everyone had Spotify or Apple Music, per-stream rates would remain low, but gross payments would increase substantially. There are three limits to this argument. First, prices would likely need to drop in order to drive additional penetration. In fact, they already are as the major services embrace student pricing and family plans (which cost 50% more but allow four to six unique accounts): Over the past three years, premium user ARPU has fallen from $7.06 per month to $5.25. To this end, family plans exert significant downward pressure on per-stream rates, as the number of streams grows substantially more than revenue. For related reasons, the industry is also unlikely to return to the days where the average American over 13 spent $80-105 a year (1992-2002). Even if every single American household subscribed to Spotify or Apple Music, per capita spend would be around $65-70. This is still more than twice today’s average of $31, but such penetration is unlikely (in 2017, only 80% of American mobiles were smartphones). Put another way, much of the remaining growth in on-demand streaming will come from adding additional users to existing subscriptions. While this increases total revenue per subscription (from $120 to $180), it drops ARPU to at most $90 and its lowest, $20.

Second, growth in on-demand music subscriptions is likely to cannibalize the terrestrial and satellite radio businesses. In 2017, SiriusXM (which has the highest content costs per listener hour in the music industry) paid out $1.2B in US royalties, roughly 33% of that of the major streaming services. US terrestrial broadcast revenue generates another $3B+ in annual royalties. These formats are rarely considered when discussing the health of the music industry, even though one reflects direct consumer spend. But they provide significant income for the creative community (though notably, terrestrial radio royalties compensate only composers, not performers). As on-demand streaming proliferates and cannibalizes more terrestrial/satellite radio listening (still more than half of total audio time in the United States), streaming royalties will continue to grow – but much of this will come at the expense of radio royalties.

Streaming services have an opportunity to cut out labels by forming direct-to-artist deals or establishing their own pseudo-label services. Not only has this long been predicted, it’s been incubated for years. Since 2015, the major services have cultivated exclusive windows and radio shows with major stars, including Beyoncé, Kanye West and Drake. While this construct still went through the label system, it generates clear business cases for further disintermediation.


How Netflix sent the biggest media companies into a frenzy, and why Netflix thinks some are getting it wrong

Hastings has never really feared legacy media, said Neil Rothstein, who worked at Netflix from 2001 to 2012 and eventually ran digital global advertising for the company. That’s because Hastings bought into the fundamental principle of “The Innovator’s Dilemma,” the 1997 business strategy book by Harvard Business School professor Clayton Christensen. “Reed brought 25 or 30 of us together, and we discussed the book,” Rothstein said of an executive retreat he remembered nearly a decade ago. “We studied AOL and Blockbuster as cautionary tales. We knew we had to disrupt, including disrupting ourselves, or someone else would do it.”

BTIG’s Greenfield predicts Netflix will increase its global subscribers from 125 million to 200 million by 2020. Bank of America analyst Nat Schindler estimates Netflix will have 360 million subscribers by 2030. Netflix estimates the total addressable market of subscribers, not including China, could be about 800 million.

Netflix has another edge in the content wars. While networks make decisions on TV ratings, Netflix plays a different game. Its barometer for success is based on how much it spent on a show rather than hoping every show is a blowout hit, said Barry Enderwick, who worked in Netflix’s marketing department from 2001 to 2012 and who was director of global marketing and subscriber acquisition. Since Netflix is not beholden to advertisers, niche shows can be successful, as long as Netflix controls spending. That also gives Netflix the luxury of being able to order full seasons of shows, which appeals to talent.

“Reality is, the biggest distributor of content out there is totally vertically integrated,” said Stephenson. “This happens to be somebody called Netflix. But they create original content; they aggregate original content; and they distribute original content. This thing is moving at lightning speed.”

Hastings derived many of his strategy lessons from a Stanford instructor named Hamilton Helmer. Hastings even invited him to Netflix in 2010 to teach other executives. One of Helmer’s key concepts is called counter-positioning, which Helmer defines as: “A newcomer adopts a new, superior business model which the incumbent does not mimic due to anticipated damage to their existing business.”

Google’s half-billion bet on JD.com

With the second-largest share of China’s B2C e-commerce market after Alibaba’s Tmall, JD.com already sells most major multinational consumer brands within China. Among CPG brands, 100% of home care and 95% of personal care brands are present on the platform. Gartner L2’s recent Digital IQ Index: Beauty China finds that 97% of mass beauty brands are sold on JD.com, either through brand flagships or JD.com-operated stores. Premium beauty brand presence is slightly lower at 77%. International luxury brands have generally been more wary of mass-market e-tailers, but JD.com has scored major names like Saint Laurent and Alexander McQueen since the launch of its luxury app Toplife and white-glove delivery service.


Google places a $550 million bet on China’s second-largest e-commerce player

For its part, JD.com said it planned to make a selection of items available for sale in places like the U.S. and Europe through Google Shopping — a service that lets users search for products on e-commerce websites and compare prices between different sellers. When retailers partner with Google, it gives their products visibility and makes it convenient for consumers to purchase them online. For the tech giant, its shopping service is important in helping to win back product searches from Amazon and to stay relevant in the voice-powered future of e-commerce.


Google is training machines to predict when a patient will die

Google has long sought access to digital medical records, also with mixed results. For its recent research, the internet giant cut deals with the University of California, San Francisco, and the University of Chicago for 46 billion pieces of anonymous patient data. Google’s AI system created predictive models for each hospital, not one that parses data across the two, a harder problem. A solution for all hospitals would be even more challenging. Google is working to secure new partners for access to more records.

A deeper dive into health would only add to the vast amounts of information Google already has on us. “Companies like Google and other tech giants are going to have a unique, almost monopolistic, ability to capitalize on all the data we generate,” said Andrew Burt, chief privacy officer for data company Immuta. He and pediatric oncologist Samuel Volchenboum wrote a recent column arguing governments should prevent this data from becoming “the province of only a few companies,” like in online advertising where Google reigns.

Adobe could be the next $10 billion software company

“The acquisition of Magento will make Adobe the only company with leadership in content creation, marketing, advertising, analytics and now commerce, enabling real-time personalized experiences across the entire customer journey, whether on the web, mobile, social, in-product or in-store. We believe the addition of Magento expands our available market opportunity, builds out our product portfolio, and addresses a key underserved customer need.”

Both have a similar approach to the marketing side, while Salesforce concentrates on the customer including CRM and service components. Adobe differentiates itself with content, which shows up on the balance sheet as the majority of its revenue .


After 20 years of Salesforce, what Marc Benioff got right and wrong about the cloud

Cloud computing can now be “private”: Virtual private clouds (VPCs) in the IaaS world allow enterprises to maintain root control of the OS, while outsourcing the physical management of machines to providers like Google, DigitalOcean, Microsoft, Packet or AWS. This allows enterprises (like Capital One) to relinquish hardware management and the headache it often entails, but retain control over networks, software and data. It is also far easier for enterprises to get the necessary assurance for the security posture of Amazon, Microsoft and Google than it is to get the same level of assurance for each of the tens of thousands of possible SaaS vendors in the world.

The problem for many of today’s largest SaaS vendors is that they were founded and scaled out during the pre-cloud-native era, meaning they’re burdened by some serious technical and cultural debt. If they fail to make the necessary transition, they’ll be disrupted by a new generation of SaaS companies (and possibly traditional software vendors) that are agnostic toward where their applications are deployed and who applies the pre-built automation that simplifies management. This next generation of vendors will put more control in the hands of end customers (who crave control), while maintaining what vendors have come to love about cloud-native development and cloud-based resources.

What’s so special about 21st Century Fox?

The attraction of Fox’s movie studio is clear. 20th Century Fox owns blockbuster franchises like “X-Men” and “Avatar,” as well as a highly regarded arthouse-movie shop in Fox Searchlight. All told, Fox’s studios collected more than $1.4 billion at the box office last year, according to Box Office Mojo.

One is the company’s 39 percent stake in Sky, the European satellite and broadband internet provider, which is already the subject of a bidding war between Comcast and Fox. Here’s what DealBook wrote about the attraction of Sky last week: Based in London, the broadcaster and internet service provider has 23 million customers in five countries, and it owns valuable broadcasting rights to English Premier League games, Formula One races and other sporting events. It also produces its own entertainment programs and has a streaming service, Now TV.

The other is Star, one of India’s biggest broadcasters, which operates 60 channels and the mobile streaming service Hotstar. Neither Comcast nor Disney has a meaningful presence in the fast-growing India market. Owning one of the country’s top content creators and distributors would give either company both a wealth of locally produced content and platforms on which to provide its other movies and TV shows.


Disney tests pricing power at theme parks

Raising prices—currently around $100 on average days and more than $120 during “peak” times around holidays—could mitigate tourist appetite and increase Disney’s profits. Internal projections at Disney show that even after raising prices at roughly double the rate of inflation over the past five years, it could charge much more than it currently does without driving away too many customers, a person familiar with the company’s parks operations said. Disney parks executives are working on adopting a dynamic pricing model similar to airlines, in which prices fluctuate depending on when a ticket is purchased, this person said.

Disney doesn’t release annual attendance figures for its parks, but more than 38.8 million people visited its domestic locations in 2017, an annual increase of about 1.3%, according to the Themed Entertainment Association trade group. Rising prices and attendance at the parks have contributed to strong growth in the company’s parks and resorts division in recent years. Annual income for the segment has grown more than 70% since 2013, hitting $3.8 billion in 2017.

These are the world’s biggest disruptors (and how the disrupteds are fighting back)

According to Barclays, historically the competitive advantage of legacy consumer focused businesses depended on either: 1) creating a monopoly⁄oligopoly in supply (creating a “scarce resource” in the process), or 2) controlling distribution by integrating with suppliers. Here, the fundamental disruption of the internet has been to turn this dynamic on its head by dominating the user experience. Barclays explains further:

First, while the mega-tech internet companies have high upfront capital costs, their user base is so large that the capital costs per user are insignificant, specially relative to revenue generated per user. This means that the marginal costs of serving another customer is effectively zero, thus neutralizing the advantage of exclusive supplier relationships that were leveraged by legacy distributors. Secondly, the internet has led to the creation of infinitely scalable networks that commoditize⁄modularize supply of “scarce resources” (thus disrupting the legacy suppliers of those resources), making it viable for the disrupting internet company to position itself as the key beneficiary of the industry‘s disruption by integrating forward with end users⁄consumers at scale.

As a result of the disruption, the user experience has become the most important factor determining success in the current environment: the disruptors win by providing the best experience, which earns them the most consumers⁄users, which attracts the most suppliers, which enhances the user experience in a virtuous cycle. This is also why so many legacy businesses find themselves unable to compete with runaway disruptors, whose modest advantage quickly becomes an insurmountable lead due to the economics of scale made possible by the internet. This has resulted in a shift of value from the disrupted to the disruptors who modularize⁄commoditize suppliers, integrate the modularized suppliers on their platform, and distribute to consumers⁄users with which they have an exclusive relationship at scale.

This further means that the internet enforces strong winner-take-all effects: since the value of a disruptor to end users is continually increasing it is exceedingly difficult for competitors to take away users or win new ones. This, according to Barclays, makes it difficult to make antitrust arguments based on consumer welfare (the standard for U.S. jurisprudence), but ripe for EU antitrust regulation (which considers monopolistic behavior illegal if it restricts competition).

Japan robot makers outperform Europeans in profitability

Fanuc, Yaskawa Electric and the other two top players worldwide, ABB of Switzerland and Germany’s Kuka, together hold more than 50% of the global market for industrial robots, Nikkei estimates. Fanuc is strong in numerical control devices for machine tools, while Yaskawa boasts expertise in motor technologies. On the European side, ABB is known for dual-arm robots and supplies a wide array of manufacturing equipment, while Kuka’s strength lies in automotive production equipment such as welding robots.

Fanuc is far ahead of the other three in margin, but Yaskawa has boosted its number in recent years. Its margin rose to 9% last fiscal year, surpassing ABB’s 7% and marking the first time in 14 years that the Japanese duo each logged better margins than their two European rivals. In-house production of core component motors helps the Japanese players secure wider margins, said Yoshinao Ibara of Morgan Stanley MUFG Securities. Fanuc’s thoroughly automated production processes also contribute to high profitability.


Why aren’t we all buying houses on the internet?

“The old idea that real estate is never going to change, that we’re going to pay 6 percent, is completely untrue,” argues Glenn Kelman, the CEO of Seattle-based Redfin, a publicly traded brokerage whose calling card is lower commissions. For Kelman, the rush of cash into real estate startups feels like vindication for a corporate model that investors have regarded with skepticism. Redfin’s low-fee model relies on an army of in-house agents who trade typical commissions for the volume that’s possible with internet-generated leads. A Redfin world isn’t a world without real estate agents, but it is one where fewer agents do more. The nation’s 1.4 million working real estate agents do not particularly like Redfin.

Zillow has a different approach. The company hasn’t disrupted the traditional agent model; on the contrary, it’s dependent on it. In the first quarter of 2018, Zillow raked in $300 million in revenue (Redfin’s revenue for all of 2017 was $370 million); more than 70 percent of that came from the company’s “Premier Agents,” who pay for prime placement on the site to generate leads. In becoming an iBuyer (the industry’s term of art, short for “instant buyer”), the company won’t bite the real estate–brokering hand that feeds it. If anything, the pivot provides a lucrative opportunity for local agents to cement their relationships with a company that is trying to become an industrial-scale homebuyer.

Zillow also isn’t the first company to try acting as a middleman. San Francisco–based Opendoor has made tens of thousands of offers on homes, mostly in Sun Belt cities like Phoenix and Dallas. These places are an easier market than New York or San Francisco: The housing stock is newer, cheaper, and more suburban—which is to say, self-similar. Transactions taxes tend to be lower. The company sees itself as competing against seller uncertainty. “[Zillow] keep[s] the agents at the center of the transaction, which is in line with their business model,” says Cristin Culver, head of communications for Opendoor. “And we keep the customer at the center, which is really our North Star, and that’s the difference.” The company’s rapid appraisals make it possible for sellers to skip agents on the first transaction, and after doing some small renovations (paint, HVAC, basic repairs), Opendoor’s “All Day Open House” allows buyers to find and unlock the house themselves with a smartphone. Easy, right? And yet most of them come with an agent, and the company says it’s one of the biggest payers of commissioners in its markets today.*

Why Japan’s sharing economy is tiny

A generous estimate of the sharing’s economy value in Japan is just ¥1.2trn yen ($11bn), compared with $229bn for China. “It’s a very difficult situation,” says Yuji Ueda of Japan’s Sharing Economy Association. Almost 29m tourists visited Japan last year; the goal is to attract 40m by 2020, when Tokyo hosts the Olympics. But the number of hotel rooms is not keeping up with demand.

Indonesia ecommerce through the eyes of a veteran

50% of all ecommerce orders are still limited to JABODETABEK (The Greater Jakarta Area) while the next 30% are in the rest of Java. This leaves 20% spread unevenly throughout Indonesia. Lots of marketing dollars (and education) will have to be spent outside JABODETABEK to push more traffic and conversion online.

Social commerce is massive in Indonesia and it is believed that transactions happening via Facebook and Instagram may be equally as big as the ‘traditional’ ecommerce. As of now, there is no official way to track how big this market is but looking at the data from various last mile operators based on non-corporate customers, this market share is between 25% and 35% of their volumes and has been constantly growing.

Domestic ecommerce supply chain design is becoming more critical in ensuring lower OPEX. Decentralisation of distribution centres are happening with various major marketplaces and 3PL investing in distribution centers (DC) outside JABODETABEK with the objective of bringing products closer to market and also reducing the last mile cost. With a long term view, some too have started investing in having a presence in 3rd Tier Cities outside Java, in line with the government’s infrastructure development.


Malaysia’s economy more diversified than thought

While commodities make up about 20% of total exports, electronics constitute an even larger portion: 37% in 2017. Even when oil prices were at their peak in 2012, commodities comprised 30% of total exports versus electronics at 33%.

Higher oil prices add to the government’s fiscal revenue. We estimate that for every 10% rise in global oil prices, Malaysia’s current account increases by about 0.3 percentage points of GDP after four quarters.

Government estimates suggest that every US$1 per barrel increase in oil prices adds about RM300mil to revenue. That said, oil revenue is only budgeted at 14.8% of revenue for 2018 compared with the peak in 2009 when it constituted some 43% of total fiscal revenue.


SEC says Ether isn’t a security, but tokens based on Ether can be

For the SEC, while cryptocurrencies like bitcoin and ether are not securities, token offerings for stakes in companies that are built off of those blockchains can be, depending on the extent to which third parties are involved in the creation or exchange of value around the assets. The key for the SEC is whether the token in question is being used simply for the exchange of a good or service through a distributed ledger platform, or whether the value of the cryptocurrency is dependent on the actions of a third party for it to rise in value.

“Promoters, in order to raise money to develop networks on which digital assets will operate, often sell the tokens or coins rather than sell shares, issue notes or obtain bank financing. But, in many cases, the economic substance is the same as a conventional securities offering. Funds are raised with the expectation that the promoters will build their system and investors can earn a return on the instrument — usually by selling their tokens in the secondary market once the promoters create something of value with the proceeds and the value of the digital enterprise increases. Just as in the Howey case, tokens and coins are often touted as assets that have a use in their own right, coupled with a promise that the assets will be cultivated in a way that will cause them to grow in value, to be sold later at a profit. And, as in Howey — where interests in the groves were sold to hotel guests, not farmers — tokens and coins typically are sold to a wide audience rather than to persons who are likely to use them on the network.”


Study: Charts change hearts and minds better than words do

Through survey experiments, Nyhan and Reifler arrived at a surprising answer: charts. “We find that providing participants with graphical information significantly decreases false and unsupported factual beliefs.” Crucially, they show that data presented in graphs and illustrations does a better job of fighting misperceptions than the same information presented in text form.

Regional Notes 2018.04.13

Indonesia’s newest unicorn now wants to take on the big boys

Indonesia has an e-commerce market that McKinsey & Co. says can be one of the fastest-growing in the world, part of a digital economy adding $150 billion a year to gross domestic product by 2025.

Internet businesses present an attractive alternative to consumers struggling with inflation and worsening traffic congestion. Bukalapak’s aim is to profit by bridging between buyers and sellers scattered across more than 700 islands.

Pharmaniaga’s Indonesian business ‘doing very well’

“There are currently no vaccine plants in Malaysia. We are on the right track to make sure that the facility is made available. We are currently in the process of doing feasibility studies. We expect to have our first commercial batch by 2024,” Farshila said, adding that the plant would be ready between 2020 and 2022.

Moving forward, Pharmaniaga also plans to continue reducing its dependency on its concession business, which contributes 49% to total earnings currently. It plans to do this by having a better share in the private sector.

“We are also now aggressively registering our products in the EU region. We have managed to register two products so far. EU has a different set of standards but we are in compliance with that,” she said.

Pharmaniaga currently has more than 200 products, with more than 60 of them halal-certified. According to its annual report, the group expects to receive halal certification for more than 150 pharmaceutical products by the end of 2019.

The pharmaceutical group has a 10-year concession agreement with the health ministry, which began on Dec 1, 2009. The concession enables the group to supply and distribute pharmaceutical products to medical institutions under the ministry via its logistics and distribution division until 2019.

HKMA intervenes to buy local currency, first time since ’05

With record foreign-exchange reserves, the HKMA is in a strong position to defend its city’s currency, and there’s no evidence that the trading band is under sustained speculative attack. The authority’s deputy chief executive Howard Lee said Friday morning that the banking system has ample liquidity and can cope with capital outflows, which are within expectation. He said interest rates are likely to rise incrementally and gradually.

The intervention is still significant because the HKMA’s purchases have the potential to boost borrowing costs by draining liquidity. That would signal the end of an era of ultra-cheap money that made Hong Kong the world’s least affordable market for housing and propelled equities to all-time highs.

Singapore favors ‘organic’ policy in move toward open banking

The transition towards “open banking” can be more successful if it takes place without the regulator mandating action, said David Hardoon, Chief Data Officer at the Monetary Authority of Singapore. “You can come and say ‘thou shall do it’ but then nothing happens effectively,” Hardoon said in a Wednesday interview.

The MAS’s policy differs from the approach taken in Europe and Japan, where regulators have set deadlines for banks to give access to their client data to rivals and to fintech firms. In Europe, banks have until 2019 to comply with the revised Payment Services Directive (PSD2), which obliges them to share client account data.


BNM governor urges industry players to drive RPP promotion

“One such area is through the publication of open application programming interfaces, better known as open APIs. Based on our interaction with the banking community, there is interest for this among our banks. BNM’s survey last year indicated that more than 50 per cent of banks in Malaysia view open API as a high priority. Thus the industry should leverage on open API to facilitate collaboration with financial technology firms to introduce innovations and facilitate new use cases to enhance the RPP’s value proposition to businesses and consumers.”

“Of the Malaysian adult population of 24 million, we estimate that about 10 million do not use online banking, while two million remain unbanked. We look to the industry, both banks and non-banks, to come up with new and imaginative ways to accelerate the onboarding of these underbanked and unbanked segments of our society.”

Curated Insights 2017.10.22

Tesla’s new car smell

As I watched Tesla’s messy, hiccuping line, with workers dashing in to fix faulty parts in place, my mind travelled back to the Honda plant I had visited years ago in Marysville, Ohio. Clean, calm, everything moved smoothly. I was so shocked by the contrast that I imprudently voiced my concern. That didn’t go over well with my fellow Tesla owners. I was a killjoy, I was calling their choice into question.

“Unknown to analysts, investors and the hundreds of thousands of customers who signed up to buy it, as recently as early September major portions of the Model 3 were still being banged out by hand, away from the automated production line, according to people familiar with the matter.”

Moving from fewer than 100K cars a year to 500K and up isn’t “more of the same”, it can’t be achieved through clever, conventional-wisdom-defying improvisation. That sort of growth is a bold jump in scale that requires a smooth, well-oiled and well-understood manufacturing process.


Millennials are helping Jack Ma’s financing firm become a debt giant

Securitized products that bundle such obligations are meant to spread the risks among different investors. The tech companies can’t take deposits like banks, so the ABS, which are generally sold in private placements to institutional investors, give them a way to raise funds. The latest ABS from Ant Financial that’s backed by loans through its Jiebei service pays a 5.5 percent coupon for the senior tranche, according to data compiled by Bloomberg.

“In the short term, default risks for consumer loan ABS are very low because the underlying assets are composed of a number of loans in small sizes,” said Zuo Fei, an executive director and head of the ABS group in the investment banking division of China Merchants Securities Co. in Shenzhen. “These ABS products will be safe, unless systemic risks emerge in the economy and cause widespread defaults in consumer loans.”

Shell buys NewMotion charging network in first electric vehicle deal

Demand for electric vehicles is expected to rise significantly in coming decades and Morgan Stanley estimates that 1-3 million public charging points could be needed in Western Europe by 2030. Currently, there are fewer than 100,000. Shell expects around a quarter of the world’s car fleet to be electric by 2040.

Oil companies are growing increasingly aware of the potential threat to parts of their downstream business from the electrification of transport.


Solar wants to help fix a power-grid problem it helped create

Solar panels have proliferated in the Golden State, flooding the grid with power supplies in the middle of the day when the sun’s out — and then quickly vanishing after sunset. This has created a sharp curve in California’s net-power demand that’s shaped like a duck. And the so-called duck curve is getting steeper every year, sending wholesale electricity prices plunging into negative territory, forcing generators offline and making it increasingly difficult to maintain the reliability of California’s transmission lines.

…change the way solar farms are paid. If the state’s utilities compensate them for shutting generation when the grid doesn’t need it and providing power later when it does, he said, farms could use increasingly sophisticated inverters and software controls to adjust.


How Amazon’s $13.7B purchase of Whole Foods is a ‘blessing in disguise’ for Instacart

“When Amazon bought Whole Foods, what they did was they sent the signal to the entire grocery/retail landscape that Amazon was coming,” Mehta said. “Now, for every single grocery retailer at this point in time, whether they believed it or not before, now they needed an e-commerce strategy. They needed to have same day delivery. The reality was, for the last five years, that’s what we have done. We have brought hundreds of grocery retailers online, and so we had the track record of being able to do this successfully.”

Instacart has been growing faster than expected this year, and it has expanded to 149, up from only 30 at the beginning of the year. Mehta said the company can now reach 63 million households as potential customers, up from about 11 million a year ago.


This little-known startup just hit a valuation of $30 billion

Travel is becoming the latest competitive ground. With the recent fundraising, Meituan plans to spend hundreds of millions of dollars over the next three to five years to become a leading travel booking site. It’s also exploring opportunities to collaborate with Priceline as part of the investment. That may present a challenge to China’s biggest online travel site, Ctrip.com International Ltd., which is backed by Baidu. Ctrip shares fell 8.2 percent in U.S. trading.

China’s internet crackdown isn’t going anywhere

“Xi Jinping has definitely been a turning point in terms of the degree of censorship that is happening in China,” said Charlie Smith, who founded Greatfire.org, an organization that finds ways around government restrictions. “He is the first Chinese leader to truly understand the power of the internet and hence, we are seeing an unprecedented crackdown on dissenting information,” said Smith, who uses a pseudonym for fear of government reprisals

In June, Weibo Corp., the Chinese equivalent to Twitter, was one of three firms fined and banned by regulators from broadcasting certain types of content without a license. In an August earnings call, its chief financial officer said current rules made it legally impossible to acquire a license without becoming “wholly state-owned or state-controlled”.

The tightening presents unique challenges to foreign firms navigating the legal landscape. Services that rely on free-flowing information, such as Google and Facebook, would struggle to exist in such a regime, though they remain intent on finding a way in given the size of the potential market.


Who has the world’s No. 1 economy? Not the U.S.

Gross domestic product is supposed to measure the amount of real stuff — cars, phones, financial services, back massages, etc. — that a country produces. If the same phone costs $400 in the U.S. but only $200 in China, China’s GDP is getting undercounted by 50 percent when we measure at market exchange rates. In general, less developed countries have lower prices, which means their GDP gets systematically undercounted.

Economists try to correct for this with an adjustment called purchasing power parity (PPP), which controls for relative prices. It’s not perfect, since it has to account for things like product quality, which can be hard to measure. But it probably gives a more accurate picture of how much a country really produces. And here, China has already surpassed the U.S.

China’s modest per-person income simply means that the country has plenty of room to grow. Whereas developed countries can only get richer by inventing new things or making their economies more efficient, poor countries can cheaply copy foreign technology or imitate foreign organizational practices. That doesn’t always happen, of course — many poor countries find themselves trapped by dysfunctional institutions, lack of human capital or other barriers to development.

In other words, not only is China already the world’s largest economy, the gap between it and the U.S. can be expected to grow even wider. This continues to be borne out in the growth statistics — though China has slowed in recent years, its economy continues to expand at a rate of more than 6 percent, while the U.S. is at just over 2 percent. If that disparity persists, China’s economy will be double that of the U.S. in less than two decades.


China to build giant facial recognition database to identify any citizen within seconds

The system can be connected to surveillance camera networks and will use cloud facilities to connect with data storage and processing centres distributed across the country, according to people familiar with the project.

Commercial application using information sourced from the database will not be allowed under current regulations. [But] a policy can change due to the development of the economy and increasing demand from society.”

“To download the whole data set is as difficult as launching a missile with a nuclear warhead. It requires several high-ranking officials to insert and turn their keys at the same time,” the vendor said.

The 1.3 billion-person facial recognition system is being developed by Isvision, a security company based in Shanghai.

They found that the accuracy of the photo that most closely matched the face being searched for was below 60 per cent. With the top 20 matches the accuracy rate remained below 70 per cent, Fan and collaborators reported in a paper published in the domestic journal Electronic Science and Technology in May. “It cannot solve problems with real-life applications,” they added.

The researcher warned that the cost of the convenience facial recognition could bring to everyday life was “sacrificing security”.


Warning signs are mounting for Sweden’s once-hot housing market

SEB AB’s monthly housing-price indicator shows households are becoming less optimistic about the market. The gauge, which measures the difference between those who see rising housing prices and those who believe in a decline, has dropped to its lowest level since August 2016. While 66 percent of Swedes still expect prices to rise, and only 16 percent believe in a decline, the indicator has dropped for four consecutive months.

Regulators have been tightening regulations to cool debt growth. Swedes are now subject to a mortgage cap, limiting loans to 85 percent of a property’s value, and an amortization requirement, which forces borrowers pay off the part of their new loans that exceeds 50 percent of the property’s value. The regulator now wants to introduce an additional amortization requirement for the most indebted households, and has also floated the idea of a cap on loans in relation to incomes.

Developers are taking action to prepare for a slowdown. Wallenstam AB said this month it would convert 90 apartments in a development in the Stockholm neighborhood of Solberga to rentals rather than trying to sell them. The situation is “a bit uncertain,” with the market for ownership apartments having “cooled down,” Wallenstam said on Oct. 9.


Indonesia set for trillion-dollar economy in bittersweet triumph

Size isn’t everything. Even after eight rate cuts since the beginning of last year, the economy is struggling to fire up: loan growth remains muted, while the central bank expects low inflation to linger for some time. The picture is made more complex by a wide divergence in growth across the archipelago of more than 17,000 islands, with rates ranging from negative to more than 7 percent.

Jokowi is ramping up spending on roads, rail and seaports as he targets economic growth of 5.4 percent in 2018, the fastest rate in five years. But a massive infrastructure deficit — estimated by the World Bank at $1.5 trillion — is frustrating his efforts. The global lender says another $500 billion in infrastructure spending is needed over the next five years.

Indonesia’s tax revenue as a portion of GDP remains one of the lowest in the region with the OECD estimating it at around 12 percent two years ago. It has since fallen to 10.3 percent, which Finance Minister Sri Mulyani Indrawati in July described as “low and unacceptable.” She’s aiming to boost that ratio to 16 percent by 2019.


Like Bali? Indonesia wants to create 10 of them to draw Chinese tourists

Jokowi’s plan, according to Yahya, will see the contribution of tourism to the economy climb to 7.5 percent by 2019 from 4.5 percent last year. Tourism receipts are forecast to grow more than 60 percent to $20.7 billion over the same period, with the number of jobs seen rising to 13 million from 11.8 million.

Even with that kind of growth, Indonesia is far behind neighboring countries in developing tourism and targeting Chinese visitors. Thailand’s industry makes up about 18 percent of gross domestic product, with the country’s famed beaches and nightlife attracting 26 million foreign visitors so far this year, 28 percent of them coming from China. Indonesia also trails Singapore and Malaysia in number of tourists.

Funding Jokowi’s 10 New Balis plan will be a big challenge. Yahya estimates the industry needs $20 billion of investment over five years, of which about $10 billion will come from the government. Given its vast infrastructure needs in everything from ports to roads, and a budget deficit cap of 3 percent of GDP, authorities are seeking more private-sector funds.


Silicon Valley Vs. Wall Street: Can the new Long-Term Stock Exchange disrupt capitalism?

If the LTSE succeeds, it could offer a new incentive for privately held tech giants such as Airbnb Inc. and Uber Technologies Inc. to go public, at a time when many market veterans and regulators fear the process of going public has lost its luster. But skeptics wonder whether the LTSE is just another way for tech founders and elite Silicon Valley investors to maintain control at the expense of other shareholders.

For instance, executives’ bonuses couldn’t be tied to financial-performance targets over periods of less than one year. If the executives are paid in company stock, the shares couldn’t fully vest for at least five years. LTSE-listed firms would still publish quarterly results—an SEC requirement—but they would be barred from releasing quarterly earnings guidance, a practice that some critics say fosters short-term thinking. Meanwhile, tenure voting would be available to any shareholder of an LTSE-listed company. If an investor opted into the system, the voting power of his or her shares would grow over time, capped at 10 times the power of ordinary common stock after a decade. If the shares were sold, the voting power would be reset for the new owner.

Mr. Ries disputes the idea that the LTSE is good for founders and bad for everyone else. In his view, tenure voting is better than the solution favored by some Silicon Valley firms: severely limiting the voting power of ordinary shareholders through two or more share classes.