Curated Insights 2017.12.17

Disney and Fox

With an increasingly high-profile brand, large user base, and ever deeper pockets, Netflix moved into original programming that was orthogonal to traditional programming buyers: creators had full control and a guarantee that they could create entire seasons at a time Each of these intermediary steps was a necessary prerequisite to everything that followed, culminating in yesterday’s announcement: Netflix can credibly offer a service worth paying for in any country on Earth, thanks to all of the IP it itself owns. This is how a company accomplishes what, at the beginning, may seem impossible: a series of steps from here to there that build on each other. Moreover, it is not only an impressive accomplishment, it is also a powerful moat; whoever wishes to compete has to follow the same time-consuming process.

Another way to characterize Netflix’s increasing power is Aggregation Theory: Netflix started out by delivering a superior user experience of an existing product (DVDs) to a dedicated set of customers, leveraged that customer base to gain new kinds of supply (streaming content), gaining more customers and more supply, and ultimately leveraged those customers to modularize supply such that the streaming service now makes an increasing amount of its content directly. What Disney is seeking to prove, though, is that it can compete with Netflix directly by following a very different path.

The implication of Netflix’s shift to original programming, though, isn’t simply the fact that the streaming company is a full-on competitor for cable TV: it is a competitor for differentiated content as well. That gives Netflix far more leverage over content suppliers like Disney than the cable companies ever had.

Netflix isn’t simply adding customers, it is raising prices at the same time, the surest sign of market power. Therefore, the only way for Disney to avoid commoditization is to itself go vertical and connect directly with customers: thus the upcoming streaming service, the removal of its content from Netflix, and, presuming it is announced, this deal.

Whereas Netflix laddered-up to its vertical model and used its power as an aggregator of demand to gain power over supply, Disney is seeking to leverage — and augment — its supply to gain demand. The end result, though, would look awfully similar: a vertically integrated streaming offering that attracts and keeps customers with exclusive content, augmented with licensing deals.

In addition, Disney and 21st Century Fox combined for 40% of U.S. box office revenue in 2016; that probably isn’t enough to stop the deal, and as silly as it sounds, don’t underestimate the clamoring of fans for the unification of the Marvel Cinematic Universe in swaying popular opinion!

GM’s latest weapon in pickup truck wars: Carbon fiber

Pickup sales represent about 16% of the U.S. market, but delivered the bulk of the $25 billion in operating profit Detroit’s Big Three auto makers earned in North America last year, according to analysts. J.D. Power estimates GM’s large pickups fetch $43,220 on average, up about 30% from five years ago, but below the $45,000 transactions on Ford’s F-Series.

Trucks represent a unique challenge for Detroit. Buyers expect ample power to haul boats and construction gear, but regulators are demanding more efficient designs over the next seven years to reduce greenhouse-gas emissions and improve fuel economy. That thinking underpinned Ford’s use of aluminum for the market-leading F-Series, which Environmental Protection Agency officials have said they see as already nearly meeting 2025 fuel-economy standards.

Carbon fiber is at least 50-75% lighter than steel and 20-50% lighter than aluminum, depending on the type, according to Ducker Worldwide, a materials consultancy that works with auto makers. It would improve dent resistance and give GM a differentiating feature in the fierce realm of truck marketing, said Richard Schultz, a metals expert at Ducker.

Researchers train robots to see into the future

These robotic imaginations are still relatively simple for now – predictions made only several seconds into the future – but they are enough for the robot to figure out how to move objects around on a table without disturbing obstacles. Crucially, the robot can learn to perform these tasks without any help from humans or prior knowledge about physics, its environment or what the objects are. That’s because the visual imagination is learned entirely from scratch from unattended and unsupervised exploration, where the robot plays with objects on a table. After this play phase, the robot builds a predictive model of the world, and can use this model to manipulate new objects that it has not seen before.

The system uses convolutional recurrent video prediction to “predict how pixels in an image will move from one frame to the next based on the robot’s actions.” This means that it can play out scenarios before it begins touching or moving objects.

China has been building what it calls “the world’s biggest camera surveillance network”. Across the country, 170 million CCTV cameras are already in place and an estimated 400 million new ones will be installed in the next three years.

Many of the cameras are fitted with artificial intelligence, including facial recognition technology. The BBC’s John Sudworth has been given rare access to one of the new hi-tech police control rooms.

World’s largest water diversion plan won’t quench China’s thirst

It’s China’s age-old dilemma: a tug of war between the farms that help feed the nation, and the soaring demands of industry and city-dwellers in the parched northern plains.

Beijing, which gets about 70 percent of its water from the South-North diversion project, is expected to add another 2 million people before the government caps the city’s population at 23 million.

One way to stem the reduction in groundwater is taxes. Last month, the government expanded a water resource tax trial to cover nine municipalities and provinces, with duties ramping up if quotas are exceeded. Regular water tax rates were highest in Beijing and Tianjin, according to China’s finance ministry, and water from underground will be taxed at twice the rate or more than for surface water.

Another option is to import food that requires a lot of moisture to grow — nearly half of China’s farmland has no irrigation system. That’s not straightforward, as China also has a long-standing food-security policy that aims to be largely self-sufficient in staple grains.

Each ton of imported wheat saves China about 500 cubic meters of water and 0.4 acres of farmland, Fang said. The country is already the world’s largest importer of soybeans, but could buy more, as well as meat and dairy products, she said. But an increase in grain imports would put a further strain on global food markets. China’s soybean demand has prompted farmers in Brazil to turn over some 13 million hectares of farmland and forest to growing the crop in the past 10 years, an area about the size of Germany.

Still, in many cases there’s little incentive for farmers to save water. Agriculture uses 62 percent of China’s water, but crops have a relatively low marginal value. So the government bans the sale of agricultural water to industry, which pays 10 times the price, to ensure food supply.


A caution from the world’s biggest shipping line

Decade-old oversupply issues swamped demand for containerized sea trade in the third quarter, a senior official at Maersk Line Ltd. said in an interview last week. Over 90 percent of trade is routed through ships, making the industry a bellwether for the worldwide economy.

Drewry Shipping Consultants expects the container-shipping freight growth rate to drop to less than 10 percent in 2018 from around 15 percent in 2017 as a supply glut hits home. CMA CGM, the No. 3 container shipping company, recently signaled slightly lower rates for 2018 in early negotiations of Asia-Europe contracts, analysts at Credit Suisse Group AG wrote in a Nov. 29 note.

In contrast, the air-freight market is buoyant after years in the doldrums, International Air Transport Association said last week. The development of e-commerce should mean growth rates remain ahead of the pace of expansion in world trade.


The world produces more than 3.5 million tons of waste a day – and that figure is growing

The world generates at least 3.5 million tons of solid waste a day, 10 times the amount a century ago, according to World Bank researchers. If nothing is done, that figure will grow to 11 million tons by the end of the century, the researchers estimate. On average, Americans throw away their own body weight in trash every month. In Japan, meanwhile, the typical person produces only two-thirds as much. It’s difficult to find comparable figures for the trash produced by mega-cities. But clearly, New York generates by far the most waste of the cities I visited: People in the broader metropolitan area throw away 33 million tons per year, according to a report by a global group of academics published in 2015 in the journal of the National Academy of Sciences. That’s 15 times the Lagos metropolitan area, their study found.


Salmon open flood gates for human consumption of GM animals

Engineered to grow at twice the rate of regular salmon, it is also believed to be the first example of a genetically engineered animal bred and sold for human consumption.


The main advantage of the salmon’s shorter lifespan is that the fish can be grown in tanks inland, vastly reducing the cost of transportation and the burden on the environment. “Demand for global protein is increasing,” he says. “We have to do a better job and we have to do it efficiently.”

One area Professor Muir regards as promising is the creation of genetically modified goats’ milk by scientists at the University of California, Davis, which carries a protein found in human breast milk that could, for example, help protect children in the developing world from bacterial infection.

More moats, more profits

Some businesses, however, have structural advantages that enable a stronger defense against competition, enabling high profits over an extended period. As competitive advantages have improved for the leading firms, we believe the ability to shield profits from normal competition has increased, enabling higher overall profits. The high concentration of wide and narrow moats among the largest 100 firms suggests that their elevated profit margins partly reflect the successful defense of competitive positions. In analysis looking at the past 10 years, wide-moat firms have generated more than triple the operating margins of no-moat firms, while narrow-moat firms have posted more than double the returns of no-moat companies. As the moat rating improves, the margins expand, supporting the importance of moats in protecting profits.

Beyond the global growth, the current phase of industrialization also supports more moats. As industrialization has moved from mechanical and mass production to information technology, we have seen an expansion in moats, especially in intangible assets and switching costs. Further, as we move into the next phase of industrialization focused on networking and the exchange of data between machines and humans,3 we expect more growth in profits supported by network effects. Several of the largest companies, including wide-moat firms with strong network effects Alphabet, Facebook, Amazon.com, Alibaba, and Tencent, didn’t exist 30 years ago and now represent more than 10% of the market capitalization of the top 100 firms.

The blockchain economy: A beginner’s guide to institutional cryptoeconomics

But a database still relies on trust; a digitised ledger is only as reliable as the organisation that maintains it (and the individuals they employ). It is this problem that the blockchain solves. The blockchain is a distributed ledgers that does not rely on a trusted central authority to maintain and validate the ledger.

A better metaphor for the blockchain is the invention of mechanical time. “The effect of the reduction in the variance of time measurement was felt everywhere”, Allen writes. Mechanical time opened up entirely new categories of economic organisation that had until then been not just impossible, but unimaginable. Mechanical time allowed trade and exchange to be synchronised across great distances. It allowed for production and transport to be coordinated. It allowed for the day to be structured, for work to be compensated according to the amount of time worked — and for workers to know that they were being compensated fairly. Both employers and employees could look at a standard, independent instrument to verify that a contract had been performed.

Complete contracts are impossible to execute, while incomplete contracts are expensive. The blockchain, though smart contracts, lowers the information costs and transactions costs associated with many incomplete contracts and so expands the scale and scope of economic activity that can be undertaken. It allows markets to operate where before only large firms could operate, and it allows business and markets to operate where before only government could operate.

The blockchain and associated technological changes will massively disrupt current economic conditions. The industrial revolution ushered in a world where business models were predicated on hierarchy and financial capitalism. The blockchain revolution will see an economy dominated by human capitalism and greater individual autonomy.

Curated Insights 2017.12.03

A dynamic knowledge tool to understand the issues and forces driving transformational change across economies, industries, global issues and the Forum’s system initiatives.

How to tame Google, Facebook, Amazon, and Apple

The problem with price regulation is that Google doesn’t charge high prices—at least not to consumers, the traditional victims in monopoly cases. The company initially helped wipe out the profitability of newspapers and magazines, in part, by undercutting the price of print advertising. These days, however, Google can charge hefty prices to advertisers because it controls so much inventory and user data. Advertisers can feel they have no choice but to pay up, while consumers pay precisely zero to do searches or send emails.

Amazon is a “cheetelephant,” said one analyst: an elephant that runs as fast as a cheetah. It’s considerably faster than the regulators and lawmakers who have been caught flat-footed and are now wondering what, if anything, to do about its increasing market power, from books to groceries to moviemaking.

“If you look at the business models of these firms, none of these is a predatory pricing model. These firms are making a lot of money doing what they’re currently doing,” said Penn’s Hovenkamp. Besides, he said, “there are constantly new entrants” that would prevent a company from earning monopolistic profits. For antitrust enforcers, the problem is that by the time you know for sure whether a company predatorily drove rivals out of business, it’s too late to prevent it.

Facebook, in other words, is damned if it does censor and damned if it doesn’t. How is this likely to evolve? One possibility is that Facebook will tire of taking the heat and voluntarily submit to government regulation. A regulated Facebook would still have to employ people and algorithms to scour its website of forbidden materials, as it does today, but at least it could point the finger at lawmakers and regulators if questioned about its choices. The same would go for Google and some companies not covered here, such as Twitter.

It’s a good bet that there will be more such orders in coming years. Governments want money, and the four tech giants have a lot of it. In the meantime, while trying to come up with a better tax system, Europe is toying with the idea of taxing the tech companies’ revenue rather than their profits. The reasoning is that revenue is harder to manipulate. But revenue is a crude measure of a company’s ability to pay taxes. Revenue-based taxation would be too hard on companies with lots of revenue but little profit, and too easy on companies with little revenue but lots of profit.

Under an apportionment system, each country is still permitted to set its corporate tax rate however it chooses. But it will be able to charge its rate only on its little slice of the company’s global profit—a slice that’s determined by an agreed-upon formula. A country can no longer grab a bigger piece of a shrinking corporate-tax pie by cutting its rate below other countries’. In one stroke, the race to the bottom in tax rates is cut short.

Getting low-tax countries to go along with an apportionment system would be tough, though. No country wants to give up what makes it special. So something like the current tax system, albeit with fewer loopholes, is likely to persist for at least awhile. Apple, Google, Facebook and Amazon will keep finding ways to pit countries against one another.


Why Tencent Could Become an Advertising Powerhouse Like Facebook

Tencent’s ad revenue could more than double to $11.4 billion by 2019, according to researcher eMarketer. The company is estimated to increase its market share in China’s digital ad space to 15 percent from about 9 percent, eMarketer said.

Social advertising, which relies on information from a user’s network, is still a nascent business in China. The model that drives Facebook only accounts for about 10 percent of mainland digital marketing with e-commerce and search ads still taking the lion’s share. Lau expects that to change. “Social advertising can play a larger role,” said Lau. “In China, we are kind of pioneering the categories” of that.

So Tencent’s chosen to exercise restraint, usually showing just one ad per day on WeChat’s “Moments”, a function similar to Facebook’s news feed, capping inventory by intention. That’s why it earns just $2.10 per daily active user on WeChat, versus Facebook’s $30.10, Morgan Stanley estimates.

To do that, it’s enlisted an army of more than 250 computer scientists to expand in artificial intelligence, focusing on natural language processing, image recognition and user behavior prediction. That investment is showing up in some areas: Tencent worked with BMW to target high-end users based on their friends and location logs, sending them WeChat ads through which they could book test drives. The end game is converting ads into purchases, which is why the company’s exploring also hotels, dining and property, Lau said.


How Tencent could help Snapchat

Integrating gaming into Snapchat might be a good idea – not just because it creates more ways to generate revenue, but also because it can enhance user engagement. Globally, more people watch gaming videos and streams than HBO, Netflix, ESPN, and Hulu combined. As Snapchat strives to add users globally, it would be smart to tap into the millions of gamers worldwide who are already spending hours each day playing games, many of which Tencent has invested in.

“There is a strong likelihood that the redesign of our application will be disruptive to our business in the short term. We’re willing to take that risk for what we believe are substantial long-term benefits to our business.”


Amazon focuses on machine learning to beat cloud rivals

The industry has turned into a race to provide customers tools and functions to use that data in new ways. Those tools are helping speed the transition to the cloud, since companies that don’t have access to them will be at a competitive disadvantage, Jassy said. “We are in a transition stage right now. Relatively few companies will own their own data centers, and those who do will have significantly smaller footprints. That means all of that data is moving to the cloud.”

The cloud computing market will grow to $89 billion in 2021, up from $35 billion today, according to technology research firm Gartner Inc.


Amazon AWS: Is that what the second headquarters is about? Asks Goldman

“While Amazon has never discussed any plans for a spin or any HQ2 plans relative to AWS, it is possible that the location of the new headquarters could provide some insight into the way management is thinking about the positioning of AWS.”

Terry’s curiosity is piqued by the fact that Amazon increasingly competes in the same industries that are customers for AWS, including gaming, healthcare and life sciences. Presumably, a separation of AWS might lessen the conflict there. Terry sees AWS being worth $430 billion, on a sum-of-the-parts basis, equaling 60% of Amazon’s enterprise value.


Broadcom could bid as much as $100 for Qualcomm and still see a payoff, says Canaccord

We assume Qualcomm settles its licensing dispute with Apple with Apple paying roughly half of what it previously paid Qualcomm for iPhone royalties. We also assume Qualcomm settles its dispute with Huawei or the other large OEM currently not paying Qualcomm royalties. We believe Broadcom management has solutions for Qualcomm’s disputes as part of its reasoning to make a bid for Qualcomm, but we have used these assumptions based on our Qualcomm scenario analysis used for our Qualcomm price target in our last published Qualcomm note. We also assume $500M in synergies achieved between Qualcomm and NXP in our scenario analysis including NXP. Further, we assume a 4% interest rate on combined debt for an acquisition with NXP and 3.5% for an acquisition without NXP given larger debt levels needed if the acquisition includes NXP. We also assume $1.5B in F2019 synergies between Broadcom in Qualcomm and a combined company tax rate of 15%.


Beyond Tesla’s semi truck: The future of trucking and transportation

We are currently entering a period of a rapid change in our transportation systems. And as I see it, it’s the innovator’s dilemma playing out in the wild: Incumbents like General Motors are moving too slowly to adapt to an all-electric future—wasting billions of dollars on stock buybacks—while upstarts like Tesla, unencumbered by legacy business models, are forging a path into a clean, fully-electric, fully-autonomous future. (GM has spent almost $17 billion in the last several years buying back its stock, three times what Tesla has spent building Gigafactories.)

One is that the cost of trucking falls by at least 50%, if not more. No driver, double the passive productivity, and in essence, you eliminate most of the safety problems. And by the way, if you apply this [autonomous] technology, many of the concerns we have from a safety standpoint about large trucks go away and you can make the trucks bigger. So, the costs fall at least in half. Transit time falls at half too, because you’re not waiting.

Let’s look at it from a technical standpoint. There are two competencies that keep trucking firms alive. The first one is their ability to match demand and supply; which is very important, and the second is their ability to manage drivers. There’s a modest competency with respect to equipment, but it’s not that important. Well, in the first place, if you if you eliminate the drivers, you eliminate half of the value-added that the trucker provides. And second, if you go to integrated big data, the business of matching capacity to demand becomes much easier. So, what it does is it either eliminates, or dramatically changes the principal competencies of whatever we call this entity which we now call “trucker” provides to the marketplace. So it’s big, big changes.


Why Tesla’s fuel efficiency advantage won’t last

At the early part of the 2000’s trucks getting 5 mpg were common. Today’s fleet is more like 7 mpg. That two miles per gallon increase means diesel used falls from 20,000 gallons a year down to under 15,000 gallons. Best-in-class trucks today might approach 9-10 miles per gallon. That three mpg increase versus fleet average (presumably what Tesla used in its cost calculator) is another 30% drop in fuel use, down to 10,000 gallons. The SuperTruck programs that get 12 or more mpg, (using many of the same aero techniques that Tesla’s Semi uses) would use around 8,000 gallons of fuel. In other words the opportunity to lower the Tesla cost of ownership with fuel savings is currently 15,000 diesel gallons a year, but will soon enough be only half that, using current line-of-sight technologies. At current fleet average diesel costs the savings opportunity on 100,000 miles per year is $37,500 per truck. At current best-in-class the available pool of offset-able fuel cost is $25,000. On future trucks, perhaps not too far distant from Tesla’s launch, is only $20,000 per year. All this assumes you can run a truck 100,000 miles a year in 300 to 500 mile increments.

The future difference between Tesla’s astonishing 19 mpg equivalent and the SuperTruck 12 mpg is only 3,000 gallons a year of diesel equivalent. Compared with the 7,000 gallons per truck per year already in the diesel improvement pipeline, that 3,000 gallons doesn’t look as compelling.


Inside the revolution at Etsy

Inside Etsy, Mr. Silverman’s reorganization has upended parts of the company once considered sacrosanct. Last month, Etsy changed its mission statement. Gone was a verbose commitment “to reimagine commerce in ways that build a more fulfilling and lasting world.” Instead, the mission was reduced to just three words, “Keep commerce human,” accompanied by a spreadsheet outlining its goals for economic, social and ecological impact. And because remaining a B Corp would require the company to change its legal standing in Delaware, where it is incorporated, Etsy will let that certification lapse.


Paytm aims to become largest full-service digital bank

“Digital payments was our entry point, we want to become a vertically-integrated financial services company.”

Payments banks can accept deposits and remittances but cannot lend. Paytm is one of less than a dozen entities that got permits to start payments banks to bring financial services within easy reach of about a fifth of India’s 1.3 billion people who do not have access to organized financial services.

Paytm Payments Bank is majority-owned by Sharma. One97 Communications, which is backed by Alibaba Group Holding, Ant Financial Services and others, holds the remaining 49 percent. The payments bank morphed out of Paytm’s digital wallet which got a huge boost and amassed over a hundred million customers after India took its high currency bills, totaling nearly 90 percent of the value of cash, out of circulation last November.

Sharma may have found a way around the regulatory hurdles that bar lending. One97 Communications will introduce a charge card and offer monthly installment-based loans, he said. “We will launch share trading and insurance products very soon,” said Sharma. “We want to become an Internet-age financial services company.”

Business lessons from Ben Thompson of Stratechery

“Zero distribution costs. Zero marginal costs. Zero transactions. This is what the Internet enables, and it is completely transforming not just technology companies but companies in every single industry.” “Aggregation Theory is a completely new way to understand business in the Internet age.”

“instead of some companies serving the high end of a market with a superior experience while others serve the low-end with a “good-enough” offering, one company can serve everyone…. it makes sense to start at the high-end with customers who have a greater willingness-to-pay, and from there scale downwards, decreasing your price along with the decrease in your per-customer cost base (because of scale) as you go (and again, without accruing material marginal costs). Many of the most important new companies, including Google, Facebook, Amazon, Netflix, Snapchat, Uber, Airbnb and more are winning not by giving good-enough solutions to over-served low-end customers, but rather by delivering a superior experience that begins at the top of a market and works its way down…”

“Apple and Amazon do have businesses that qualify as aggregators, at least to a degree: for Apple, it is the App Store (as well as the Google Play Store). Apple owns the user relationship, incurs zero marginal costs in serving that user, and has a network of App Developers continually improving supply in response to demand. Amazon, meanwhile, has Amazon Merchant Services, which is a two-sided network where Amazon owns the end user and passes all marginal costs to merchants (i.e. suppliers).”

“Once an aggregator has gained some number of end users, suppliers will come onto the aggregator’s platform on the aggregator’s terms, effectively commoditizing and modularizing themselves. Those additional suppliers then make the aggregator more attractive to more users, which in turn draws more suppliers, in a virtuous cycle. This means that for aggregators, customer acquisition costs decrease over time; marginal customers are attracted to the platform by virtue of the increasing number of suppliers.”

“Breaking up a formerly integrated system — commoditizing and modularizing it — destroys incumbent value while simultaneously allowing a new entrant to integrate a different part of the value chain and thus capture new value.”


Active vs. passive vs. Amazon et al.

“Sectors such as finance, information technology, media, and pharmaceuticals — which have the highest margins — are developing a winner-take-all dynamic, with a wide gap between the most profitable companies and everyone else.”

“I have long described Amazon as a Field of Dreams company, one that goes for higher revenues first and then thinks about ways of converting those revenues into profits; if you build it, they will come. In coining this description, I am not being derisive but arguing that the market’s willingness to be patient with the company is largely a result of the consistency with [which] Jeff Bezos has told the same story for the company, since 1997, and acted in accordance with it.”

“These models have an in-built structure where they are going to tip into winner-take-all areas. The cost of adding a new user gets smaller and smaller the bigger you get. [This starts] creating a competitive advantage that gets harder and harder to bridge.”

It’s not unusual for a few stocks to drive broader market performance in a given year, but we would be foolish to ignore that it has been the same several stocks quite frequently in recent years. Facebook, Apple, Amazon, Netflix, and Google are responsible for roughly 20% of the S&P 500’s performance this year, and generated more than the entire return of the index in 2015.


The secret to tech’s next big breakthroughs? Stacking chips

The advantage is simple physics: When electrons have to travel long distances through copper wires, it takes more power, produces heat and reduces bandwidth. Stacked chips are more efficient, run cooler and communicate across much shorter interconnections at lightning speed.

Chip stacking enables totally new capabilities too. Some phone cameras stack an image sensor directly on top of the chip that processes the image. The extra speed means they can grab multiple exposures of an image and fuse them together, capturing more light for dim scenes.

But Mr. Dixon-Warren says the spread of 3-D chips is rapid and their takeover inevitable. A decade ago, this technology was limited almost exclusively to university labs; five or six years ago, it was still hard to find commercial examples. But now it’s popping up all over, in applications like networking and high-performance computing and in high-end wearables like the Apple Watch.


How does Costco sell 18-year-old single malt Scotch for $38?

“Costco has a volume deal with [spirits] companies including Edrington and Diageo. They agree to buy a certain amount of product at a certain price, which is far lower than everyone else is paying. For products like Johnnie Walker Blue or Macallan, it’s virtually impossible to beat Costco on price.”

“If Costco can control the importation of the whisky, get someone to distribute it to them at cost (or at very slim single-digit margins due to high volume) and then sell it at very low margins, then they’re golden.”

Finally, one reason rarely considered for why Costco might be able to offer better pricing is proof. Typically, whisky connoisseurs would want that 25-year-old Scotch to have some decent heft after all those years of concentrating in barrel. Alcohol is a conduit for flavor, after all. But all Kirkland Signature Scotches are sold at 80 proof, meaning that these whiskies are watered down to the absolute lowest legal limit and, thus, Costco is able to empty barrels into way more bottles.


Big oil and auto makers throw a lifeline to the combustion engine

The new lubricants are meant to help auto makers build smaller, turbocharged engines that are still quite powerful, resulting in efficiency gains close to 15% compared with older models. Optimizing internal combustion engines could boost efficiency by an additional 25%—a calculation that might tempt auto makers from spending more on electric-vehicle technology. Other efforts to enhance performance include adding gears to transmissions and making vehicles more aerodynamic.

The gains from engine oil alone are limited, however. Industry experts say the latest lubricants typically boost fuel economy by less than 1%, primarily by reducing the amount of energy needed to pump a piston. Even so, it is a highly cost-effective solution that adds up when spread across millions of vehicles.


‘It’s beautiful’: This Toronto startup is investors’ secret weapon to beating the market

Legal experts say investors may be risking more than their capital when using such alternative data since case law hasn’t yet determined what crosses the line into privacy violations or insider trading, but it’s a risk a growing number of financial institutions are willing to take, especially since in Apache’s case, and many others, it has paid off.

“That is the original alpha source, knowing something the market doesn’t know. It’s beautiful,” he said. “If you can come to them with a genuine information advantage, where they can know something their peers in the market do not know that’s tradable, that’s hugely valuable.”

Quandl is particularly interested in companies that produce what it calls “exhaust” data, or data collected as part of a company’s normal operations without intending to turn it into a revenue source. For example, insurance companies keep records of how many new car insurance policies they sell, as well as which vehicle manufacturer’s model is being insured, which happens to be a great predictor of new car sales before the automakers release the data themselves.

But Quandl faces a dilemma after convincing suppliers to sell their data: the more clients the company sells the data to, the less of an investing edge it provides, making it less valuable. To solve that problem, Quandl uses the data to build a predictive model to make an educated guess about how much money could be invested before the data loses its advantage and then sells it to a limited number of clients accordingly.


About 11% of land in Japan is unclaimed

That’s about 41,000 square kilometers (16,000 square miles), which is equivalent to the size of Japan’s southwestern island of Kyushu, or almost as large as Denmark. By 2040, land equivalent to Japan’s second-largest island of Hokkaido will be unclaimed or abandoned, according to a panel of experts and government representatives. This will cost the nation roughly 6 trillion yen ($54 billion) over the period 2017-2040, including lost development opportunities and uncollected taxes, the panel says.

“Land prices are falling in the depopulating regions,” Yamanome said. “Not only is it impossible to make money by owning some land, but also you can’t get rid of it because regional real estate markets are stale.”


Great products vs. great businesses

A product is something that solves someone’s problem. A business is a product that works so well that people will pay more than it costs to produce.

But losses come in different flavors. There is a difference between a company that loses money because it’s investing in the infrastructure needed to become a profitable company, and a company that loses money because it can’t charge customers a price that reflects what it costs to run the business. But we often conflate the two, treating all loss-making startups with a sense of, “It’s OK, they’re growing.”

Companies are staying private longer than they used to. So venture investors that specialize in the early phase of big-losses-because-we’re-investing-in-what-it-takes-to-build-a-profitable-business have found themselves holding mature companies that in a different era would have been passed onto investors who demanded a sustainable business model with profits. In any other era, Uber, Airbnb, Pinterest, and others all would have been public companies by now. And public markets almost certainly wouldn’t let losses pile up for as long as they have. We’ve seen this with Blue Apron and Snap, whose shares have fallen between 50% and 70% since going public just months ago. Both make amazing products that attracted armies of users, which VC investors oogled over. But public investors took one look at their business models and said, “What the hell is this?!” Who knows what that means for their future as standalone companies.


Pricing power: Delighting customers vs mortgaging your moat

The problem with this source of pricing power is that it comes with an off balance sheet liability. A sort of “negative goodwill” that grows every time you increase prices. While the profits might roll in for awhile, one day the customers will revolt. At the very least, the perceived excessive pricing of the well water will create a huge incentive for customers to try any new competitor that comes to town. While the high pricing makes it look like the company has a competitive advantage, in fact the excess returns are being created by a process that increases the likelihood of a successful competitive assault sometime in the future.


Lessons from a legendary short seller

“Because I never wanted to get up in the morning hoping that things would be getting worse. All intellectuals I think — and I don’t use that as a particularly flattering term — but all intellectuals tend to have a pessimistic streak.”

“I would forget the shorting. I think it’s over. It’s over for one simple reason: If shorts start working, that is, stocks go down for any sustained period of time, a great many people who are not now shorting will start shorting. There is a limited supply of stocks to borrow to sell short. Those stocks that are good shorts tend to be very obvious. As I’ve often said, I can predict with confidence that you’ll die. I cannot predict that you’ll be born, and so failure is analytically obvious and everybody piles into the same short. . . . I do believe if shorting really becomes profitable again, it’s going to become so crowded that most people won’t be able to borrow stock.”

Pulling iron from brain may offer hope in Alzheimer’s fight

The familiar metal is key to numerous brain functions, but too much of it is toxic. Researchers in Melbourne showed two years ago that iron levels in the brain can predict when people will get Alzheimer’s disease. Now, the team aims to show how removing excessive amounts with a drug called deferiprone can stave off the memory-robbing disorder.


Laptops are great. But not during a lecture or a meeting.

Laptops distract from learning, both for users and for those around them. It’s not much of a leap to expect that electronics also undermine learning in high school classrooms or that they hurt productivity in meetings in all kinds of workplaces.


Curated Insights 2017.11.19

Winners and losers In the patent wars between Amazon, Google, Facebook, Apple, and Microsoft

Google: The full stack AI company

A startup might achieve a breakthrough in an AI vertical, but reaching hundreds of millions of users could take years. The same breakthrough in Google’s hands could be “turned on” for a billion users overnight. Users benefit immediately, while Google’s products become sticker and more valuable.

Google is already seeing a similar benefit. While competitors are using off the shelf processors for deep learning, Google’s TPU provides higher throughout, reduced latency and, perhaps most importantly, reduced power consumption. Because data center construction is Google’s largest capital spending line item and power its highest operating cost, the TPU meaningfully reduces both Google’s capex and opex.

Google’s AI efforts have built a fully integrated company that spans algorithms, data, hardware, and cloud services. This approach helps funnel the world-class AI of Google’s consumer products to its enterprise offerings, providing Google Cloud with a competitive edge. Bringing chip design in-house increases Google’s AI moat by improving performance, lowering latency, and reducing cost. Perhaps most critically, vertical integration enhances its organizational agility: Google can steer all parts of its organization to bring a new product or service to market. Consequently, Google’s AI will be at the forefront of the innovation for years to come.


How Facebook figures out everyone you’ve ever met

Shadow contact information has been a known feature of Facebook for a few years now. But most users remain unaware of its reach and power. Because shadow-profile connections happen inside Facebook’s algorithmic black box, people can’t see how deep the data-mining of their lives truly is, until an uncanny recommendation pops up.

Facebook doesn’t like, and doesn’t use, the term “shadow profiles.” It doesn’t like the term because it sounds like Facebook creates hidden profiles for people who haven’t joined the network, which Facebook says it doesn’t do. The existence of shadow contact information came to light in 2013 after Facebook admitted it had discovered and fixed “a bug.” The bug was that when a user downloaded their Facebook file, it included not just their friends’ visible contact information, but also their friends’ shadow contact information.

It’s what the sociologist danah boyd calls “networked privacy”: All the people who know you and who choose to share their contacts with Facebook are making it easier for Facebook to make connections you may not want it to make. Shadow profile data powers Facebook’s effort to connect as many people as possible, in as many ways as possible. The company’s ability to perceive the threads connecting its billion-plus users around the globe led it to announce last year that it’s not six degrees that separate one person from another—it’s just three and a half.

“Mobile phone numbers are even better than social security numbers for identifying people,” said security technologist Bruce Schneier by email. “People give them out all the time, and they’re strongly linked to identity.”


Will Amazon disrupt healthcare?

Amazon is exceptional at developing formulas to increase efficiency and decrease waste — two vital elements sorely lacking in the current healthcare paradigm.

Baby boomers may be tethered to their in-person interactions with physicians and pharmacists, but millennials are not. They are Amazon’s target audience.

Amazon has several key advantages in a world of personalized medicine — loads of storage space because of its AWS business, sophisticated predictive algorithms, and long-standing, data-rich relationships with millions of “patients”.


How Netflix works: the (hugely simplified) complex stuff that happens every time you hit Play

Netflix estimates that it uses around 700 microservices to control each of the many parts of what makes up the entire Netflix service…And that’s the tip of the iceberg. Netflix engineers can make changes to any part of the application and can introduce new changes rapidly while ensuring that nothing else in the entire service breaks down.

Turns out that Netflix and Amazon’s partnership turned out to be a huge win-win situation for both companies. Netflix turned out to be AWS’s most advanced customers, pushing all of their capabilities to the maximum and constantly innovating upon how they can use the different servers AWS provided for various purposes — to run microservices, to store movies, to handle internet traffic — to their own leverage. AWS in turn improved their systems to allow Netflix to take massive loads on their servers, as well as make their use of different AWS products more flexible, and used the expertise gained to serve the needs of thousands of other corporate customers. AWS proudly touts Netflix as it’s top customer, and Netflix can rapidly improve their services and yet keep it stable because of AWS.


People watch Netflix unabashedly at work (and in public toilets, too)

About 67% of people now watch movies and TV shows in public, according to an online survey it commissioned of 37,000 adults around the world. The most popular public places to stream are on planes, buses, or commuting, the survey found. But 26% of respondents also said they’ve binged shows and movies at work. People in the US were more likely to stream from the office, while users around the world were more likely to stream during their commutes.

For Netflix, mobile still makes up a small chunk of overall viewing. Netflix said it was about 10% as of 2016. But the company also said half of its users stream from a smartphone during any given month. Its audience is now around 110 million subscribers worldwide.


Will traditional auto makers steal the future from Tesla?

Even if electric cars take off in the early to mid-2020s when their cost is likely to be comparable to gas- and diesel-powered vehicles, Garschina thinks the major global auto makers will still dominate the business. Credit Suisse auto analyst Daniel Schwarz recently wrote that auto makers would emerge as winners from simpler, less capital-intensive production of electric vehicles over the next 10 years.

Investors might not be giving the auto industry credit for manufacturing skills honed over decades. As Tesla has found, mass-producing automobiles isn’t easy; the company continues to lose money and grapple with production woes. “The more we learn about new technologies, the clearer it becomes that the key auto makers won’t be disrupted overnight,” says Arndt Ellinghorst, a European auto analyst with Evercore ISI.

Morgan Stanley has estimated that it could take $2.7 trillion of infrastructure investment by 2040 to support a global electric fleet, including 473 million home chargers and seven million super-charging stations. It’s unclear where all that money will come from. The additional need for electricity would be equivalent to current U.S. demand.


These hot restaurants aren’t on maps, only in apps

Virtual restaurants, with their low overhead, are allowing restaurateurs to shift away from the capital-intensive model that kills 60% of new restaurants in their first five years toward something decidedly more techy.

By far the biggest company in the app-driven food-on-demand space is Grubhub. It is so invested in virtual restaurants that two years ago it lent one of its own customers, Green Summit Group, $1 million to expand. Green Summit, which launched in 2013, has kitchens throughout New York City, Todd Millman, its co-founder, says. There might be up to 10 different “restaurants” In a single kitchen. Though they appear on Grubhub as separate establishments, each with a distinct cuisine, all the food might be prepared in the same kitchen by the same staff.

In San Jose, Grubhub competitor DoorDash has built out its own kitchen space. There is one tenant so far, a pizzeria called the Star. (More are on the way, DoorDash says.) To save on rent, DoorDash built the facility in a disused portion of the Santa Clara County Fairgrounds. One month in, the Star’s savings have been notable, says Ben Seabury, chief operating officer of the 1100 Group, which owns the virtual restaurant. Typically, 30 cents of every dollar that comes into one of his restaurants goes to labor, says Mr. Seabury. But without waiters, bartenders and dishwashers, that cost is just 10 cents on the dollar—and even less when demand is high.

Virtual restaurants tap into a larger trend: Americans’ increasing aversion to cooking for themselves. For the first time ever in 2016, Americans spent more at eating and drinking establishments than on groceries, according to U.S. Census data. The food-delivery market is a small slice of that sector: It is only $30 billion in 2017, but Morgan Stanley estimates it could balloon to $220 billion within a few years.

 

Digitizing cash transactions could become quite profitable

Turning financial data into an asset is an early stage opportunity. On a global basis, more than 80% of transactions still occur in cash. Indeed, companies and, at some point, consumers have yet to digitize more than 1.4 trillion transactions per year, roughly equivalent to the number of Google searches per year. Our research indicates that the information associated with digital cash transactions could generate approximately $100 billion of revenue per year.

While we believe that disrupting and digitizing cash transactions represents a large “fintech” opportunity, the benefits are unlikely to accrue to the traditional financial services industry, as it lacks the requisite innovation agility, cost structure, and technical abilities to access and exploit it. Instead, innovative technology companies like Amazon, Google, Facebook, and Tencent that already are transforming big data into big revenue, probably will capitalize on this opportunity.

Companies with the ability to develop deep and dynamic insights into consumer purchasing behavior will be in the best position to capitalize on this $100 billion revenue opportunity. Square, Tencent, Facebook, Amazon, and Alibaba are building the most precise consumer profiles, enabling them to offer value added services like capital loans and insurance either now or in the not-to-distant future. We believe these companies are building significant moats, or barriers to entry, with “value loops” generating more data from their consumers and building products that take increasing share in the marketplace.


Hasbro sets its sights on Mattel

Hasbro has held up relatively well. Chief Executive Brian Goldner has forged close ties to Hollywood, where the company is producing movies and is a favored partner for creating toys tied to films. In recent years, Hasbro won the coveted license for Walt Disney Co.’s Disney Princess characters and has long made toys tied to the media company’s “Star Wars” franchise. Hasbro is also more advanced in telling stories and creating content around its large brands, including a string of feature-length films for its Transformers franchise and more-recent launches like a My Little Pony movie.

Both Hasbro and Mattel were stung by the Toys “R” Us bankruptcy, which threw a major sales channel into turmoil and prompted them to stall deliveries to the retailer, but Mattel’s problems run deeper. The new regime laid out a plan that would keep the company in turnaround mode for a few more years as it tries to fix problems that it blamed on past management. Those included a proliferation of new toys with little staying power that heaped additional costs and complexity onto Mattel’s supply network.

A bigger concern was that a tie-up could trigger change-of-control clauses in the numerous licensing agreements with the likes of Disney, Nickelodeon and others.

Free games fuel $370 billion stock rally – and fears of a crash

In free-to-play games, 2% of players typically generate around 50% of revenue, according to consultancy Yokozuna Data. High-rollers often spend at least $500 per month. Today, the industry generates $100 billion in revenue with about 70 percent coming from in-game goods and services, according to Goldman Sachs Group Inc.

The industry is exploring dark territory. Last month, an Activision Blizzard Inc. patent surfaced which described how machine learning could be used to entice players to spend more. For example, a player could be paired with a teammate who owns a special paid item, and then encourage the player to buy it too.


It’s amazingly cheap to acquire a fleet of Airbus jets

Bill Franke’s airlines are generally fast-growing and profitable, in part because of low expenses and using the latest fuel-efficient jets. All three have exclusively adopted the A320 jet family for cost reasons too, as it makes it easy to swap flight crews and maintenance is less complicated.

Instead of buying jets outright, Frontier, Wizz and Volaris use sale-and-leasebacks. This makes financial sense. One industry observer says the cost of lease finance might be half that of funding an aircraft with equity because of the flood of cheap capital, much of it Chinese. By avoiding ownership, airlines also sidestep residual value risk. If a plane’s value falls, that’s the leasing company’s problem, not Franke’s.


Bob Lutz: Everyone will have 5 years to get their car off the road or sell it for scrap

We don’t need public acceptance of autonomous vehicles at first. All we need is acceptance by the big fleets: Uber, Lyft, FedEx, UPS, the U.S. Postal Service, utility companies, delivery services. Amazon will probably buy a slew of them. These fleet owners will account for several million vehicles a year. Every few months they will order 100,000 low-end modules, 100,000 medium and 100,000 high-end. The low-cost provider that delivers the specification will get the business.

These transportation companies will be able to order modules of various sizes — short ones, medium ones, long ones, even pickup modules. But the performance will be the same for all because nobody will be passing anybody else on the highway. That is the death knell for companies such as BMW, Mercedes-Benz and Audi. That kind of performance is not going to count anymore.

Car dealers will continue to exist as a fringe business for people who want personalized modules or who buy reproduction vintage Ferraris or reproduction Formula 3 cars. Automotive sport — using the cars for fun — will survive, just not on public highways. And like racehorse breeders, there will be manufacturers of race cars and sports cars and off-road vehicles. But it will be a cottage industry. The era of the human-driven automobile, its repair facilities, its dealerships, the media surrounding it — all will be gone in 20 years.


Sean Stannard-Stockton interview: Shifting competitive landscapes

Today, if you log-on to Amazon and type in what you’re looking for – not a brand name, but a type of product – the #1 ranked item, regardless of brand, is likely to have thousands of reviews. If those reviews are say 4 or 4 ½ stars or better – with reviews from thousands of people, most consumers will happily purchase the item, no matter what the brand is. In this case, Amazon has effectively not just become a logistics provider, not just made shipping easy, not just benefitted from network effects, but it has inserted its own brand into the purchasing behavior – and so the consumer says, ”I trust Amazon and Amazon’s reviews so much that I don’t need to spend time searching or depending on a brand name, I can simply purchase the product no matter what its brand is.”

 

U.S. to dominate oil markets after biggest boom in world history

By 2025, the growth in American oil production will equal that achieved by Saudi Arabia at the height of its expansion, and increases in natural gas will surpass those of the former Soviet Union, the agency said in its annual World Energy Outlook. The boom will turn the U.S., still among the biggest oil importers, into a net exporter of fossil fuels.

Reflecting the expected flood of supply, the agency cut its forecasts for oil prices to $83 a barrel for 2025 from $101 previously, and to $111 for 2040 from $125 before.

 

I always used that as a metaphor for businesses. The customers pour in the Tender Vittles and in the U.S., when you had a union, they would fight and spill the whole bowl of Tender Vittles. In the end, no one could eat anymore. I looked at U.A.W. “It’s insane, they’re going to kill their company.” Sure enough, they damn near did. General Motors was almost bankrupt. In Germany, the unions have representatives on the board of the company. Yes, they say, “The first thing” — that this bowl of Tender Vittles — “we have to make sure that the bowl is there. We can fight all we want, but don’t spill the bowl.” You don’t destroy your company. That was not the attitude of Anglo-Saxon unions, either in England or the U.S.


Countries with the most farmland

The USDA now estimates that there is 15%-20% more farmland on earth than we expected. That’s 250 to 350 million more hectacres! With this addition, the USDA estimates there’s 1.87 Billion acres of farmland on earth.

In terms of total net cropland, this new study declares India as number 1.

 

 

Electric cars’ green image blackens beneath the bonnet

The Earth’s ozone hole is shrinking and is the smallest it has been since 1988

Warmer-than-usual weather conditions in the stratosphere are to thank for the shrinkage since 2016, as the warmer air helped fend off chemicals like chlorine and bromine that eat away at the ozone layer, scientists said. But the hole’s overall reduction can be traced to global efforts since the mid-1980s to ban the emission of ozone-depleting chemicals.

In June, scientists identified a possible threat to the recovery, believing dichloromethane — an industrial chemical with the power to destroy ozone — doubled in the atmosphere over the past 10 years. If its concentrations keep growing, it could delay the Antarctic ozone layer’s return to normal by up to 30 years, according to the study published in the journal Nature Communications.


How much is the Great Barrier Reef worth? Economists just figured it out

It came up with a value of A$56 billion ($43 billion) based on an asset supporting tens of thousands of jobs and which contributes A$6.4 billion to the economy. “Valuing nature in monetary terms can effectively inform policy settings and help industry, government, the scientific community and the wider public understand the contribution of the environment, or in this case the Great Barrier Reef, to the economy and society,’’ the Deloitte report said. “The tight and unforgiving deadline the Great Barrier Reef is up against necessitates an understanding of its true value to know what kind of policy action is required in response.’’


Why do we love pets? An expert explains.

In his latest book, Bradshaw argues that our fascination with pets is not because they’re useful, nor even because they’re cute, and certainly not because they’ll make us live longer. Instead, he writes, pet-keeping is an intrinsic part of human nature, one rooted deeply in our own species’ evolution.

People with animals, or as simply described as having a friendly dog with them, instantly become more trustworthy in the eyes of the person who’s encountering that person or having that person described to them.

The idea that simply getting a pet is going to make you happy and de-stress you is not going to work if you don’t do the homework about what the animal needs.

Both dogs and cats are carnivores — the cat is a very strict carnivore. The idea that we can continue to essentially farm the world in a way that provides enough meat for dogs and cats to eat, let alone humans, is probably not sustainable. Whether it will be possible for people to continue to keep these animals, or what kinds of substitutes they find if it does become impossible, I think is going to be fascinating, if somewhat painful for the people involved.

 

Why $450 Million for this painting isn’t crazy

Would 7.5 million people a year pay an average of 9 euros to visit the Louvre if La Gioconda, as the painting is sometimes called, weren’t there? If just a million of them passed on it, the museum would lose the entire amount paid for “Salvator Mundi” over 50 years.

It’s difficult to imagine anyone hoping to make much of a profit on a resale after paying such an outrageous price. But building a museum’s pitch for visitors around it could be a way to make economic sense out of the deal.

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.

Curated Insights 2017.07.30

Capital accumulation, private property, and inequality in China, 1978-2015

Between 1978 and 2015, China moved being from a poor, underdeveloped country to the world’s leading emerging economy. But relatively little is known about how the distribution of income and wealth within the country changed over this period. This column presents the first systematic estimates of the level and structure of China’s national wealth since the beginning of the market reform process. The national wealth-income ratio increased from 350% in 1978 to 700% in 2015, driven mainly by the increase of private wealth.

The top 10 stocks in the S&P 500 at year-end every five years going back to 1980

The biggest stocks

…it’s not that out of the ordinary for a handful of stocks to account for a large portion of the stock market’s gains. This is just the nature of the beast with the stock market. There are very few big winners and lots of big losers over the long haul.

The top 5 companies today are all technology companies (we can quibble on how to define some of these firms but they are mostly tech firms). This has some people worried. Maybe it should cause us some concern but look at the top 10 companies in 1980 — the list was dominated by energy companies, a much more cyclical industry.

Both Citigroup and AIG were on the top 10 list in 2000 and 2005. These were two of the companies that were responsible for nearly taking down the entire financial industry and have suffered enormous losses because of it. Since the end of 2005, Citigroup is down 86% while AIG has fallen more than 95% in market cap.

If it cracked down on password sharing, Netflix could probably make $400 million more a year

If 6% of that audience, or 4 million US households, stopped borrowing passwords and signed up for their own Netflix memberships, Netflix could stand to make as much as $391 million more a year. That’s if each of those new members signed up for Netflix’s cheapest plan, which is $7.99 a month in the US.

Tesla and Elon Musk’s moment of truth with first mass-market car

“No one can produce a car that size, and with that amount of battery, at a lower cost than General Motors.”

Maintaining premium pricing while fending off some of the big carmakers will not be easy. It has been tempting for investors to view Tesla as the latest in a line of disruptive Californian companies that will go on to dominate a new industry, says Bruce Greenwald, a professor at Columbia Business School. But he adds that, unlike Apple and Google, there are no “moats” to protect its business from competition and it does not dominate any single market.

Artificial intelligence is not as smart as you (or Elon Musk) think

…as strong as AlphaGo was at its given task, it actually couldn’t do anything else but play Go on a standard 19 x 19 board. He relayed a story that while speaking to the DeepMind team in London recently, he asked them what would have happened if they had changed the size of the board to 29 x 29, and the AlphaGo team admitted to him that had there been even a slight change to the size of the board, “we would have been dead.”

“In chess, machines dominate the game because of the brute force of calculation and they [could] crunch chess once the databases got big enough and hardware got fast enough and algorithms got smart enough, but there are still many things that humans understand. Machines don’t have understanding. They don’t recognize strategical patterns. Machines don’t have purpose,” Kasparov explained.

 

 

The myth of drug expiration dates

The dates on drug labels are simply the point up to which the Food and Drug Administration and pharmaceutical companies guarantee their effectiveness, typically at two or three years. But the dates don’t necessarily mean they’re ineffective immediately after they “expire” — just that there’s no incentive for drugmakers to study whether they could still be usable.

Tossing such drugs when they expire is doubly hard. One pharmacist at Newton-Wellesley Hospital outside Boston says the 240-bed facility is able to return some expired drugs for credit, but had to destroy about $200,000 worth last year. A commentary in the journal Mayo Clinic Proceedings cited similar losses at the nearby Tufts Medical Center. Play that out at hospitals across the country and the tab is significant: about $800 million per year. And that doesn’t include the costs of expired drugs at long-term care pharmacies, retail pharmacies and in consumer medicine cabinets.


Do probiotics really work?

The idea that consuming probiotics can boost the ability of already well-functioning native bacteria to promote general health is dubious for a couple of reasons. Manufacturers of probiotics often select specific bacterial strains for their products because they know how to grow them in large numbers, not because they are adapted to the human gut or known to improve health. The particular strains of Bifidobacterium or Lactobacillus that are typically found in many yogurts and pills may not be the same kind that can survive the highly acidic environment of the human stomach and from there colonize the gut.

Many researchers think personalized probiotics are the most promising path forward for patients with compromised gut microbiomes.


Should you feed your kid probiotics?

A pill with “40 billion live organisms” is not going to help your child lose weight or “boost” their immune system. It won’t stop your baby from crying on an airplane, protect your toddler’s teeth from decay, lessen the duration of a cold or flu, or cure acid reflux. It’s a billion-dollar industry with virtually no medical oversight.

There’s no credible evidence that the regular consumption of a probiotic yogurt will make your child or you any healthier. But this doesn’t stop marketers from suggesting that it’s a delicious panacea…Food manufacturers may not like to admit it, but it is difficult to control the types of organisms that grow in these live cultures, despite industry standards set to determine what types of bacteria should be in yogurt.


Buy time, they’re not making any more of it

According to a study published Monday in the journal PNAS, people who buy time by paying someone to complete household tasks are more satisfied with life. And it’s not just wealthy people. Across a range of incomes, careers and countries, timesaving purchases were correlated with less time-related stress and more positive feelings. Yet the researchers’ surveys showed that very few individuals think to spend money in this way.

“People are notoriously bad at making decisions that will make them happier,” Whillans [Ashley] said. She suspects the abstract nature of time may be to blame. “We always think we’re going to have more time tomorrow than we do right now,” she said, so we’re hesitant to trade money, which is concrete and measurable, for time, which is much more uncertain.

Why does the other line always move faster?

At the supermarket checkout, should you pick the shorter line or the line where people have fewer items? I have gotten into heated arguments with people who insist on a particular way. And yet, the discussion is actually moot since there is a bigger issue: the entire question is flawed. Mathematically you are bound to wait in long lines because the game is rigged against you.


Why you should never eat food on planes, and other jet-set tips

…at superhigh altitude, your digestive system shuts down completely. Someone said to me it’s like being under anesthesia. So when you get off the plane, everything restarts and [your digestive system] has so much more work to do and so it makes you more tired.

Curated Insights 2017.07.23

The limitations of deep learning

…the only real success of deep learning so far has been the ability to map space X to space Y using a continuous geometric transform, given large amounts of human-annotated data. Doing this well is a game-changer for essentially every industry, but it is still a very long way from human-level AI.

To lift some of these limitations and start competing with human brains, we need to move away from straightforward input-to-output mappings, and on to reasoning and abstraction. A likely appropriate substrate for abstract modeling of various situations and concepts is that of computer programs.


Machines poised to take over 30% of work at banks, McKinsey says

Cognitive technologies — applications or machines that perform tasks once requiring human thought — are now cheap enough that banks can deploy them across operations facilitating trades or other capital-markets business. Automating tasks will “free up capacity” for staff to focus on higher-value work, such as research, generating new ideas or tending to clients.

Machine learning — which uses algorithms to identify patterns in large sets of data — can help sales and trading staffs understand positions faster and predict what flows will look like.

Natural language processing can perform legal and regulatory tasks by scanning through records, emails and recordings to translate them into structured data.

Cognitive agents can act as in-house personal assistants or service centers; think of help desks for trading staffs that have issues with their systems.

Robotic process automation — in which machines handle repetitive tasks — is particularly effective in banks’ middle offices, where it can help with end-of-day valuations and extract data.

Smart workflow tools — including document scanning and automated data entry — can speed the process of signing up new clients.

Netflix provided a new set of documentation, along with its customary earnings report, discussing how it accounts for its spending on content

Netflix surges 11%: sub adds crush estimates; discloses ‘content accounting’

“In continued success, we will deploy increased capital in content, particularly in owned originals, and, as we have said before, we expect to be FCF negative for many years. Since our FCF is driven by our content investment, particularly in self-produced originals, we wanted to provide some additional context on our content accounting at our investor relations website.”

Amazon Prime and other subscription businesses: How do you value a subscriber?

“[Understanding] the actual unit economics in the underlying business…requires analyzing the ‘true’ contribution margin of the business; not simply looking at gross or net revenue and the proper contra-revenue treatment, and not even looking just at gross margin as defined by the company. Many companies embed costs that are truly variable (for instance customer support, marketing, credit card processing) below the gross margin line. If you want to know if the business model truly hunts, you must pay careful attention. Otherwise, you may have simply found a company that is simply selling dollars for $0.85.”


Amazon is buying products from some US retailers at full price to build global inventory

The new program, which follows a similar rollout in Europe, is the latest move by Jeff Bezos to build up a complete catalog, even if Amazon can’t make much money on the products in question. In some cases, Amazon is approaching these third-party merchants after the manufacturer has declined to distribute the products through Amazon.

“When items are unavailable in a particular geography, we provide customers with selection from another marketplace. This offers customers a wider selection of great brands and helps sellers increase sales.”


Vanguard, the Amazon of asset management

What Vanguard’s founder, Jack Bogle, and company do have going for them is a unique ownership structure. Fund investors double as the shareholders. This allows Vanguard to essentially operate at cost, spending incremental profit on lower fees.

Vanguard has benefitted from a killer combination in recent years—low cost and quality performance. This is because although the firm distributes ETFs and actively managed funds, they specialize in passive, index-based investing—a style which has surged in popularity amid widespread underperformance across the active manager community.

Investing is a game of probability. Why would anyone want to pay 6x more for a product with a 90% likelihood of being inferior? The average actively managed mutual fund fee is 0.72%—6x higher than Vanguard’s 0.12% annual fee. And roughly 90% of those funds are underperforming Vanguard’s ultra-cheap option.


In urban China, cash is rapidly becoming obsolete

Ant Financial and Tencent were set to surpass credit card companies like Visa and Mastercard in total global transactions per day in the coming year. The key is that both companies are able to provide payments on the cheap, partly by allowing smaller vendors to make use of a simple printout of a QR code or their phone, instead of an expensive card reader. A back-end system that stores a record of user accounts, instead of having to communicate with a bank, also keeps costs down.

As the country builds its entire consumer economy around two private smartphone payment platforms, it is slowly locking out people unable to get onto those networks, and locking itself into those companies.

Twitter Snacks 2017.07.19