Curated Insights 2018.09.28

The problem with compounders

What is most important is you find a business with the correct business model that can grow sales. The sales engine of the company is the most important aspect, and also the one most overlooked by investors and analysts. Sure, cost structure matters, and business model matters as does “capital allocation”, which is what they do with the tiny bit of leftover money, but what matters most is sales.
Herein lies a problem. How do you determine that a small company with the correct business model will grow sales at a high rate? The only way to do that is to visit the company and talk to management. But talking to management isn’t enough. You need to sit down and discuss their sales strategy, understand who their employees are and evaluate the ability to execute on their plan.

This is clearly a dark spot for most analysts and investors. How do you determine if the sales manager is selling you, or knows what they’re talking about? Especially if there isn’t much in the way of results to look at? I believe it’s possible, but instead of having a solid background in financial analysis you need to have sales experience and understand the sales process. Instead of reading the newest book on investing strategies your bookshelf should be full of books on pricing, call strategies, how to approach demos, and prospecting. It’s also worth remembering that enterprise sales is a different beast from consumer sales, or small business sales.

When you start to put all the pieces of this puzzle together it starts to become more apparent why everyone didn’t invest in Starbucks, or Microsoft, or Oracle when they were tiny companies. To truly catch a compounder when they’re in infancy you need a set of skills that few investors possess. It’s not impossible to build out that skill set. Understanding this paradox also helps to expose the myth that buying high growth companies is a surefire way to success. Buying high growth companies IS a surefire way to success if you can buy them when they’re small enough and their market is large enough.


Different kinds of smart

Everyone knows the famous marshmallow test, where kids who could delay eating one marshmallow in exchange for two later on ended up better off in life. But the most important part of the test is often overlooked. The kids exercising patience often didn’t do it through sheer will. Most kids will take the first marshmallow if If they sit there and stare at it. The patient ones delayed gratification by distracting themselves. They hid under a desk. Or sang a song. Or played with their shoes. Walter Mischel, the psychologist behind the famous test, later wrote:

The single most important correlate of delay time with youngsters was attention deployment, where the children focused their attention during the delay period: Those who attended to the rewards, thus activating the hot system more, tended to delay for a shorter time than those who focused their attention elsewhere, thus activating the cool system by distracting themselves from the hot spots.

Delayed gratification isn’t about surrounding yourself with temptations and hoping to say no to them. No one is good at that. The smart way to handle long-term thinking is enjoying what you’re doing day to day enough that the terminal rewards don’t constantly cross your mind.


Investors want managers’ stories — Not track records — Data show

Seventy-seven percent of asset managers thought their messages were differentiated from peers, but only 21 percent of consultants believed that managers’ messages varied, according to Chestnut’s research. In addition, 75 percent of consultants who participated in the study, said their number one search criteria was investment process and portfolio construction. Manager narratives in the eVestment database, for example, get 3,000 views each month. Chestnut had 122 institutional investors and consultants participate in the study.

Amazon’s clever machines are moving from the warehouse to headquarters

Going forward, Amazon will need fewer people to manage its retail operations, a decided advantage over rivals like Walmart Inc. and Target Corp., which are both spending heavily just to catch up. “This is why Amazon is the 800-pound gorilla,” says Joel Sutherland, a supply-chain management professor at the University of San Diego. “Nobody else has the resources and expertise to pull all of these emerging technologies together to remove humans from the process as much as possible while making things more reliable and accurate.”

Faith in the technology grew as it improved. Workers were happy to see tedious tasks like managing inventory spreadsheets delegated to machines that did the work more quickly and accurately. “The numbers don’t lie,” Kwon says. “It’s a better model.”

A key turning point came in 2015 when the value of goods sold through the marketplace exceeded those sold by the retail team, the people say. The retail team, which had far more employees, watched its importance fade and money funneled into projects like Amazon Web Services and Alexa. It didn’t help that the marketplace generated twice the operating profit margin of the retail business—10 percent versus 5 percent, according to a person familiar with the company’s finances. In many international markets, the retail team has never turned a profit, the person says.

In annual sales meetings, a team of 15 people overseeing a retail category would see their growth outperformed by one person from the marketplace team, the people say. The lines between the teams began blurring. Amazon retail vendors had once enjoyed such advantages as video and banner advertising and access to daily deals that get millions of hits a day; now marketplace merchants got the same perks. Many brands became more interested in selling on the marketplace, where they—not the Amazon retail team—controlled prices, images and product descriptions.

“Computers know what to buy and when to buy, when to offer a deal and when not to,” says Neil Ackerman, a former Amazon executive who manages the supply chain at Johnson & Johnson. “These algorithms that take in thousands of inputs and are always running smarter than any human.”


Instagram’s CEO

This dynamic, by the way, was very much apparent when Snap IPO’d a year-and-a-half ago; indeed, Snap CEO Evan Spiegel, often cast as the anti-Systrom — the CEO that said “No” to Facebook — arguably had the same flaw. Systrom offloaded the building of a business to Zuckerberg; Spiegel didn’t bother until it was much too late.

Controlling one’s own destiny, though, takes more than product or popularity. It takes money, which is to say it takes building a company, working business model and all. That is why I mark April 9, 2012, as the day yesterday became inevitable. Letting Facebook build the business may have made Systrom and Krieger rich and freed them to focus on product, but it made Zuckerberg the true CEO, and always, inevitably, CEOs call the shots.


Now Facebook needs to worry about the Instagram founders’ next move

Tech companies with non-compete agreements for employees of up to one year rarely enforce them in full—especially in California, where courts have routinely thrown them out or severely restricted the scope of such agreements, Ted Moskovitz, a former SEC lawyer-turned-tech-entrepreneur, tells Barron’s. “California courts are extremely hostile to non-competes, and typically only enforce them where there is some other concern, like theft of trade secrets involved,” Moskovitz says. “California’s economy is highly reliant on innovation and the bringing to market of new ideas.”

The greater issue, he says, is whether Systrom and Krieger are taking proprietary and/or patented intellectual property with them.


Exclusive manager interview on Facebook

Imagine 100 years from today. My great great grandkids will have the ability to see who I was, what I was like, who I spent time with (if I give permission to Facebook to share my account prior to my death…?). This is a wonderful service for future generations. How could a company replicate such a wonderful service? All the photos, memories, comments, stories, and effort that we’ve put into the platform for the last 14 years has created a network and a legacy that I don’t believe will be easy to move or replace. We believe the moat around Facebook is getting wider everyday.

That being said, short-term data shows declines in user numbers for the youngest cohorts. This should be expected. Facebook becomes more interesting for people as they get older. As you age a mature you are posting pictures of your wedding day, your first child, your parents holding grandchildren, etc. You spend time staying in touch and looking at the lives of people that use to be very important in your life, like your brothers or friends from college, old work colleuges, etc. When you’re in high school you live with your family, you don’t have many friends that are scattered across the world, and you’re too cool to stay in touch with Mom and Dad. SnapChat makes way more sense for this young cohort. You can send inappropriate and temporary images as you discover who you are. I wouldn’t expect Facebook to ever really dominate the youngest cohorts, but I do expect that as this cohort matures many of them will spend less time and SnapChat and more time on Facebook. Priorities change overtime and Facebook definitely plays a critical and positive role in the world today.

Sirius XM’s deal to buy Pandora is a win for legacy media

It turns out that costly physical infrastructure and traditional linear programming don’t always doom media companies in their battle against digital upstarts. That’s a particularly relevant point today as Comcast bulks up to continue its battle against Netflix.

Sirius has a sticky business model, in which car buyers predictably turn on the Sirius XM radios that come pre-installed in new cars. We’re at the point where a growing number of used cars are being re-purchased with those same Sirius radios still installed, making used-car buyers a growing market for Sirius. But a satellite radio subscription still can’t match the ease of use or cost of Pandora’s smartphone app, which ranges from free to $10 a month for unlimited music.

In an investor presentation on Monday, Sirius noted that Pandora expands the company’s presence “beyond the vehicle,” while diversifying Sirius’ revenue stream by adding the country’s “largest ad-supported digital audio offering.” Sirius sees opportunity for cross-promotion between its 36 million paying subscribers and Pandora’s 70 million active listeners. The bulk of Pandora’s users are non-paying customers, but the company does have about six million paying subscribers. Sirius can now try to sell its subscription package into Pandora’s large user base.


Blackstone executives have eyes on new prizes

Blackstone has grown five-fold since its initial public offering in 2007, reaching nearly $440 billion in assets, largely on the back of private equity, real estate, hedge funds, and credit. Over the last 12 months, Blackstone has brought in a record $120 billion in investor capital.

Speaking at Blackstone’s Investor Day on September 21, president and COO Jon Gray stressed that Blackstone’s business requires very little capital. Of the $439 billion it manages, only $2 billion represents balance-sheet investments. Instead, it invests the assets of its clients, largely pension funds, endowments, and other institutions. Some of the firm’s future and early-stage initiatives, such as private wealth, involve tapping more mainstream investors.

Insurers are facing increasing regulatory capital requirements and continue to be squeezed by low interest rates. “They have no choice but to move into alternatives and private credit,” said James. Insurance companies, which hold a majority of their assets in fixed income are a natural fit with Blackstone, which is one of the largest originators of credit assets. Blackstone will both manage the assets for insurers like it does for any institution, and buy mature books of business where it takes on the entire balance sheet and manages both liabilities and assets. “This is a larger and more profitable business than simply having accounts to manage. There are hundreds of billions of insurance assets being sold as we speak,” he said.

Ronaldo: Why Juventus gambled €100m on a future payday

There are early signs the bet is paying off. While in secret talks to sign Ronaldo, Juventus increased average season ticket prices by 30 per cent. All 29,300 have been sold. On match day the Juventus stadium superstore is doing a brisk trade in Ronaldo replica shirts, costing up to €154.95 — among the highest prices in Europe. For his home debut, fans travelled from all over the world while television networks spent days trailing his arrival in Turin.

To sign the striker Juventus agreed to pay Real Madrid a €100m fee over two years, a further €5m in payments that will ultimately be paid to clubs that trained him as a young player, and about €12m in fees to his agent, Jorge Mendes. Ronaldo’s four-year contract provides a salary worth more than €50m a year after tax, according to reports. The remuneration package will also allow Juventus to use his “image rights”, so that the player — who earns an estimated $47m a year in personal endorsements — can also be used in Juventus promotional campaigns. Financial services firm KPMG estimates that, including the transfer fee, amortised over the duration of his contract, Juventus will pay around €340m, or €85m a year for Ronaldo’s services.


This 24-Year-Old built a $5 billion hotel startup in five years

Oyo employs hundreds of staffers in the field who evaluate properties on 200 factors, from the quality of mattresses and linens to water temperature. To get a listing, along with a bright red Oyo sign to hang street-side like a seal of good-housekeeping approval, most hoteliers must agree to a makeover that typically takes about a month. Oyo then gets 25 percent of every booking. Rooms usually run between $25 and $85.

Agarwal wouldn’t give sales numbers, but he said the number of transactions has tripled in the last year, with 90 percent coming from repeat travelers — and no money spent on advertising. There are now 10,000 hotels in 160 Indian cities, with more than 125,000 rooms, listed on the site, he said. That’s about 5 percent of India’s total room inventory, according to RedSeer estimates.

China claims more patents than any country—most are worthless

As of last year, more than 91 percent of design patents granted in 2013 had been discarded because people stopped paying to maintain them, according to JZMC Patent and Trademark data compiled for a Bloomberg query. Things aren’t much better for utility models with 61 percent lapsing during the same five-year period, while invention patents had a disposal rate of 37 percent. In comparison, maintenance fees were paid on 85.6 percent of U.S. patents issued in 2013, according to the United States Patent and Trademark Office.


The future of fish farming may be indoors

Bio-security routines that require sanitizing hands and dipping shoes in disinfectant bins minimize the risk of disease and the need for antibiotics that other forms of aquaculture heavily rely on, says Peterson, who has advised Nordic Aquafarms regarding best practices. However, just one employee who fails to complete the process correctly or neglects other basic protocol could contaminate the operation—with pathogens potentially looping through the recirculating system and killing an entire tank of fish. Large-scale companies could guard against this with monitoring equipment that lets them respond quickly to any issues, Peterson says, adding that strict government permits require routine monitoring that would also detect unusual levels of discharge in wastewater.

The real environmental toll of big indoor systems will depend on the capacity of local infrastructure, including the water supply, Timmons says. Recirculating systems can recycle more than 90 percent of tank water but some of it does get lost to evaporation or absorbed in solid waste each day. He calculates that a farm the size of the Belfast facility would (after the initial tank fill) consume about 1.65 billion liters of freshwater per year—roughly equivalent to the water use of about 12,000 people. But he notes even in a town of fewer than 7,000 people, like Belfast, this is within the capacity of the local aquifer—and is dwarfed by the volume of water the farm would recycle each year. In more drought-prone regions indoor aquaculture facilities could release wastewater for irrigating agricultural fields, reducing the water burden, Timmons adds.


Scientists finally crack wheat’s absurdly complex genome

This is already happening. Using the completed genome, the team identified a long-elusive gene (with the super-catchy name of TraesCS3B01G608800) that affects the inner structure of wheat stems. If plants have more copies of the gene, their stems are solid instead of hollow, which makes them resistant to drought and insect pests. By using a diagnostic test that counts the gene, breeders can now efficiently select for solid stems.


Nearly half of cellphone calls will be scams by 2019, report says

Nearly half of all cellphone calls next year will come from scammers, according to First Orion, a company that provides phone carriers and their customers caller ID and call blocking technology.

The Arkansas-based firm projects an explosion of incoming spam calls, marking a leap from 3.7 percent of total calls in 2017 to more than 29 percent this year, to a projected 45 percent by early 2019.

Everything you know about obesity is wrong

According to the Centers for Disease Control and Prevention, nearly 80 percent of adults and about one-third of children now meet the clinical definition of overweight or obese. More Americans live with “extreme obesity“ than with breast cancer, Parkinson’s, Alzheimer’s and HIV put together.


35 years ago today, one man saved us from world-ending nuclear war

Petrov did not report the incoming strike. He and others on his staff concluded that what they were seeing was a false alarm. And it was; the system mistook the sun’s reflection off clouds for a missile. Petrov prevented a nuclear war between the Soviets, who had 35,804 nuclear warheads in 1983, and the US, which had 23,305.

A 1979 report by Congress’s Office of Technology Assessment estimated that a full-scale Soviet assault on the US would kill 35 to 77 percent of the US population — or between 82 million and 180 million people in 1983. The inevitable US counterstrike would kill 20 to 40 percent of the Soviet population, or between 54 million and 108 million people.


Market research tricks

If you ask a question as close as possible to the claim you want to make, and ensure you survey a representative national sample of category users, any national chain in any category will beat competitors that are superior but only regionally available.

As a result of this research and ad campaign, one of Jimmy Dean’s regional competitors actually did its own research, but only in its regional area. The company found that it could beat Jimmy Dean in its region, and made its own ads that said in effect, “Did you really want to eat a breakfast sausage that people in both New York and San Francisco ate? No, you want (our) brand that tastes better to people like you and me here in (their local region).”

And because Taco Bell is pretty much ubiquitous, and enough people everywhere will vote for it because they haven’t found good, authentic Mexican food in their areas, it wins this title. There is no way that local restaurants, or even good regional chains, could compete with the sheer numbers of a national chain.

Curated Insights 2017.12.24

Why Tesla wants a piece of the commercial trucking industry

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

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


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

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

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

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

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


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

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

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


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

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

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


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

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

The loopholes drug companies use to keep prices high

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

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

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


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

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

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

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


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

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

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


Asimov: Engineering biology

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

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

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

Auctions & power

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

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

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


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

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

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


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

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

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


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

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

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

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

Truth from zero?

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

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

Bitcoin billionaires may have found a way to cash out

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

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

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

What Is Ethereum?

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

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

Can this man build a better bitcoin?

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

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