Curated Insights 2018.01.14

As of this year the App Store alone will overtake Global Box Office revenues.

The iOS economy, updated

Facebook, Twitter, Linkedin, Tencent, YouTube, Pandora, Netflix, Google, Baidu, Instagram, Amazon, eBay, JD.com, Alibaba, Expedia, Tripadvisor, Salesforce, Uber, AirBnB and hundreds of others are all “free” apps enabling hundreds of billions of dollars of interaction none of which are captured in the App Store revenue data. The vast majority of activity for the top commerce, communications and media properties are now coming through mobile devices.

By weight of users and their propensity to engage, iOS enables about 50% to 60% of mobile economic activity. Based on assumptions of revenue rates for mobile services and iOS share of engagement, my estimate of the economic activity on iOS for 2017 is about $180 billion. Including hardware sales, the iOS economy cleared about $380 billion in revenues 2017.


Wal-Mart already has a thriving online grocery business—in China

Wal-Mart has already developed a big online grocery delivery business in China, capable of transporting fresh produce from its shelves to homes within an hour. To accomplish that feat, it’s created a network of chilled mini-warehouses, used artificial intelligence to tailor inventories, and employed an army of crowdsourced deliverymen to rush meat, fruits, and vegetables to customers’ doorsteps. That could provide the megaretailer with plenty of insight and experience to keep tech upstarts from disrupting it out of one of its core U.S. businesses.

Only 2 percent of fresh food was bought online in China last year, according to data from Euromonitor International.


Ensemble Capital: Nike Update

Nike’s sales are 50% larger than its closest competitor Adidas and it is more than twice as profitable. The next few competitors, like Under Armor and Puma both at $5 billion, are markedly smaller in scale. When Nike was founded in 1964 by Phil Knight, Adidas was a much larger incumbent in the sneaker business and Nike was the scrappy startup.

The bigger growth opportunity going forward comes from the international markets, where Nike expects 75% of its future growth to come from and now accounts for about 60% of sales. In addition, this growth is likely to be more profitable over time as its direct to consumer business via its own stores, website, and app will account for a greater percentage of its total sales while creating a more direct relationship with the customer.

New lift technology is reshaping cities

The lift is to the vertical what the car is to the horizontal: the defining means of transport. Like cars, modern lifts are creatures of the second industrial revolution of the late 19th century. Like cars, they have transformed the way that cities look, changing how and where people live and work. And today, like the cars that are lidar-sensing their way towards an autonomous future, lifts stand ready to change the city again.

The Chinese appetite for more, higher and faster lifts is like nothing seen since 1920s New York. In 2000 some 40,000 new lifts were installed in the country. By 2016 the number was 600,000—almost three quarters of the 825,000 sold worldwide. China not only wanted more skyscrapers; it wanted taller ones. More than 100 buildings round the world are over 300 metres; almost all of them were built this century, and nearly half of them in China. The country is home to two-thirds of the 128 buildings over 200 metres completed in 2016.

Liftmakers say that “Destination control”, in which the lift system tells the user which lift to use, rather than the user telling the lift where to go, reduces door-to-desk time by 30%. Pair it with double-decker lifts, which in very tall buildings usefully serve odd and even floors simultaneously, and you increase capacity even further.

Why experts believe cheaper, better lidar is right around the corner

“Our lidar chips are produced on 300-millimeter wafers, making their potential production cost on the order of $10 each at production volumes of millions of units per year,” MIT researchers Chris Poulton and Michael Watts wrote last year. Their chip uses optical phased arrays for beam steering, avoiding the need for mechanical parts.

Experimental, low-volume hardware for cutting-edge technology is almost always expensive. It’s through the process of mass manufacturing and iterative improvement that companies learn to make it cheaper. Right now, lidar technology is at the very beginning of that curve—where antilock brakes were in the early 1980s.

The world’s biggest miner is building a battery supply hub it doesn’t want

BHP began work to build a nickel sulphate plant at Nickel West in recent weeks and is considering a slate of further expansions to make it the largest source of the material and a hub for other battery ingredients. It’s aiming to sell 90 percent of output into the battery supply chain by about 2021, from less than a third at the end of last year. Global nickel demand could more than double by 2050, fueled in part by rising electric vehicle sales, Bloomberg Intelligence said in a June report.

The world’s biggest mining companies are ratcheting up their response to the booming demand for battery raw materials. Rio Tinto Group is developing a lithium project in Serbia, while Glencore Plc plans to double production of cobalt and is effectively “a one-stop-shop” for investors seeking exposure to EV gains, Sanford C. Bernstein Ltd. said in a note this month.

The good luck for BHP is that only about 40 to 45 percent of existing nickel mine supply is suitable for processing into a battery-grade chemical product, Melbourne-based UBS Group AG analyst Lachlan Shaw said by phone. “BHP’s Nickel West fits into that category.”


The most powerful research tool is a great network

The two changes he noted are global environmental standards sponsored by the International Maritime Organization. The first is the “Ballast Water Management Convention” that went into force late last year. It requires that newly built ships have waste-water treatment equipment that purifies ballast water to certain minimum levels. After September 2019, ships that were built before these standards came into force will need a costly upgrade to their equipment to meet this standard for the vessels to pass their periodic inspections.

The second standard will be implemented in 2020. I was amazed to learn that the world’s biggest 25 ships emit more sulfur than the entire world’s fleet of cars! Accordingly, the regulation’s goal is to limit this pollution. Ship-owners must achieve this goal and have several ways to do so, such as retooling to switch to a less polluting fuel like gas or methanol or by installing scrubbers to lower concentrations of pollutants.

If freight rates do not rise with the investment required to build new ships, then there is little economic incentive for many ship-owners to spend the additional capital required to meet the new regulations. This short term squeeze on shipping economics could prompt an increase in vessel scrapping as older ships are retired from service and less new supply is forthcoming from shipbuilders, who are already under pressure from the collapse in freight rates. Any force that constrains supply relative to demand should be positive for freight rates and, in time, the economics of shipping. One unintended consequence of these regulatory changes could be a surprisingly strong bull market in shipping costs!

Why it is time to change the way we measure the wealth of nations

Invented in the 1930s by Simon Kuznets, initially as a way of calculating the damage wrought by the Great Depression, GDP is a child of the manufacturing age. Good at keeping track of “things you can drop on your foot”, it struggles to make sense of the services — from life insurance and landscape gardening to stand-up comedy — that comprise some 80 per cent of modern economies. The internet is more perplexing still. In GDP terms, Wikipedia, which puts the sum of human knowledge at our fingertips, is worth precisely nothing.

Among GDP’s shortcomings, the distinction between flow of income and stock of wealth, highlighted by the story of Bill and Ben, is one of the most serious.

Among the report’s findings, the full details of which are embargoed, is a huge shift of wealth over 20 years to middle-income countries, largely driven by the rise of China and other Asian countries. A third of low-income countries, however, especially in Africa, have suffered an outright fall in per capita wealth over that period, in what could be a dangerous omen about their capacity for future growth. In the world as a whole, the report finds, human capital represents a whopping 65 per cent of total wealth. In 2014, this was $1,143tn, or about 15 times that year’s GDP.

The report is particularly illuminating in tracing the path to development as countries, in the manner described by Dasgupta, trade in one form of capital for another. Crudely put, they use income derived from natural resources to build up other forms of capital, principally in infrastructure, technology, health and education. So, while natural capital accounts for 47 per cent of the wealth of low-income countries, it represents only 3 per cent of the wealth of the most advanced.

The Ripple effect

XRP, the Ripple token, is unlike any other crypto token in the market. It is entirely centrally controlled, operating more like an ETF unit than anything else since the issuer has the capacity to release or absorb (pre-mined) tokens in accordance with their valuation agenda. More egregiously though, the token plays little part in Ripple’s central business case. For the most part it’s just a cute add-on.

Ripple “the settlement tech” is thus arbitrage tech, highly dependent on the whims, activities and behaviours of its liquidity provider community. This means it’s partial to the same exact problems HFT suffers from: namely, the fact there’s no guarantee liquidity providers will always be around when you really need them. In FX this sort of solution doesn’t really cut the mustard. People want a dependable FX service, not one that’s subject to the whims of unknown third-party participants. A bit of historical context is useful at this point, since what XRP really aims to do (we think) is copycat the role played by the offshore dollar in the days before the euro.

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 2017.12.10

The impossibility of intelligence explosion

The first issue I see with the intelligence explosion theory is a failure to recognize that intelligence is necessarily part of a broader system — a vision of intelligence as a “brain in jar” that can be made arbitrarily intelligent independently of its situation. A brain is just a piece of biological tissue, there is nothing intrinsically intelligent about it.

In particular, there is no such thing as “general” intelligence. On an abstract level, we know this for a fact via the “no free lunch” theorem — stating that no problem-solving algorithm can outperform random chance across all possible problems. If intelligence is a problem-solving algorithm, then it can only be understood with respect to a specific problem. In a more concrete way, we can observe this empirically in that all intelligent systems we know are highly specialized.

If intelligence is fundamentally linked to specific sensorimotor modalities, a specific environment, a specific upbringing, and a specific problem to solve, then you cannot hope to arbitrarily increase the intelligence of an agent merely by tuning its brain — no more than you can increase the throughput of a factory line by speeding up the conveyor belt. Intelligence expansion can only come from a co-evolution of the mind, its sensorimotor modalities, and its environment.

In Terman’s landmark “Genetic Studies of Genius”, he notes that most of his exceptionally gifted subjects would pursue occupations “as humble as those of policeman, seaman, typist and filing clerk”. There are currently about seven million people with IQs higher than 150 — better cognitive ability than 99.9% of humanity — and mostly, these are not the people you read about in the news. Of the people who have actually attempted to take over the world, hardly any seem to have had an exceptional intelligence; anecdotally, Hitler was a high-school dropout, who failed to get into the Vienna Academy of Art — twice.

People who do end up making breakthroughs on hard problems do so through a combination of circumstances, character, education, intelligence, and they make their breakthroughs through incremental improvement over the work of their predecessors. Success — expressed intelligence — is sufficient ability meeting a great problem at the right time. Most of these remarkable problem-solvers are not even that clever — their skills seem to be specialized in a given field and they typically do not display greater-than-average abilities outside of their own domain.

So, a person with an IQ of 130 is statistically far more likely to succeed in navigating the problem of life than a person with an IQ of 70 — although this is never guaranteed at the individual level — but here’s the thing: this correlation breaks down after a certain point. There is no evidence that a person with an IQ of 170 is in any way more likely to achieve a greater impact in their field than a person with an IQ of 130.

Why would the real-world utility of raw cognitive ability stall past a certain threshold? This points to a very intuitive fact: that high attainment requires sufficient cognitive ability, but that the current bottleneck to problem-solving, to expressed intelligence, is not latent cognitive ability itself. The bottleneck is our circumstances. Our environment, which determines how our intelligence manifests itself, puts a hard limit on what we can do with our brains — on how intelligent we can grow up to be, on how effectively we can leverage the intelligence that we develop, on what problems we can solve. All evidence points to the fact that our current environment, much like past environments over the previous 200,000 years of human history and prehistory, does not allow high-intelligence individuals to fully develop and utilize their cognitive potential.

And they are only able to succeed because they are standing on the shoulder of giants — their own work is but one last subroutine in a problem-solving process that spans decades and thousands of individuals. Their own individual cognitive work may not be much more significant to the whole process than the work of a single transistor on a chip.

It is civilization as a whole that will create superhuman AI, not you, nor me, nor any individual. A process involving countless humans, over timescales we can barely comprehend. A process involving far more externalized intelligence — books, computers, mathematics, science, the internet — than biological intelligence.

We don’t have to speculate about whether an “explosion” would happen the moment an intelligent system starts optimizing its own intelligence. As it happens, most systems are recursively self-improving. We’re surrounded with them. So we know exactly how such systems behave — in a variety of contexts and over a variety of timescales. You are, yourself, a recursively self-improving system: educating yourself makes you smarter, in turn allowing you to educate yourself more efficiently. Likewise, human civilization is recursively self-improving, over a much longer timescale.

Google’s AlphaZero destroys Stockfish in 100-game match

This would be akin to a robot being given access to thousands of metal bits and parts, but no knowledge of a combustion engine, then it experiments numerous times with every combination possible until it builds a Ferrari. That’s all in less time that it takes to watch the “Lord of the Rings” trilogy. The program had four hours to play itself many, many times, thereby becoming its own teacher.

“We have always assumed that chess required too much empirical knowledge for a machine to play so well from scratch, with no human knowledge added at all,” Kasparov said. “Of course I’ll be fascinated to see what we can learn about chess from AlphaZero, since that is the great promise of machine learning in general—machines figuring out rules that humans cannot detect. But obviously the implications are wonderful far beyond chess and other games. The ability of a machine to replicate and surpass centuries of human knowledge in complex closed systems is a world-changing tool.”


CVS’s $68 billion bid to bring one-stop shopping to health care

The buyout would combine the largest U.S. drugstore chain with the third-biggest health insurer. CVS also manages drug benefits plans for thousands of employers and insurers, a business that could help steer some of Aetna’s 22 million customers to CVS pharmacy counters when they fill a prescription. Already, CVS has 1,100 MinuteClinics in its pharmacies, where nurse practitioners and physician assistants provide routine care such as flu shots or wrapping sprained ankles. It’s also trying out hearing and vision centers in a handful of locations. If the merger goes through, CVS plans to build mini-health centers in many more of its 9,700 stores, turning them into places where Aetna members—and customers of rival insurers—get convenient low-level care for ailments and chronic diseases. And having a closer tie to where customers are treated could help Aetna better manage their ailments earlier, more efficiently—and less expensively.

The integration is part of a wide-ranging effort by health insurance companies and the federal government to shift care away from paying for each service and toward paying doctors and hospitals for taking better care of patients and keeping them healthier. The approach, known as value-based care, challenges the industry’s traditional reimbursement models.

CVS and Aetna say they’ll be able to reduce costs by directing some patients to lower-cost sites of care in CVS stores, keeping them out of emergency rooms and hospitals. About 70 percent of the U.S. population lives within 3 miles of a CVS location, according to David Larsen, an analyst at Leerink Partners. “This is going to be appealing to a huge number of people,” says Ingrid Lindberg, president of Kobie Marketing Inc. and a former chief customer experience officer at health insurer Cigna Corp. “There’s a large majority of people who are truly driven by ease and convenience when it comes to their care.”


This company is about to flood the U.S. with cheap HIV drugs

Laurus is one of the world’s biggest suppliers of ingredients used in anti-retrovirals, thanks to novel chemistry that delivers cheaper production costs than anyone else. Now, its chief executive officer, Satyanarayana Chava, wants to use the same strategy selling his own finished drugs in the U.S. and Europe. He predicts some generics that Laurus produces will eventually sell for 90 percent less than branded HIV drugs in the U.S., slashing expenditures for a disease that’s among the costliest for many insurers.

The patent expiries are starting this month when Bristol-Myers Squibb Co.’s Sustiva loses protection. Gilead Sciences Inc.’s Viread follows next month. Both companies didn’t respond to requests for comment.

Though Laurus doesn’t yet make the actual pills those patients take, it’s become a dominant supplier of the key ingredients that make them work. The best way to fight HIV is with a combination of different drugs, and because Viread and Sustiva form key parts of some of the most effective combinations, the inclusion of generic versions of these chemicals could bring down the cost of the whole treatment. One analysis cited by the Department of Health and Human Services found that replacing a three-medicine, branded combination with multiple pills, including a generic version of Sustiva, could save the U.S. $900 million its first year.

Laurus controls about 66 percent of the global market for efavirenz, the chemical name for Bristol-Myers Squibb’s Sustiva, and 33 percent for tenofovir, the chemical name for Gilead’s Viread, according to a report earlier this year by investment bank Jefferies Group LLC.

The hidden player spurring a wave of cheap consumer devices: Amazon

That future? We’re going to get better products for ludicrously low prices, and big brands across a range of categories — the Nests and Netgears of the world — are going to find it harder than ever to get us to shell out big money for their wares.

To hit the $20 price, Wyze licensed the camera’s hardware from a Chinese company, then created its own software. It also cut out just about every middleman, including most retailers. And it’s banking on long-run success. While Wyze is just breaking even on its first camera, its founders believe internet-connected home devices will be a growth category. They plan to establish a trusted brand with the first camera, then release a succession of products that they hope to sell in large numbers, at low prices.

…what was unique about Amazon was that its store encouraged low prices while heavily penalizing companies that made shoddy products. “It’s not a race to the bottom,” Mr. Fung said. “Sellers are forced to create better products at lower pricing, and sellers who aren’t able to do that just get weeded out.”

The classic worry about Amazon is that it puts local retailers out of business. Now another worry is that by exposing global brands to the harsh reality of low-priced competitors, it may put them out of business, too. Mr. Wingo said global brands across a variety of categories — electronics, apparel, home improvement — regularly approached his company looking for a way to compete with low-priced rivals on Amazon.

“There is this erosion of what it means to be a traditional consumer product brand,” Mr. Wingo said. “In a way, Amazon is providing all this information that replaces what you’d normally get from a brand, like reputation and trust. Amazon is becoming something like the umbrella brand, the only brand that matters.”


Proof Work aims to decentralize medical data by using the blockchain

The system, if successful, would be a big disruption to how health care data is handled today – where it’s often accessible only by the doctors and hospitals themselves, and where patients have to make special requests to have a copy of their own medical records. In the future, the goal is to allow patients to walk into a doctor’s office with all their medical records already on their phone.

This isn’t the first attempt to use technology to fix the problem with medical records; others have tried to centralize records for easier access, including Microsoft HealthVault, for example. One of the challenges getting prior systems to work was that healthcare companies aren’t necessarily interested in making it easier for patients to have access to their own medical records, says Suter. After all, the patients could go to another provider.

Pitney Bowes Parcel Shipping Index reveals 48 percent growth in parcel volume since 2014

China, a new addition to this year’s Index and by far the largest market examined, grew parcel volume by 52 percent in one year, increasing from 21 billion parcels in 2015 to 31 billion in 2016. But, even when excluding China’s prolific volumes, the Index forecasts a strong and accelerating pace of growth in parcels throughout the world. On average, the other 12 major markets studied have grown 4.3% annually since 2012 and are projected to grow 4.5% – 5.4% annually through 2021. The United States (at 13 billion) and Japan (at 9 billion) were also among the largest markets by parcel volume. In terms of investment, the United States ranked highest, spending $96 billion on parcel shipments, followed by China at $60 billion and Japan at $22 billion.

“The continued rise of ecommerce globally is keeping the parcel shipping market strong through 2021 as consumers are increasingly looking to online shopping for convenience, price and availability of products from around the world,” said Lila Snyder, executive vice president and president, Global Ecommerce, Pitney Bowes. “As consumer expectations continue to rise, shipping technology and service providers will need to help retailers and marketplaces meet those demands.”


China’s blow to recycling boosts U.S.’s $185 billion plastic bet

China is undoing decades of effort that built a massive scrap recycling industry — the cheapest way to produce plastic products for its growing economy. The country accounted for 51 percent of the world’s plastic scrap imports last year, with the biggest contribution coming from the U.S., according to the Institute of Scrap Recycling Industries, an international trade group. The China ban could shift about 2 percent of global polyethylene plastics supply from recycled to new material.

That’s because the U.S. has become the cheapest place in the world to make plastic, thanks to a fracking boom that’s created a glut of natural gas, the main feedstock for manufacturing. Taking advantage of low gas prices, chemical producers have invested an unprecedented $185 billion to build new capacity in the U.S., according to the American Chemistry Council, an industry group.

Exporting high-value resins to China instead of cheap scrap could help chip away at the U.S.’s $250 billion trade deficit with the nation. For producers, however, China’s ban on importing scrap will boost demand for new plastics by enough to nearly absorb all the new polyethylene output coming online next year in the U.S., Andrews said in the Morgan Stanley report. The effects can already be seen in China’s increased appetite for virgin polyethylene, with imports up 19 percent this year as scrap polyethylene imports dropped 11 percent, he said.

India ‘dream’ plan to cut freight times to 14 hours from 14 days

Japan, seeking to boost ties with India as a counterweight to China, is partly financing the DMIC project and holds a 26 percent stake. Indeed, Japan’s Tokyo-Osaka industrial corridor is an inspiration. NEC Corp. has invested in a joint-venture project with the Indian government that is already providing logistics support along the route.

The goal is to set up a “plug and play” environment for investors, says Jai Prakash Shivahare, managing director of the Dholera Industrial City Development. “We are looking to tie up with anchor investors so that they can also start their construction and in one-and-half-years, when our site is ready, their factories can also be ready.”

Work has now begun in four of the eight manufacturing destinations proposed in the first phase of the industrial corridor. But it has been far from smooth sailing to get to this point as red tape and budget constraints across six states and numerous sprawling ministries slowed progress, causing some to walk away altogether.


BlackRock and Vanguard are less than a decade away from managing $20 trillion

None other than Vanguard founder Jack Bogle, widely regarded as the father of the index fund, is raising the prospect that too much money is in too few hands, with BlackRock, Vanguard and State Street Corp. together owning significant stakes in the biggest U.S. companies. “That’s about 20 percent owned by this oligopoly of three,” Bogle said at a Nov. 28 appearance at the Council on Foreign Relations in New York. “It is too bad that there aren’t more people in the index-fund business.”

The argument goes like this: The number of indexes now outstrips U.S. stocks, with the eruption of passive funds driving demand for securities within these benchmarks, rather than for the broader universe of stocks and bonds. That could inflate or depress the price of these securities versus similar un-indexed assets, which may create bubbles and volatile price movements.

We’re not near a tipping point yet. Roughly 37 percent of assets in U.S.-domiciled equity funds are managed passively, up from 19 percent in 2009, according to Savita Subramanian at Bank of America Corp. By contrast, in Japan, nearly 70 percent of domestically focused equity funds are passively managed, suggesting the U.S. can stomach more indexing before market efficiency suffers. There’s even further to go if you look globally: Only 15 percent of world equity markets — including funds, separately managed accounts and holdings of individual securities — are passively managed, said Joe Brennan, global head of Vanguard’s equity index group, in an interview.


A growing number of young Americans are leaving desk jobs to farm

She joined a growing movement of highly educated, ex-urban, first-time farmers who are capitalizing on booming consumer demand for local and sustainable foods and who, experts say, could have a broad impact on the food system.

For only the second time in the last century, the number of farmers under 35 years old is increasing, according to the U.S. Department of Agriculture’s latest Census of Agriculture. Sixty-nine percent of the surveyed young farmers had college degrees — significantly higher than the general population.

Young farmers are also creating their own “food hubs,” allowing them to store, process and market food collectively, and supply grocery and restaurant chains at a price competitive with national suppliers.

Midsize farms are critical to rural economies, generating jobs, spending and tax revenue. And while they’re large enough to supply mainstream markets, they’re also small enough to respond to environmental changes and consumer demand.

Singapore’s aging ‘time bomb’ will tick louder in 2018

At this rate, seniors in Singapore’s population will make up more than double the share of the youngest residents in 2030. Tan uses a compounded annual growth rate rather than adjusting for potential policy changes or alteration of trends such as fertility rates, meaning officials could still help redraw those lines, or at least make them appear less menacing, over the next decade. With already the oldest population in the Association of Southeast Asian Nations, the Singapore of 2030 will probably look a lot like the demographics-embattled Japan of 2016.


The Louvre Abu Dhabi is getting the $450 million Da Vinci painting

The New York Times reported later Wednesday that Saudi Prince Bader bin Abdullah bin Mohammed bin Farhan al-Saud was the buyer, citing documents it reviewed. Christie’s declined to comment on the report.

The Louvre Abu Dhabi — a franchise of the Paris original — is a symbol of the oil-rich sheikhdom’s drive to boost its “soft power” credentials. To differentiate itself from neighboring Dubai, Abu Dhabi is targeting affluent tourists looking for culture and art and it has also built hotels, theme parks and malls. The organization behind the museum became one of the most aggressive buyers on the global art market over the last decade. It opened last month with more than 600 artworks for its permanent collection, including such Old Master paintings as Giovanni Bellini’s “Madonna and Child.” Da Vinci’s “La Belle Ferronnière” is on loan there from the Louvre in Paris.

Curated Insights 2017.08.27

Inside Waymo’s secret world for training self-driving cars

Collectively, they now drive 8 million miles per day in the virtual world. In 2016, they logged 2.5 billion virtual miles versus a little over 3 million miles by Google’s IRL self-driving cars that run on public roads. And crucially, the virtual miles focus on what Waymo people invariably call “interesting” miles in which they might learn something new. These are not boring highway commuter miles.

And in both kinds of real-world testing, their cars capture enough data to create full digital recreations at any point in the future. In that virtual space, they can unhitch from the limits of real life and create thousands of variations of any single scenario, and then run a digital car through all of them. As the driving software improves, it’s downloaded back into the physical cars, which can drive more and harder miles, and the loop begins again.

Not surprisingly, the hardest thing to simulate is the behavior of the other people. It’s like the old parental saw: “I’m not worried about you driving. I’m worried about the other people on the road.”

“Right now, you can almost measure the sophistication of an autonomy team—a drone team, a car team—by how seriously they take simulation. And Waymo is at the very top, the most sophisticated.”

And in reality, those 20,000 scenarios only represent a fraction of the total scenarios that Waymo has tested. They’re just what’s been created from structured tests. They have even more scenarios than that derived from public driving and imagination. “They are doing really well,” Peng said. “They are far ahead of everyone else in terms of Level Four,” using the jargon shorthand for full autonomy in a car.


Halliburton and Microsoft do not compute for OPEC

Contrary to conventional wisdom, the oil business is a high-tech one. You don’t map out complex rock formations thousands of feet beneath the ground in three or four dimensions and then drill into them without advanced tools. For example, Total SA, the French oil major, boasts the 19th-most powerful supercomputer in the world, Pangea, which has clocked a speed of more than 5 quadrillion calculations a second (technical note: pretty fast) according to The Top 500 List.

…the average well has less than 10 gigabytes of data associated with it, equivalent to a couple of high-definition movies.

…the company’s teams now have access to more than 80 real-time data streams and sensors embedded in wells, giving them a constantly updated picture of what’s happening beneath the ground. The killer app here, in every sense of the word, is providing crews and their managers with an integrated platform; a suite of sensors and software communicating seamlessly, updating constantly and available to all involved.


Costco is playing a dangerous game with the web

Costco’s reluctance to embrace the web is understandable. Its warehouse club business model is based on selling a limited assortment of bulk-size food and household items at low prices, alongside an ever-changing selection of general merchandise—everything from margarita machines to kayaks. This creates an in-store treasure hunt experience. Both elements are costly and difficult to replicate online.

Potentially more worrisome: Half of Costco’s shoppers are Amazon Prime members, Kantar Retail says, up from 14 percent five years ago. Sharing too many of the same subscribers could be risky, since Planet Retail RNG analyst Graham Hotchkiss says Amazon now offers many bulk-size goods at prices that rival Costco’s. And Amazon’s pending $13.7 billion deal to buy Whole Foods Market Inc. will give it a firm foothold in groceries—the primary reason people shop at Costco, according to Barclays’s Short.


What is Amazon, really?

At last count, Amazon’s delivery infrastructure included more than 180 warehouses, 28 sorting centers, 59 local package delivery stations, and 65 hubs for its two-hour Prime Now deliveries. Investment bank Piper Jaffray estimates that 44% of the US population lives within 20 miles of an Amazon warehouse or delivery station. Amazon’s proposed $13.7 billion acquisition of Whole Foods could add another 431 distribution nodes in bougie neighborhoods to that network.

“Our goal with Amazon Prime, make no mistake, is to make sure that if you are not a Prime member, you are being irresponsible,” Bezos told shareholders in May. The plan is working: 63% of US Amazon users subscribe to Prime, and estimated to reach more than half of American households by the end of the year. Prime doesn’t just lift $99 off of regular Amazon users each year—it’s proven to be a powerful customer loyalty program. The average Prime user spends $1,300 each year on the site, with 78% of Prime users still citing free 2-day shipping as the main reason for coughing up the fee.

The service first reached customers by 2005, and was officially launched in the summer of 2006. Tom Szkutak, Amazon’s CFO at the time, said the business was “exposing the guts of Amazon,” using the knowledge gained from 11 years of building Amazon.com. Today AWS is on a tear. It’s the world’s dominant cloud computing provider, and the nearest competitors aren’t even within shouting distance: Amazon’s servers deliver 34% of the world’s public cloud services, reports Synergy Research Group, while Microsoft, IBM and Google provide 24% combined.


Amazon vs Maersk: The clash of titans shaking the container industry

Manufacturing is new step for Amazon and they won a patent earlier this year to develop a system to rapidly create clothing and other products after a customer order is placed. This forms a cheap and simple method for Chinese exporters as Amazon have effectively wiped out the middle man, acting as a shipbroker for itself and on behalf of smaller companies.

Freight forwarders may find it hard to compete with companies as powerful as Amazon and Maersk, who can afford to develop disruptive technology and prioritize increasing market share over higher profits.

Small independent ship owners will be left behind unless they adapt their business model to seek different shipping routes, for example choosing container lanes that do not feed into deep sea ports where the ultra large container vessels operated by Maersk can only dock.


Great Wall Motor’s better path leads to emerging markets

The Proton purchase not only gives Geely inroads to the Malaysian consumer market but also access to production plants in the region that could be used to manufacture other car brands. Being closer to the end customer would lower production costs. While Proton’s Tanjung Malim plant has the capacity to churn out one million cars annually, it made only 72,000 last year, according to the Malaysian government.

A lean company, analysts estimate Great Wall makes 60 percent of its parts in-house. It spends little on marketing and is the fourth-most-profitable automaker globally by net margin and return on equity. Its return on invested capital ranks number one among 40 manufacturers tracked by Bloomberg Intelligence.


A handful of companies control almost everything we buy — and beer is the latest victim

A whopping 182 beauty brands fall under the massive umbrellas of seven huge manufacturers: Estée Lauder Companies, L’Oréal, Unilever, Procter & Gamble, Shiseido, Johnson and Johnson, and Coty.

A 2015 Morgan Stanley report found that 10 companies controlled 41% of the clothing market. No other retailer had more than 2% of market share. The retailers dominating the market were Walmart, T.J. Maxx, Macy’s, Gap, Kohl’s, Target, Ross Stores, Amazon, Nordstrom, and J.C. Penney.

According to a Bank of America Merrill Lynch chart, in 2014 AB InBev and SABMiller alone controlled about 58% of the beer industry’s $33 billion in global profits.

Winner-takes all effects in autonomous cars

… it seems pretty clear that the hardware and sensors for autonomy will be commodities. There is plenty of science and engineering in these (and a lot more work to do), just as there is in, say, LCD screens, but there is no reason why you have to use one rather than another just because everyone else is. There are strong manufacturing scale effects, but no network effect. So, LIDAR, for example, will go from a ‘spinning KFC bucket’ that costs $50k to a small solid-state widget at a few hundred dollars or less, and there will be winners within that segment, but there’s no network effect, while winning LIDAR doesn’t give leverage at other layers of the stack (unless you get a monopoly), anymore than than making the best image sensors (and selling them to Apple) helps Sony’s smartphone business. In the same way, it’s likely that batteries (and motors and battery/motor control) will be as much of a commodity as RAM is today – again, scale, lots of science and perhaps some winners within each category, but no broader leverage.

Maps have network effects. When any autonomous car drives down a pre-mapped road, it is both comparing the road to the map and updating the map: every AV can also be a survey car. If you have sold 500,000 AVs and someone else has only sold 10,000, your maps will be updated more often and be more accurate, and so your cars will have less chance of encountering something totally new and unexpected and getting confused. The more cars you sell the better all of your cars are – the definition of a network effect.

The more real world driving data that you have, the more accurate you can make your simulation and therefore the better you can make your software. There are also clear scale advantages to simulation, in how much computing resource you can afford to devote to this, how many people you have working on it, and how much institutional expertise you have in large computing projects. Being part of Google clearly gives Waymo an advantage: it reports driving 25,000 ‘real’ autonomous miles each week, but also one billion simulated miles in 2016 (an average of 19 million miles a week).

So, the network effects – the winner-takes-all effects – are in data: in driving data and in maps. This prompts two questions: who gets that data, and how much do you need?

This leads me to the final question: how much data do you really need? Does the system get better more or less indefinitely as you add more data, or is there an S-Curve – is there a point at which adding more data has diminishing returns? That is – how strong is the network effect?


The stereo speaker company giving sight to self-driving cars

Although it will soon face plenty of competition, Velodyne has become the industry’s go-to lidar supplier and is cranking up production to match. Last year, Ford Motor Co. and Chinese Internet giant Baidu pumped $150 million into Velodyne, money the company used to open its “mega-factory” on San Jose’s southern edge.

Lidar works by firing laser beams — thousands per second — at nearby objects and measuring how quickly they bounce back. With the notable exception of Tesla, most companies pursuing autonomous vehicles rely on lidar, along with radar and cameras.

“The prevailing view is that in the near term — at least a decade — you’re not going to be able to execute this safely without lidar,” said Mike Ramsey, research director at Gartner.

“One major automaker told me they had vetted 50 lidar companies,” Ramsey said. “So more than 50 companies exist, but only Velodyne is producing a lidar they can use.”

Now, the race is to cut lidar’s cost. Velodyne’s most popular lidar, about the size of two stacked hockey pucks, sells for $8,000. As it ramps up production, the company hopes to bring prices down to “a few hundred dollars,” Hall said. “We’re in the inventing business, so we’re going to keep working on this thing until we crack that nut.”


The internal combustion engine is not dead yet

Mazda, which now markets no hybrid vehicles, calls the engine Skyactiv-X and says it is scheduled for a 2019 introduction. In simplest terms, the big difference with the new engine is that under certain running conditions, the gasoline is ignited without the use of spark plugs. Instead, combustion is set off by the extreme heat in the cylinder that results from the piston inside the engine traveling upward and compressing air trapped inside, the same method diesel engines use. The efficiency gains come with the ability to operate using a very lean mixture — very little gas for the amount of air — that a typical spark-ignition engine cannot burn cleanly.

…addresses the challenge of gasoline’s future from a somewhat different direction: the practical limitations of battery electric cars. “Holding a gas nozzle, you can transfer 10 megawatts of energy in five minutes,” he said, explaining today’s refueling reality. To recharge a Tesla electric at that rate today, he said, would require “a cable you couldn’t hold.”

By 2050, Dr. Heywood’s studies project, today’s fuel economy could be doubled. “A quarter to a third of that improvement would come from improvements to the vehicle,” he said, in areas like aerodynamics and weight reduction. Other promising areas include variable compression ratios — a technology Nissan plans to introduce next year — and making better use of available fuels.


Wind power is all grown up now

People tend to think of renewable energy companies as the new kids on the block but Vestas Wind Systems A/S, the world’s biggest wind turbine manufacturer, is no pimply teenager. The Danish group entered the turbine business almost 40 years ago and went public in 1998…

The wind industry is consolidating — Siemens merged its wind business with Gamesa in April — and competition is intensifying. This puts pressure on margins and makes it more difficult to lift revenue.

A bigger concern is that more countries are adopting auction-based contract awards. These promote projects that deliver the cheapest electricity as opposed to feed-in tariffs, which guaranteed a fixed electricity price. So life’s getting a little tougher for Vestas.

There are other ways to make money. High-margin maintenance contracts are an increasing share of business. There are opportunities too to upgrade the installed base with those newer, better turbines.


The very symbolic collision of Sotheby’s-Christie’s and Poly-Guardian in China art

If Sotheby’s and Christie’s are purely commercial Giants, then Poly Culture and Guardian are something else. They are certainly Giants, dominating the domestic art auction industry. But Poly in particular is also a direct extensions of the State. Because it turns out, what happens to historic Chinese art is a significant concern to the Chinese government. Part of this sensitivity is about repatriating works that were stolen and misappropriated over the centuries. Many of the works that have been returned can be seen on display at Poly’s headquarters in Beijing.

Poly Auction is now not just one of the top two auction houses in China. It is also the number three art auction house in the world (after Christie’s and Sotheby’s). Their 2013 turnover was over a billion dollars (about one-fourth of Sotheby’s). They sell approximately 10,000 objects each week, with as many as 40 different catalogs per show.

Because at the same time, Poly and Guardian have been expanding internationally. And they are now on Sotheby’s and Christie’s home turf for the first time. Both have moved into Hong Kong. And Poly is now moving aggressively into New York City, where Sotheby’s is headquartered. Thus far, they have focused mostly on finding consignments in the US for sale in China, particularly Chinese collectibles. But Poly’s openly stated ambition is to become the world’s top art auction house. According to CEO Jiang Yingchun, “We are very big in the art auction market in Mainland China but still have a long way to go to become the biggest auction house worldwide”.


It’s hard to keep up with all that lithium demand

Australia is the biggest lithium producer, though Chile and Argentina account for 67 percent of global reserves, according to the U.S. Geological Survey.

Extracting lithium from the salt flats that dot the arid northern regions of the South American countries is a lot easier and cheaper than digging underground for metals like copper. Producers just pump the brine solution into evaporation ponds, harvesting the mineral once the moisture is gone.

With demand expected to keep rising as electric cars gain a bigger share of the global auto fleet, Argentina and Chile are attracting interest from mining companies because it costs about $2,000 to $3,800 a ton to extract lithium from brine, compared with $4,000 to $6,000 a ton in Australia, where lithium is mined from rock.

Of the 39 lithium ventures tracked by CRU, only four have firm commitments, and all of those are in China, adding about 24,000 tons of annual supply. Another 10 projects representing 400,000 tons are rated “probable” — in Canada, Chile, China, Mexico, Argentina and Australia — but probably only about 30 percent will make it into production, CRU said.

“But we have a window of only 25 years to develop these projects because prices can fall again as soon as a replacement to lithium appears.”


Hunt for next electric-car commodity quickens as prices soar

As one of the key components in the new breed of rechargeable batteries and with supply dominated by the Democratic Republic of Congo, prices have surged at four times the pace of major metals in the past year.

The cobalt market is in a 5,500-ton deficit, according to CRU, with global supply contracting 3.9 percent in 2016.

“The mix of iron and cobalt is tricky. Cobalt is already mined as a byproduct of copper and nickel, but iron has the most negative impact on cobalt, which means processing would be more difficult and more expensive.”

Aging Japan wants automation, not immigration

In the absence of large-scale immigration, the only viable solution for many domestic industries is to plow money into robots and information technology more generally.

With unemployment down to 2.8 percent, companies are increasingly realizing they need to pay up to attract and keep qualified personnel. The other option — increased immigration — is politically difficult.

Bank of America Merrill Lynch forecast IT investment in Japan to rise as much as 9 percent annually in coming years, with the difference in software investment per worker versus the U.S. falling to 5 to 1 by 2020 from about 10 to 1 now.


Who really owns American farmland?

Farmland, the Economist announced in 2014, had outperformed most asset classes for the previous 20 years, delivering average U.S. returns of 12 percent a year with low volatility.

Today, the USDA estimates that at least 30 percent of American farmland is owned by non-operators who lease it out to farmers. And with a median age for the American farmer of about 55, it is anticipated that in the next five years, some 92,000,000 acres will change hands, with much of it passing to investors rather than traditional farmers.

It’s a tenuous predicament, growing low-cost food, feed, and fuel (corn-based ethanol) on ever-more-expensive land, and it raises a host of questions. Is this a sustainable situation? What happens to small farmers? And are we looking at a bubble that will burst?

In practice, our best hope of true stewardship of the land will come from enlightened, committed owner-farmers. But the trend toward treating farmland as a financial investment, and the high prices that have come with it, make it harder and harder for new young farmers to enter the field.

By buying land in other countries and farming it, foreign buyers are able to support their domestic food supply and other markets that depend on agriculture without having to compete for essential products on the global market.

The government of China now controls more than 400 American farms consisting of a hundred thousand acres of farmland, with at least 50,000 in Missouri alone, plus CAFOs (concentrated animal feeding operations), 33 processing plants, the distribution system—and one out of every four American hogs.


Yesterday’s “plastics” are today’s crypto tokens

Our ability to profit from our investments relies on two things: having the resources needed to purchase the asset and then having a way to sell it — a concept known as liquidity. Tokenizing real-world assets will allow buyers to access assets never before within their reach, and sellers to move assets that were previously difficult to unload. The secret lies in the possibility of fractionalization.

Imagine unlocking cash from the equity in your home without having to borrow or pay interest. Tokenize your home and sell fractions to the public. Buy the tokens back, or pay the investors their value at the time the property is sold.

In the future, you’ll be able to tokenize the value of unused bedrooms and backyards in your home. You’ll be able to tokenize use of your vehicle for Uber driving while you’re away on travel. You’ll even be able to tokenize access to your phone so marketers have to pay you tokens in order to gain access to your attention. Yes, this will happen.

At 5,4000 pounds, the Tesla is no lightweight, and the Aventador is a good 1,200 pounds lighter. But the Ludicrous + enabled vehicle not only beats the Lambo, it sets a world record for the quickest SUV with a quarter mile time clocking in at 11.418 seconds at nearly 118 miles-per-hour.

Curated Insights 2017.08.20

Apple has the best business model for generating cash

Apple’s $64B of operating cash flow was nearly as much as that of Alphabet ($36B), Facebook ($19B), and Amazon ($17B) combined. In essence, Amazon is doing as well financially as Facebook. Google is generating as much cash as Amazon and Facebook put together. Apple is generating nearly as much cash as Amazon, Facebook, and Google combined.

Apple’s $51B of TTM free cash flow is $3B more than the free cash flow produced by Alphabet, Facebook, and Amazon combined. In what may come as a surprise, Apple is bringing in 70% more free cash flow than Microsoft, who is still considered to possess one for the more lucrative business models in existence.

Apple is a design company focused on selling tools capable of fostering superior experiences. Scale is considered a byproduct of a properly functioning business model. Facebook and Google are service companies focused on offering free, data-capturing services to as many people as possible. The business models are dependent on achieving scale in order to access as much data as possible. Amazon is a retail platform company focused on getting you to buy more stuff over time. Scale in terms of purchase volume is needed in order for the cash flow/reinvestment cycle to continue.

Instead, we have non-hardware companies pontificate how hardware won’t matter in the future. In reality, the opposite will likely occur. Hardware will matter more going forward. The wearables industry represents a good example of this in practice. Meanwhile, the way smartphone and tablet components are mattering more now than ever to AR and AI is another hole in the “hardware won’t matter” thesis.


No one knows how much money WeChat is making, and investors are too bullish to care

…the success of Honor of Kings as an example of WeChat’s indirect influence on Tencent’s revenue growth. “When you go into the game, it becomes all about playing with your WeChat friends, and looking at their scores and achievements,” he says. Honor of Kings is currently ranked the top-grossing game in China’s iOS App Store (registration required), and four other Tencent titles fill out the top 10.

…pointing to WeChat’s low take on payments (Stripe and PayPal each charge about 3%) and its aggressive discounts, speculates it’s a loss leader. Tencent executives, meanwhile, have downplayed its role in making money for the company. “We consider payment at this point in time as to [sic] infrastructure service rather than a service that generates profit for us. And I think that status will maintain for quite some time.”

“Payments are the gateway to lending. And because you’re tracking the same consumer across so many platforms, you know the credit score of the consumer and you have very few non-performing loans.”


How Baidu will win China’s AI race—and, maybe, the world’s

But to train the algorithms that will deliver the intelligence to transform our cities, it needs data. To wit: The company with the most data wins.

Clearly, he saw more opportunity across the Pacific: In China, 731 million people—nearly twice the entire population of the United States—are online. Says Lu: “China has the structural advantage.”

We’re the first major company to clearly separate the perceptual and the cognitive layer. Perceptive capability and the cognitive are related, but they are quite different. Most of the [other] AI platforms bundle them together.

But one thing I learned is that in this race to AI, it’s actually more about having the right application scenarios and the right ecosystems.

It’s just like the phone ecosystem today. The phone ecosystem is the largest silicon software ecosystem. I believe the same thing will happen for the autonomous system. The car is going to build a larger ecosystem. And the same set of capabilities—hardware, sensors, chip sets, software—will be used to build industry robots, home robots. We want to have hundreds of companies and universities all at work on this, building a very large ecosystem. Then we can build robots, build drones, and build all those autonomous systems. So, to me, autonomy is a key.

…because China is highly, highly fragmented. There’s more than 250 car OEMs [original equipment manufacturers], unlike the United States, which is a heavily concentrated industry. None of the OEMs will have the full capabilities to build out deep R&Ds. With our code base that we released on July 5, [we will make it possible for] one person to assemble a vehicle in three days that can do autonomous driving in limited forms and start on R&Ds.

We’re competing against nobody. We enable each OEM, whether it’s Bosch, Continental, or Nvidia, to be able to do more.


Amazon has largest A.I. platform in the world, its machine learning guru boasts

Despite the lack of notoriety, “inside Amazon we’ve been doing machine learning for over twenty years,” he notes, and anyway, “We have more machine learning running on the platform than anywhere else” he claims, meaning AWS is doing more A.I. than Google or any other facility in the world.

“Today, machine learning is very technical,” he says, but overtime, and with Amazon’s help, it is going to be simpler and simpler to apply machine learning to any number of different applications, “and to do it with high accuracy.”

Wood noted another important development, the shift from just the “training” phase of A.I., where a computer deduces patterns, to the “inference” stage, where it responds to user requests based on what it’s learned.

…what he thinks of machines making machines, meaning, machine learning being able to design new algorithms for machine learning, a kind of self-reflexive moment in A.I. “Absolutely,” says Wood, “It’s already happening. There are customers on AWS who are training bots to to make algorithms.” One example is something called Bandits, where machines face off against one another, with one machine trying to deduce learning models while the other is trying to trick it with falsehoods.

Amazon expands program that pays Alexa developers for top-performing voice apps

It’s notable that the Alexa platform has managed to attract a sizable group of developers ahead of any formal compensation program, or support for traditional app monetization business models, like freemium apps, paid apps, and advertising. Despite this, Alexa’s app store has grown to over 15,000 skills in a relatively short period of time – after all, the Echo speaker – Amazon’s first Alexa device – wasn’t even available to the public until July 2015.

That said, direct payouts for skills is a program that can only be sustained for so long. Eventually, developers will demand more control over their businesses, rather relying on some inscrutable algorithm. In the meantime, Amazon will face competition from rivals, including Google Home and Apple’s forthcoming HomePod – both from companies who have a better understanding of how an app store ecosystem works.


Amazon in talks to offer event ticketing in U.S.

…the U.S. ticketing market as ripe for attack. Consumers dislike ticket fees, and venue owners, sports leagues and teams want more distributors for their tickets as they seek to boost sales. Access to tickets could be another means to lure members to the Amazon Prime shopping club. For music acts and sports teams, selling tickets through Amazon could help sell their merchandise.

Amazon has had conversations to partner with Ticketmaster as a potential way to get into ticketing in the United States, but those conversations have stalled over who would control customer data, according to sources with knowledge of the conversations.

Ticketing would likely make money for Amazon, which has a patchy record of profitability. Ticketmaster generated $1.6 billion in revenue from initial sales of tickets to events in 2016, according to estimates by research firm BTIG. That figure does not include revenue from the reselling of tickets, which BTIG estimates at $250 million.


Amazon looks to new food technology for home delivery

If the cutting-edge food technology comes to fruition, and Amazon implements it on a large scale, it would be a major step forward for the company as it looks to grab hold of more grocery customers shifting toward quick and easy meal options at home.

The pioneering food-prep tech, known as microwave assisted thermal sterilization, or MATS… The method involves placing sealed packages of food in pressurized water and heating them with microwaves for several minutes, according to 915 Labs.

“They obviously see that this is a potential disruptor and an ability to get to a private brand uniqueness that they’re looking for. They will test these products with their consumers, and get a sense of where they would go.”

“They have to leapfrog to MATS because they don’t have the refrigerated supply chain like we have in the U.S.”

Facebook buys computer vision startup focused on adding objects to video

…could be useful as Facebook pursues additional video filter creation technology, both for its live streaming efforts, and for platforms like Instagram Stories.

…being able to add objects to live video and remove them or cover them over on the fly is also something that can be put to interesting use in the emerging field of augmented reality.

The world’s shipping companies are going super-sized

A massive consolidation is underway in the $500 billion global industry and the survivors now enjoy big economies of scale and increased demand, one year after excess capacity caused the sector’s worst-ever crisis — the bankruptcy of South Korea’s Hanjin Shipping Co.

These super-sized shipping companies wield much more pricing power over manufacturers and retailers like Wal-Mart Stores Inc. and Target Corp. The five biggest container lines control about 60 percent of the global market, according to data provider Alphaliner. Shipping rates are climbing, and an index tracking cargo rates on major routes from Asia is about 22 percent higher than it was a year earlier.

“Since the demise of Hanjin Shipping, flight to quality has become more noticeable in the container shipping business,” said Um Kyung-a, an analyst at Shinyoung Securities Co. in Seoul. “That’s why the market is becoming more and more dominated by top players with big ships and those that don’t have could become more and more obsolete.”


The awesome but mostly unknown story of Carlsberg beer in China (Part 1, Part 2)

It was a daring strategy. Inland China was the one region that was not yet dominated by the large SOE brewers. It was still open territory. But you also need to have a picture in your mind of Western China circa 2003. It was the poorest part of China. It was a massive and undeveloped territory. There was little infrastructure and even less money.

A review of Sunny’s Carlsberg presentation in 2006 is fascinating. Western China had exceptionally low per-capita beer consumption. In Eastern China in 2005, it ranged from 30-80 liters per person, but in Tibet and Ningxia it was only 10-15 liters. And in Yunnan and Xinjiang it was closer to 3 liters. That could of course mean big growth one day. More likely, it meant small money in difficult geographies for the foreseeable future.

Across the board, it was a strategy of regional dominance. They were building a competitive advantage based on local economies of scale in marketing, distribution and production. And they were racing to become a giant in the West.


Deep learning could discover new plant species hidden in centuries of herbarium data

…but the valuable info in these slowly vanishing temples to the plant kingdom needs to be modernized in order to be of use to an increasingly digital-first scientific community.

They trained a plant-identification algorithm on a quarter million images of plant samples, and set it to work IDing new sheets. It matched the species picked by human experts exactly 4 out of 5 times, and 90 percent of the time the correct species was in the algorithm’s next few guesses.

“People feel this kind of technology could be something that will decrease the value of botanical expertise,” study co-author Pierre Bonnet told Nature. “But this approach is only possible because it is based on the human expertise. It will never remove the human expertise.”

CRISPR’d pigs offer hope for the human organ transplant shortage

The findings represent an important breakthrough in the potential for xenotransplantation, or the use of animal organs in humans. Currently there are more than 117,000 men, women and children on the donor waiting list in the U.S., 22 of whom die each day from lack of a matching donor. The ability to use a pig heart, lungs or other body parts could shore up the shortage and save numerous lives.

This is the first time researchers have been able to demonstrate they were able to inactivate PERV and open the way for xenotransplantation without cross-species contamination.

CRISPR holds enormous potential to wipe out diseases in both humans and animals, upend our food system and has many other applications we likely don’t see yet. Just last week, U.S. scientists were able to demonstrate they could successfully CRISPR out a faulty heart gene mutation in human embryos. However, there is still a lot to take into account before applying the technology to fully formed human beings.


The death of the internal combustion engine

And then there is oil. Roughly two-thirds of oil consumption in America is on the roads, and a fair amount of the rest uses up the by-products of refining crude oil to make petrol and diesel. The oil industry is divided about when to expect peak demand…

Meanwhile, a scramble for lithium is under way. The price of lithium carbonate has risen from $4,000 a tonne in 2011 to more than $14,000. Demand for cobalt and rare-earth elements for electric motors is also soaring. Lithium is used not just to power cars: utilities want giant batteries to store energy when demand is slack and release it as it peaks. Will all this make lithium-rich Chile the new Saudi Arabia? Not exactly, because electric cars do not consume it; old lithium-ion batteries from cars can be reused in power grids, and then recycled.

Housing for the long run?

Housing beat stocks mostly because the returns were less than half as volatile. Thanks to the magic of compounding, this created a performance gap of more than 2 percentage points each year, on average, since 1950, with an even bigger gap if you start the clock in 1870.

Housing has beaten stocks since 1950 because rental income has been better than dividend income, not because house prices have grown more than stock prices.

It’s possible to imagine a world where most housing is owned by large diversified investment trusts that anyone can invest in, but until then, “housing for the long run” is not a practical investment strategy.


Sustainability of hedge-fund reinsurers questioned

Such reinsurers generally engage in “low-margin and low-volatility (property/casualty) reinsurance business,” and try to generate returns for investors through hedge fund investment or other strategies.

The fund reinsurers’ strategy is a half success, as they outperform traditional reinsurers’ investment record. This is still not enough to offset underwriting losses, says S&P, leaving the fund reinsurers trailing their more established brethren in total return.

“We continue to believe that HFRs need to focus as much on the additional risks of their overall strategies as they do on the higher investment returns,” S&P said, adding that “HFRs will continue to evolve, learn from their earlier brethren’s mistakes, and nibble at the edges of the reinsurance market as they carve out a niche for themselves.


ASEAN at 50

Southeast Asia is one of the world’s most diverse regions. Its 640 million people include 240 million Muslims, 120 million Christians, 150 million Buddhists, and millions of Hindus, Taoists, Confucianists, and Communists. Its most populous country, Indonesia, is home to 261 million people, while Brunei has just 450,000. Singapore’s per capita income of $52,960 per annum is 22.5 times that of Laos ($2,353). This diversity puts Southeast Asia at a distinct disadvantage in terms of fostering regional cooperation. When ASEAN was founded in 1967, most experts expected it to die within a few years.

But ASEAN defied expectations, becoming the world’s second most successful regional organization, after the European Union. Some 1,000 ASEAN meetings are held each year to deepen cooperation in areas such as education, health, and diplomacy. ASEAN has signed free-trade agreements (FTAs) with China, Japan, India, South Korea, Australia, and New Zealand, and established an ASEAN economic community. Today, ASEAN comprises the world’s seventh-largest economy, on track to become the fourth largest by 2050.

Yet ASEAN’s long-term progress is undeniable. Its combined GDP has grown from $95 billion in 1970 to $2.5 trillion in 2014. And it is the only reliable platform for geopolitical engagement in the Asia-Pacific region, unique in its ability to convene meetings attended by all of the world’s great powers, from the United States and the European Union to China and Russia.