Welcome to Stuff I Thought About Last Week, a collection of topics on tech, innovation, science, the digital economic transition, the finance industry, jetpacks, and whatever else made me think last week. Please grab me on Twitter with any thoughts or feedback.

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In today’s post: Natural digital monopolies; encrypted messaging; video editing AI; omnichannel winners; food delivery losers; short- vs. long-form video; honest liars; interoception; jetpacks; and lots more below...

Stuff about Innovation and Technology
Nanoparticle Thermometer
NIST is developing nanoscale temperature sensors using cobalt-doped ferrites. The devices could measure temperature to several decimal points in a tenth of a second. The ideal use is inside of any object that requires precise temperature monitoring, but it could also be used in medical implants and to monitor human temps. I am admittedly baffled by the inconsistencies between my Fitbit Sense and Oura Ring daily temperature indications, so maybe they could add in some cobalt-doped ferrites down the road.

🦣(Mammoth Emoji)
The woolly mammoth finally has its own emoji. The mammoth is part of Emoji Release 13, which also includes the dodo (as well as some actually useful emojis). Depending on your operating system version, these may or may not be available on your emoji keyboard yet; if the mammoth shows up at the top of this paragraph, then you have it!

Lunar 4G
As part of NASA’s “boots on the moon” project Artemis, Nokia is planning to build a cellular network on the moon. Unfortunately, the network will only be 4G, so video-game streaming will be a little challenging.

First Responder Jetpack
Gravity Industries is working on a jetpack for rescuers that can reduce a 25-minute hike over difficult terrain to just 90 seconds. 

The Value of Natural Monopolies
Natural selection in the Information Age, and into the impending AI Age, would seem to favor monopolies. For products and services driven by data network effects, these natural monopolies are the highest value solution for users. To regulate them as you would an Industrial-Age business would make everyone worse off. A better way forward – to both monitor/prevent abuse and create more value for society and the ecosystem – would be to foster competition by granting others access to some of the data the monopoly platforms collect and/or generate. In the coming decades, every part of the economy will see natural monopolies form, and many of these will be vertically integrated with a significant data – and thus AI – advantage. (Tesla is a good example of this trend in the automobile market.) In many cases, competition will still be a click away; however, in select industries, the high cost to generate and maintain a natural monopoly would be effectively insurmountable for challengers. The new natural monopolies that will form across the economy will in many cases be built on the current big Internet platforms – monopolies enabling monopolies. In general, government regulation will increase the cost of maintaining a natural monopoly (known as regulatory capture), and therefore make competition even harder. Due to the transparency of the Information Age, natural monopolies tend to form because they are better products. For example, Yelp, which has spent a decade complaining that Google is a monopoly, lost to Google because Yelp was an inferior product – it was bad for businesses, gave very little useful information to consumers, and never created a positive-sum business for its constituents. Google didn’t win local search because they suppressed Yelp; Yelp lost because it wasn’t creating sufficient value.

The recent DoJ accusations center around the apparent inequity of Google buying their way into being the default search engine on phones/browsers by paying TAC (traffic acquisition) fees to cell phone manufacturers/carriers and browser companies. Search is an example of a natural monopoly: the more people use it, the better it is, the more people use it, etc., thus expanding in flywheel fashion. It costs billions, if not tens of billions of dollars, to create and maintain the world’s best search engine. If Google were to stop paying TAC fees, which amounted to $6.6B in the most recent quarter, it would save them $26B/yr! Moreover, as I discussed back in SITALWeek #262, if Google stopped paying the $10B+/year in TAC to Apple, it would probably take several hundred billion dollars of value away from Apple (using its current earnings multiple), and add that to Google’s market cap! The effect of the DoJ’s complaints about TAC would essentially amount to a value transfer from Apple (and others) to Google with no evident offset. Indeed, search behavior seems unlikely to hinge upon whether or not Google is the default search engine (e.g., if search defaulted to Bing or DuckDuckGo instead, most people would probably switch back to Google) because Google offers a profoundly better user experience. So, prohibiting Google from paying TAC fees would be a veritable gift to Google from the government. If rumors of Apple launching a competing search engine are true, however, then the situation could get more interesting. Apple could launch a search engine that would be eventually competitive with Google given how many searches are done on iPhones (e.g., Apple might take the tact of forcing iOS users to use an Apple search product to get enough queries to make the engine better).

The reality is, consumers do have a choice for most services related to the big tech platforms. Google Search, YouTube, Amazon, and Facebook all have competitors, which, in some cases, are doing very well – TikTok and Walmart are growing faster than (respectively) Facebook in social networking and Amazon in ecommerce this year. When Apple Maps was bad, people just downloaded Google Maps – that’s competition. The one standout area lacking fair competition I see is the app store ecosystem. As I’ve discussed in several prior newsletters, Google has now resolved that issue with a one-year grace period in fees and forthcoming redesign of the Android 12 to launch next year, while Apple continues to act like a monopoly abuser banning any third party app stores or payment mechanisms. 

Spotlight on Signal
The New Yorker published a profile of Moxie Marlinspike, the hacker-turned silicon valley engineer-turned encryption proponent and CEO of end-to-end-encrypted messaging app Signal. If you don’t use Signal, you should.

Enabling PoS
Visa has enabled tap to pay, thus turning any NFC-enabled Android device into a contactless payment terminal. Ultimately, billions of Android devices could be used as point-of-sale systems around the globe. The service has opened in 15 markets and is set to launch in the US in 2021.

Descript’s Advanced Video Editing
Audio editing tool Descript announced a slew of new features for video recording and editing. Descript is an example of a new company taking an AI/collaboration-first approach to an existing workflow. These new businesses will increasingly represent threats to existing software and tools whose developers attempt to tack on AI and/or collaboration capability. Further, Descript is an example of a customer- and service-focused business, e.g., allowing people to connect with them on the chat app Discord. Having used Descript’s audio AI editing – including the “deep fake” voice model that allows you to dub in your lines without re-recording – I can say that it works like magic.

Missing out on Max
All told, 70% of HBO subscribers eligible to get the HBO Max streaming service for free have not signed up for it. I’ve been using HBO Max on the new Google Chromecast (which, so far, does the best job amongst all the hardware platforms of making suggestions and keeping track of what you were watching in which app). I think HBO did a good job with the app, and, obviously, being HBO, the content quality is superior to other streaming platforms. However, with the app unavailable on Roku and Amazon Fire, its US distribution remains low. HBO is part of WarnerMedia, whose parent company, AT&T, also indicated last week that they won’t continue to bid on sports rights, likely due to the weakness of their own business (rather than a poor outlook on the value of sports content). It’s certainly true that, with the exception of the NFL, pandemic ratings for all sports have been down dramatically; but, for now, a lot of that weakness appears to be due to off-peak scheduling and overlapping seasons. AT&T currently has the NFL Sunday Ticket for DirecTV as well as basketball on Turner networks. 

Quibi Calls it Quits
My friend Jason Hirschhorn, CEO of REDEF, talked to Dan Primack about the demise of short-form video streaming app Quibi and shared his insightful take on the situation. Personally, I think a lot of talented people created a lot of great content, and it was likely a complex situation that caused the failure. I would hypothesize one contributing factor was that consumers today are increasingly interested in more live, unscripted content (social, gaming, twitch, YouTube, etc.). So, it seems possible that fatigue of scripted content – in an era where fiction can’t match the craziness of the real world – contributed to a lack of interest in Quibi. Jason believes there is a legit market for short-form premium video, and I can’t argue with that; so, perhaps fewer 8-part miniseries and more premium short form is the right mix going forward to satisfy consumers. Related, Rolling Stone reports that scripted TV production is down 15% in 2020, and the added cost of several hundred thousand dollars per episode due to COVID may keep production suppressed for a while; these factors could open the window for more short-form premium video, which should be a little less complex to produce.

Who Will Win Omnichannel Retail?
Gavin Baker has an excellent essay on the strategic value of omnichannel retail leaders and its potential ability to favor large, incumbent retailers. I share his instincts, so, rather than just concur with him, I thought it would be useful to offer the “yeah, but...” devil’s advocate arguments in the spirit of moving the debate forward and avoiding my own confirmation bias. So here are five nuanced points (some of which Gavin has already addressed) that I think are worth watching over the next few years: 1) Physical retail – local convenience clearly matters, but Amazon will open thousands of stores with the right combination of space, location, micro-fulfillment, curbside, etc., while traditional retail will have to sacrifice margin or rationalize their existing square footage (which is an unoptimized combination of retail and fulfillment); 2) Prime – it’s a massive flywheel that gets heavier and harder to stop every year in terms of the value it offers, and it’s a meaningful top-line driver; how many additional memberships are people willing to pay for? 3) Logistics – Amazon will likely be delivering well over 80% of their own packages soon, and the crunch for last-mile capacity is causing prices to go up dramatically, which is another potential margin compressor for retailers; 4) Ads – Amazon is an ad machine, and, although traditional retail has captured trade promotion dollars for years, a sophisticated, algorithmic ad engine with inventory data across apps and the web is a big advantage for Amazon (and subsidizes their overall business); 5) Information-Age selection – network effects, non-zero sum, innovation, vertical integration, data, and AI have created winner-takes-most platforms in a diversity of industries. Is the retail sector going to be any different? Also, it's possible the share gains for physical retailers in 2020 have been driven by what Amazon calls CRAP (bulky, low-margin, AKA Can't Realize A Profit) items, rather than higher value sustaining merchandise (though, as Gavin points out, margins for large, offline retailers have been up in 2020). To reiterate, I tend to agree with Gavin’s conclusions (and, he has some great counterpoints to my counterpoints!), and I’ll be eager to watch the retail landscape evolve rapidly over the next few years. 

Elusive Margins of Point-to-Point Food Delivery
Chipotle reported same-store sales growth of 8%, despite the pandemic; however, a ~15% shift from in-store dining/pickup to delivery during that period has caused costs to rise and margins to fall. As I discussed in more detail in the Evolution of the Meal, delivery – in its current incarnation – is unlikely to see profits. I suspect the only way for delivery to work as a mainstream service would be via recreation of the ‘milkman model’ – centralized kitchens, subscriptions, and preset delivery routes. If people want low-quality ingredients and processed food, pizza is still deliverable at a profit; but, for anything else, the current point-to-point system will only be for the wealthy once it stops being subsidized by investors.

[Dys]functional Organization 
There’s an interesting read in HBR on Apple’s anomalous functional organization structure. Typically, large companies are organized by product or service rather than function (for example, Apple has hardware and software functions that report to Tim Cook, but not a “head of iPhone” product leader). I wonder if this functional organization is the reason Apple has sustained its lead in screen-based portable devices but, at the same time, hasn’t innovated outside of those products and related services in over a decade. In other words, did a functional organization keep them from developing an automobile? Does it explain their underwhelming lack of success in video, advertising, etc.? It seems like “functional” could lead to an unhealthy degree of risk aversion when it comes to innovation.

Miscellaneous Stuff
One Fewer Honest Liars 
Farewell to the Amazing Randi, who passed away last week. “Magicians are the most honest people in the world: They tell you they’re going to fool you, and then they do it.” And, The Onion had a perfect farewell article to Randi.

The Remarkable Adaptability of Ball Corp
Ball Corp is a company I’ve known for a long time – ever since I first covered the packaging industry nearly two decades ago. The company recently held an investor day, and I was struck by the following: in its 140-year history, Ball has been in 50 different businesses, and, when asked about the future, the CEO remarked: “What does Ball look like 10 years from now? And the truth is I don't know. But what I do know is this, we have more opportunities in what we are doing right here, right now than I've ever seen in my career.” This type of ideology is a hallmark of the all-important culture of adaptability that we’re always seeking out for long-term investments. Ball has an interesting decade ahead as the container market shifts from plastic to aluminum and they attempt to convert the single-use plastic cup market to aluminum as well (you can order the beta cup design from Ball on Amazon; beer pong is socially distanced, right?). I wrote more about Ball in SITALWeek #182 as well as #204, #208, #215...well, it seems that I talk about them a lot!

Importance of Interoception
Your heart doesn’t race because you are scared, you are scared because your heart is racing. Depending on the stimulus, often the body responds first and relays that reaction to the brain for processing. Interoception training – learning to monitor and understand the feedback loop between physical sensations and your brain – shows promise for helping people with anxiety and various other mental issues as well as improving physical health. (For more information – as well as a practical approach to improving interoception – see chapter three of Body Mind Movement.)

Stuff about Geopolitics, Economics, and the Finance Industry
China Policy: Red Tech vs. Blue Human Rights
While both Republicans and Democrats in the US are antagonistic towards China, the Republicans have pushed harder on the trade and technology issues. Biden’s op-ed last week – in America’s largest Chinese-language newspaper – continued to emphasize the importance of shared values in the US' support of the Asia-Pacific region. Reading into this and other statements Biden has penned in the past, his focus is primarily on democracy and human rights abuses. I would speculate that these are more sensitive issues for China than trade and technology scuffles.
“Biden said he will ‘stand with friends and allies to advance our shared prosperity and values in the Asia-Pacific region. That includes deepening our ties with Taiwan, a leading democracy, major economy, technology powerhouse -- and a shining example of how an open society can effectively contain COVID-19.’”

Corporate Communications Cater to AI?
As AI analysis of corporate communications increasingly drives investing algorithms, corporations have apparently changed their language to emphasize more positive words with fewer negative sentiments. It’s not clear to me that researchers have provided a causal link here though; perhaps management and the lawyers that pen SEC filings are just more optimistic when stock prices are rising?

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Disclaimers:

The content of this newsletter is my personal opinion as of the date published and is subject to change without notice and may not reflect the opinion of NZS Capital, LLC.  This newsletter is simply an informal gathering of topics I’ve recently read and thought about. It generally covers topics related to the digitization of the global economy, technology and innovation, macro and geopolitics, as well as scientific progress, especially in the fields of cosmology and the brain. I will frequently state things in the newsletter that contradict my own views in order to be provocative. Often I try to make jokes, and they aren’t very funny – sorry. 

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