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

Click HERE to SIGN UP for SITALWeek’s Sunday EMAIL (please note some ad blocking software may disrupt the sign up form; if you have any issues or questions please email sitalweek@nzscapital.com)

In today’s post: virtual scavenger hunts; robot dogs and their drone companions; won’t you be Amazon’s neighbor? GM’s new battery plant; horizontal vs. vertical collaboration software products; YouTube’s advantages in music; changes in real estate enabling more frequent moves; armored ants; and lots more below...

Stuff about Innovation and Technology
The YouTube video of NZS Capital discussing semiconductors with Shane Parrish's The Knowledge Project is now available for anyone to view. Semiconductors are at the heart of innovation and geopolitics, and you will learn a lot from Brinton and Jon's insights! You can also find our previous whitepaper and podcast on chips here.

Ready Player Roblox
Roblox, the soon-to-IPO kids’ world-building game, is hosting a Ready Player Two scavenger hunt inside its own virtual universe to celebrate the release of the sequel to Ernest Cline’s excellent Ready Player One. As a huge fan of RP1, I was not disappointed with RP2 (and had to chuckle at its takedown of social networks given how popular the first book was within certain social networking circles). “Cline hyped up the similarities to the Roblox event in a press release, saying, ‘Roblox is the closest thing to the Oasis in real life, and this contest is the closest thing to the treasure hunt in my book’.” Roblox founder David Baszucki’s July keynote at the company’s developer conference is a good, brief primer on the company; and this article in Modern Retail describes the unique attributes of Roblox enabling brands to build a presence and fan base inside the platform. (See also #256 for some stats on Roblox vs. Minecraft growth rates).

Robot Dogs Treading Lightly
Boston Dynamics’ robot dog, Spot, is being used to measure/map radiation at Chernobyl because walking robots kick up much less dust than wheeled ones – which is desirable when the inspection site is laden with radioactive dust. In related industrial drone news, Spot now has a drone companion named Sparrow. The drone, from Percepto (which recently raised money from Koch Disruptive Technologies), is focused on remote inspection, and Spot will work with it by carrying heavy payloads, like high-resolution thermal imagers. The long-term goal is to enable Spot (and/or other autonomous tools) to carry out repairs based on bot-collected data.

Rampant Ransomware Attacks
CrowdStrike reports that 56% of companies (out of 2200 survey respondents) experienced at least one ransomware attack in the last 12 months, and about half of those attacked paid ransoms, which averaged $1.1M. As the government has warned, many of those payments were illegal because they went to sanctioned organizations or countries.

GM Chasing Tesla’s Shadow
GM and LG Chem are building a $2.3B battery plant in Lordstown, Ohio, a town known for GM’s exit in 2019 after 50+ years of financial roller coaster for the car maker. The “Ultium” battery plant’s 30-gigawatt-hours/year capacity will be 50% bigger than Tesla’s Nevada Gigafactory. GM and Tesla are both introducing lower-cobalt batteries and targeting increased efficiency. GM is using a nickel cobalt manganese aluminum chemistry to extend the life of the cathode for more charges, as the industry strives to reach a 1M-mile battery according to this in-depth look from IEEE. GM announced last week they would go all electric by 2030 across the company’s fleet, but in the promo video they showed the old skateboard style of batteries under the car, whereas Tesla is likely to move to structural batteries integrated into the car frame itself. (GM’s battery cells appear much larger than Tesla’s from pictures I’ve seen, and I wonder if they could be efficiently used structurally.) GM will go from 550 drivetrain+engine combinations to just 19 with the EV shift. Legacy car makers continue to chase Tesla – aiming to catch where the EV leader currently is a few years from now – but a few years from now that moving target could be much further down the road. One of the many hurdles legacy car companies face is their equally outdated dealer networks – GM is reportedly offering dealers $500,000 buyouts to shut down if they elect to forego spending $200,000 in required upgrades to support EV sales and charging.

Shopify's Marketplace Conundrum
Ecommerce marketplaces always have a tension between serving the consumer and serving the merchant. Both constituents are customers of the company that runs the marketplace, but they have competing needs – the customer isn’t always right, but a marketplace has to assume they are at the expense of the seller. Meg Whitman buried eBay’s ecommerce lead in the mid-2000s by completely fumbling this delicate balance between consumer and merchant, which allowed Amazon to build a huge platform of 3rd-party sellers thanks to their obsessive focus on customer satisfaction. The rapidly growing ecommerce platform Shopify could face a similar tension in its business model in the next 5-10 years. The company has been successful in large part by focusing on the merchants, and it does not (yet) run a customer-focused marketplace.

If Shopify chose to run a full marketplace, it would face the same set of issues that stalled eBay’s growth rate. I used to count myself among the many investors who want Shopify to run a centralized marketplace, but I’ve since evolved my view. A marketplace would require a consumer focus at odds with Shopify’s maniacal focus on serving entrepreneurs. There are, however, products where you can solve for both the buyer and the seller. Shopify’s payment engine is one such example – Shop Pay is both a very good consumer experience and improves sales for merchants. Shopify’s fulfillment ambitions may be another dual-sided solution without the need of a full marketplace. Shopify is an enabler of direct relationships between buyer and seller without a marketplace in between, and it charges a toll on transactions that is far smaller than what Amazon or other retailers impose. In return for that lower toll, merchants often need to spend marketing dollars online if their product doesn’t sell itself. Merchants on Shopify’s platform are in a survival-of-the-fittest landscape – if they can meet the needs of their customers, they will thrive, and, if they cannot, there is no centralized platform to prop them up via ads and a large user base; likewise, there is no middleman to suppress them in marketplace search results or charge a large tax on sales. This long NYT profile on Shopify thoughtfully reviews some of these issues the company is facing.

Salesforce’s Collaboration Aspirations
Salesforce is rumored to be interested in acquiring collaboration tool Slack. Ever since Benioff lost the LinkedIn acquisition to Microsoft in 2016, rivalry has been intensifying between the two companies. At least that seems to be Salesforce’s perspective on it. Microsoft is the largest and fastest growing black hole for enterprise IT spend, and Salesforce is fast becoming a second major center of gravity after years of M&A and platform building, surpassing shrinking black holes of Oracle, SAP, IBM, etc. I don’t entirely understand Benioff’s instinct to compete more directly with Microsoft, and collaboration software would be a particularly difficult wall to scale given the success of Office 365 and usage growth of Teams.

From an analytical perspective, I find it helpful to separate the collaboration/workflow space into horizontal and vertical segments. Horizontal tools, like Microsoft's Office suite, meet the least common denominator of high-volume use cases. Vertical tools are customized for the industries they serve, e.g., Atlassian’s Confluence/Jira products for developers and Bloomberg's communication/workflow tools for investors. Competing with horizontal platforms requires a network effect inside a company and between companies, which is hard to build even if the product is superior. Often horizontal tools can't meet the varied, custom, and complex ways in which different industries operate. Several horizontal companies, such as Box, have built vertical-specific tools for sectors like healthcare. It's possible that a combination of collaboration, productivity, and workflow tools could create a rival to Microsoft if it also went deep on customizations to solve the needs of each end market. If Salesforce is planning to do that, they might need additional assets besides Slack to pull it off, making collaboration a higher-risk gambit for them. A lower-risk way to keep building their black hole in the IT enterprise market would be to own more systems of record for the enterprise – I’d suggest Workday would be a more tactical acquisition on that front, or perhaps something in the identity platform sector.

Real Estate Shakeup
The DoJ announced a simultaneous lawsuit and proposed settlement on November 19th against the National Association of Realtors (NAR) that, if approved, would grant discount brokerages better access to customers in the US. Currently, the NAR, which governs the 580 home-listing service (MLS) groups in the US, does not allow agents to disclose commissions to buyers and steers search results to homes that pay a higher broker commission ahead of those listed by discount brokers. Real estate disruptor Redfin’s Glenn Kelman explains: “When websites can tell the world how much money is being paid to an agent on every home her client sees, it’ll start a competitive free-for-all. Some agents will compete on price. Hopefully, everyone will do what we all should’ve done in the first place: explain to our customers how we get paid, and ask for more or less money depending on what the market will bear.” This industry-wide change would impact different segments of the market in different ways. Higher-end real estate transactions are likely to remain higher friction/touch and support weighty commissions (this is the segment of the market that drives a lot of Zillow’s core advertising business of lead generation for agents). At the lower end, these changes should enable a rapid decline in commissions and favor tech-centric brokers like Redfin. It should also make it easier to sell homes acquired by iBuyers. In the middle of the market, where many homes sit, I suspect we would see a bifurcation between standard and lower commissions, favoring the latter over time. The big question is what would the new rules mean for the real estate commission market overall, which encompasses some $60-80B+ of annual fees on home transactions? It would likely be deflationary in some segments, but we are also seeing a lot of friction removed from the real estate market, including iBuying, lower commissions, and easier access to title and mortgages through startups and disruptors. That lower friction could put the US back on a path to more frequent moves, which would greatly increase the size of the RE market. As I wrote in #218, the time between moves has stretched from six years to 13 years over the last two decades; if the trend were to fully reverse, it would effectively double the size of the market. Industry consultant Rob Hahn has some interesting analysis on what may or may not change as a result of this lawsuit, and this piece at Inman sums up many of the key issues.

Amazon’s Neighborhood Sidewalk
Amazon is rolling out a new wireless network, called Sidewalk, that will connect Alexa, Ring, and eventually other bits of Amazon hardware to each other. That means your house camera can use your neighbor’s Internet connection (up to 500 Mb/month) if, for example, your Internet goes down or has a weak connection. Although Amazon has assured users that there are no privacy risks, as Gizmodo explains, Amazon doesn’t have a pristine record when it comes to user privacy. Users must manually opt out if they don’t want to be part of Sidewalk, using either the Alexa mobile app or the Ring app (if your Ring account is not connected to your Amazon account). Ring outdoor cameras are Sidewalk ‘bridges’, while the Ring Alarm systems don’t appear to have Sidewalk yet. Amazon, which is guided by a libertarian, market-forces-based value system, has made it abundantly clear in the past that they don’t view it as their responsibility to police whether their technology is used for good or bad – that’s up to the market and the government. (In reference to abuse of Amazon’s Rekognition facial recognition software, the company’s CTO said: “That’s not my decision to make, it’s in society’s direction to actually decide which technology is applicable under which conditions”). A mesh network like Sidewalk is an interesting idea for a variety of reasons, but with advancements in 5G and the potential for private 5G networks (see #271), the latter seems like a better way to go. But, for all my Amazon bashing, I do still sort of want one of the new Ring Always Home drone cameras when they launch, and I wonder if it will be Sidewalk enabled.

YouTube's Pole Position in Music
Protocol had an in-depth look at YouTube’s efforts to win music streaming as they engage more with artists and provide ways to connect with fans through live events. Twitch has been on a similar path, but YouTube’s share in music video streaming may give it a leg up. The video angle also highlights rival Spotify's blind spot, as the company has largely focused on an audio-only experience. YouTube’s superior ability to monetize through its large-scale advertising and engaged, Gen-Z user base may give it an advantage in improving artists’ earnings. If YouTube succeeds, it will likely be due to the platform's appeal as a broader entertainment destination rather than their standalone YouTube Music app. YouTube Music is $9.99/mo, but the broader $11.99 YouTube Premium, which removes all ads across all YouTube videos, is a powerful bundle that seems undersubscribed. The value proposition of this bundle for consumers combined with the potential value for artists would be hard for Spotify to match.

Miscellaneous Stuff
Armored Ants
A species of Central American leaf-cutter ant has a calcite armor coating with high levels of strength-enhancing magnesium. It’s the first insect known to have such armor, which is more common in sea creatures, like corals, mollusks, and crustaceans (e.g., crabs and lobsters). Only a thin layer of the biomineralization (~2 microns, or 7% of the total thickness of the exoskeletal cuticle) confers more than a 2-fold increase in hardness. Lab researchers staged a series of ‘ant wars’ and exposure to fungal agents to confirm that the crystallized ants do indeed show improved survival vs. garden-variety unarmored ants.

NBA’s Groundhog Day
This GQ article reporting on what it was like inside the NBA Bubble was interesting. A combination of comradery nested inside of isolation during a particularly heated time for the world created somewhat of an impromptu psychological experiment.

Threats Hidden in the Big Thaw?
This overview on the risks of viruses emerging from the thawing Arctic didn't exactly leave me feeling like we have a good handle on the potential health threats from reawakening dormant infectious agents as northern latitudes become slushier every day.

mRNA Vaccine Race
STAT News had an interesting overview of Moderna and BioNTech’s mRNA history and technology.

Stuff about Geopolitics, Economics, and the Finance Industry
NZS Capital is hiring for an operations manager position; if you or someone you know is interested, check out the job description and apply here.

✌

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. 

I may include links to third-party websites as a convenience, and the inclusion of such links does not imply any endorsement, approval, investigation, verification or monitoring by NZS Capital, LLC. If you choose to visit the linked sites, you do so at your own risk, and you will be subject to such sites' terms of use and privacy policies, over which NZS Capital, LLC has no control. In no event will NZS Capital, LLC be responsible for any information or content within the linked sites or your use of the linked sites.

Nothing in this newsletter should be construed as investment advice. The information contained herein is only as current as of the date indicated and may be superseded by subsequent market events or for other reasons. There is no guarantee that the information supplied is accurate, complete, or timely. Past performance is not a guarantee of future results. 

Investing involves risk, including the possible loss of principal and fluctuation of value. Nothing contained in this newsletter is an offer to sell or solicit any investment services or securities. Initial Public Offerings (IPOs) are highly speculative investments and may be subject to lower liquidity and greater volatility. Special risks associated with IPOs include limited operating history, unseasoned trading, high turnover and non-repeatable performance.