Welcome to Stuff I Thought About Last Week, a collection of topics on tech, innovation, science, the digital economic transition, the finance industry, tomatoes, 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: Surprisingly slow digital payments adoption; rising importance of advanced technology for movie making; VR collaboration; data problem for delivery companies; indoor farming; chiplets; hoping for a sports rebound; proliferation of vertical ad networks as Google and Apple shut down data sharing for advertisers; Square is a bank; SPACs; UBI; and lots more below...

Stuff about Innovation and Technology
Digital Wallets Slow to Gain Traction
Despite the significant changes in consumer behavior in 2020, we used contactless payments – digital wallets like Apple Pay or Google Pay – for only 10% of real-world transactions in North America, according to data from card processor FIS. Globally, digital wallet payments edged out dirty old cash for the first time.

AI Video Dubbing
Researchers at Amazon are working on AI dubbing for videos. The technology attempts to recreate an actor’s voice in a foreign language along with background noise and reverberations. It’s not hard to imagine that AI could eventually change lip movements and facial expressions to match the cadence of speech in other languages. Netflix demonstrated how globally appealing local content is, and something like this AI dubbing tech could help the mega streaming platforms leverage their big international investments more broadly. There is a lot of AI coming to the film industry: in #252, I discussed Disney’s new face-swapping technology that allows them to map a reshoot onto an original film to avoid having to recreate entire scenes; and, in #276, we looked at Disney’s StageCraft virtual world technology for sets. These trends are a good example of how technology and vertical integration fuels the winners when an industry moves from analog to digital, thus creating a smaller number of bigger companies.

Supersonic Jet-Setting
It’s been 18 years since the Concorde made its last faster-than-sound commercial flight, and Aerion is attempting to bring back supersonic travel with a $120M aircraft called the AS2. The craft, which will travel at ~1000 mph (1.4x the speed of sound), has a goal of providing travel between any two points on the planet within three hours. Powered by synthetic fuel, the design is said to reach maximum speeds without an afterburner. The first AS2 is expected to start production in 2023 for delivery in 2027, and NetJets has pre-ordered 20 of them.

Modern-Day Holodeck
Traditional video conferencing isn’t much better than audio only (and in many cases worse, as we wrote last week), but we need an effective way to collaborate virtually in the future. Microsoft announced Mesh last week, a new platform for people to come together in the same virtual space using holographic AR headsets like the HoloLens. This tech is still probably 2-3 years away from mass deployment, but I am really looking forward to it. Having used some early versions on my Magic Leap ML1, I am a big fan of the immersive virtual collaboration concept, and I believe it will be one of the big changes accelerated by the pandemic and the permanent rise in remote working. The work-from-home outfit of the future will likely be made by a company like Xsens with motion capture, and maybe eventually haptic feedback, to place our avatars in as real a situation as possible with collaborators. Ready Player One is right around the corner. Mesh is another good example of the value of vertical integration by a large tech platform that could lead to a winner-takes-most scenario. Zoom is an ok Band-AidⓇ for today, but will the company need holographic AR lenses and body sensors to compete in a few years as virtual collaboration becomes a much broader platform?

Instacart Doing Grocery Delivery the Hard Way
In an article for IEEE Spectrum, the Instacart AI folks detail the immense scale of the technology used to deliver groceries at massive scale. We learn that the average grocery store has 40,000 items, for which Instacart processes petabytes of data daily – a billion data points every 24 hours to keep product listings up to date. Machine learning models allow Instacart to model inventory availability on shelves since they don’t have clean real-time feeds of actual availability. In big cities, Instacart is receiving an order almost every second. Matching algorithms are run every few minutes to batch orders/delivery in the most efficient way. One of the reasons Instacart has this huge data burden is because they are not vertically integrated, something that would allow for a much easier data solution. For vertically-integrated food delivery, we need to look to the Netherlands where Picnic is building a sustainable business by owning robotic warehouses and electric delivery vans, and serving customers on regular, preset routes. Or we can look to Dutch startup Crisp, which just raised a new round of financing to grow its fresh gourmet food delivery service.

The Tomato’s Super-Sized Carbon Footprint
Tomatoes were first cultivated in the Americas before expanding to become the world’s largest “vegetable” crop. It takes between 20 to 40 times the amount of energy contained in a tomato to grow it (using typical commercial conditions) and put it on your plate. Depending on the location, that ratio can balloon up to 150 for energy input:calories. In a colorful example, IEEE Spectrum explains that energy equivalent to 10 tablespoons of diesel fuel is required to get one tomato to your stomach. One of the reasons for this big energy consumption is shifting tomatoes to indoor growing – typically in large, centralized locations far from consumption, which requires a lot of electricity for heating, packaging, and transportation. Wired has a great article on the rise of more energy efficient vertical, indoor hydroculture that should transform the $8T agriculture industry. According to the article, indoor high-tech farming located close to cities has >100x the efficiency of the outdoor dirt alternative. It seems obvious that we should be growing/manufacturing food, including plants and proteins, in controlled, optimized indoor environments closer to the location of consumption. When I think about potential long-term inflationary shocks in the next couple of decades, drought- and climate-driven migration impacts on the food supply strike me as top candidates, but it seems like these could be easily solved with technology.

Siliconized Sliver of Hope for US Chip Fabs
TSMC appears to be upping the ante in Arizona as prior plans for a $20B facility could become (according to rumors) six fabs at a cost of $35B with 100,000 wafers/month in output – five times the original forecast. This joins the $17B planned expansion for Samsung in Austin. All in, these prospective US chip fabs are creating the potential for a sustainable – and welcome – second supply chain outside of Asia as they slowly come online over the next decade. Meanwhile, China’s chip efforts continue to fall short of the country’s ambitious goals. The $20B poster child, HSMC, was dismantled following what appears to be a large-scale fraud operation that roped in several former TSMC employees. China is committing to supporting the floundering local efforts and is threatening to stop exporting rare earth elements (REEs) needed for many electronic manufacturing applications. This is a hollow threat as I’ve pointed out in the past (see last section of #255): REEs aren’t terribly rare – they are all over, just not in high quantities. Not much effort is needed to find and extract them when the price is right. In other chip-making news, vintage fab equipment is in high demand as it’s often used to make the chips that are in shortage, like those badly needed by automakers. I knew I shouldn’t have donated that 200mm litho tool to Goodwill last year.

Chiplets Future of Moore’s Law
Speaking of litho tools, Jon chimes in with some thoughts on recent advancements in chip-making technology: TSMC's CEO Mark Liu gave an update on their roadmap last week, shining some light on the future of Moore's Law. With the improvements we've seen in EUV lithography, litho is no longer a gating factor in scaling semiconductor manufacturing, and EUV will enable sub-2nm manufacturing. There were similar takeaways from the industry's annual lithography conference last week as well. TSMC's focus from here is on new device architectures, like gate-all-around and nanosheets. System-level integration, including increasingly popular chiplet-based architectures, will also play a key role going forward. Interestingly, as this Semi Engineering article points out with a quote from Intel’s Jose Alvarez, system-level integration (also called heterogeneous integration) has been part of the plan all along and was cited in Gordon Moore's 1965 piece that defined Moore's Law: “In 1965, he wrote a very short paper, four pages, on what has become known as Moore’s Law. On the third page he said, ‘It may prove to be more economical to build large systems out of smaller functions which are separately packaged and interconnected’.”

Will Pro Sports Rebound?
Status quo for NFL broadcast rights appears to be the plan for quite a while. With most games sticking with traditional broadcasters, Facebook threw out a plea for the NFL to provide the games free-to-air across digital platforms. You know, because the NFL is well known for giving content away!? Commenting in a post, Rob Shaw, Facebook’s director of sports league and media partnerships said: “But there’s no denying the power of live events—and right now young fans aren’t being served these events where they spend most of their time. If leagues want to reverse this trend, they need to program free-to-air digital platforms like they did the major free-to-air networks 25 years ago.” In light of the supposed demand for live content, it’s hard to digest the 68% drop in Golden Globe viewers last week. Amazon appears to have not given up though, and may pick up exclusive rights to the Thursday night games, which sort of seems like Bezos just doing the NFL a solid as a future wannabe team owner. The Atlantic reports that, overall, NBA finals ratings were down 51%, NHL finals down 61%, US Open tennis down 45%, and even the Kentucky Derby dropped 49% to its smallest audience ever. The Super Bowl was down 9% to a 15-year viewership low. A lot of this is explained by schedule shifts and the difficulty of pulling off sports during the pandemic, not to mention people were a little distracted last year. Is the US’ falling out of love with pro sports yet another example of the pandemic accelerating a trend already underway? We humans love rivalries – a good “us vs. them” – we can’t help ourselves. Sports provide that outlet for many people. Last year, there was plenty of “us vs. them” going on without sports, so perhaps sports can regain their spot as our tribalism of choice at some point in the future. Or, perhaps, with an unimaginable explosion of digital entertainment options, some viewers, especially younger demographics, have moved on? In a glimmer of hope, NBA viewership across all national networks so far this season is up 3% from the same period last season.

Rise of Vertical Ad Networks
With Google and Apple further locking down cross-browser/app tracking for advertising purposes, the value of first-party data on logged-in users is going to rise for many companies. Disney is a good example given the rapid growth in Disney+ and the potential for a growing ad inventory across Hulu and other platforms including linear TV. Disney is looking to capitalize on its new ad exchange called DRAX (this is another reason that the smaller streaming platforms would benefit from a combination or bundling strategy – imagine the value of a single ad engine across several ad-supported streaming apps in combination with some sort of advertising JV between Disney and the other big video apps). Spotify is another example of a company ramping up their native ad tools to leverage the data they have on their customers for advertisers. And, Roku is yet another example of the same trend for streaming ads. Google announced last week it would not support third-party attempts to create IDs to track people, which it said fall short of user and regulatory expectations: "We believe advances in aggregation, anonymization, on-device processing, and other privacy-preserving technologies offer a solution for relevant advertising grounded in protecting user privacy—and we encourage the industry to partner with us in developing and adopting them." While, cynically, this seems to support Google’s own powerhouse of user data, as I’ve written in the past, having a small number of centralized data owners that give users control over how data is used is a positive-sum outcome for the industry.

Fintech Squaring Up
Square was finally able to officially launch its own bank after an almost five-year effort to obtain a banking license. The move should give the fintech more flexibility to support its customers than its previous partnership with a third-party bank. Almost all fintech disruptors leverage partner banks due to the difficulty of obtaining a banking license. Square was also in the news for buying Jay Z’s Tidal premium music streaming service. Various justifications were offered for the long rumored deal. If Jack is serious about building the service into a legitimate offering, I would welcome it to the field of otherwise unimpressive music streaming services out there. The ongoing problem with music streaming remains the negative-sum value proposition where customers do ok, streaming platforms make hardly any money, labels do well, and artists struggle. If Square can connect artists with fans to monetize their creativity, it would be a big improvement (to be honest, Tidal seems to fit better with the fan monetization efforts at Twitter than it does with Square). On the other end of the spectrum of wanting to help small businesses is Walmart, which poached Goldman Sachs head of consumer banking to help build out its banking efforts, something which would be easier for various companies if they were to apply for an industrial banking license like Square was granted.

Miscellaneous Stuff
Lego Soundtrack
Lego launched a white-noise playlist on Spotify last week that includes such 30-minute hits as “Searching for the One (Brick)” and “The Night Builder”. I found it oddly comforting, but if you suffer from misophonia, you might not want to listen.

Imaginary Numbers May Be for Real
As everyone knows, real numbers are real, and imaginary numbers are not. But, imaginary numbers are useful when performing certain math calculations, and, in the end, they go away and everything is real again. An imaginary number is a complex number achieved when you multiply a real number by i, where i^2 = −1. If you square 10i, you get −100. The wave function is a quantum mechanical equation that describes pretty much everything in the universe and it relies heavily on imaginary numbers (here is Sean Carroll describing the wave function in two minutes on YouTube or with more detailed physics in this CERN talk). New research (not yet peer reviewed) concludes the complex numbers don’t always go away in quantum physics, but are instead necessary when you have certain configurations of three entangled groups of interacting observers.

Stuff about Geopolitics, Economics, and the Finance Industry
SPACtastic Sarcasm
Boy there are a lot of SPACs. And more coming like a tidal wave of...well, the polite analogy eludes me. Let’s just say if this was an Oprah Christmas giveaway: yougettaSPAC and yougettaSPAC and yougettaSPAC! Goldman Sachs published to clients their satisfyingly rhyming SPAC Almanac last week with the following astounding SPACstats: 175 SPACs have collectively raised ~$1.5B per trading day so far this year, for a total of $56B. February was the largest month on record at $32B. So far, $123B of SPACquisitions™ (as I like to call them) have been announced in 2021 compared to $156B in all of 2020. GS estimates we could have $700B in SPACquisition™ enterprise value in the next two years. So. Much. SPAC. I was quite interested to see that some SPACs are now targeting spinouts of public companies, like the takeout of the aluminum can division of Ardagh. Here is some surprisingly good insight from Bill Ackman on the math and logic behind the explosion of SPACs (Bill is obviously objective on this topic because he raised $4B in the largest SPAC launch of 2020).

Given many SPACquisition™ targets are small to mid-sized companies, I tried to guesstimate how much of the passive (and, perhaps active) small cap investment market might get shaken up by the newly created market cap from SPACquisitions™. With the caveat that this math is directional at best: allegedly, the Russell 2000 (the bottom two-thirds of the 3000 largest US companies according to Mr. Russel’s calculations) has a market value around $4T. For this group, the average cap is $2B and the median is $600M. Goldman’s $700B SPACquisition™ estimate strikes me as unimaginative, so let’s round that up to $1T. Here is where my math gets more creative (i.e., made up): I think around 25% of the US stock market is passive now (estimates range from 15-40%, this is a surprisingly hard stat to nail down); if small and medium-sized companies are similar, that would imply around $1T of money invested in Russell-2000-sized companies is passive. And, that $1T might be heavily reshuffled after these SPACquisitions™ take place (although SPACs are not admitted to the index, once they complete acquisitions and become real companies, they would enter in the next annual rebalance based on how I read the rules). Presumably, some active small-cap investors will be entertaining these newly public companies as well and be selling existing small caps to fund purchases.

The denominator of earnings per share (total shares) in the US market has been figuratively and literally shrinking for decades as companies buy back more and more of their stock while at the same time the number of public companies has gone from around 8000 in the late 1900s to a low of 3600 in 2016 (due to M&A and private equity). I struggled to find the accurate number today, but it appears to be around 6,000 (this is again a surprisingly hard stat to nail down). CNBC's Jim Cramer is saying we have a glut of stock supply coming from IPOs and lockups, and SPACs. The total market cap us US listed equities is around $40T today, so if we are talking about $1T in SPACs and maybe $1-2T in IPOs, it's less than 10% of the total market. But, the impact of the increased supply of equities is going to be larger for that $4T in smaller companies as noted above. I am a big fan of companies going public, sometimes even before they might be ready, but I am definitely raising an eyebrow at the prospects for a ballooning number of small and mid-sized public companies without any profits, because that rhymes with 1999 (this Business Insider Premium article puts the number at 50% of the Russell 2000 losing money, up from 25% 2 years ago).

Anyhow, I am pleased to announce that we are changing the “S” in NZS from “Sum” to “SPAC”. We are now “Non-Zero SPAC Capital”, and we will be launching 100 SPACs very soon. Just kidding, of course. Some SPACs are backed by well intentioned and very smart investors that will bring forth some great companies to invest in. SPACs are awesome and there surely won’t be any bad behavior, so SPAC lovers please don't send me hate mail. It’s SPACs’ world and we just inhabit it.

Mitigating Financial Inequality Is Not Rocket Science
A universal basic income experiment in Stockton, California proved “The best way to get people out of poverty is just to get them out of poverty; the best way to offer families more resources is just to offer them more resources" according to a study reported on by The Atlantic. The experiment gave $500 per month to 125 randomly selected families with no strings attached. The money was largely spent on essentials and basic bills. In addition, the stipend recipients actually were able to seek out more employment, perhaps because the added funds "created capacity for goal setting, risk taking, and personal investment”.

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