Welcome to Stuff I Thought About Last Week, a personal collection of topics on tech, innovation, science, the digital economic transition, the finance industry, sentient highway signs, and whatever else made me think last week.

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In today’s post: balancing the loss of meaning and purpose with the coming robotics and automation revolution; drive through groceries; supply chain problems help the big get bigger; the challenge of nurturing virtual worlds; looking back at LA Story thirty years later; dropping college enrollment, especially for men; Walmart is already using driver-out autonomous trucks; and much more below.

Stuff about Innovation and Technology
Monkey Music
Universal Music is creating a super group out of four virtual apes from the Bored Ape Yacht Club NFT collection. The band, Kingship, will be brought to life by Universal’s Celine Joshua and NFT collector Jimmy McNelis, who apparently holds $100M worth of ape NFTs. The foursome follows in the footsteps of other virtual primate-themed bands like Gorillaz, and, of course, the ancestor of them all, The Monkees.

Free-Range Robots
I am a sucker for those shows that demonstrate how everyday things are made in giant automated factories. When I think about the robotics revolution that is starting to spread out across the landscape, the factory automation analogy seems apt with one big difference: automation in a factory is highly controlled, repeatable, 24/7, and inside four walls that never change. When you introduce a chicken wing frying robot to a fast food restaurant, or a cobot for unloading a delivery truck, you are bringing factory automation into the wild, where varied circumstances, chaotic inputs, stoppages, and a much bigger human factor come into play vs. a factory floor. As a result, machine learning, machine vision, and more complex algorithms are going to be essential. Given the network effects of machine learning, this situation could give rise to a power-law winner-takes-most platform, but, then again, the applications are so diverse that deployed robotics may stay just as niche and fragmented as the factory automation world. One thing is for certain: if we don’t drive a productivity revolution with robotics and automation over the next decade, we will have a much larger problem in the economy (see the final section of this newsletter for more).

Grocery’s Digitization Dilemma
Grocery continues to be a very tough ecommerce nut to crack. This razor-thin margin business, which makes much of its profits from gas and prescription sales, relies on consumers using their own labor to wander aisles and checkout. Grocery is also the value option compared to restaurants and delivery, so charging price-conscious customers additional fees doesn’t fly. There continues to be a lot of innovation – and money lit on fire – as investors eagerly back startups in the US and Europe. In Europe, the list of grocery delivery startups includes Cajoo, Deliveroo, Flink, Getir, Glovo, Gorillas (not a virtual band), Jiffy, Picnic, Weezy, and Zapp, just to name a few, and US-based Gopuff recently acquired Dija and Fancy. Amazon has infamously failed for nearly a decade to get grocery right with decent margins, but they continue to try. In South Carolina, Opie offers drive-through grocery convenience, promising orders in just minutes from its 3,000sf custom-built warehouses. Each location stocks ~5,000 items, including prepared meals and coffee drinks. By not having actual stores, Opie can charge grocery store prices with no additional fees. Such experiments suggest a combination of automation, more limited choices, and savings-optimized physical space could overcome the low margins, reduce/eliminate customer labor, and allow for an en masse digital transition in grocery. Not to be outdone by grocery startups, Walmart, in partnership with Gatik, has been using fully-autonomous trucks – on a 7-mile loop for twelve hours per day since August without a safety driver – to fulfill online grocery orders. Orders are packed at a dark store, loaded onto the truck, and driven to a local Walmart for customer pickup.

Ecommerce Growing Pains
During the pandemic, we saw power laws accelerate trends that were already underway. We’ve often described this phenomenon as a ‘hollowing out of the middle’, which tends to happen during an industry’s analog-to-digital transformation: the big get bigger, the long tail of niche providers becomes longer and more niche, and the stuck-in-the-middles die off. As ecommerce accelerated during the pandemic, online retailers of all sizes benefited. However, WaPo reports on how small stores are struggling with the supply chain much more than the big box retailers, which can charter their own ships and pay up for logistics and merchandise. And, as key ecommerce enablers like UPS continue to raise prices for smaller merchants (largely to offset lost business with large merchants), we should expect to see the same hollowing out of the middle, and possibly even decimation of the long tail. The shipping cost conundrum may unexpectedly shift purchases back to digital ordering and customer pickup, placing some of the labor cost burden back on the consumer. We’ll be out of the acute phase of the supply chain crunch soon, but longer-term growth in ecommerce is starting to collide with the real world supply problems of sufficient warehouse space, truckers, warehouse employees, etc. It’s estimated that every $1B in ecommerce requires 1M square feet of warehouse space.

Successful Virtual Worlds Require Real-World Caretakers
Most of our early examples of metaverses are MMORPGs (massively multiplayer online role-playing games), and only a few of these virtual worlds have been long-running successes. As I was reading this post from Nexon’s Owen Mahoney, I was struck by how biological virtual worlds are. They are living, breathing ecosystems, but instead of pure natural selection and evolutionary fitness functions, you have human creators controlling the parameters for adaptability and survival. As Owen points out, it’s all about balancing the player experience, the economy, the content, etc. As virtual worlds layer on machine learning and algorithms to enhance the realism of game play (or mesh with the real world), we run the risk of those algorithms mirroring our bad behavior (like we’ve seen in social networking and YouTube recommendation engines). Likely, these algorithms will require a lot of oversight from conscientious real-world creators as well. Indeed, one of the main takeaways from Owen’s essay is that maintaining a virtual world for decades, as Nexon has done, requires very talented developers, careful oversight, and a lot of hard work. As spatial computing increasingly meshes the real and virtual worlds, I’ll be curious to see if games continue to lead metaverse creation or if other types of apps emerge. And, as players increasingly take on the role of creator, the evolution of these AR/VR worlds will be fascinating to watch.

Meta-mess vs. AR
Augmented reality game leader Niantic, maker of Pokémon Go, announced their Lightship Augmented Reality Developer Kit, which enables creation of blended real/virtual experiences. While currently optimized for integrating phone-based game play with the real world (using the camera function), Lightship will also eventually work with augmented reality glasses. Niantic aims to build a cross-platform ecosystem that works on iOS, Android, and various hardware systems. It remains to be seen whether AR glasses will be screen-like commodities or integrated parts of broader platforms like iOS or Android. I suspect phones will be the default gateways to spatial computing for the foreseeable future (see last week’s Meta-mess for more), with AR hardware functioning as peripheral devices. I’ve previously quoted Niantic’s founder, John Hanke, sharing his thoughts on the dystopian VR mess that’s being championed by the likes of Zuckerberg: “As a society, we can hope that the world doesn’t devolve into the kind of place that drives sci-fi heroes to escape into a virtual one — or we can work to make sure that doesn’t happen. At Niantic, we choose the latter. We believe we can use technology to lean into the ‘reality’ of augmented reality — encouraging everyone, ourselves included, to stand up, walk outside, and connect with people and the world around us. This is what we humans are born to do, the result of two millions years of human evolution, and as a result those are the things that make us the happiest. Technology should be used to make these core human experiences better — not to replace them.” In a recent Wired interview, Hanke explained that the Zuckerberg vision of the metaverse “takes us away from what fundamentally makes us happy as human beings. We’re biologically evolved to be present in our bodies and to be out in the world. The tech world that we’ve been living in, as exacerbated by Covid, is not healthy. We’ve picked up bad habits—kids spending all day playing Roblox or whatever. And we’re extrapolating that, saying, ‘Hey, this is great. Let’s do this times 10.’ That scares the daylights out of me.” In contrast to the reality-avoidance philosophy of Zuckerberg, this video from Nike using Snapchat Spectacles to augment a run is a cool, if slightly crude, example of how we can productively use AR to make the real world better.

In related news, gaming and virtual world development platform Unity will be acquiring the technology platform of Peter Jackson’s New-Zealand-based Weta. The technology team at Weta has created a lot of tools that have enabled cutting-edge special effects for movies like The Lord of the Rings and Avatar, as well as for games like Dr. Grordbort’s Invaders (my favorite) for the Magic Leap platform. (Note: the Lightship vision of AR looks very similar to that of Magic Leap). The creative team at Weta will continue to be independent and run by Jackson.

TikTok Turns to Gaming
TikTok is evolving beyond the endless scrolling short videos with the introduction of games. The first to launch is Zynga’s Disco Loco 3D: “a single-player endless runner game where players collect their own dance moves while challenging their friends and followers and avoiding obstacles on an increasingly challenging catwalk. As well as dancing to funk music, players can enter “fever mode” and use their dance moves to swipe away at objects approaching them.”

Miscellaneous Stuff
LA Story’s Sentimental Journey
Steve Martin’s great LA Story, which turns 30 this year, is being celebrated with a Blu-ray release. As he explained in the LA Times, the plot is based on the Irish folk song “The Maid of Coolmore”. According to Martin: “The song tells the story of a man in Ireland, in Coolmore, and he passes a young woman three times. The first time he passes her, he just thinks how lovely she is. They look at each other. The second time, they talk to each other. But the third time he passes her, she says, ‘Goodbye,’ and he says, ‘Why?’ She says, ‘Because I’m sailing away to America,’ which a lot of Irish people did in the late 19th century. And he says, ‘If I had the power on the day that she is to sail I would turn the winds around.’ Which is what happens in ‘L.A. Story.’ The weather and L.A. conspire to stop her from leaving.” Martin commented on the early 1990s as a turning point for society toward cynicism, implying that it would be hard to make a similarly styled rom-com today. But, he’s also quick to point out the proliferation of new outlets on streaming and cable creates a safe haven for non-cynical romances. I’ve previously written about 1991 as a golden year of film releases, and Martin’s point about a pivot to cynicism really resonates – there may have been a key cultural shift that occurred in the early 1990s. In a bit of meta, Martin's character in another 1991 gem, Grand Canyon, was a jaded Hollywood producer that struggles to shake off his cynicism. We humans are probably always looking in our rose-colored rear-view mirror for turning points where we “went wrong”, but cynicism has probably been around as long as we have. On a side note, I’ve really enjoyed Only Murders in the Building, Steve Martin’s new series with Martin Short and Selena Gomez on Hulu.

Giving Up on the Old College Try
A couple of months back, I read a story in the WSJ about the record number of males in the US who are not attending college. The story noted that females were 59.5% of college students at the end of the 2020-2021 school year, and that college admissions had declined by 1.5M students over the last five years, with men accounting for 71% of that drop. Declining birth rates in decades prior, as well as our recent slowdown in immigration, have no doubt contributed, but those factors don’t seem to account for the full magnitude of the enrollment reduction (which started to turn negative around a decade ago, with 2.8M fewer students enrolled today vs. 2011) or the gender difference. The widening male/female gap, which holds for both two-year and four-year programs regardless of race, location, and income level, is part of a long-term trend. Female enrollment reached parity with males in the late 1970s, rose to 55% by 1992, 57% by 2017, and then made its recent jump to nearly 60%. Schools reportedly have tried to maintain a more equal ratio, which means female applicants have faced stiffer competition for acceptance, according to the NYT. And, the gap could have further consequences down the road, as college-educated women tend to marry college-educated men. The explanations for the decision to eschew college seem anecdotal, but the rising cost of higher education compared to the lifetime value of a degree (said to be around $1M) might be one reason it seems less attractive, particularly as wages are rising for less skilled jobs due to the dearth of workers. When you look at the rising suicide rates and opioid crisis among men in their 20s-40s, there is perhaps some loss of hope and/or feeling of uselessness, offering a bleak outlook for the younger generation. Maybe the rise of technology across the economy, displacing humans and offering more sterile working conditions and indifferent oversight, is generating some existential malaise. (And, technology also drives an ever-increasing pace of change, which challenges our sense of order and ability to adapt.) I think often about the NYT op-ed from the Dalai Lama five years ago where he and Arthur Brooks wrote: “Leaders need to recognize that a compassionate society must create a wealth of opportunities for meaningful work, so that everyone who is capable of contributing can do so." The current world presents an odd set of circumstances. We have this apparent growing hopelessness about the future alongside a worker shortage, and rising wages don’t seem to be enough to solve the problem. Automation has a long history of usurping blue collar jobs, and, now thanks to software and AI, college graduate jobs are at risk as well. With remote work, software tools are getting a lot more data about how we perform our daily repetitive tasks on a computer, much of which can be automated. The robotics revolution could also accelerate given the rapid progress and nature of machine learning. It’s probably too convenient to label our new work landscape as having lost its meaning, but automation’s impact on our mental state shouldn’t necessarily be discounted. (I talked more about the lack of hope in #315 in the section on the Drake Equation.) On the plus side, there are lots of in-demand, high-paying craft and trade jobs that robots won’t soon overtake, so hopefully the next generation of job-seekers can find fulfillment there.

Stuff about Geopolitics, Economics, and the Finance Industry
ESG Fog
Former chief investment officer for sustainable investing at BlackRock, Tariq Fancy, writes in the Economist about the dangers of ESG investing obscuring its own purported goals and causing a complacent belief that market forces can fix what is a market failure to begin with. He calls for more regulation of bad behavior and for governments to penalize companies for environmental damage. Daily, I see companies striving for good ratings based on rosy ESG reports, and most investors consider that enough, without thinking deeply about what it means to actually create more value than you take. Meanwhile, despite the wave of ESG investing, we’re not even close to tackling any of the problems facing society. Each year, we’re falling further behind in the global fight to make the world better. An over emphasis on checking ESG boxes may be shifting resources away from sectors of the economy that we will actually need to bridge the gap to a sustainable future, such as natural gas. I spoke more about ESG and the importance of focusing on non-zero-sum outcomes at the end of #318. Investors need to find a way to translate ESG investing into real world impact. Maybe it's just a matter of time, but so far the lack of results is concerning.

Robots Needed, but What Will Humans Do?
As I read about the $1T infrastructure bill now passed in the US, around half of which is destined for building new things (like EV charging stations and public transit) and fixing old things (like bridges and roads) I keep wondering where the government and its contractors think they will find the workers to undertake these projects? We already are well short of the people needed to make the currently-sized economy function today without this new demand for even more jobs. Wages are rocketing and workers have an extreme amount of bargaining power from years of declining immigration, declining birth rates, COVID-induced early retirements/exits, and the rising death rate of people in their 20s and 30s from opioids (see Where is Everyone in #320 for more). It seems like the odds are slim that any of this money will actually be put to good use anytime soon. Coming back to the topic of robots, what we seem to need is a decade of rapid productivity increases from automation. We are essentially being forced into leveraging technology to drive productivity to offset the labor deficit and inflationary pressures. Consequently, the coming robotics/automation wave could be one of the most fertile and interesting tech booms we have witnessed since the start of the Industrial Revolution. And yet, how will we feel as we are increasingly surrounded by android coworkers as purposeful human work is absorbed by machines and algorithms? Society needs a thoughtful framework to balance the inevitable automation advance with the loss of work-driven meaning as we race toward the robotic revolution.

✌-Brad

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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 an informal gathering of topics I’ve recently read and thought about. I will sometimes state things in the newsletter that contradict my own views in order to provoke debate. Often I try to make jokes, and they aren’t very funny – sorry. 

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