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

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In today’s post: ecommerce is no bigger than it would have been despite the pandemic; Web3 is a rallying cry that governments and corporations are failing us, but are we ready for anarchy?; Earth-2; fusion; teaching VR in VR; a documentary on Kilgore Trout's alter-ego; declining employee loyalty from remote work; and much more below.

Stuff about Innovation and Technology
VR 101 in VR
Stanford’s Virtual People class is among the first to be taught with instructors and students wearing VR headsets. The fully remote class connects students in a virtual environment for about half of the total course time. Students felt the shift from Zoom to a shared virtual space was a marked improvement. The class on VR has been taught since 2003, but technology is just now getting to the point where it can actually be taught in VR. Here is a short YouTube video from the summer version of the course that gives a little bit of a feel for how class functioned in the virtual space.

Progress Toward Portable Stars
Humans have coveted fusion – the same process that fuels stellar combustion – for decades as the last energy source we’ve yet to harness in a controlled manner. Nature had a good overview of the progress in fusion technology (a topic we’ve been following for a while, e.g., #277, #265). Fusion is achieved by combining hydrogen nuclei under extremely high pressures and temperatures (tens of millions of degrees). When the nuclei in this superheated plasma merge, they throw off excess energy. The trick is keeping the plasma state contained and stable, and it’s still looking like it could achieve commercial deployments in about a decade (or sooner, if AI can improve plasma handling). A lot of private projects are being funded, suggesting the industry could experience a “SpaceX-like” acceleration of innovation. The publicly-funded institutes working on fusion are skeptical of the timeline, and believe the ten-year figure is being used to attract investors.

Inventing the Future with Omniverse
The Next Platform conducted an insightful interview with Nvidia’s Jensen Huang following GTC in which he discussed the company’s Omniverse platform and the ambitious goal of simulating the entire planet with Earth-2 (if we know what’s coming, we can act now to avoid it, the thinking goes, although we know from complex systems science that predicting the future is a fool’s errand). He also explained how he conceptualizes the Omniverse as entirely distinct from gaming worlds. Unlike a VR game engine, where a lot of components are “pre-baked” and then assembled with lighting effects to create a dynamic surround, the Omniverse will be an entirely real-time environment – rendered moment to moment – based on calculations of how data in/outputs would interact with the laws of physics. I liked this articulation of AR vs. VR: “AR is how the AI comes out of the Omniverse into our world, and VR is a wormhole that we use to go into the Omniverse”. Jensen concludes: “The time has come where we could go create these incredible digital simulations of the world. We are going to give our ourselves a leap and this will change computer science. I am completely convinced this is going to change scientific computing altogether. This is really about how computing has fundamentally changed because the computer science changed the algorithms and now the algorithms are coming came back to change the computer science.”

Arrested E-commerce Development
In the ten years leading up to the pandemic, ecommerce grew from 4.7% (Q42009) to 12.4% (Q42019) of total US retail sales, averaging gains of around 0.8%/yr (notching the strongest gain of the period in 2019 at 1.3% over 2018). Then the pandemic hit, and ecommerce surged to 15.2% share in Q42020, an acceleration of ~2 years vs. the historical trendline. Now, with the economy largely reopened and people back to shopping in stores, the numbers tell a different story. Despite extremely strong consumer spending overall, ecommerce share is back to 12.4% in Q32021, implying (if the data follow historical seasonal trends) ~14.4% for Q42021, which is, surprisingly, what we would have expected had there been no pandemic. And, with rumors of relatively weaker ecommerce spending so far in Q4, data for the next quarter might actually wind up below trendline. What are we to make of this? The conventional wisdom is that the pandemic accelerated the economy’s transition from analog to digital, but that doesn’t appear to be the case in aggregate. Surely, the supply chain woes are having an impact and perhaps causing more people to shop in stores. As I wrote about last week, the infrastructure required to support growth in ecommerce, from warehouses to delivery, is enormous, and the digital wave may be hitting an analog wall before it can push forward with more automation. At the very least, the range of outcomes for ecommerce growth over the next few years has widened a bit, and I’ll be eager to watch the data come in and see which consumer habits are still evolving and whether or not we can get back to the trendline of around 1% annual share increases.

Amazon’s Ex-Visa Simulations
Amazon continues to threaten Visa, first by adding a 0.5% fee in Australia and Singapore, and, now, by removing it as a payment mechanism for customers in the UK starting next year. Meanwhile, Amazon is busy adding alternative payments to their app, such as Affirm and Venmo. Are these warning shots a negotiating tactic, or is Amazon serious about removing bank-sponsored Visa credit cards? Visa credit card usage is relatively small for Amazon in those countries (WaPo suggests perhaps around 7% of total sales in the UK) and these changes don’t impact Visa debit cards. Amazon is well known for running tests to assess impacts before scaling up, which could be the case here. Eliminating Visa credit cards would be a much harder and more complicated test in the US, where Amazon has the JPMorgan-Chase-branded Visa card. The shift from analog to digital payments is early days, likely less than 10% complete across the economy. Digital generally affords higher non-zero-sum transactions, leaving all participants better off, as long as the enabling platform doesn’t take too large of a cut. Visa and Mastercard claim to only take a relatively low fee, but their system readily enables middlemen to tack on additional fees and can engender predatory lending to the detriment of the customer. None of the new payment platforms/wallets have yet had the guts to go closed loop and eliminate the ubiquitous cards. This reluctance may be due to threats and bullying from Visa and the like (see #208). Continued reliance on existing cards keeps fees high – often ~3% for digital transactions – while the actual cost of such a transaction should be declining over time with technological advances, such as AI fraud-detection engines. Some of the fees fund rewards programs, effectively shifting loyalty from merchants to banks (a win-lose at best). There’s obvious value in the payment network itself, as well as legitimate costs for maintenance, fraud detection, dispute resolution, etc. But, what’s a fair fee in the digital age, and will someone be bold and big enough to disrupt it? Apple seemed a potential candidate, but they rolled over and played the credit card game as well. Square is trying to put the pieces together. Is Amazon gunning to make a run at eliminating its reliance on the card networks and the banks that promote them? In the meantime, it’s likely a classic “and” not “or” situation, as all forms of digital payments are likely to rise as the economy continues to break from its analog shackles. We will probably see behavior split demographically: us old folks are unlikely to give up our points and miles, but fewer younger folks are carrying credit cards vs. prior generations. A new closed-loop replacement would likely need some sort of incentive or rewards system, and may not ultimately be that much cheaper, but it could come with a higher-value data stream (and better opportunities to create customer loyalty) for merchants. If a new, ultra-low-cost payment wallet did get traction, it would disproportionately benefit low-margin retailers, as well as digital merchants who forfeit a high percentage of their profits to cover credit card fees.

Secret to Netflix’ Low Buffer
Netflix uses its Open Connect platform to serve content globally, relying on 17,000 servers and investing over $1B in the last decade. The company keeps three copies – of varying quality – of each piece of content to accommodate different user connection speeds, and they move popular titles from regular storage to flash storage for faster service when demand spikes. Although maintaining this storage/distribution hub is a large investment and a big undertaking, it’s still fairly small ($100M/year investment on average over the last ten years) relative to the size of the various streaming platforms, so it’s a little surprising that this type of system hasn’t been fully replicated by Amazon, whose AWS division partners with all of the streaming apps.

Miscellaneous Stuff
Unstuck in Time
A long awaited documentary on Kurt Vonnegut, Unstuck in Time, was finally released in theaters and on demand last week. The movie has several good tidbits on Kurt’s life and a lot of footage spanning his childhood through later years, as well as interviews with his children. Unfortunately, the documentarian fell into the painful trap of trying to make the movie about himself rather than the subject, so you have to endure some of those rather annoying segments in the movie. Nonetheless, the documentary is a notable attempt to explain what made the writer tick. Vonnegut’s 1952 book Player Piano comes to mind whenever I write about the changes happening to the labor market and our overall well-being, now that rising automation and AI seem to be subsuming more human purpose. In the very first public edition of SITALWeek nearly three years ago, I wrote the following: “Written in 1952, Player Piano takes place in an alternate post-war world where machines have been elevated to all decision making and humans become for the most part increasingly useless. It’s an obvious parallel to the issues facing humans today as AI takes over more and more jobs. One of the book’s insights is that it’s human nature to destroy the things we’ve built, so we can build them back up again. Humans are tool and technology building machines - it’s where the fitness function of natural selection landed our mind-bodies after millions of years. To rail against technology platforms of the 21st century is to rail against the wheel, fire, spears, etc. It’s the same story, different century in human progress - this decade it’s all about AI turning on humans.” The book turns seventy next year, and it’s as relevant today to the state of the universe (and our little place in it) as ever, but that’s of course true of all Vonnegut’s works.

Stuff about Geopolitics, Economics, and the Finance Industry
Work-from-Home Waning Loyalty?
The SEC has received nearly double the number of whistleblower complaints so far this year compared to an already record-setting 2020. What intrigued me is the assertion in this Bloomberg article that remote work is making employees less dedicated to their employers and more likely to snitch. It’s also said to be easier to gather evidence of wrongdoing from a remote computer vs. in office. Obviously, if companies are doing bad things, increased reporting is a positive trend, but I wonder what it means for corporate cultures more broadly? Finding genuine ways to foster employee loyalty should be a key focal point for managers in the hybrid world.

Japan Relaxing Anti-Immigration Stance?
As developed countries face a labor crisis with aging populations and low birth rates, they should start competing to entice immigrants. Bucking their long-held bias against immigration, Japan is considering changes to allow foreign workers in 14 sectors, such as farming and manufacturing, to stay in the country indefinitely vs. a previous cap of five years. Japan estimates they will be short 345,000 workers by 2023. With anti-immigrant politics around the world, the only alternative will be a mix of inflation and economic stagnation until technology can automate more jobs. But, not all jobs can be automated anytime soon.

Baby Steps Back to Anarchy
In a particularly low moment for me last week, I found myself enduring this interview of Mark Zuckerberg by Gary V. My mind wandered and meandered as I tried to ignore the interview and attempt to distill the difference between Web 2.0 and Web3 (apparently, as time progresses, we have no patience for decimal points or excess use of the space key). As I understand, folks who classify the Internet into epochs say that Web 2.0 was about users participating and creating content à la social networking (although the term was conceived several years before the first large-scale social network, Myspace, was formed in 2003), and Web3 is about decentralized, blockchain-based Internetting for identity, data, payments, content, etc., without any one company in control of how data is used, algorithms are programmed, or transactions are processed. Both Web 2.0 and Web3 share a rising emphasis on creators – more and more people able to express themselves to an ever-increasing audience. Whereas Web 2.0 is dominated by centrally-controlled social networks and search engines that sell ads based on data they collect about you, the idea with Web3 is to turn that model on its head and move from equity-based corporations to token-based economies. The current iteration of Web 2.0 has not accomplished much in terms of moving society or the economy forward. Social networking essentially takes the idea of a print magazine, replaces the journalists and photographers with amateurs, the editors with algorithms, and the ad salesforce with technology. It’s not any sort of revolution.

That brings me to an important difference between the two epochs: while Web 2.0 has largely been a digital evolution of the content and advertising industry, Web3 could profoundly change the game by directly competing with governments and the equity-based, Industrial Age capitalistic system they rely on. Web 2.0 was an easy sell – it took many existing analog behaviors and broadened/amplified them (in many cases reinforcing more bad behavior than good). Web3, on the other hand, tells governments their currencies are no longer relevant, their rules need some updating, and that equity-based companies, centralized banking, and other supposed evils are outdated. That idea is of course very intriguing, but also a much tougher sell. At its heart, Web3 is a reaction to authorities and systems, both public and private, that are perceived to be failing the world today: governments, corporations, and many citizens all eschewing responsibility for the state of things. Web3 would remove the responsibility of trust and data from third parties and decentralize it.

There have been some decentralized societies throughout history, but it’s unknown whether such anarchy works only in small pockets on a regional scale. The conventional wisdom is that bureaucracy is essential for social order, with a lack of hierarchy ultimately devolving into chaos, but that’s not necessarily the case. By subscribing to the false, macroscopic narrative of Hobbes or Rousseau – i.e., for better (Hobbes) or worse (Rousseau), humans have progressed from natural hunter/gather clans to a higher-order civilized state via the agricultural revolution – we’ve obscured the true diversity of successful human social structures. As the late anarchist David Graeber tries to explain in The Dawn of Everything: A New History of Humanity, bureaucracy was not a necessary, uniform consequence of the agricultural revolution. We’ve been lulled into thinking that hierarchy is the only way the world can function without reverting back to a merely subsistent existence, but there is some historical evidence that humans can get along under many different structures. And yet, we seem to lack the imagination to perceive what today’s digitally-connected global society might truly look like without any centralized authorities. I suspect we will see elements of Web3 molded to work with the existing system, and we will need to wait for W4 (or w5?) to bring about more radical changes. Ultimately, as long as Web3 technology has to interface back with the analog world as we know it, some of the more radical concepts will be heavily stymied by regulation. But, decades from now, when the economy has gone from 10% digital to 90%+ digital, things will get very interesting for the anarchists. As I noted in musing on Player Piano: it's human nature to destroy the things we build, so that we may build them back up yet again.

✌-Brad

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