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

Click HERE to SIGN UP for SITALWeek’s Sunday Email.

In today’s post: leveraging the brain's biases and shortcuts to create the next compute platform; the odd byproducts of soldiers carrying smartphones onto the battlefield, and a future where AR becomes part of war; the ongoing shift to ad-supported video streaming underscores the value of a potential bundle as well as the necessity for every streaming app to offer an ad tier; visualizing deep-sea creatures with new imaging tech; 14 years after the peak of globalization, which way will the economy go? And, much more below...

Stuff about Innovation and Technology
War on TikTok
The White House held a Zoom call with 30 top TikTok influencers to brief them on the war in Ukraine and their role in disseminating news to their audience. One top TikToker wasn't surprised about the interest, saying: “People in my generation get all our information from TikTok...It’s the first place we’re searching up new topics and learning about things.” TikTok has been a tool of misinformation during the war, and just last week began labeling posts from state-controlled media. So, just to be clear, the United States government is leveraging a Chinese social media app to help Gen Z wage war against Russian propaganda. Somewhere Mark Zuckerberg is crying.

Politicking Avatars
During his campaign, South Korean presidential candidate Yoon Suk-yeol created an AI version of himself to appeal to younger voters. As the WSJ reports, the AI Yoon presented a softer, more likable image and tackled topics of interest to younger voters. Yoon Suk-yeol won the election last week. The creation of multiple deepfake political personalities, both by the candidates themselves and the opposition, is likely something we will soon see in other elections. This gamification of candidates could go in many directions, but, optimistically, it could drive higher voter engagement or, at the very least, entertain us.

Disney+Ads
A year ago, I wrote about the trend toward ad-supported video streaming, which most consumers tend to prefer thanks to its lower price point (#287). Now, Disney will offer an ad-supported version of Disney+, and Netflix seems to be softening to the idea of ads – if they were to align with their creator and consumer choice/experience goals at some point in the future. I interpret the remarks from the CFO of Netflix to mean that, if ads would open up a larger potential audience – without greatly impacting the experience – it could mean more views for creators and a win-win for everyone. Or, maybe he was just trolling investors. We of course already know that advertising is win-win for video consumption. Traditional television was always around 50% ad-subsidized, giving consumers more content for less money. Ads should be even more win-win in streaming because first-party data on viewing habits can lead to higher value, more effective, less frequent ads. And, if platforms are smart, there will always be premium price options for those who want to opt out, although, as ad values increase, that premium may simply go too high for most. If you subscribe to six streaming apps, and the value of ads eventually rises to ~$15/mo each, that could be an additional $1,000/yr in cost if you want to forgo ads. Increasingly, ad-supported content like YouTube, TikTok, mobile games, etc. is competing for user time (see Spiraling Content Meets Maxed-Out Attention), which means everyone making content likely needs to tap into that advertiser spending market in order to stay competitive. As I mentioned in #287, a bundle of four to five ad-supported streaming apps could be cheaper than Netflix alone for consumers, with far more content, especially now that Netflix charges $19.99/mo for its 'premium' tier. I think such a bundle could greatly expand the market and accelerate the shift away from traditional TV subscriptions. Netflix stands alone in not having a robust advertising platform, but it could cure this problem by buying one of the other media platforms (which would also give them a lot of content, both new and library) or an adtech platform.

Amazon Leaves Drivers High and Dry
I mentioned a couple weeks ago that Amazon pits its delivery service providers against each other for routes. This behavior by Amazon is part of the company’s and Bezos' libertarian leanings and faith in marketplaces. Letting the market workout optimal solutions sometimes comes with downside, as this Vice article describes. Many of Amazon's franchised delivery companies have been abruptly shut down by Amazon, leaving owners penniless and employees without jobs. In a company the size of Amazon, which employs one out of every 153 people in the US as of last summer, it’s hard to know if stories like this are anecdotal or representative of a broader problem inside the company. Amazon has many business strategies that ride a tension between progress, value creation, and taking advantage of workers. Over time, the company tends to course correct its many flawed policies, but it would be nice if they were more thoughtful from the start rather than waiting for public pressure to force their evolution to better non-zero outcomes. The WSJ reports that FedEx is also encountering grievances with their base of contractors, who are responsible for around 60% of its deliveries. With increased pressure on wages, fuel, and other costs, this strategy of outsourcing and squeezing delivery service providers may crack under pressure.

War in the Age of Smartphones and AR
War in the Information Age is of course very different than it was in the twentieth century. Most dramatically, the volume of real-time footage of heartbreaking attacks far exceeds the prior news coverage we’ve seen in other wars. And then there are the odd byproducts of soldiers with smartphones. One tactic British spies are reportedly using to track Russian troop movement in Ukraine is via dating apps, thanks to soldiers divulging their current and planned locations to potential romantic partners. The tactic follows earlier reports that Russian soldiers were looking for Ukrainian women on Tinder. As I said last week, I have such a hard time understanding how a soldier with a smartphone with unrestricted Internet access could still pull the trigger to kill. I understand there are complex motivations to fight, including brainwashing propaganda, money, fear, etc., but I would hope that the ready ability for soldiers to see enemy combatants as fellow humans, and even dating partners, would mitigate armed conflict.

A negative consequence of war in the Information Age is that technology can be used to much more readily brainwash soldiers into believing lies about their opponents. A related topic that I probably write about too often is augmented reality’s potential ability to shift our perceptions even more than smartphone apps. After the events of the last few years, it’s now widely understood that apps like Facebook have the ability to change and control our opinions, often with negative outcomes. Propaganda plays an important role in war, especially with regard to controlling what soldiers believe, most notably in convincing groups of young people that they should fight other groups of young people because they are inferior and dangerous. Metaphors of insects and animals are often used. Last week, I rewatched a 2016 episode of Black Mirror, “Men Against Fire”, which portrays soldiers with implants as seeing the enemy as dangerous, mutant humans. It’s terrifying to contemplate the near-future of war, when AR glasses will be able to convincingly transform our perceptions of others and our environment in ways that our brains just aren’t ready to handle. While we can take AR glasses off (unlike the implants in Black Mirror) the experience may still leave us with damaging misconceptions. As devastating as technology’s ability is to negatively alter our perception of reality, it can also be used to increase empathy and compassion for other people and the world we inhabit.

Don’t Take Reality as a Given
Engineers working on most computing platforms assume reality is a given, but that’s not how the brain works. The brain instead predicts what it thinks reality should be, and then corrects when it’s wrong. Inverting our misconceptions of how the brain works will lead to much more interesting technology in the future, but few organizations are thinking this way. One notable exception is Magic Leap founder Rony Abovitz. He recently described the profound shift in perception needed to design new technology platforms like AR: “The idea and philosophy of Sensoryfield Computing is that the human brain takes in continued sensory inputs (light-fields, sound-fields, tactile input, smell, and taste) in order to dynamically update a model of the world which we partially inherit (from our ancestors, perhaps in our genes) and partially create (from the day we are born, by moving about the world). In this model, a person is not that different from a self-driving car which has an existing model of the world (in its memory and CPU/GPU). The self-driving car updates this model through various sensors (cameras, LIDAR, etc.) as well as localizes itself on existing maps through GPS and related systems. In the Sensoryfield Computing model, we never experience the world directly — we only know about the world through our internal experience of the model we have inside, which is updated through external signals.” Magic Leap developed the only working AR headset, and its stunning accomplishments continue with the recent introduction of Magic Leap 2. The device features, among other new technologies, segmented dimming that shades parts of reality to highlight the augmented experience. Adding to and subtracting from the real-world environment, rather than recreating an entire world in VR, is much more efficient because it takes advantage of the brain’s built-in biases and shortcuts. I wrote more about the brain’s function as a prediction engine in Outsmarting Your Brain: Substituting Pattern Recognition with Adaptability.

Miscellaneous Stuff

Digitizing Deep-Sea Denizens
A holotype is a physical specimen or example of an organism. Some gelatinous creatures, especially those in the deep sea, cannot be collected and studied because they simply fall apart. As an alternative, advanced imaging and processing can be used to create digital holotypes. Researchers at the Monterey Bay Aquarium Research Institute (MBARI) have developed two systems, DeepPIV and EyeRIS, that capture an organism’s details at the millimeter scale, including internal imaging and motion in situ. The aquarium also has a new deep-sea exhibit opening in April.

Stuff about Geopolitics, Economics, and the Finance Industry
Serious Sanctions; Chinese Crux
Last week, I wrote about the war in Ukraine and how corporations are fighting Russia while governments largely engage in public relations exercises: “The sanctions, both government and voluntary, on Russia, the 11th largest economy in the world, are somewhat staggering in their impact and scope. While governments around the world are engaging largely in public relations theory without any action, an allied force of global corporations is fighting Russia alongside the Ukrainians. The Russian economy has effectively been erased from global trade and markets.” I am being a little unfair in giving all the credit to corporations since many are simply complying with government sanctions, but it’s also true many companies are voluntarily retreating from Russia, and many more are donating to help Ukrainians. The Yale School of Management is maintaining a list of companies (now exceeding 300) that have pulled out of Russia, and pressure continues to grow to completely cut off the country from global trade. Statements backing away from Russia, like this one from Shell Oil’s CEO: “We are acutely aware that our decision…last week to buy a cargo of Russian crude…despite being made with security of supplies at the forefront of our thinking — was not the right one and we are sorry”, are in stark contrast to companies staying in Russia, like global automaker Stellantis, whose CEO says the company doesn’t “mix regimes and people”. As one of Russia’s few remaining importers, China is a key determinant in the outcome of the war. While still not fully committing to one side or the other, there are indications that China is honoring some of the Western sanctions (either voluntarily or under threat of action by the US). The FT’s Big Read last week titled The Rising Costs of China’s Friendship with Russia highlights many of the issues. China is still heavily reliant on outside sources of energy and food, and any increase in economic isolation could come with unbearable human costs. As I noted last week: “I believe there is a win-win outcome where China sides with the West against Russia in exchange for some of the semiconductor technology it desperately seeks...Such a deal might also secure, at least temporarily, stability for Taiwan.”

The peak of global trade was 14 years ago just before the 2008 financial crisis. After nearly recovering in 2011, global trade has been declining ever since, and that is perhaps a cause for concern regarding future prospects for peace. While the philosophy of globalization as a unifier of humans seems intact despite the current setbacks, it is certainly proving to be fragile. The great paradox here is of course that in order to keep the positive impact of globalization going, democratic societies need to continue to interact with Russia, China, and others. As such, while short-term sanctions may prove useful for conflict resolution, in the long term, Western brands need to continue to function in these locations, and the West needs to continue to import goods and services from them. Despite the fragilities, it’s much preferred for the world to continue down the path of globalization, with increasing interdependence making cooperation existential.

✌️-Brad

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 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. 

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.