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SITALWeek

Stuff I Thought About Last Week Newsletter

SITALWeek #339

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

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In today’s post: specialization of voice assistants will bring much needed context to AI; solar farming; overall video viewing dropped in the US in 2021 despite a large increase in content; lessons from Scholastic; chip labor shortages set to get worse; positive and negative feedback loops; the risk of sending a large portion of the world back in time; and, much more below...

Stuff about Innovation and Technology
Flippy and Chippy
Miso Robotics, the crowd-funded company behind the Flippy fryerbot used by White Castle, is working with Chipotle on Chippy, a tortilla-chip-making robot. Flippy and Chippy perform a similar task – frying a starch in oil. This type of dangerous, boring, repetitive job for humans is ideal for automation, freeing up workers for more complex tasks and improving overall throughput. Chippy is just another example of robot assistants operating alongside humans. Bear Robotics recently reported that Servi, their wheeled robot that delivers food to restaurant tables and dirty dishes back to the kitchen, has traversed 335k miles to deliver 28M meals. The restaurant robot industry is projected to only reach $322M by 2028, according to one estimate in the Restaurant Dive article. If these cobots were all priced similarly to Flippy at $3,000/mo, that’s only around ~10,000 units. I am not sure how they arrived at the market forecast, but it seems low to me given the return on investment in a tight-labor and rising-wage market.

Solar-Powered Irrigation
Researchers in Saudi Arabia built solar panels backed by a layer of hydrogel that absorbs atmospheric moisture during the cooler night hours, which is released and collected as water for irrigation as the solar panels radiate excess heat during daylight. The unique combination allows crops to be grown in extreme desert conditions. The evaporative cooling process also increases solar panel efficiency by 2%. If the water isn’t needed for crops, the hydrogels can cool the panels during sunlight hours with a possible 10% increase in efficiency. Because the technology involves attaching the hydrogel and condensation chamber to the back of the solar panels, it should allow for retrofitting of existing installations.

Vertical Virtual Assistants
Smart assistants still seem pretty dumb to me. Because of an extreme lack of context, the current offering of broad, horizontal assistants like Alexa, Google Assistant, and Siri are essentially just voice-controlled versions of web search. A vertical, use-case approach is likely to take off and supplant these overly broad, utilitarian voice assistants. One example the Washington Post recently featured is ElliQ, a robot uniquely designed as a companion for elderly folks. We’ll also see chatbots optimized for customer service, kids, office, medical, personal companions, etc. Ultimately, it wouldn’t be surprising to have a platform for specialty AI assistants, offering open APIs to all sorts of resources like Google search, apps, media, enterprise software, medical devices, smart home automation, etc., that allows 3rd parties to build specific AI assistants on top of it. And, as I’ve noted before, these assistants will be walking around with us virtually in augmented reality in the next few years.

Streaming Up, Video Down
A new report out from the MPA reveals the transformation of the streaming video market from 2019 to 2021 (PDF). Overall, the global market for streaming video, traditional subscription video, theatrical releases, and physical media was $328B in 2021, matching 2019’s level. However, inside of that flat number, global theatrical spend was halved to $21B while streaming spend was up by $26B to $72B. Pay TV and physical media spend declined modestly (from $240.4B to $235B). If the box office recovers to pre-pandemic levels and streaming subscriptions hold steady (after growing 14% to 1.3B from 2020 to 2021), the overall industry could see 5-10% growth over the next couple of years. From 2019 to 2021, the US also increased consumption of subscription streaming video from 54 min/day to 80 min/day. But, overall, video viewing in the US dropped ~8 minutes (from ~353 min/day to ~345 min/day) from 2020 to 2021, which perhaps should be concerning for the industry. With screen time for all forms of entertainment up, this indicates to me that alternatives like mobile games, TikTok, YouTube, and the like are eating into video consumption. With the major, recent increase in content spend, which I walked through in Spiraling Content Meets Maxed-Out Attention, we have a growing numerator meeting a shrinking denominator. That means we will have more and more professional content available per minute of viewing. For US audiences, there were 1826 original shows made in 2021, up from 1646 in 2019, and streaming originals jumped from 347 to 693 over that period. There’s too much content. The good news is that studios should be able to scale back their torrid pace of spending growth without impacting the demand for streaming apps. However, at some point, we will need to reach an equilibrium in how people spend their free time. If video keeps losing share, the amount spent on video content may follow even though streaming could still triple or quadruple over the next decade, as it takes share from traditional pay TV.

Scholastic’s Dynasty Drama
I read with interest this Vanity Fair article on children’s book publisher Scholastic. Following the sudden death of their longtime CEO, the voting control of the company surprisingly passed to another longtime executive. I didn’t know much about the history of Scholastic, but I was struck by how many strategic moves they made in the 1980s up until the 2000s that are consistent with positive elements we look for when considering investment opportunities. The company has always had a lofty mission of increasing literacy, which they seem to be genuinely passionate about. One of their first insights was buying regional bookfairs and taking books directly to children by selling them in schools, letting the kids decide what they wanted to read rather than their parents. They also seem to have allowed for decentralized decision making when it came to finding new authors, leading Scholastic to land the lucrative Harry Potter series. Scholastic also entered the entertainment industry, licensing and producing films and shows based on some of their books, adding Optionality to their core business. Their resounding successes, however, introduced an inconsistent growth pattern and created some pressure to stay on the growth treadmill to keep their public investors happy and the stock price up. Ultimately, it seems like being founder-led created a lot of problems based on the VF article. It’s a lesson for me as we look to better understand the pressures and potential risks of businesses led by long-time leaders. If I had analyzed Scholastic as an investment twenty years ago, I would have gotten it wrong (the stock has dramatically underperformed the overall market so far this century). Looking at stocks you don’t own – but might have – can be an enlightening alternate-history, post-mortem exercise, revealing analysis pitfalls and biases that may be relevant to future decisions. We all get a lot of stocks wrong, but history is filled with thousands more missed opportunities for mistakes.

Semi Labor Shortage
Taiwan has 34,000 open jobs for semiconductor manufacturing, design, and testing, up 50% from last year. Given the threat China poses to Taiwan’s sovereignty, the US and Europe aspire to replicate advanced chip supply chains, but lack of personnel may be a formidable barrier. That said, it will take years for facilities to open, and the industry will of course go through cyclical correction(s); so, if there is an impetus on training new employees now, it might be possible to avoid a labor crunch. Taiwan also recently raided eight Chinese companies on the island accused of poaching chip talent, with the Investigation Bureau of the Ministry of Justice stating: "These are unlawful and villainous efforts and need to be treated seriously...This is not only a matter of economic and commercial competition but could be national security threats.” With slowing population growth, early retirements, and eventual population declines, every sector of the economy will be facing a significant shortage of specialists in the future.

Miscellaneous Stuff

Webb Exceeding Expectations
The new JWST is already producing deep-field images of galaxies billions of light years in the past, with all 18 hexagonal mirrors now aligned to nanometer precision. The JWST can do in hours what took the Hubble weeks to produce, so get ready for some spectacular images later this year. Originally designed to be 100x more sensitive than the Hubble, after alignment, the JWST is functioning at even higher sensitivities than hoped for.

Oxygen, POOM, and Positive Feedback
It takes a lot of luck to arrive at a planet inhabited by conscious beings. In the case of Earth, the Great Oxygenation Event (GOE) 2.3B years ago was a critical enabler. Prior to the event, there wasn’t enough oxygen to get speciation going. The appearance of oxygen was an energy boon for organisms because it's a relatively unstable high-energy molecule; however, the breakdown of oxygen to extract its energy reserves has to be carefully controlled to prevent toxicity from oxygen radicals. The GOE initially caused a mass die-off of existing, unprotected organisms and subsequently spawned an intracellular compartmentalization craze that included the rise of eukaryotic cells and mitochondria. Achieving this step-function increase in atmospheric oxygen would have required a positive feedback loop that curbed the consumption of excess oxygen. Scientists now believe this oxygenation spiral could have been a result of a metabolic-geochemical interplay between marine microbes and ocean floor sediment. The models show that if microbes’ oxidative metabolism produced only partially oxidized organic matter (POOM; i.e., as opposed to fully oxidized), when it accreted as sediment, it would have been effectively protected from further oxygen-fueled oxidation. As more oxygen accumulated in the atmosphere, it could have powered a diversification of oxidative metabolic pathways, leading to more POOM production, and so on. In concert, the rise of atmospheric oxygen would also have led to the formation of iron oxide minerals that would have protected the organic matter from oxidative degradation, further accelerating its accumulation. The oxygen increase was, it should be noted, not linear, but crashed and rose dramatically 200M years later (to, I’m sure, the profound dismay of the newly adapted organisms). As a corollary, we are always looking for a balance of positive and negative feedback loops when we analyze companies and industries. If you have only positive feedback, the growth tends to collapse under its own speed, but if you have mitigating push back to maintain growth in a steady band, it tends to build more stable businesses over time. This is one of the many lessons we take from biological ecosystems and evolution when we look for long-term investments.

To DST, or Not to DST
In 1973, US Congress voted to put the country on permanent daylight savings time as a two-year experiment. Apparently, people did not like it. The problem was prolonged morning darkness, particularly at more Northern latitudes, with the sun rising well after 8am in mid-winter. If history is any guide, if the Senate’s permanent daylight savings bill, the Sunshine Protection Act, is signed into law and goes into effect in 2023, we may be repealing it in January 2024. The Act appears to have been accidentally passed via a loophole, so it may not make it through the House to the President’s desk. There seems to be a straightforward solution here: go to permanent DST and move the US back 30 minutes from the rest of the world. This would put the latest sunrise at or before ~8am and still keep the evenings brighter, which would theoretically save energy (the original motivation for the 1970’s experiment). Such a move wouldn’t be unprecedented, as parts of India, Australia, and other countries are on 30-minute time zones.

Stuff about Geopolitics, Economics, and the Finance Industry
How Much of the World Will Emulate North Korea?
It is disorienting to me that 69-year-old Putin thinks in terms of land and borders in a world defined by the unbounded flow of ideas and information. What value is more land when an economy can be grounded by software updates? There remain many uncertainties, with potentially far-reaching consequences, surrounding the Russian war in Ukraine. I’ve discussed the global sanctions in the last couple of SITALWeeks (#337, #338), but I wonder how extreme sentiment and sanctions will become if the war lingers on? For example, if China continues to waffle or backs Russia outright, will pressure from governments and Western consumers force companies to pull completely out of China and sanction wealthy Chinese people? Apple would look very different without its existential dependence on China. Another example: With India guzzling up Russian oil, is it ok for Western companies to continue using India-based engineers and call center employees? The path forward is certainly becoming murkier. As I noted last week, the benefits of globalization should far exceed the costs of deglobalization long term. If ramping up deglobalization threats via boycotts and sanctions in the short term is a path to increased peace and freedom long term, the cost of doing so might make sense. But, it’s complicated and in some cases unthinkable because sanctions hit the citizens, who in most circumstances are not responsible for the actions of their leaders. We could arrive at a scenario where countries that cannot sustain themselves without outside food or resources (e.g., Russia, China, India, and parts of Africa) see massive famines and economic crises. These countries could go back in time decades, or even centuries, without access to modern technology and the collective knowledge of humans. As students of complex adaptive systems, we know anything can happen, good or bad, and there is no way to predict it. Deglobalization remained a fairly low probability a few weeks ago, but new evidence suggests we should raise our credence of it happening in some form in the future.

✌️-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. 

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