I sensed October was going to get really crazy, but it got crazy, faster than I thought. You know what I’m talking about. Since the whole world already knows what happened yesterday, I’m just going to skip mentioning the elephant in the room because you and I know I have no useful commentary to add there at all.
Let’s see how well I can take your mind off of that topic and onto other things.
More important and more crazy that what is on all our minds should be this poll below.
#1 Bipartisan Rise in Willingness to use Violence to Achieve Political Goals
This growing acceptance of the possibility of violence is a bipartisan movement. Our data shows that the willingness of Democrats and Republicans alike to justify violence as a way to achieve political goals has essentially been rising in lockstep.
In A Physical World Under Siege, I discuss how external security issues strongly influences the health and nature of domestic politics. But in this situation, what we are witnessing is rising internal security issues. This needs to be addressed because the logical break point is civil war.
#2 Yes, America Could Split Apart
I can’t remember the exact moment when I first began to fear for the future of our nation. It certainly wasn’t because of a piece of empirical data. It wasn’t a chart or graph that gave me that vague, sick sense that something wasn’t right. I’m reminded of the opening words of the Lord of the Rings movie trilogy: “The world is changed. I feel it in the water. I feel it in the earth. I smell it in the air. Much that once was, is lost.”
The result is that almost 80 percent of the U.S. population lives under one-party rule, with 40.9 percent of Americans living under Republican governments and 36.7 percent living under Democrats. Is it any wonder that now fewer and fewer Americans live like Justices Scalia and Ginsburg, with close friends on the other side of the political aisle?Source: The French Press
That whole piece is worth reading. It’s part of the publicity blitz around the author’s new book. I’m looking forward to reading it.
Despite all the things going wrong, though, whether we do something about it or not is really a question about willpower. There are a lot of things money can’t solve, but there are a lot of things money can solve. A lot of what truly divides our country today are the divergent economic outcomes that Democratic sea-board states have experienced in comparison to land-locked Republican interior. And we actually have a lot of money.
#3 US Household Net Worth Soars to Surpass Pre-Pandemic Peak
Household net worth increased by $7.6 trillion, or 6.8%, to $119 trillion, while the level of federal government borrowing soared as lawmakers responded with massive fiscal relief, according to a Federal Reserve report out Monday. The gain was the largest in quarterly records back to 1952. The value of equities advanced $5.7 trillion from the prior quarter while real estate increased about $458 billion.Source: Bloomberg
Read that again. As Capital Flywheels argued back in March right when the “night” was darkest, things have turned out relatively fine overall. The issue is that not everyone got out equally fine. And we as a society have to figure out how to equitably get everyone past the finish line.
And all that talk about the US not being able to “afford” infrastructure or stimulus or progress of any kind? It’s non-sense. Our government has a very large debt pile, around 110% of GDP or $23 trillion dollars, but it absolutely pales in comparison to the wealth of the American people. We don’t need to “print” money to afford things. We as a country have $120 trillion dollars of wealth. We can afford anything we want as long as we want it. The wealth is unfortunately not equally distributed and the government has no way to access or direct it without higher taxes. But if we as a country come together and spend it on the right things, we would be able to do so much more. Now the hard part is convincing the people with money that taxes will be used on the right things and for everyone else to actually be informed enough to know what the right things are.
#4 Roblox Preparing to IPO
Roblox Corporation is working with investment banks to prepare for a U.S. stock market listing that could come early next year and which the online gaming platform expects could double its recent $4 billion valuation, people familiar with the matter said.Source: Reuters
You probably have never heard of Roblox unless you have young children, but it’s all the rage. Roblox has over 150 million users and is the digital place where kids spend most of their times these days.
What makes Roblox different from almost all other games is that Roblox is not a game itself. It’s a game platform where other kids and developers can create games and environments for people to play and engage in. Much like how you and I spend a growing portion of our lives (both work and play) in digital space, Roblox enables that for kids but in a way that allows them to creatively control and create that world they want to engage in.
This TechCrunch article is worth a read. Worth reading not just to learn about Roblox but because digital world creation is an important concept that Capital Flywheels expects to become extremely relevant in the next 5-10 years. This is something (and a business model concept) that will infiltrate many areas when VR and AR gains momentum.
#5 Roblox jumps to over 150M monthly users, will pay out $250M to developers in 2020
Roblox, to be clear, doesn’t build the games that run on its platform. Instead, it offers the platform for developers to build upon, similar to the App Store. Many of its most popular games are free, monetizing as players spend on in-game items using virtual cash called Robux. Some of the company’s larger individual games, before the pandemic, would average more than 10 million monthly users. And over 10 games as of February claimed more than 1 billion total visits.
In total, there are now 345,000 developers on the Roblox platform who are monetizing their games, and over half of Robux being spent in catalog is now being spent on user-generated content (UGC) items, less than 12 months after the UGC catalog program began.Source: TechCrunch
To save you some embarrassment around “dumb questions” especially if you don’t have kids of your own to ask, here’s a video that explains what Roblox is. Time to feel old.
#6 What is Roblox?
Amazon attempts to get into luxury. Amazon’s lack of success in luxury (or anything non-utilitarian, for that matter) is quite fascinating. Even more so because Alibaba’s Tmall basically already shows everyone how it can be done. Let’s see if this attempt works any better.
#7 Amazon Launches Luxury Stores
After months of industry speculation, Amazon is finally launching its Luxury Stores experience. Oscar de la Renta is the first and only label to open a shop-in-shop today, though more established and emerging ready-to-wear, accessories, and beauty brands are expected to join the new platform in the weeks to come. Christine Beauchamp, president of Amazon Fashion, tells Vogue, “We’re excited about creating an elevated and inspiring customer experience, while also infusing innovative technology to make shopping easier and more delightful.”
It’s operating Luxury Stores as a concessions-based platform and giving brands more power and freedom than they tend to enjoy in a traditional department-store relationship or on one of the premier luxury e-commerce sites. Bolen and his Oscar de la Renta team are able to independently make decisions regarding their assortment, their pricing, what they will showcase to customers when, what kind of customer service they’ll offer (there are no customer reviews on Luxury Shops), and whether they will utilize fulfillment by Amazon or do their own shipping. “Fundamentally our relationship with Amazon is not a wholesale arrangement,” Bolen says. On launch day, the brand’s pre-fall and fall 2020 collections will be available.Source: Vogue
Pinterest continues to surprise me with how quickly they are evolving their commerce offering. The things they are trying aren’t novel because they don’t have to. There are a lot of models that already work out there and Pinterest just seems to be moving a lot faster than others.
#8 Pinterest Officially Adopts Stories
Pinterest is announcing its spin on the increasingly popular stories format — Story Pins, which combine multiple pages of images, videos, voiceover and overlaid text.
“Story features on other platforms are designed to show you what people are doing,” Temple said. “Story Pins are designed to show you how people are trying new ideas and new products. That means the features and intent are dramatically different.”
For one thing, he noted that they’re not ephemeral, meaning that they don’t disappear after a set period of time, and can still be surfaced via search or other discovery mechanisms: “The best ideas and Story Pins remain relevant for months.”Source: TechCrunch
Their innovations are starting to get advertiser attention.
#9 More Media Dollars Going to Pinterest
“We’re seeing more of our retail clients particularly the smaller to medium-sized ones, put Pinterest on plans,” said Daisy Leaback, senior account director at Threepipe. “There are a lot more formats on Pinterest now that make it more shoppable for advertisers. Yes, they want to do more awareness, but they ultimately want sales from the media they buy.”Source: Digiday
Meanwhile, even before Amazon has figured out luxury, they are launching…experiences?
#10 Amazon starts offering virtual classes and sightseeing tours via new Explore platform
Amazon has launched Explore, a new platform which it promises will let you “explore anything from lessons to landmarks.” It works via a video stream, with tour guides, instructors, and personal shoppers providing one-on-one sessions. Amazon says the video is one-way, meaning only the host is on camera during the virtual experience, but the audio is two-way so you can ask questions and make requests.Source: The Verge
But, services is ultimately a very, very large category that is worth going after in the long run. Sometimes I think Amazon would do better with more focus, but as Bezos says, experimentation is just part of their approach.
🤑 Payments and Platforms
#11 Shopee and Visa Sign Five-Year Strategic Partnership
As part of the regional agreement, Shopee and Visa will partner to:
● Incentivise MSMEs to digitalise their business on Shopee and adopt digital paymentsthrough Visa
● Provide MSMEs with marketing and campaign support to drive awareness, traffic andsales to online stores
● Launch co-branded credit cards in collaboration with local banks
● Offer fast, easy and secure Visa payments to all Shopee users
● Create unique experiences for Shopee users through Visa’s exclusive sponsorship platformsSource: Shopee / Visa
This is relevant obviously because of our interest in Sea and it’s importance to the Paper Portfolio. But beyond that, it continues to highlight how the changing digital landscape is changing Visa’s business model and interests, too. Visa used to just sit in the middle of the payments chain, bracketed by banks / card issuers on one end and merchant acquirers / merchants on the other end. Visa had little direct power or interest to interact with the end users (cardholders or merchants) on either end. Doing so would be very expensive in a labor-driven payments world. But as Capital Flywheels has previously highlighted, in a digital world, the labor-driven constraints and business models that dominated the merchant acquiring space is coming to an end. In a digital world, Visa can take a more direct approach. And this is a manifestation of that. Visa and Shopee are sharing the workloads that would have previously been the domain of merchant acquirers. Now Visa can directly partner with Shopee to get merchants to adopt digital payments and become digital retailers as partners in crime. The era of labor-driven merchant acquiring…the era of slick salesmen going door-to-door convincing retailers of the benefits of joining the digital age by putting a POS on their counter…is quaint and slowly coming to an end. (The sharp reader will remember from my prior post that merchant acquirers offer a number of other services as well…those are still safe, which allows merchant acquirers to continue to exist in some capacity, but…anyone not thinking 3 steps ahead is waiting to be disrupted.)
This is especially true when you consider that the POS is becoming digital.
#12 Visa Tap-to-Phone
Tap to Phone makes it easier for sellers to use their smartphones to accept payments. As part of this initiative, Visa is helping drive these innovations through the Tap to Phone program which enables sellers to turn their NFC-enabled mobile devices into contactless POS terminals with no additional hardware required.Source: Visa
Years ago, banks / issuers and the networks (Visa, Mastercard, etc) needed merchant acquirers. One of the key needs was POS distribution. But the POS is going to be subsumed by software in the coming years. There will be no such thing as a POS anymore. The POS will become a part of the devices that we all have in our pockets. Merchant acquirers play no role in the distribution of those devices because every consumer on earth actively sources and purchases that device on their own.
The partnership makes a lot of sense especially since it looks like Sea’s digital wallet is outperforming others despite showing up late to the party.
#13 Shopee’s E-wallet Outperform Competitors
According to the study, which asked 502 smartphone users, ShopeePay captured 26% of Indonesia’s e-wallet market as Covid-19 drove up consumer spending on ecommerce platforms. The Shopee arm outperformed the likes of Grab-linked Ovo (24%), Gojek’s GoPay (23%), Dana (19%), and LinkAja (8%).Source: Tech in Asia
If you want to read more on fintech and how it is being adopted specifically within software-as-a-service business models, here’s a great overview.
#14 Fintech Scales Vertical SaaS
Today, about 90% of public SaaS companies and the 2019 Forbes Cloud 100 have subscription-based revenue models. Now new fintech infrastructure companies have made it possible for SaaS businesses to add financial services alongside their core software product. By adding fintech, SaaS businesses can increase revenue per customer by 2-5x* and open up new SaaS markets that previously may not have been accessible due to a smaller software market or inefficient customer acquisition.Source: Andreessen Horowitz
🎯 Business Strategy
#15 Surfing the Right S-Curve
The whole thing is worth reading.
But for others, there’s intelligence and planning at work. The curve is not a constant. Some people look at where their career is going and see that they’re approaching a dead end. And companies, especially, thrive when they identify the S-curve they’re on and choose which one they’d like to be on instead. Many people reach a point in their work where the S-curve inflects: every project they finish gets them skills and referrals that they can apply to doing an even better project after. That’s an enjoyable situation, at least while it lasts, but empirically it doesn’t. Wage growth is fastest at the start of a career, and slows monotonically throughout—one study has real wages rising 3.3% annually from ages 25 to 34, but actually dropping slightly from the mid-40s onward.
If every company is trying to optimize its resource consumption to maximize output, it’s going to grow until some constraint slows it down. The bigger the company, though, the more it reshapes the entire environment; Google made some businesses possible, and since those businesses could grow their audience at Google scale, it made them grow far faster. Platforms are naturally allergic to high-margin hypergrowth by their customers—if it’s scalable and profitable, it’s probably an arbitrage, and owning a platform means having an eventual monopoly on all arbitrages that platform enables. In IBM’s case, they helped make Microsoft ubiquitous, and Microsoft’s ubiquity helped materially erode IBM’s importance.Source: The Diff
Capital Flywheels has previously argued that all scalable platforms are in an unstable equilibria because it takes a network to destroy a network. Anyone with a network / platform therefore is incentivized to destroy (or at least diffuse the power of) another network for defensive reasons. As Intel’s founder Andy Grove once said, “Only the paranoid survive”.
The Diff post linked above takes a very different approach but seems to arrive at a similar conclusion (?). The Diff starts from the perspective of platform arbitrage. Every platform has its own inherent S-curve. When it approaches its ceiling, it needs to find ways to jump up onto the next S-curve. Platforms tend to enable a broader ecosystem to flourish, and when one of these enabled businesses start to grow faster, it means there is an arbitrage opportunity for the platform itself to bring in-house / into the fold.
Snowflake is a recent, very high profile IPO. Despite initial price guidance of ~$80 per share, the stock went public at $120 a share and immediately shot up towards $300. There’s a lot of reasons to be excited…Capital Flywheels was looking forward to this one, but unfortunately it looks a little too hot to handle at the moment and the heat might melt the Snowflake.
In any case, the link below is a good, concise, and balanced post on Snowflake that I thought worth flagging.
#16 Demystifying Snowflake: The Biggest Software IPO in History
This is considered one of Snowflake’s key innovations: separating storage(where the data is held) from computing (the act of querying). By offering this service before Google, Amazon, and Microsoft had equivalent products of their own, Snowflake was able to attract customers, and build market share in the data warehousing space.Source: Marker
Computing and data are two of the most exciting mega trends in Capital Flywheels’ mind. While companies have been gathering data for a very, very long time, it’s quite hard to actually analyze the data. It’s very computationally intensive and very storage intensive. This is an important reason why only the largest enterprises and largest internet companies have embraced “big data”. Only they have the resources to commit. But Snowflake changes all of this. It separates computation from storage. You no longer have to replicate massive datasets willy-nilly every time you want to analyze or collaborate with a 3rd party. It not only solves a huge money problem, it actually enables a way of doing work not previously possible.
Question is whether they can stay ahead of everyone else now that the idea exists in the world.
One of the reasons Capital Flywheels really tuned into this one (while usually preferring to avoid IPOs because…IPOs are always a “sellers’ market” since the seller decides the opportune time and place to sell you stock) is because of the CEO, Frank Slootman. Frank Slootman played an important role in one of Capital Flywheels’ favorite businesses, ServiceNow. Frank Slootman was instrumental in carrying ServiceNow to relevance, setting up the company for a Herculean rise in market cap from $2-3 billion in 2012 to $95 billion today. And he had some really choice words and endorsement for Snowflake during the IPO process.
This video is also interesting. For a company that people seem to talk about in bated breath as if it’s on the verge of taking over the world, the founders don’t seem to be anything like the evil genius types you might imagine: