Here’s a selection of what I found most interesting recently. I started experimenting with some design changes in the last edition of Tidbits…the design changes don’t come through all that well via WordPress’ default email feature, and I’m not confident I will figure out a better alternative to the default email feature soon. May be better to read directly in the browser.
It has been a tense few weeks, but the US election results were finally called this morning. What happens now? Where do we go from here? Does this country unite and heal? Does the world unite and heal? Or have we already gone down diverging paths?
The gravity of this election makes every other piece of news seem almost inconsequential…I thought about just ending this edition of Tidbits at the Geopolitics section, but life goes on.
#1 Biden Wins US Presidential Election
Source: The Associated Press via Google
News outlets and relevant parties declared Biden the winner earlier this morning. While Biden has presumably won, he will not be sworn in until late January. Trump is publicly refusing to accept the result. What does this mean, and what will Trump do before January either domestically or internationally?
A couple of things to note – While Biden has a wider popular vote margin vs Trump than Hillary in 2016 (65.8 million for Hillary vs 63.0 million for Trump), Trump has received more votes this time around than last time. Regardless of your politics, everyone needs to be clear-eyed that Trump’s support has not gone down, at least not when it comes to people who vote.
Another important thing to note is that approximately 150 million people voted in this election. This is one of the highest voter turnouts for a Presidential election in about a century, yet it is still less than half of the US’ 330 million population. Not everyone in the population is eligible to vote, but 150 million is still far short of the estimated 250 million people that are eligible to vote.
#2 A Better Way to View the Political Landscape
This is a quadrennial issue in presidential politics. Every four years, we get new election results, and every four years, people start passing around state- or county-level results maps that show a massive sea of red — reflecting Republican strength in expansive, sparsely populated rural areas. New York City occupies a few pixels; Sweetwater County, Wyo., with its 44,000 people, occupies hundreds of times as much real estate. So, every four years, we get a flood of maps reframing the results to emphasize the number of voters supporting each candidate, not the number of acres.
Source: Washington Post
One thing that has always struck me as odd is how political maps are disconnected from reality. The representations of reality that we carry in our minds have enormous impact on how we think and act. And the political maps that we use have very likely contributed to the deep political divide in this country.
From a Republican’s perspective, they are rightfully indignant to see a country that is overwhelmingly Red to be increasingly governed by Democrats, many whom look down on them as uncultured and backwards.
But the commonly used maps do not represent reality, and overstates the Republican position.
These maps color vast expanses of open space that belong to no specific person as Red. Yellowstone makes up a significant portion of Wyoming, Idaho, and Montana. Yellowstone is often colored Red. But Yellowstone does not belong to Republicans. Yellowstone also does not belong to Democrats. Yellowstone belongs to all of us. Yellowstone belongs to America.
The same argument can be made for any number of public lands that belong to all of us – Appalachia, Yosemite, Grand Canyon, etc. These lands belong to all of us.
The Washington Posts’ rejiggered map showing only pinpoints for specific votes is much more closely aligned to reality.
And this representation is also important for Democrats to see. Republicans are not separate and far away. In fact, most Republican voters live not that far away from blue voting blocks. And Democrats need to understand that what is normally colored Red belongs to them, too…Democrats should have a vested interest in the health and majesty of parts of the country that are normally colored Red. Because Yellowstone isn’t truly Red. It belongs to the Democrats, too. Democrats cannot afford to ignore vast swaths of this country that is normally colored Red because that representation simply is not reality.
We have but one country and it belongs to all of us.
#3 Republicans to Maintain Majority in Senate?
Source: The Associated Press via Google
While most of the attention is on the Presidential race, it is important to keep in mind that the laws of the land are created in Congress, not in the White House. And the US system of governance prioritizes checks and balances over efficiency. This overemphasis on inefficiency is (was?) a feature (and probably would not be workable if the US did not have such a low cost of existence).
That is to say that unless the Democrats also flip the Senate, the course of the US will be hard to change quickly. Biden / Democrats will likely need to compromise with a Republican controlled Senate to get things done.
Ever since FDR / World War II, Americans have forgotten that the most powerful arm of the domestic government is actually the Senate, not the Executive branch.
At the founding of this nation, the President had almost no domestic powers at all. By World War II, extreme conditions allowed successive rounds of centralization of domestic power in the office of the President, but the office of the President was never designed or intended to hold such power. The systems of checks and balances put in place are almost expressly designed to prevent such an outcome…and until we re-learn this lesson and return to a system of more locally-dominated politics through the city and state levels (or choose to cast off the system of checks and balances at the national level), we are almost guaranteed to have perennial deadlock and inefficiency.
#4 China Braced For Lose-Lose Scenario as US Election Fuels Unease
This article is from 3 weeks ago, but the issues / questions discussed remain relevant today.
There is no doubt that Trump and COVID-19 has made the world more wary of China. At the same time, other countries were perhaps just as wary of the US under Trump. But without Trump in the White House, what does this mean for China? Where does Europe stand with Biden in office?
In China’s eyes, the choice between Mr Trump and Joe Biden, his Democratic party challenger, is stark. Mr Trump is expected to continue his hawkish policies towards Beijing, but the former vice-president’s inclination towards multilateralism raises the potential for greater co-operation with China, several analysts said.
Mr Chen agreed that Mr Biden would probably adopt a traditional American multilateral approach to foreign policy — in contrast to Mr Trump’s unilateral, “America First” agenda.
“As a result, a Biden administration may make life easier for China in the first year or two, as it will take him some time to undo some of the changes made by the Trump administration, but it may present a tougher challenge to China in the longer-term,” Mr Chen added.
The reason behind such foreboding is that one of the stated intentions behind Mr Biden’s multilateralism is to counter China.Source: The Financial Times
#5 Figuring it Out – Chinese Factories Are Still Pivotal, Says Top US Collectibles Maker
Regardless of what happens, near-term there is no replacement for China as the factory of the world. This interview from one of my favorite China-focused publications, Week in China, illustrates the point:
As I said, my first visit to China was six years ago. It wasn’t that bad! I’ve heard stories of people going to China over decades and recounting how they’d have to travel down dirt roads to get to a factory and that the hotels were basic. Now they tell guys like me we have it super easy in comparison. There are all these nice hotels, there’s hardly a dirt road anymore, and the factories – although not like American buildings – are still fairly nice.
But when we start going into other countries that infrastructure hasn’t been laid down yet. So if we were going to Thailand or Vietnam it’d be the same thing – some of the factories would be off the beaten path. A lot of these other countries still get their materials from China. The unit cost might have gone down but getting things out to the port might be more costly.Source: Week in China
But, it is interesting that things are starting to change:
Another problem that we’re seeing in China right now is with changes to the workforce. The younger generations don’t want to work in resin factories anymore. It’s a dirty job – there’s dust flying everywhere. Younger people don’t want to do it. It goes with the fact that living costs are increasing – it’s about wanting more than what their parents had. You see your parents working in the factory and you think I don’t want to do that. It’s a hard job and the younger generations want it a little bit easier.Source: Week in China
This sounds like…the US! As much as Americans would like to pin the decline of American manufacturing on China, the truth is young Americans have long ceased wanting to work in factories of any kind (many young Americans also do not want to work in service jobs…that leaves only white collar work and no society can exist on a purely white collar workforce). And it seems like young Chinese are evolving the same way. Viewing China through this lens, it’s clear why China needs to pursue manufacturing upgrade and move up the value-chain to provide the types of jobs that young Chinese may want to do.
Speaking of upgrade, China unfortunately remains highly dependent on the US (and US allies) for foundational technology…alternatives that cut out that risk appear to be poor alternatives:
#6 Huawei Develops Plan for Chip Plant to Help Beat US Sanctions
Industry experts said the planned local facility would be a potential new source for semiconductors after stocks of imported chips Huawei has been accumulating since last year ran out.
The fabrication plant will initially experiment with making low-end 45nm chips, a technology global leaders in chipmaking started using 15 years ago.
But Huawei wants to make more advanced 28nm chips by the end of next year, according to chip industry engineers and executives familiar with the project. Such a plan would allow Huawei to make smart TVs and other “internet of things” devices.
Huawei then aims to produce 20nm chips by late 2022, which could be used to make most of its 5G telecoms equipment and allow that business to continue even with the US sanctions.Source: The Financial Times
In comparison, TSMC is manufacturing at 5nm right now and will be at 3nm by 2022. The last time an iPhone had a 20nm chip was in 2014.
💰 Payments / Crypto
#7 Justice Department Sues to Block Visa’s Proposed Acquisition of Plaid
Today, the Department of Justice filed a civil antitrust lawsuit to stop Visa Inc.’s $5.3 billion acquisition of Plaid Inc. Visa is a monopolist in online debit services, charging consumers and merchants billions of dollars in fees each year to process online payments. Plaid, a successful fintech firm, is developing a payments platform that would challenge Visa’s monopoly.
“American consumers and business owners increasingly buy and sell goods and services online, and Visa – a monopolist in online debit services – has extracted billions of dollars from those transactions,” said Assistant Attorney General Makan Delrahim of the Justice Department’s Antitrust Division. “Now, Visa is attempting to acquire Plaid, a nascent competitor developing a disruptive, lower-cost option for online debit payments. If allowed to proceed, the acquisition would deprive American merchants and consumers of this innovative alternative to Visa and increase entry barriers for future innovators.”Source: US Department of Justice
Plaid is such an interesting acquisition for Visa. I was not aware that Plaid was in the process of creating a payments network that would have directly competed against Visa’s debit network.
In my head, it was broadening the banking side of the network, transforming the system from:
Depositors -> Banks -> Visa -> Merchant Acquirer -> Merchant
Depositors -> Banks or fintech start-ups / wallets -> Visa -> Merchant Acquirer -> Merchant
While Visa started out as a debit and credit network, Visa is fully embracing its destiny as a network. And all networks are fungible. If you can run debit and credit payments over it, you can run a lot more things over it because in a digital world, everything is just data. A debit and credit transaction is just data, too.
And this DOJ lawsuit is interesting because it reveals that Plaid was about to embrace its destiny as a network, too, by potentially building a competing debit network.
This also illustrates how the existing payments value chain is shifting as the entire ecosystem and system digitizes as well. As Capital Flywheels has previously discussed, digital payments have not really operated as digital businesses until very recently. And as this shift continues, the power of the network that sits at the center (e.g. Visa and Mastercard, etc) also grows. And their reach continues to extend.
For example, it allows Mastercard to do something like this on the merchant side that would have never happened before:
#8 Mastercard Expands AI Drive-Thru Testing to White Castle
The credit card company will test its Shop Anywhere platform, which is supported by AI and computer vision technology company Accel Robotics. At the Dunkin location where this will be tested, for example, the location will set up an automated store that can be open24/7, allowing customers to access its products outside of normal business hours.
The company’s AI Powered Drive Through platform will enable QSRs to incorporate vehicle recognition and voice ordering. This platform, which will be tested at some White Castle locations, will allow customers to receive personalized menus based on trends at the store or previous customer behavior and is expected to improve the ordering process. Rekor Systems is providing the vehicle recognition technology part of the platform, while SoundHound will provide the AI voice recognition component. The test will be performed in the Chicago and St. Louis areas, according to Rekor Systems.Source: Restaurant Dive
#9 Credit Karma in Talks to Sell Tax-Preparation Business to Square
Credit Karma Inc. is in talks to sell its tax-preparation business to Square Inc., according to people familiar with the matter, a move meant to head off potential antitrust objections to the personal-finance portal’s pending $7.1 billion sale to TurboTax maker Intuit Inc.
Credit Karma, best known for its website and app where more than 100 million users look up their credit scores for free, expanded into tax services via a 2016 acquisition. The San Francisco-based company doesn’t charge anything for the e-filing service; rather, the income information Credit Karma gleans from users’ taxes helps it fine-tune its main business of recommending credit cards and loans.Source: WSJ
Credit Karma would fit in very nicely with Square’s ecosystem with potential in empowering both the Seller ecosystem and Cash App. Credit lending is one of the largest opportunities for fintech companies. The data that Square would be able to gather using Credit Karma could help it gain an edge in the consumer lending sphere.
Interestingly, this opportunity is made possible only because Intuit / TurboTax has acted anticompetitively in a way that is similar to what the DOJ is arguing in the Visa / Plaid case. According to ProPublica, Intuit convinced the IRS to stop development on tax filing software that would have allowed most citizens to do their tax filings for free. Intuit promised to provide free options for more filers, but currently Intuit is under the spotlight for steering people that would have qualified for free filings towards paid options.
Speaking of Visa…
#10 Coinbase Introduces Coinbase (Visa) Card
Coinbase Card is a Visa® debit card that lets you spend any asset in your Coinbase portfolio and earn rewards for each purchase.Source: Coinbase
It’s interesting how far cryptocurrencies now stand from their original promise of disrupting the existing financial system. I continue to stand by my belief that the existing global financial system, despite significant flaws, is much harder to disrupt than historical financial systems and currencies because there are networks upon networks running through it. Fiat currencies today are more than just currencies. They are networks. And there are networks built upon the currencies like the Visa and Mastercard networks. Eventually more and more cryptocurrency companies / players will realize this and decide to partner with portions of the existing system.
#11 Mercadolibre Publishes 3Q Results
E-commerce is single biggest mega-trend of the internet era. Nothing else even comes close.
And Mercadolibre continues to execute and win in Latin America, a geography with about half a billion consumers. These are incredible growth rates. While the growth will eventually normalize, these consumers will likely never forget the delight and convenience of e-commerce now that they have tried.
What’s most interesting is that prior to COVID-19, China (and Korea) was the clear leader in e-commerce penetration ahead of the rest of the world. While COVID-19 also helped further push e-commerce adoption in China, COVID-19 has arguably done more for e-commerce in the rest of the world than in China because consumers have been reluctant to try (partially due to better offline options on a like-for-like basis).
Even better, Mercadolibre also runs the leading fintech offering, MercadoPago, across the region. Pago is on fire, too:
What is most interesting about the emerging crops of e-commerce giants is that they have the luxury of learning from the current global leaders, Alibaba and Amazon. Mercadolibre mixes up the best of Alibaba and Amazon. Sea similarly mixes up the best of Alibaba, Amazon, and Tencent, as well.
Mercadolibre is even in the process of creating their own version of Amazon Prime…and they just took a meaningful step in strengthening their content offering:
#12 Mercadolibre to Market Disney+
Disney has reached an agreement to market its forthcoming Disney+ video streaming service to users in Mexico via Latin American e-commerce giant MercadoLibre. The deal will see the new streaming platform promoted to members of MercadoLibre’s loyalty programme in the country, enabling them to access the service for free for up to 6 months or with special discounts depending on their MercadoPuntos level. They’ll also be able subscribe to Disney+ via the MercadoLibre and MercadoPago platforms.
MercadoLibre announced a similar agreement earlier this year to market HBO Latin America’s HBO Go streaming platform to users in Mexico, Argentina and Brazil. The Walt Disney Company will officially launch Disney+ in Latin America (including Mexico) on 17 November and is currently offering an annual subscription to the service for MXN 1,359 (USD 64), around 15 percent less than the standard price.Source: TelecomPaper
This article only mentions Mexico, but Brazilian local media is also reporting a similar deal with Disney+. I assume it is or will be pan-Latin America sooner or later.
#13 Connecting Shopify with the TikTok Community
On TikTok, businesses of all sizes are empowered to grow their brands through creative content and storytelling. Since we launched the TikTok For Business platform, we’ve seen brands around the world make real connections with our users by embracing the culture that makes our platform unique. Social commerce has become an increasingly important channel for merchants to expand their audience, and we’re excited to provide simple, scalable solutions that enable businesses to authentically and impactfully engage with the TikTok community.
Today, we’re announcing a global partnership with Shopify that will help more than 1 million merchants create and run campaigns directly geared toward TikTok’s highly engaged community. Brands are an important part of the TikTok experience, and we’ve seen that our community loves connecting with the brands they’re passionate about. In a recent study, 88% of TikTok users said that they discover new content that they enjoy while using the app, and about half of users said they discover new products through advertisements posted by a product or brand.* Through this partnership we’re making it easier for Shopify merchants to tap into the creativity of the TikTok community, be discovered, and optimize their marketing campaigns.Source: TikTok
Social. Commerce. Culture.
Continues to bring together two of the most innovative and disruptive companies in the world.
If Amazon didn’t have such a large lead on logistics and utilitarian commerce, I would worry about Amazon.
I didn’t get around to reading this from A16Z until very recently, but it is a fantastic overview of how video-first commerce has taken China by storm with lots of video examples. And many of it is probably applicable in other markets.
#14 The Video-First Future of Ecommerce
In the future, we’re all going to be shopping on video apps like TikTok. Whether you’re buying instant noodles or high-end sweaters, it has become increasingly clear that short video clips are the future of ecommerce. Think of them as compulsively watchable commercials—with a direct link to buy.Source: A16Z
#15 Baidu Could Challenge Bytedance by Buying JOYY’s Chinese Business
In an effort to expand its streaming video ecosystem, Baidu (NASDAQ:BIDU) could soon acquire JOYY‘s (NASDAQ:YY) Chinese operations, according to the digital media outlet Jiemian. JOYY will reportedly retain its larger overseas business.Source: The Motley Fool
Okay, this article isn’t actually interesting at all because the writer is severely misinformed about the social media space in China if they think Baidu can challenge Bytedance / Douyin with JOYY’s China asset…
What’s actually interesting is that JOYY is separating out the weak Chinese assets (what Baidu thinks they can do with it is beyond me, but if Baidu had good strategic thinking, they wouldn’t have gone from industry leader to irrelevant in 8 years). After the sale, JOYY would purely contain the international assets, Bigo and Likee.
Everyone talks about and knows TikTok, but Bigo and Likee, especially Likee, are doing very well in their own right.
Likee is currently nipping at the heels of some of the most well recognized social media apps around the world. Likee has achieved >150 million MAUs during the summer, yet it has almost no mindshare among investors or industry watchers.
Source: Sensor Tower
Twitter has about 300 million MAUs and has a market cap of $34 billion. Snapchat has 250 million DAUs (maybe 400 million MAUs?) and has a market cap of $67 billion. Pinterest has ~450 million MAUs and has a market cap of $40 billion.
And JOYY has a market cap of $8 billion with more than 50% of that as cash on the balance sheet very soon.
#16 From ‘Fall Guys’ to ‘Among Us,’ How America Turned to Videogames Under Lockdown
The surge in popularity is accelerating a shift in the balance of power within the global entertainment landscape. Musicians, athletes and politicians are increasingly seeking out games and game-streaming platforms for attention. And tech giants are betting big that the trend will outlast the pandemic: Microsoft Corp. , for instance, announced plans in September to spend $7.5 billion to acquire the company behind the popular Doom game franchise.
Over the summer, Jason Anthony went from playing videogames only on weekends to playing daily. His new routine didn’t change when he went back to commuting to the office in September after a six-month stretch of working from home.Source: WSJ
This was inevitable.
And it is even more inevitable now because of this:
The phenomenon points to a shift in attitudes toward videogaming. Once stigmatized as an addictive pastime that catered to shut-ins, gaming has entered the social mainstream. Many parents who felt conflicted about videogames before the pandemic are now grateful for an activity that, thanks to technological advances in recent years, allows children to easily connect online.Source: WSJ
Years ago, iPads took off as great pacifiers for children. And initial parental reluctance in exposing their children to digital devices soon gave way to acceptability and inevitability.
Games will play out the exact same way.
Franchises / publishers like Activision and Tencent are very well positioned. Picks and shovel players like Nvidia are also very well positioned. Gateways like Apple and Google are, too.
💡 Business Strategy
Well-run businesses tend to be small. This tends to be the case because as businesses get bigger, more and more things need to be managed. And generally there are few businesses or systems that successfully manage growing complexity well. This is why distributed / decentralized decision making systems tend to do better in the long run.
With that said, some of the largest organizations today are still some of the best run organizations in the world. Such as Amazon, Satya’s Microsoft, and of course, Apple.
This Harvard Business Review piece is worth a read to get a glimpse at Apple’s unique structure. The most insightful parts all point towards how Apple emphasizes the importance of not just expertise but continual learning. This is an interesting notion because it does fit in very well with what I have observed with most other less functional organizations. They tend to achieve some success based on initial insight or expertise but fail to learn. And when the industry evolves, those companies shuffle decks and bring in new blood with the right expertise. Apple does some of this, too, but seems to prioritize ongoing learning a lot more. Such a strategy creates much deeper continuity that tends to be lacking at most other places.
#17 How Apple is Organized for Innovation
The adoption of a functional structure may have been unsurprising for a company of Apple’s size at the time. What is surprising—in fact, remarkable—is that Apple retains it today, even though the company is nearly 40 times as large in terms of revenue and far more complex than it was in 1998. Senior vice presidents are in charge of functions, not products. As was the case with Jobs before him, CEO Tim Cook occupies the only position on the organizational chart where the design, engineering, operations, marketing, and retail of any of Apple’s main products meet. In effect, besides the CEO, the company operates with no conventional general managers: people who control an entire process from product development through sales and are judged according to a P&L statement.
Apple is not a company where general managers oversee managers; rather, it is a company where experts lead experts. The assumption is that it’s easier to train an expert to manage well than to train a manager to be an expert. At Apple, hardware experts manage hardware, software experts software, and so on. (Deviations from this principle are rare.) This approach cascades down all levels of the organization through areas of ever-increasing specialization. Apple’s leaders believe that world-class talent wants to work for and with other world-class talent in a specialty. It’s like joining a sports team where you get to learn from and play with the best.Source: Harvard Business Review