Here’s what I found most interesting recently.
It was a relatively quiet week in the US due to Thanksgiving holiday, but still a little bit of something for everyone.
In recognition of the spirit of Thanksgiving, I want to extend a warm and hearty “thank you” to you for your support and readership.
Especially since the internet has dramatically increased the amount of content available, and there are a many other things you could be reading.
Capital Flywheels has been around for approximately four years. I have no intention to monetize this site as other emerging writers are now beginning to do. The only thing that keeps me going is simply reflecting on the growing number of people like you that value this content, and, together, seeking to better understand the world and how it all comes together.
Thank you for giving me a small amount of your limited time to read what I have to say.
#1 Cash App Announces Definitive Agreement to Acquire Credit Karma Tax
Cash App will provide millions of Americans with the ability to electronically file their taxes
Consistent with Square’s purpose of economic empowerment, Cash App plans to offer the free tax filing service to millions of Americans. The acquisition provides an opportunity to further digitize and simplify the tax filing process in the United States, expanding access to the one in three households which are unbanked or underbanked. The tax product will expand Cash App’s diverse ecosystem of financial tools — which currently includes peer-to-peer payments, Cash Card, direct deposit, as well as fractional investing in traditional stocks and bitcoin — giving customers another way to manage their finances from their pocket.Source: Square
The rumors from a few weeks ago are now confirmed. Not only does this expand the free filing options for people, it is also a great outcome for the Cash App. This creates a differentiated use-case and positioning for the app, much like how the move into equity trading and crypto trading helped differentiate it from other e-wallets.
Square continues to play a very different game compared to peers. Whoever is running strategy and marketing there deserves high praise.
#2 Square and PayPal may be the new whales in the crypto market as clients flock to buy bitcoin
Fintech companies are helping fuel demand for bitcoin as they open the floodgates for millions of people to trade it.
By one firm’s analysis, PayPal and Square clients have been buying the majority of the new bitcoin supply entering the market each day. Hedge Fund Pantera Capital estimates that Square clients have accounted for 40% of bitcoin that enters the market in the two years since the product launched.
PayPal may be responsible for even more demand since launching just a few weeks ago. The payment company partnered with crypto firm Paxos for custody and trading. Volume on Paxos’ exchange, itBit, had been consistently in the same range since September. But as PayPal went live recently, volumes on the exchange more than tripled, according to data from CoinGecko.
Pantera estimated that within three weeks, PayPal clients were already buying roughly 70% of the new supply of bitcoin.Source: CNBC
The media is making a big deal about bitcoin recovering back to the 2017 peak (though it seems like crypto assets started selling off again right as it neared that peak a few days ago). Capital Flywheels guess is that there were a lot of people that were trapped in the last few days of that 2017 peak that have been waiting patiently to get back to zero to unload…that, and many recents winners that got in over the last few months using their winnings for Black Friday shopping.
The revival in cryptocurrencies over the last few months appears to be directly related to Square’s announcement of its purchase of $50 million of bitcoin in late August, and Paypal’s announcement of crypto trading for the PayPal wallet soon after. Both of these moves are interpreted as “legitimizing” the currency.
While crypto enthusiasts and the media want this narrative arc to be about the indestructibility of cryptocurrencies, Capital Flywheels believes the real story is that cryptocurrencies are being co-opted by the centralized players that cryptocurrency true believers have sought to bring down. Square and Paypal will be (if not already) the easiest ways to invest in and transact in cryptocurrencies. And as they leverage their scale, the center of gravity within the crypto space will start to shift towards these players. More and more crypto currencies will be held by “normals” that only view it as an investment (or speculative) asset rather than a way to undo the existing financial system.
Capital Flywheels continues to believe the most sustainable way to capture value in the cryptocurrency space (other than going back in time and investing in bitcoin at birth) is to invest in the players that will control the infrastructure in which cryptocurrencies run on. Square (and Paypal) is quickly becoming just that. (And GPU players like Nvidia as well due to the usage of GPUs for crypto-mining.) A long time ago, Capital Flywheels firmly believed it would be Coinbase, but Coinbase is likely running out of time…
Modern currencies, especially the USD are networked currencies. The quickest and fastest way to compete and destroy a network is to bring your own network. And that is what Square and Paypal are doing. Square and Paypal are leveraging the powerful networks they have created within the USD realm to muscle their way into the cryptocurrency space. And Capital Flywheels believes they will make a very large dent.
#3 Payments Startup Stripe in Talks for Funding at $70 Billion Valuation or More
Private financial technology business Stripe Inc. is in talks to raise a new funding round valuing it higher than its last private valuation of $36 billion, according to people familiar with the matter.
The valuation being discussed could be more than $70 billion or significantly higher, at as much as $100 billion, said one of the people, who asked not be identified because the matter is private. That would make it currently the most valuable venture-backed startup in the U.S., according to CB Insights.Source: Bloomberg
Incredible. Hope this one comes public soon / one day…Stripe remains one of the top 5 most interesting companies in the payment / fintech space in Capital Flywheels humble opinion.
Stripe (along with Adyen) is building the digital infrastructure necessary for payments. And that infrastructure is becoming increasingly valuable as commerce shifts online.
For Capital Flywheels, Stripe is the “one that got away”. Back in early 2016 shortly after Capital Flywheels first learned about Stripe, Capital Flywheels went through all of the necessary hoops to purchase shares in Stripe in the private secondary markets (e.g. from employees that want to sell some shares because the company is not public). Stripe shares were valued at $3-5 billion market cap at the time. However, I was also in the midst of a change in jobs. I ultimately ended up at a newly launched business that required me to take a significant reduction in income in exchange for longer term upside (which has worked out well, but likely not as well as an investment in Stripe, depending on how much money I would have hypothetically staked). That reduction in income combined with the illiquidity of Stripe shares made it a regrettable “pass”.
But, no point in crying over spilled milk. Just need to find the next winner.
#4 Introducing Spotlight on Snapchat
Today we’re introducing Spotlight to shine a light on the most entertaining Snaps created by the Snapchat community.
Submit your best video Snaps to Spotlight for the opportunity to earn a share of more than $1 million that we’re distributing to creators every day!Source: Snap
Snap continues to do some very interesting things. TikTok is absolutely on fire…everyone is trying to close the gap. Instagram Reels is surprisingly getting some traction, despite being a very different product in terms of content and feel. But Snap is probably the closest in terms of feel.
Through Spotlight, Snap is incentivizing creators by offering the potential to partake in a daily lottery of up to $1 million.
Who doesn’t love a lottery, especially if it is free?
Casey Newton over at the Platformer has an interesting take on Spotlight:
#5 Snapchat’s million-dollar idea
TikTok’s approach to promoting videos differs from its predecessors in notable ways. It opens to a feed of videos that have been chosen for you based on whatever the app has gleaned about you, whether you follow anyone or not. This following-optional model has meant that the app is as likely to make a star out of a dance or a snippet of audio as it is to make one out of a human being.
That’s a primary reason why TikTok now feels like a vital engine of culture in a way that other social networks don’t. Instagram mostly knows how to promote influencers; TikTok, on the other hand, spreads dances, sounds, and jokes.
Yet despite those differences, TikTok’s influencer economy looks much like any other platform’s. A handful of creators attract many millions of followers; those creators get sponsorship deals; and thus the rewards to individual users follow a rich-get-richer distribution. Even TikTok’s plan to pay US creators $1 billion over the next three yearsseems designed more to retain top creators than it is to build new ones.
What Snap is asking with Spotlight, the company’s own take on short-form video, is whether you can build an engine for culture that benefits many thousands of people, rather than hundreds. The company’s idea is to replace public follower counts, likes, and comments with something that more closely resembles a lottery — and at least through the end of this year, the company will pay out $1 million a day.Source: Platformer
#6 Pinterest tests online events with dedicated ‘class communities’
Pinterest is getting into online events. The company has been spotted testing a new feature that allows users to sign up for Zoom classes through Pinterest, while creators use Pinterest’s class boards to organize class materials, notes and other resources, or even connect with attendees through a group chat option. The company confirmed the test of online classes is an experiment now in development, but wouldn’t offer further details about its plans.
When and if the feature is later launched to the public, the communities would include dedicated sections where creators will be able to organize their class materials — like lists of what to bring to class, notes, photos and more. They could also use these communities to offer a class overview and description, connect users to a related shop, group chat feature and more.Source: TechCrunch
Pinterest continues to experiment in some very interesting ways. Increasingly, I think the right way to view Pinterest is not necessarily as social media, but as Reddit but for common interests revolving around visuals (photos and video).
The things Pinterest can do with a highly engaged enthusiast user base over the long-run can be quite varied. And hence, Pinterest can experiment with something like online events and classes.
This is something that would be quite hard for other social media platforms to do since other platforms tend to be more influencer-centric. On those platforms, the base unit of organization is the follow, whereas on Pinterest, the base unit of organization is the idea or inspiration. This difference in positioning makes Pinterest a much better platform for a lot of things including education and general commerce.
This evolution is also an interesting one with respect to Zoom. Zoom has become a household name, but Zoom is still very much just a utility today. You do not discover things to do on Zoom. You discover them elsewhere and then you engage through Zoom. Even if you are Zoom-ing with your family, you most likely plan the Zoom session elsewhere (perhaps through messages). Zoom is trying to evolve from a utility into a platform, but I suspect it will be easier the other way around. Platforms that already control discovery can more easily expand into adjacent video utility functions (which in this case is still outsourced to Zoom). But that push and pull is real.
#7 Rise of Garena Free Fire on Youtube
My customary reminder of how awesome Sea is.
People tend to lose perspective in tech because numbers get incomprehensibly big.
This thread highlights just how big Free Fire has become…and it only took 3 years to get there.
#8 How MercadoLibre emerged as an ecommerce titan
Since its founding in Mr Galperín’s parents’ garage in a leafy neighbourhood of Buenos Aires, MercadoLibre’s heady growth is all the more impressive given the particular difficulties of starting an internet company in Latin America.
“We had to solve payments and logistics from zero . . . And we had to solve it for many countries that were fragmented — and that makes it much, much harder,” he said, pointing to the 18 countries where the company operates, all with different currencies and regulations.
MercadoLibre is working to build up its logistics infrastructure to fend off the growing competition, but this has hit the company’s profitability. “Five years ago we had no idea how to do logistics and infrastructure and warehousing and today we are doing it all in the region,” he said, admitting that “we are not even close to where we want to be.”
Now with around 100m people either buying, selling or paying through MercadoLibre’s platforms — out of a population of nearly 650m in Latin America — another challenge will be to expand the company’s presence beyond its core markets of Brazil, Mexico and Argentina, which account for 60 per cent of the region’s inhabitants but 95 per cent of the business’s revenues.Source: FT
Great profile of Mercadolibre in the FT, including the long and arduous journey to where they are today. While many people seem to have discovered Mercadolibre recently and think of it as a young business, it’s actually been around since the late 1990s / first DotCom boom. At the beginning of this year, Mercadolibre was still valued at just ~$30 billion market cap despite being around for more than 20 years (whereas global peers of that cohort like Amazon, Alibaba, JD, Ebay + Paypal have all gone on to much greater heights).
The Latin America landscape has been more challenging to tap than other geographies such as the US, China, and even South East Asia.
This has been the primary reason why the Paper Portfolio has significantly overweighted SE vs MELI since launch, despite both being similar companies. SE operates in materially better geographies and went from being a much smaller player than MELI to now having more growth, more GMV, and more users than MELI in less than 2 years.
However, one thing that hasn’t changed since 1999 is that the promise of Latin America remains as large as it’s ever been. And if MELI maintains its lead, it will be a much larger company than it is today, even if it gets there slower than SE.
#9 Shopify Announces Record Global Black Friday Sales of $2.4 Billion
Today, Shopify Inc. (NYSE:SHOP)(TSX:SHOP), a leading global commerce company, announced record-setting Black Friday sales of $2.4 billion* from the independent and direct-to-consumer brands on the platform worldwide. On November 27, from the start of Black Friday in New Zealand through the end of Black Friday in California, Shopify-powered businesses saw a 75% increase in sales from Black Friday in 2019. In fact, by 8:00am EST, merchants on Shopify collectively had crossed $1 billion in sales.Source: Shopify
Things seem to be going well.
But US e-commerce is still nothing, literally nothing compared to what is going on in China. Alibaba’s Single’s Day puts US Black Friday / Cyber Monday to shame. When Alibaba’s Single’s Day first exceeded total US Black Friday Cyber Monday sales a few years ago, many skeptics claimed fraud. But reality is China is a few years ahead. The US will get there someday, and maybe quite soon because of the drastic change in habits that COVID-19 has forced one everyone.
#10 Alibaba Single’s Day
Final GMV for the 11-day 2020 11.11 Global Shopping Festival was $74.1 billion. And that’s a wrap for this year. We’ll see you again, when November 2021 rolls around. Thanks for stopping by! Hangzhou, out!!Source: Alizila
The Alizila stream includes a lot of interesting looks into how e-commerce is conducted from the warehouse to consumer shopping experience. Worth a browse.
Here’s a few I found interesting:
Here’s another interesting example of how cutting-edge technology has really taken hold with Chinese consumers. Some 60 million consumers have used Tmall’s 3D shopping feature since the start of the 2020 11.11 Global Shopping Festival. The technology allows you to browse an entire IKEA store from your couch. Watch the video below to see how it works.
We promised lots of 11.11 technology-related eye candy, so here you go: Merchants are harnessing Alibaba’s virtual anchor technology to keep their livestreaming going 24/7 on Taobao Live. The AI-powered avatars, developed by Alibaba’s DAMO research and innovation institute, interact with audiences and answer their questions about consumer products using intelligent cognitive and perception technologies. The virtual anchors tap multi-module algorithms, including natural language processing and speech recognition.
#10 Salesforce in talks to acquire workplace app Slack
Salesforce’s bid comes as Slack struggles to fully capitalize on the switch to remote working during the COVID-19 pandemic in the face of fierce competition from Microsoft Corp’s Teams and other workplace apps.
Salesforce sees the potential acquisition as a logical extension of its enterprise offerings, the sources said. The price it was offering for Slack could not be learned, though one of the sources said Salesforce would pay cash for the deal, rather than use its stock as currency.Source: Reuters
Salesforce appears to be making a bid for Slack. Slack has a good product, but even good products have a hard time going up against an inferior product with superior network effects (which is what Microsoft Teams has). That was the primary reason the Paper Portfolio sold off Slack a few months ago.
It will be interesting to see whether Salesforce + Slack makes any difference.
The acquisition also says a lot about Salesforce, in Capital Flywheels opinion. Five years ago, Microsoft tried to buy Salesforce unsuccessfully. And when the deal fell through, Microsoft acquired LinkedIn, which Salesforce unsuccessfully tried to argue was anticompetitive. (The media also reports that Microsoft also made a bid for Slack a few years ago).
As dominant as Salesforce is in customer relationship management (CRM) software, Microsoft’s strength in enterprise combined with LinkedIn is a long term threat to Salesforce’s CRM business for large enterprises. From a software perspective, CRM is not hard to do…what makes CRM valuable is the data. As an early mover, Salesforce has become the system of record for CRM data for many companies, and it is difficult to move that data to competing platforms. However, LinkedIn has very valuable personnel and employee data already that can be leveraged to attack CRM players in the long run, especially when that data is combined with other data sources as well as a cross-company chat application like Teams.
But the digital world is large. As much as this seems like one vs other, both will likely do well.
#11 SEC proposes rules for giving gig workers equity
The U.S. Securities and Exchange Commission has proposed rule changes that would make it possible for gig companies to give equity to their workers as part of their compensation if they meet certain requirements.
Details: The five-year pilot program would allow gig companies to issue equity as long as it’s no more than 15% of a worker’s compensation during a 12-month period, and no more than $75,000 in value during a 36-month period (based on the share price when it’s issued).Source: Axios
This would allow gig workers to share in the success. It’s an interesting approach, but ultimately does not resolve questions about risk.
Many people look at tech giants in hindsight and ask why the people that contributed to it (like gig workers) did not end up with more.
It’s a very fair question, but it ignores the fact that many start-ups do not survive and many gig companies did not survive. Uber and Lyft are just two out of a long, long list of gig companies, most that did not survive, including a ridehailing company based in New York (Juno) that offered equity to drivers. That stock is worthless now. Is that a better outcome than cash compensation that Uber and Lyft gave to drivers?
For gig workers, this is not a strictly superior outcome, but it does increase choice. Gig workers can opt for more potential upside but with higher risk.
However, this is likely strictly a better outcome for companies. I know this seems like a win for labor, but it’s actually a win for the companies. Start-ups are generally cash constrained. By giving equity compensation to gig workers, it would reduce cash constraints on start-ups. It would also better align the incentives of gig workers with the start-up. And if a start-up does end up being successful, the equity they gave away could be worth quite a lot, but it would likely still be a very small amount relative to the total value created.
VentureBeat did an interesting interview with Jensen following recent quarterly earnings.
Jensen is 💯…and is probably one of the best CEOs alive today.
Ever since the start of the pandemic, he’s been surprising the industry by baking up new GPUs in his oven and launching new products hot from his kitchen via Zoom. I hope he continues to bake long after COVID-19 is over.
#12 Nvidia CEO Jensen Huang interview — Antitrust, openness, and the PC-console war
GamesBeat: I see gaming and the datacenter are trading the lead in your revenues back and forth. Do you expect that to keep happening in the foreseeable future?
Huang: I hope the two businesses will continue to trade leads in the size of the business. It’s a foregone conclusion that everybody in the world will be a gamer someday. There are only a billion active gamers today. Someday there will be 7 billion, 8 billion active gamers. The growth opportunity for gaming is still well ahead of us. Gaming is the only entertainment that can be any entertainment. You and I both know that when the metaverse [arrives], we’re going to spend a lot more time in game worlds, not just to game, but just to hang out, to be with people, to interact with people. The gaming market has a great future ahead of it.
Jensen’s a believer in the Metaverse.
On the other hand, I also know that AI is a new way of writing software, and this way of writing software is going to impact every industry. Because we can now write software that we otherwise could not before. Computing could reach more places that we otherwise could not before. For example, who would have thought that on the roads of the future, a billion computers could be just driving around? Who would have thought that, in the future, there will be thousands of computers roaming around warehouses and factories? Those are all new applications that otherwise wouldn’t have been possible without AI.
Every building will be an AI. Everything will be an AI. That’s going to generate a lot of data, a lot more computing. The computer industry is going to be gigantic because of AI. It’s the catalyst that’s been missing. It’s the final piece of the puzzle, to write the software. If someone can write the software, we can sell a computer. Now we can have computers write software. Those two businesses are long-term secular opportunities.
Still Day 1. And it’s all going to be (mostly) powered by Nvidia.
GamesBeat: Do you think Arm can help Nvidia become more open than it ordinarily might be?
GamesBeat: The other side of this is, do you want other companies to be more open and allow you to do more? For example, Apple and GeForce Now. That cloud gaming app can’t really happen except on the web. How do you feel about others being open?
Huang: Our strategy is to be open, to have an open platform for everybody to use however they’d like to use it. But everybody has their own strategy. Ours just happens to be an open platform strategy.Source: Venturebeat
It’s interesting that Jensen refers to their strategy as open. I think many industry participants would refer to Nvidia’s strategy as actually quite closed. However, Apple may have just thrown him a lifeline with the M1 positioning. While people may be concerned that Nvidia’s acquisition of ARM could lead to a more closed ARM ecosystem, many of those companies are facing off against Apple, which has the most closed / integrated system of anyone out there. Apple makes Nvidia look like a church. And ARM’s customers may need Nvidia’s help to compete against Apple.
#13 Google reportedly sets its eyes on Twitter-backed Indian social media startup Sharechat
The Indian social media platform Sharechat has built a strong base for itself in India. As a conscious decision, Sharechat isn’t going after the first adopters of the internet in India – the English-speaking audience which consumes content similar to the West. Sharechat has a presence in over 15 Indian languages.
Google would gain from Sharechat’s expertise in vernacular language growth. Google in July had announced that it would invest a whopping $10 billion in India through the Google for India Digitization Fund, out of which the tech giant had already invested $4.5 billion in Reliance Jio.Source: Business Insider
Whatsapp still dominates in India. Not sure if this is more relevant for Sharechat or Google. I don’t have high expectations for anything social at Google, but maybe I will be surprised one day.
#14 India bans AliExpress, 42 other Chinese apps over security concerns
In another blow to Chinese apps functioning in India, the government has banned 43 more apps in the country, including the popular online retail portal AliExpress, belonging to Jack Ma-owned e-commerce giant Alibaba Group.Source: Business Standard
India continues to ban Chinese apps in retaliation for a military standoff in the Himalayas earlier this year.
It’s interesting because in some ways, India’s app bans actually seems to have kicked off Trump’s Chinese app bans in the US (e.g. TikTok and WeChat). In many ways, India seems to have crossed a line that no democratic country wanted to cross before. But now that it has been crossed, it seems much less taboo for the western world.
This standoff is also fascinating because it dramatically altered the course of India, and potentially China. China and India are the two largest countries in the world. Unlike China, India always knew it has potential but has never felt all that urgent about tapping it. India is a notoriously bureaucratic place. India chose for many, many years to be strategically independent in order to play different foreign suitors against each other for India’s own strategic benefit. However, it has not appeared to work all that well…India has accomplished far less than China, which went all-in on the US relationship over the last two decades.
But this standoff has forced a change. Regardless of who is the aggressor here (since only China and India’s top leaders really know…both officially blame the other for the problem), China is now being cut off from likely the largest foreign market of the next 50 years. While China’s economy has become more domestically driven, export industries remain an important source of employment as well as channel for USD. Losing the Indian market will be a challenge.
On India’s side, losing Chinese capital and cheap goods will also be a very challenging position. But it seems like the Indian government is now officially moving away from strategic independence and straight into the arms of the US in order to make up for the lost investment inflow. This could be a material game-changer, especially on the tech side.