Hello, hello! 👋🏻👋🏻
Welcome back to another edition of Tidbits covering all the recent things worth talking about in business, media, and technology.
A New Emergent Business Model: Platform + App Marketplace
One of the articles in this edition discusses Stripe’s launch of an apps marketplace. This could fundamentally transform the scope of Stripe’s product and the infrastructure they have built. The payments infrastructure they have built is already deeply integrated into many apps, but with the launch of an apps marketplace, it could expand that payments infrastructure into a full-fledged development platform.
What I find fascinating about this situation goes far beyond Stripe, though. In reality, this is a path that many highly successful businesses have already gone down, including Shopify, Atlassian, and many others.
This business model is fascinating because it is very hard to disrupt and creates the potential for immense value-capture.
It all starts with an underpriced platform. This platform needs to solve a fundamentally important function for a large set of people. For Stripe, this is a bunch of start-ups or anyone that needs payments. For Shopify, this is a bunch of merchants and micro-entrepreneurs that want to sell online.
Due to the platform’s centrality and importance for value-creation and / or its underpriced nature, many people and businesses use it. This makes it very sticky and very hard to attack.
Increasingly, many companies that have been successful in building out platforms are now throwing app stores on top, not unlike what Apple did with iOS.
The magic of this move is that it marries the platform with a two-sided network. Consumers generally do not know which merchant is using Shopify. Shopify is purely an invisible platform. There is no two-sided network that keeps the merchant married to Shopify other than the underpriced nature and the utility of the product. But the moment Shopify launched an app marketplace on top, it created a two-sided network that makes the platform much stickier: Merchants now can buy further value-enhancing apps and features from other developers, and these developers would be increasingly drawn into this ecosystem without providing their coding capabilities to potential alternatives.
All well-oiled developer flywheels are very hard to break because the platform is able to leverage the significant capabilities of 3rd party developers to further enhance its own platform, while depriving new competitors of development talent. For example, every developer focused on making iOS apps for Apple is not spending time making apps for alternative platforms.
And once the flywheel gets going, the platform has a pretty easy path to squeezing more value out. As with all two-sided networks, it’s very hard for one side to decide to break free from the platform. Merchants that rely on some of these apps have a hard time moving off Shopify because the developers may not be developing the same apps elsewhere. And similarly, developers will not want to develop for alternatives if the potential customer base is too small.
Historically, payments is a dumb pipe. New age fintechs and merchant acquirers have made it smarter by allowing more and more data to transmit across the pipes.
But now, we may be witnessing the transition of payments into a full-fledged development ecosystem. It’s going to be more than data. It’s going to be a programmable and computable ecosystem all built around payments.
🤑 Economics + Markets
#1 U.S. Tech Sector Sees Highest Job Cuts In May Since Dec. 2020
U.S. employers in the technology sector cut nearly nine times more jobs in May than in the first four months of the year as rising inflation and slowing demand force companies to cut corners.
The impact of the Ukraine crisis, a four-decade high inflation and rising interest rates has led to forecast cuts by companies such as Snap Inc (SNAP.N) and Microsoft (MSFT.O), while others like Meta Platforms Inc (FB.O) have slowed hiring to rein in costs.Source: Reuters
Interesting times in our economy. Economic activity remains positive but weakening. Unemployment remains low with massive shortages of labor in many industries…but tech is now weakening. Lower-end jobs continue to see tightness, while high-end jobs are now flagging. Even Tesla plans on cutting 10% of its workforce.
What will be the secondary impacts?
👻 Cryptocurrencies + NFTs
#2 Terra Collapse Triggers $83 Billion Decentralized Finance Slump
A crash in the prices of stablecoin TerraUSD, or UST, and its sister token Luna in the first half of May sent shock waves through the DeFi sector, where investors borrow, lend and stake cryptocurrencies without intermediaries like banks. The total value locked across all major protocols has slumped to $112 billion from $195 billion at the start of the month, data from industry tracker DeFi Llama show.Source: Bloomberg
The aftermath of Terra’s collapse continues to reverberate. While crypto prices have stabilized, it’s becoming clearer than large swaths of the ecosystem that had been built on leverage is now unwinding.
The disappointing part is that many people were involved without knowing the risks (like this surgeon that put his money into a start-up assuming it would be in something safe that took his money and put it into Terra). It’s one thing to know you are speculating and at risk of losing your money, but many of these products were dressed up as “safe”.
#3 China’s State-Backed Blockchain Company Is Set To Launch Its First Major International Project
China’s state-backed blockchain company is planning its first major international expansion, its CEO told CNBC, as Beijing continues to make the technology a key priority.
Blockchain-based Service Network (BSN) bills itself as a “one-stop shop” to deploy blockchain applications in the cloud, a process that could otherwise be costly and time consuming. It aims to link different blockchains together to help businesses deploy the technology.
The Spartan Network will eventually be made up of half a dozen public blockchains that do not operate with cryptocurrencies. One of those will be a non-crypto version of the Ethereum blockchain when the project launches in August.Source: CNBC
Contrary to the focus on cryptocurrencies in the west, China continues to push forward with blockchains that have nothing to do with speculative assets of any kind. In essence, China wants to use blockchain technology to build out a global cloud computing environment where data is stored in public blockchains. While crypto bulls often suggest blockchains are secure, it’s only secure in the sense that you can’t change the record once a transaction is appended. It does not secure you from many other types of trust issues like counterparties lying about their identity and tricking you out of money without delivering on their promised goods. And it’s also not secure from a privacy perspective since the data is all publicly visible. What business would want their data all publicly visible for the world to see? The alternative is a private blockchain…but that completely removes the whole point of having a service that isn’t centralized and would result in a service that is no different from what you already have with private databases.
#4 Former OpenSea Employee Charged In First-Ever NFT Insider Trading Case
U.S. prosecutors are now going after insider trading in the crypto industry.
On Wednesday, prosecutors in New York’s Southern District charged and arrested Nathaniel Chastain, a former product manager at the online marketplace OpenSea. The 31-year-old faces one count of wire fraud and one count of money laundering, in connection with a scheme to commit insider trading in non-fungible tokens, or NFTs, “using confidential information about what NFTs were going to be featured on OpenSea’s homepage for his personal financial gain.”
According to the indictment, Chastain was tasked with selecting NFTs to be featured on OpenSea’s homepage. OpenSea kept those homepage selections confidential until they went live, since a main page listing often translated to a jump in price for both the featured NFT, as well as NFTs made by the same creator.
From roughly June to September of 2021, the indictment says, Chastain would secretly buy an NFT just before OpenSea featured the piece on the front page of its website. Once those NFTs hit the main page, he would allegedly sell them “at profits of two- to five-times his initial purchase price.”Source: CNBC
“NFTs might be new, but this type of criminal scheme is not,” said U.S. Attorney Damian Williams.
💬 Media + Games
#5 Snap Plunges, And There Goes Social Media’s Online Ad Biz
Nearly every major player in the sector reported a notable slowdown in advertising revenue growth during the recent first-quarter earnings season. All but one actually missed Wall Street’s targets for that category as well. Then, in a surprise announcement,Snap Inc., SNAP -2.75% the parent company of Snapchat, said in a filing Monday afternoon that revenue and adjusted pretax earnings for the second quarter will come in below the range the company projected barely a month ago.
Snap’s online-ad business is a fraction of the size of Google’s, Facebook’s or even Amazon’s AMZN -2.52% . Still, it was an ominous note to sound barely halfway through the second quarter from a company that had never issued a revenue warning before.Source: WSJ
Recently, Snap provided a rather shocking updated revenue guidance for 2Q. Despite previously revealing that revenues were growing at 30% through the third week of April, the company now expects 2Q earnings to be below the low end of previous guidance of 20-25%, implying a very rapid slowdown in their ad business within the last few weeks.
The question now is whether this is specific to Snap or is it a further weakening of demand for the advertising industry as a whole?
#6 Square Announces Plans to Bring Tap to Pay on iPhone to Square Sellers Later This Year, Launches Early Access Program Today
Square today announced that it is working with Apple to enable Tap to Pay on iPhone, Apple’s contactless payment acceptance capability, within the Square Point of Sale app. The new offering enables sellers of all sizes to seamlessly and securely accept in-person contactless payments with only an iPhone and Square’s industry leading POS app. Ahead of publicly launching the service later this year, Square also announced an Early Access Program for Tap to Pay on iPhone, allowing select sellers to begin testing the new technology.Source: Square
A few weeks ago we discussed Apple’s launch of “tap to pay”, allowing merchants to accept payments using just their iOS devices with built-in NFC technology. When the news first came out, investors were afraid of what this means for POS providers like Square since Apple could become a direct competitor.
With this update, we now have a better understanding of Apple’s plans. Rather than try to become a merchant acquirer / POS provider on its own, Apple will probably work within the existing merchant acquiring landscape but seek to take a small fee for every transaction that runs through the NFC chip.
#7 Affirm and Stripe Partner to Help Businesses Grow Their Revenue
Affirm (NASDAQ: AFRM), the payment network that empowers consumers and helps merchants drive growth and Stripe, a financial infrastructure platform for businesses, announced a strategic partnership that makes Affirm’s Adaptive Checkout™ available to Stripe users in the U.S. today. Adaptive Checkout uses Affirm’s smart decision engine to make a real-time underwriting decision and offer consumers optimized bi-weekly and monthly pay over time options side-by-side.Source: Businesswire
After partnering with Shopify, Amazon, and other platforms that can provide direct access to merchants, Affirm is now partnering with Stripe. This is interesting because Stripe is one of the largest payment infrastructure companies that already work with many / most start-ups and platforms. Rather than go one by one, Affirm can now integrate with almost all platforms through Stripe.
This is a reminder that BNPL’s greatest challenge is distribution (and credit underwriting), not demand.
Speaking of Stripe, perhaps the most interesting news recently is this:
#8 Stripe’s New Apps Marketplace Brings Third-Party Tools Directly Into Stripe
Payments processing and financial infrastructure giant Stripe has launched a new apps marketplace, designed to bring third-party accounting, analytics, CRM, marketing and esignature features directly into Stripe.
While Stripe has offered extensions for several years already, this only allowed businesses to transfer Stripe features and data into other products. Its latest offering works in reverse — it creates new possibilities for developers to build additional functionality directly in the Stripe Dashboard and addresses one of the “top requests” that Stripe said that it receives from customers.
At launch, the new Stripe Apps Marketplace will include more than 50 apps from companies such as Xero, Dropbox, Mailchimp, Ramp, DocuSign and Intercom, unifying many of the key tools that companies need to use as part of their payments and finance workflows.Source: Venturebeat
This is fascinating because it transforms Stripe (and payments) into a development ecosystem. Payments is now becoming a development platform in its own right. In the past, a start-up would integrate Stripe APIs for payments processing. Now you might be able to do a whole lot more.
#9 Amazon Plans to Sublet Warehouse Space to Reduce Excess Capacity
The online retail giant is seeking to sublease a minimum of 10 million square feet of warehouse space and is also exploring options to end or renegotiate leases with outside warehouse owners, according to a person familiar with the matter. The move follows the first quarterly loss in seven years for the company, which in April reported a decline in demand that has strained its warehouse operations after roughly two years of outsize growth.
The company hasn’t been alone in experiencing recent challenges. Online shopping in general has slowed down, losing many of the gains it recorded during the pandemic. And the broader tech industry has confronted a difficult stretch from a variety of economic, industry and market factors, including high inflation, the war in Ukraine and postpandemic turbulence in e-commerce, digital advertising, electric vehicles, ride-hailing and other segments.Source: WSJ
Following on Amazon’s weak results a few weeks ago (along with similar weakness from peers), Amazon is now trying to rationalize its warehouse footprint. Not only are digital businesses now facing headwinds as the world increasingly returns to “normal”, the global economy is also slowing at the same time.
#10 Mercado Libre Enters The Delivery Business: It Will Compete With Ordenes Ya And Rappi
In 2020, they developed a specific button within the app called “Places near you”, which users can communicate with neighborhood businesses via Whatsapp to place orders for withdrawal or by shipments of participating businesses.
“This new functionality is an evolution of that button. Shipping manages the deliveries that the restaurants themselves have“, advanced from Mercado Pago.
“Mercado Pago Delivery is an on-demand food delivery solution where the customer accesses a list of registered restaurants, selects their order and pays directly from the Mercado application Pago.Source: News Repeat
So far, I do not know of a single ecommerce business anywhere in the world that has shown much success expanding into food delivery. Alibaba and Amazon have not been successful. Shopee’s venture in this area is still a work in progress. But perhaps Mercadolibre can do better.
On paper it makes a lot of sense, though. Ecommerce businesses already have significant logistic capabilities. The utilization of that capacity occurs at different times of the day compared to food delivery, which means you can use the natural down times of each business to offset each other. However, this is also why food delivery companies like Uber think there is an opportunity in ecommerce package delivery.
#11 [Translated] Taobao 618 Will Launch Meta-Universe Shopping
In the virtual world scene full of science and technology, users are suspected to be able to control the direction through mobile phones, guide characters to walk and shop in the 3D world, and complete certain interactive actions.Source: Tech Planet
The coming convergence between commerce and gaming remains a very interesting area. A lot of gaming companies will become commerce companies. At the same time, many commerce companies need to become gaming companies before they are disrupted.
#12 Google Imagen
We present Imagen, a text-to-image diffusion model with an unprecedented degree of photorealism and a deep level of language understanding. Imagen builds on the power of large transformer language models in understanding text and hinges on the strength of diffusion models in high-fidelity image generation.Source: Google
This is very impressive! More photorealistic than DALLE, but maybe a little less creative than DALLE.
🚀 Enterprise Software
#13 Broadcom to Acquire VMware for Approximately $61 Billion in Cash and Stock
Broadcom Inc. (NASDAQ: AVGO), a global technology leader that designs, develops and supplies semiconductor and infrastructure software solutions, and VMware, Inc. (NYSE: VMW), a leading innovator in enterprise software, today announced an agreement under which Broadcom will acquire all of the outstanding shares of VMware in a cash-and-stock transaction that values VMware at approximately $61 billion, based on the closing price of Broadcom common stock on May 25, 2022. In addition, Broadcom will assume $8 billion of VMware net debt.Source: Broadcom
Software / tech acquisitions continue to heat up. With the reset in valuations, many companies now look a lot more attractive. Fortune tends to favor the prepared…those with strong balance sheets will continue to take advantage of the less forutnate. Strong balance sheets are often discussed in the context of “safety”, but strong balance sheets are important because it allows you to take advantage of your competitors when they are down. In life, too many people and businesses think the “winning” happens on the way up…by outcompeting competitors with more aggressive strategies, but life is often a marathon where you win by watching your competitors die in the downturn.
💉🔬 Health + Science
#14 China Plans to Feed 80 Million People With ‘Seawater Rice’
Jinghai district in northern China is hardly a rice-growing paradise. Located along the coast of the Bohai Sea, over half of the region’s land is made of salty, alkaline soil where crops can’t survive. Yet, last autumn, Jinghai produced 100 hectares of rice.
The secret to the bountiful harvest is new salt-tolerant rice strains developed by Chinese scientists in the hope of ensuring food security that’s been threatened by rising sea levels, increasing grain demand and supply chain disruptions.Source: Bloomberg
The magic of technology.
Wonder if the fear of GMOs will engulf this effort as well? Although there are reasons to fear genetic manipulation of organisms, the benefits of GMOs are also very high, including drought-resistant strains that can be planted in many regions in the world that increasingly lack water.