gafa

BIG TECH: Subscribing to Unownable Assets with Google Stadia, Apple News, and Taxes

Microsoft, PlayStation and Nintendo split the console gaming market today, with a strong focus on devices and online services. Those companies make money either by selling a piece of proprietary hardware (i.e., the console), exclusive software (i.e., the video game around which they may have IP rights), or through a store that takes a cut of third party developer revenue. Google announced that they are entering the market with a disruptive and orthogonal strategy. The firm plans to use its massive cloud infrastructure and AI advantage to deliver streaming gaming services through a subscription model.

What does this mean? Machines far more powerful than a local console or PC will run sophisticated 3D rendering engines on cloud servers optimized for visual graphics. AIs that optimize data center use and compression will package information transfer in ways that other video game streaming start-ups were simply unable to deliver. On sufficiently fast broadband, millisecond responses between a controller in a living room and a cloud service become possible. While such infrastructure is not ubiquitous, you can see the projected growth of 5G and LTE networks below -- suggesting that Google's vision can be meaningful across a large part of the world. Engaging with a high-end virtual world on a mass-produced cheap tablet becomes a reality. 

Let's talk about subscription. Subscription is the solution for monetizing unownable assets. Such assets may be prohibitively expensive in the aggregate and worthless on the margin. Take for example Spotify, which manages to sell you all the music in the world for $10 per month. An individual cannot afford all the music in the world, and yet the marginal song is worth absolutely nothing. Or take the upcoming Apple News subscription service, which gets around the paywalls of sources like the WSJ for $10 per month as well. A reader can't afford the paywalls for every premier newspaper in the world, even though the value of the marginal article is a donut.

We think similarly about citizenship -- taxes are the subscription cost to membership in a sovereign body, with its social protections, foreign policy, and monetary base. An individual cannot afford those on the margin, nor could those "products" be financed in a case-by-case manner. Or look at the developments in wealth management and roboadvisors, where Assets under Management based pricing (% of total) is beating commission based models (per transaction). AUM fees are a subscription to unlimited rebalancing across thousands of companies, packaged in free-to-trade ETFs on custodian platforms. We go down this road to highlight the right path to follow: all financial services in the aggregate are an unownable asset, but worthless at the marginal product. Price accordingly.

ericsson-5g (1).png

Source: Polygon (Google Stadia), 9to5Mac (WSJ and Apple), NY Times (Apple News)

INSURTECH: Rage Against the Machine and $500MM telematics Softbank investment

Let's start off with the ridiculous, and get more ridiculous. SoftBank has a lot of money to invest in category killing fintech businesses, and one of the latest such players is Cambridge Mobile Telematics, which just received $500 million from the investor. What is it? A widget attached to a car windshield, and then used to collect data about the quality of a particular driver -- from speeding to breaking. This data is then tied to the purchasing of insurance, where "good" drivers have access to lower cost financial products. This is an interesting, and pioneeing, example of how edge computing will create orders of magnitudes more digital data that then feeds the manufacturing of finance. 

A sneaking suspicion in the back of our minds is that driving data is really good for training robots how to drive. Meaning, Google and the rest of the big tech companies are all running experiments with self-driving cars on the road to collect driving data. Something simple from a telematics device certainly is not equivalent to major machine vision and radar data. But it does paint a straight line towards how self-driving car insurance should be priced. Let's repeat that. If a widget in a car tells you insurance prices based on driving performance and you combine that with an AI car, you could compare humans and machines on an apples to apples basis.

The ridiculous part is the human response to tech-first transportation companies. In London, Chinese bike-sharing company Ofo is pulling out of the city because people steal and destroy their untethered bikes. In California, aspiring freedom fighters keep throwing scooters from Bird and Lime into oceans, lakes and rivers. Public service employees are straining to fish out these venture capital funded wonders out of the water. In Phoenix, self-driving Waymo cars are getting their tires slashed and assaulted by gun-wielding road-ragers (Mad Max style, we assume). All that to say that the human element in this story is allergic to being entirely prodded, measured, and automated away. Can politics catch up with SoftBank's Vision Fund, which could build Trump's wall 20 times over? We hope so.

d2233e7a-7e6d-4bc2-811d-f7328d39763e[1].jpg
d68567b1-b834-4a08-b05f-7ad055f5a3d6[1].jpeg

Source: DigIn (Softbank), Gizmodo (Ofo), Slate (Bird), Business Insider (Waymo)