Has AI over-promised?
And also: From electric to flying cars, through sky-high valuations. Snapshots from the innovation World. Technopolitics everywhere. Chips officially a geo-strategic asset
Has AI over-promised? How to make it work
AI has not yet delivered on its promises: AI algorithms have expanded to many human activities, as all the devices we use get connected to the internet. But as this New York Times article reminds us, we may have seen the “AI sun” but we have yet to see it “truly shine”. AI would be now at the same state as cellphones were in the 90s: “useful, but crude and cumbersome” (NYTimes)
Healthcare is an area where AI and big data have not (yet) worked as initially expected. Several stories pointed in that direction this week:
Public health in Singapore (a “data debacle”): At the start of the pandemic, Singapore was universally seen as the example of how to manage it. This included the use of internet apps to collect data that helped the authorities monitor contagions. Now the privacy risks that some attributed to that approach have emerged in a rather drastic way, with revelations that the police has used the “TraceTogether” app for a criminal investigation. A bill has urgently approved after that, to limit the use of data from this app to investigations of just some “serious offenses”. But people are not too happy (FT)
AI-based healthcare in lower-income countries (“beware the hype”): The Financial Times reminds us of the “great hype” currently surrounding the use of AI to improve cancer care in low- and middle-income countries. The article argues that “rigorous evaluation” is needed, to avoid deploying costly technology and get little value out of it (FT)
Using AI to diagnose and cure cancer (IBM can’t get enough data):As we said last week, IBM is on the way to sell its IBM Watson Health unit, which was perceived in the past as a “crown jewel”, with its promises to use AI to revolutionize cancer diagnosis and treatment. It apparently has not worked as expected. The reason seems to be in the difficulty for IBM to get access to massive data sets representing patient populations in an appropriate way. Data on medical histories may have fragmented owners, aren’t always complete, and are often recorded in different formats (WSJ)
To make AI deliver according to its potential, we need new rules for AI systems, addressing key concerns that the media also discussed this week:
Privacy remains an issue. But existing regulations can help: In Illinois, q relatively old (and unknown) privacy regulation (from 2008) is helping the State address the new need to protect citizen’s rights against potential privacy risks in face recognition systems. As we discussed this week, there is a debate right now in the US about local rules being potentially more effective than Federal ones (slower to develop and approve) to tackle the challenges of digital life (NYTimes)
Values and alignment of objectives are a second key area. A UK intelligence agency talked about that this week: A UK Government’s intelligence unit is planning to use AI to improve cyber security protection in the country. As part of this effort, an executive for this unit discusses here the need to incorporate ethical aspects to the discussion on how AI is developed, implemented and exploited. He says that “in the hands of an adversary with little respect for human rights, such a powerful technology could be used for oppression” (FT)(FT2)
Measuring the value of data is key to build business models with the right incentives for all players. Stanford researchers are working on this: A research team at Stanford’s Institute for Human-centered Artificial Intelligence has developed a methodology for computing the value of a data set when used by an AI algorithm. The method applies the well known Shapley values from Game Theory, developed to fairly distribute the bonus in a team that has solved a problem, to improve on previously used basic “leave one out” approaches, which ignored potential interactions between different datapoints (StanfordHAI)
We can also complement AI systems by introducing human decisions in the loop. E.g. to break internet “content bubbles”: There is an emerging frustration among users (and creators) about the challenges to discover content out of each person’s “comfort zone”. This may be seen as a consequence from applying AI algorithms that have incentives to present more material like the one that users have previously found engaging. Shira Ovide from the NYTimes suggests that the solution may be in approaches like the ones that Apple or Spotify are already using, when they combine computer-aided discovery with experts who might push you in a fresh direction (NYTimes)
The potential is still there. New applications are emerging, like detecting future virus threats: A fresh opportunity for AI algorithms is emerging after the pandemic has revealed our weaknesses to identify and address potential public health threats. Illumina, a specialist in genomic analysis, is asking governments and companies to work together to create a “global surveillance network” to monitor real viruses in the same way as computer viruses are monitored today (FT)
From electric to flying cars, through sky-high valuations
Electric car companies ride a valuation tsunami: Many experts believe that we may be in front of a new tech bubble, this time focused on Electric Vehicles. This is seen as a consequence of an excess of capital (“cash is plentiful”) that leaves investors “eager to find a reason to believe”. The emergence of Electric Cars amid the current “Green New Deal” narrative could be such a vision. This week we saw the examples of sky-high valuations both at some early-stage car startups and at (even riskier) companies working to build flying taxis (FT)
The sky-high valuation of Lucid, a Tesla rival, is the latest example. First, the electric car startup. Lucid, one of the candidates to compete with Tesla, has sold a 16.1% stake to a SPAC, at an implicit valuation of $57bn, and this has left everyone impressed (and maybe scared too…) Lucid is supported by Saudi Arabia’s sovereign fund, and has obviously created very high expectations. However, at the same time as the deal was announced, the company also revealed that their first product, the “Lucid Air” will be delayed (WSJ)(FT)
Collateral businesses (like batteries) are also getting explosive valuations.The hype around the industry is also creating opportunities for makers of electric car supplies, like Enovix, a startup working to build cheaper batteries that can be charged quicker, that has just been acquired by another SPAC at a $1.1bn valuation. This (again) reveals some “irrational exuberance’, but also the consensus on how essential batteries are becoming, not only to enable the widespread adoption of electric cars, but also for the next generation of computing platforms, including Virtual and Augmented Reality (WSJ)
Foxconn has already started to validate the “smartphones on wheels” model for building cars.It is not a secret that Foxconn, one of the most important iPhone manufacturers, is moving to build Electric Vehicles too. The company has indeed been rumored to be negotiating a potential partnership with Apple to build the future Apple Car. But for now they have signed deals with others, including the announcement this week with Fisker, a startup that was acquired by a SPAC in October. This is the first agreement in which Foxconn commits to manufacture a whole vehicle, end-to-end (exactly what would be expected if they worked with Apple, and a similar model to what they already do with the iPhone). This is also the first Foxconn deal with an American car vendor. Will Apple be next? (WSJ)
Japan is worried about the future of its car industry: Talking about Apple, there were rumors last week that they were talking to some Japanese carmakers as potential “manufacturing partners” for a future Apple Car. This would of course be an opportunity for these companies, from one point of view, but is also seen as a threat, or as kind of an humiliation by the Japanese car industry, which would shift into a role of “wholesale supplier” of “moving boxes”. This would also explain why Toyota has kept itself out of any of these discussions (FT)
Will we see Huawei cars too? Reuters published this week that Huawei would be planning to build electric cars under its own brand. This has been denied by the company, but seems a credible rumor anyway, as Huawei has traditionally seen itself as kind of a (bigger) “Chinese Apple”. A Huawei voice told Bloomberg that, rather than building its own cars, the company is aiming to provide components for manufacturers, including in-car software systems and 5G comms hardware (Bloomberg)
If all this happens, a new infrastructure will be needed. As we just said, batteries are a key enabler for Electric Vehicles. But there are other critical areas. A priority for the industry today is to solve the “charging station issue”, as even in the US, and excluding Tesla (which has its own network), the network is insufficient, and is in a quite bad shape. It looks like building this charging station network could be a job for the government, as it requires a lot of capital and might not be profitable, so few private companies are interested. Tesla’s network is OK, but Tesla’s competitors are using a different standard, so their cars cannot be charged in Tesla’s stations (WSJ)
Flying cars could be the next stage of the mania. After the Electric Car fever, now seems the turn for flying cars. This is probably a much riskier venture, with most companies at a very early stage and without any significant sales. Joby Aviation, a startup in the field, founded by Reid Hoffman (LinkedIn) and Mark Pincus (Zynga), has just been acquired by a SPAC, at a valuation of almost $7bn (crazy…) Other flying car vendors have signed similar deals recently, including Archer (almost $4bn), Blade or Lilium” (FT)
SPACs are helping. What can possibly go wrong? The Wall St Journal reveals more details about the case of Archer (almost $4bn valuation, but no revenue and no vehicle ready for passengers yet). And they warn that this is “a dynamic that can lead to huge returns but also carries big risks, as young companies are far more vulnerable to going belly up”. Indeed… (WSJ)
Snapshots from the innovation world
Palantir has grown with the pandemic, but is this sustainable? Palantir, the company offering data analysis services to both private companies and government institutions, including US intelligence agencies, has been a winner of the pandemic. This has pushed up the share price and the company’s valuation recently reached $50bn, equivalent to 34x sales (not bad…) Now, like for many others, there are concerns on their ability to keep the momentum post-pandemic. The FT is optimistic about this, and believes that the strategic importance of the services that Palantir provides, together with the quality of service, will be enough to outweigh any post-pandemic sales slowdown (FT)
Investors are also worried about a potential slowdown of DoorDash, post-pandemic. DoorDash is a similar case. The business has multiplied its revenue by 3x during the pandemic, taking advantage of lockdowns, and their positive effect on the demand for food deliveries. Now the question mark is what will happen as “vaccinations sweep the country and the economy crawls toward reopening”. The CEO recognized this problem and talked about “headwinds” this week at the company’s results conference call, but he was also gave an optimistic message when he claimed that consumer habits developed during the pandemic will “tend to stick”. He also mentioned a higher percentage of people working from home in the future (WSJ)(FT)
Snapchat is the new Snapchat:Snapchat held its first investor day this week, and it went great, with the company’s share price reaching record levels, after they forecasted a revenue growth of +50% or more for several years. Investors apparently believed the story that this would be possible thanks to the company’s current investments in more engaging advertising and innovations like augmented reality. The company is presenting itself as the future of social media, and a vehicle for more visual, “immersive” advertising. So they now look as sexy as they used to be in their beginnings (Bloomberg)(FT)
Twitter in transition. Twitter also held a virtual investor day this week, and even if it was maybe not so impressive as Snap’s, it was quite a success too. Share price went +12% before the event, driven by the company’s announced goals for the next 3 years, including 3 key goals: (1) 2x revenues by the end of 2023, (2) at least 315m monetizable daily active users, and (3) duplicate the pace at which they release new features. At the event they announced a new monetization plan, with the new subscription initiative (paid “Super Follows”) at the center (WSJ)(WSJ2)
And Spotify too. As Snap and Twitter, Spotify also presented its future vision to investors this week, at a 2h webinar in which they announced new offerings, m including a new high-fidelity music streaming service for subscribers, more tools for artists, and a massive (85-country) international expansion. Investors look favorable to the company widening its scope, and have high expectations on podcasts in particular, with recent podcast deals seen as the main current driver for the share pice (WSJ)
Clubhouse is growing up: concerns over privacy and security. As we commented last week, the huge recent success of Clubhouse is putting the company in a new context, in which pressure could come from many different fronts that are typically not so relevant for a smaller-scale startup. An example of this comes now with the news that an unidentified user had been able to stream Clubhouse audio feeds from multiple rooms. This incident shows the app’s vulnerability from a privacy perspective, and could negatively affect user engagement. Apart from this, it has also been revealed that the company is using a Chinese company called Agora to handle its back-end operations. This would have been nothing special a couple of years ago, but now it’s perceived as a threat for security, and a concern about privacy (Bloomberg)
Are collaborative photos the next big thing? Dispo as a “new Instagram”. A new smartphone app called Dispo, which tries to emulate the experience with disposable cameras in the 90s, when people took them to parties, is having a large success in the last few weeks. The main differential point of the app is the ability for users to create “collaborative rolls”, with images “developing” and being released together to the group at 9am the next day. The company has already reached a $200m valuation and is talking to Tier1 VCs. Some talk about the “new Instagram” (NYTimes)
Online education getting hotter in China: this Tencent’s subsidiary is more than a unicorn. In China, an online tutoring app called Yuanfudao, supported by Tencent, is seeking free funding at a valuation of more than $20bn. There is a lot of activity in the Chinese digital education space, so Tencent is competing here with specialists like TAL Education Group and with other Chinese Big Tech firms like ByteDance. The government is starting to look at this in a similar way as they’re looking at finance. So expect new regulations soon… (FT)
What happens if the SPAC fever collides with the ESG fever? Two of the hottest trends in investment these days are SPACs and ESG-aware investing. Bloomberg speculated this week about the possibility that these two trends converged. And there are skeptical voices who see a difficult mix here, because (by definition) investors in SPACs don’t have much visibility on the target company where their investment will eventually land, so they can’t control for ESG metrics. On the other hand, SPAC advocates claim that the options offered to SPAC investors, like the ability to redeem their holdings if they don’t like the acquired company, make it perfectly possible to use these vehicles to make ESG-centric investments (Bloomberg)
Technopolitics all over the place
Apple under antitrust accusations for the App Store
Tim Cook says they don’t have a dominant position: Apple held its annual shareholder meeting this week, and Tim Cook discussed several “hot topics” for the company, including the accusations of a monopolistic behavior with the iOS App Store. Cook reiterated the company’s view that they don’t have a dominant position in app distribution, which is true if you consider the smartphone market, rather than the iPhone market. Cook also discussed other “technopolitics” questions, like privacy (a company priority) and sustainability (commitment to be carbon neutral by 2030) (Bloomberg)
But Fortnite’s creator Epic disagrees, and they’re recruiting other companies: In its antitrust battle against Apple, Fortnite’s creator Epic Games is trying to incorporate other companies to the team. This week we learned that they want to take testimony from an executive at Match Group, the owner of Tinder and other dating apps. Also Facebook, quite unsurprisingly given current disputes and explicit comments about being a direct competitor, is supporting Epic in this. Meanwhile, Valve, the largest computer game distributor, has complained when Apple has asked them to subpoena privately held financial records of their offerings, apparently to support its own position with examples from other companies (WSJ)
Epic also wants to expand the battle out of the US, but they’re struggling to do this: Epic Games also wanted to open new court battles about the Apple App Store out of the US. This included the UK, but now a UK judge has said that the case can’t continue in London, arguing that the US was a better forum to decide on this dispute. Interestingly, the judge’s position was different in relation to a similar suit against Google for Android (Bloomberg)
Australia vs. Big Tech: It’s not clear yet who’s won the battle
After Google’s deal with News Corp, Facebook has reached an agreement with Australia. Facebook finally aligned with Google, in a way, and agreed to adopt a more collaborative approach with media. The company has committed to enter into “good faith negotiations” with Australian news media businesses, about paying for content. This has been in exchange of the Australian government accepting to introduce a number of amendments to the initial bill, which will soften the pressure. These concessions include the commitment to take into account commercial deals that Big Tech firms could reach with news companies, before directly forcing them to pay, and also giving a one month’s notice before any action in this direction. In practice, the new Australian law has become a mechanism for “last resort arbitration”. This is important for Facebook, as a reference for other countries, and would explain why they have finally accepted to negotiate. The FT’s Lex Column does not see a clear winner here: “This is a victory for Australia (…) but do not see it as a complete capitulation by the tech group, which has extracted concessions that may influence copycat legislation in other jurisdictions” (FT)(Bloomberg)(FTLex)
Maybe this won’t be so expensive for Facebook: The economic impact that Facebook is talking about is not small, but it also does not seem so significant for a company of its size. After the deal in Australia, the company announced they were expecting to spend at least $1bn to license material from news publishers over the next 3 years. They also clarify that these economic deals would apply to new news products that the company is developing. Not clear if this implies that the current status quo will be maintained for the “core” news feed (WSJ)
The battle could now come to Europe: European policymakers have indeed been looking at Australia for inspiration, on their quest to implement new rules to protect local news organizations. EU countries have a deadline in June to create national laws based on the bloc-wide Copyright Directive, passed in 2019. This Directive explicitly mentions the possibility for news publishers to demand payments for reuse of their content (WSJ)
Microsoft is explicitly supporting “the old order” Microsoft is clearly positioning as a supporter of local governments and traditional media, in this battle. The company had already said they sympathized with Australian news groups, and with the new law. And this week they have announced they’re working with Europe’s four leading lobby groups for news publishers, to develop a legal solution to “mandate payments” for using these media companies’ content. Like Facebook supporting Epic Games against Apple, this looks like one more sign of the “Cold Civil War” within Big Tech, driven by growth saturation in each giant’s core business. In the case of Microsoft, they have an alternative product to Google Search, and has also given clear signs to be interested in entering the consumer social networks space (e.g. they made an offer for TikTok US) (FT)
This fight could also anticipate other regulatory battles: As we discussed last week, the case of paying for news can be seen as just one example of an overall effort by national governments to maintain their power, against the disruptive potential from global digital companies. With this view, it is not surprising that other fights aiming to curb the power of companies like Google, Facebook or Amazon are under way in many countries. Advocates of this “neo nationalist” position claim that only local authorities have a democratic mandate to make decisions. But we also have recent examples of abusive behaviors by democratically elected governments, supported by local media groups, and often even controlling them. And we expected the internet to be a vehicle for people to challenge these things (FT)
Privacy: A regulatory storm is on its way to Europe
Facebook expects increasing pressure on privacy issues: The fight in Australia could be just the start of a long series of regulatory fights in front of Facebook this year. And some of these could have a much more direct impact on Facebook’s core business model. There has been a regulatory debate for quite some time on how the company uses consumers’ data to better target advertising, and this is leading to more specific actions in many countries right now. If you add the competitive pressure from Apple, positioning as a “privacy-centric” rival, the coming months could bring significant changes in the way Facebook does things, and even strategic shifts like the ones they had in the past (e.g. with the shift to mobile, or the adoption of the open platform model) (Bloomberg)
Europe prepares to pull the reins in on Facebook and Google: In this context, everyone expects Europe to be a central battlefield for Facebook and Google. EU regulators have been criticized for being too slow, but the head of EU’s Data Watchdog has rejected these accusations this week. She says that two digital privacy cases, involving Facebook, are already prepared for draft decisions, and that five more, including one involving Facebook and others related to Facebook’s subsidiaries, are on the way. On the other hand, she’s also trying to cool down the current atmosphere, in which high expectations (on regulators) are set whenever “somebody tweets that something is an infringement” (WSJ)(Bloomberg)
Uncertainty grows on Gig-Economy’s companies
The UK government may have set a precedent with the protection of Gig-Economy’s workers rights. Uber lost a case in the UK’s Supreme Court last week, with judges ruling that drivers shouldn’t be classified as “self-employed”, as the company (and many others in the “Gig-Economy”) has been doing. The takeaway now is that Uber, and other similar apps, will probably be forced to provide employment rights like minimum wage and sick pay, which would probably affect their costs (and business models). The fight has just started, in any case, and like the battles over privacy or over freedom of speech, it may have a deep impact on the way we live and work in the coming years (FT)
This is a global trend. Look at the UK, India, China, …
The UK has an antitrust plan… In the UK, the Competition and Markets Authority (CMA) is being granted additional powers to control Big Tech companies. And they are already planning to mount a few probes into Google, Amazon and other internet companies in the coming months. These could result into bespoke codes of conduct for the companies, enforceable with fines of up to 10% of turnover (FT)
… and could create an “overarching digital authority”. A risk with the current UK plan is that these “bespoke codes of conduct” could translate into a “piecemeal” approach to tackling the different issues, resulting into ineffective regulatory action. A potential solution, as proposed in this FT opinion article, would be to create an “overarching digital authority” to oversee all digital regulation and ensure its cohesiveness (FT)
India’s government takes control of social media, and shows the risks of a “state-driven” content regulation. India is becoming the canonic counterexample to be used against advocates of more control of Big Tech by national authorities. The Indian government is proactively moving to control the narrative in social networks, and they had already force Twitter to ban some accounts that were being used as channels to protest against the country’s current leaders. Now they’re moving one step beyond, and new rules have been announced that will force social media companies to break into encrypted messages and/or take down specific posts. These decisions are also seen as a business problem for Twitter, which has been growing fast in India, its third biggest market, after the US and Japan (FT)(WSJ)
China takes control of online lending, increasing the pressure on Ant Group. In China, the government keeps moving to fully control the digital financial services industry. The country’s banking regulator has now tightened the rules governing how online lending platforms fund their loans. Now the platforms will have to contribute 30% or more of the value of each loan they offer to consumers, instead of leveraging on partner banks, as they had been doing until now. In practice, this will force the Chinese Fintech companies to work “more like commercial banks”. The new rules will have impact on the two leading local Big Tech firms: Alibaba (through Ant Group) and Tencent (through WeBank) (FT)(WSJ)
The Second Cold War is not ending with Biden.The Biden administration won’t block the application of a Trump-era rule aimed at combating Chinese technology threats. The rule enables the US Commerce Department to ban technology business transactions identified as potential security threats. Many local companies were asking Biden to delay or retire the rule, that they claim that could hurt innovation and competitiveness, but apparently Biden’s advisors don’t want to do something that could also be interpreted as a sign of weakness in their approach to China. On the other hand, there are also comments that the rule won’t be enforced aggressively. So let’s see what happens (WSJ)
Chips: officially a geo-strategic asset
Geopolitical supremacy will increasingly depend on computer chips. TSMC is building a $20bn plant to manufacture advanced chips in Taiwan. And just this level of investment shows the importance that chips now have in our increasingly digital-first economy. Indeed, TSMC’s plant would be the third most costly building being built in the World right now. This also positions Taiwan at the center of emerging geo-political disputes, with countries looking to control their semiconductor supply chains. Apart from this large factory in Taiwan, TSMC is also building 2 plants in China and 2 more in the US, trying to hedge its bets. But will that be enough? Will they be forced to choose? On top of this, some people even mention chips as a potential driver for an invasion of Taiwan by mainland China, but others say that it is precisely the strategic importance of chips what is making China hesitate before doing anything like that (FT)
Recent actions by the US government this week support this view: President Biden is moving as if his administration would be fully aligned with this vision of the chips’ supply chain at the center of geopolitics. Biden signed an executive order this week, to review the US supply chains in 4 key areas, starting by semiconductors, and including also batteries, pharmaceuticals and rare-earth elements that are key for new technologies (and are currently dominated by China) (WSJ)
Concerns have increased after chip shortages have started to affect car production. As we’ve already been discussing here, the first effects of the current fragility of the chips’ supply chain are being felt by car manufacturers. Many are having to stop production these days due to chip shortages. The problem started with the demand peak driven by the pandemic, which was then exacerbated by geopolitical tensions, including the ban of Huawei and other Chinese companies, which have disrupted the previous commercial relationships. Now the vision is that two different issues are being conflated: the shortage of basic, low-end chips for cars and other basic devices, and the need of countries to ensure access to the high-end semiconductors required for advanced computing and for military applications (FT)
Even Tesla seems to be affected. Tesla has always been seen (and presented itself) as a very different player, free from many of the problems currently stressing traditional car manufacturers. But chip shortages are also affecting them. In an email to employees this week, Elon Musk announced that they were halting some production at their California plant, because of supply chain issues (Bloomberg)