The age of iPhones on wheels
And also: Winners and losers in the post-pandemic economy. Netflix and Amazon playing video games. Markets and climate change. Pressure grows against Apple and Google for the App Store
Cars could become iPhones on wheels, according to… Ford
A Ford executive who previously worked for Apple and Tesla and now leads Ford’s efforts to design “digital cars” talked to the WSJ this week, and shared his vision about what’s coming up for the industry
They expect significant changes in the way cars are differentiated, which could shift to the (“immersive”) experience, and on the revenue generation model for car vendors, with software upgrades including both car functionalities and content and services playing a significant role.
A key question is how this could affect companies like Uber of Lyft, which could become managers of fleets of autonomous cars, but that would face direct competition from car vendors like Ford (a bit like what’s happening today in streaming video)
Alternatives for investors to get exposure to these new paradigms appear every day This week we learned about the coming IPO of Rivian, an electric vehicle specialist, targeting a valuation of more than $50bn, and about the stock-market debut of Aurora, a driverless vehicle company
On the other hand, investors seem to have liked the “moderate” messages from BMW and Toyota in their results presentations this week, advocating for a slow / long-term transition to electric cars (not to mention autonomy)
The week
1. Consumers and businesses, after COVID
What is happening
Consumer trends
E-fitness is out, as people return to gyms, and Peloton is suffering because of that. Share price fell -25% after the company’s results presentation, announcing a deceleration of sales (WSJ)(WSJ2)(Bloomberg)
Physical travel is back, with Airbnb is benefitting from this, according to thecompany’s results presentation this week, which also included a positive impact from cost cutting (FT)
People are concerned about the supply chain crisis potentially stopping the economic recovery
Bloomberg claims that the problem is becoming worse in some regions, and that it will take time for the world to solve the issue (Bloomberg)
Apple may have managed the problem better than others, but they’re also affected. Now they’re shifting production from iPads to iPhones in the face of chip shortages (Nikkei)
A positive note came from Qualcomm’s results. In the presentation the company shared its hopes that the chip crunch is easing (Bloomberg)(WSJ)
What it means
As the pandemic slows down, or people get used to it, the roles of winners and losers have started to invert. Peloton is suffering, and Airbnb is happy again. People have started to do some things as in pre-pandemic times, but other activities (e.g.: work) seem to have changed for good. Also, the pandemic has not ended yet, so it remains unclear where many things will settle
Even if the pandemic ends, as we hope it will, the supply chain crisis (partly triggered bythe pandemic) has become the new threat to economic growth. This week we’ve learned that even Apple is feeling the pain for this, and shifting production from the iPad to the more profitable and faster growing iPhone
2. Platforms and digital enablers
What is happening
Facebook may be under pressure for many things, but investors gave the company a break this week, with the first weekly share price gain since September (Bloomberg)
Related to this, Facebook’s advertising value proposition is still attractive for brands (WSJ)
Uber has reached profitability, and their results showed a positive perspective for both taxi rides and food deliveries (WSJ)(FT)
Lyft also had good results (WSJ)
Netflix moves into gaming. And Amazon will be there too (WSJ)(FT)
Artificial Intelligence:
Some sobering news this week about Zillow’s inability to exploit Machine Learning to predict real estate prices. This might contribute to reduce the hype (WSJ)(FT)(WSJ2)(FT2)
Connectivity:
Amazon is planning to launch thousands of satellites to offer broadband access (NYTimes)(Bloomberg)
AT&T, Verizon delaying 5G C-band spectrum deployments, over airplanesafety concerns (WSJ)(Bloomberg)
Cloud:
Google making progress. Plans to sign a contract with the Pentagon (amid internal employee resistance) (WSJ)(NYTimes) and new contract (and the acquisition of a $1bn stake) with CME, a large financial exchange (WSJ)(FT)
Semiconductors:
Tencent announces its own chips, following Alibaba, Google, Apple, … (Bloomberg)
What it means
Uber’s results confirmed the “mixed” landscape for a post-pandemic economy in which some customer habits (like taxi rides) from the “physical world” are returning , while some new, “digital” ones (like food deliveries) show their resilience
Videogames look like a natural extension of the offer for streaming giants like Netflix and Amazon, which could explore similar (subscription-based) business models to the ones currently used for video. Google might have been the first, with Stadia, but they (and also Microsoft) lack the enormous customer bases that Netflix or Amazon can leverage
Google looks prepared to follow Microsoft and catch up vs. AWS in cloud market share. Recent news of potential deals look promising
3. Financing digital innovation
What is happening
Large expectations set in the financial industry’s role in the fight against climate change:
With the COP26 meeting happening this week, claims have been published about “putting markets to work” in the problem, and about “business” as a “game changer” (Bloomberg)(WSJ)
Bill Gates makes a call for the tech industry to work in these problems (FT)
Jeff Bezos commits $500m (FT)
Emerging themes for investors:
Next computing platform: Microsoft presented its first “Metaverse” product, within MS Teams, and promised to expand it (Bloomberg)(FT). People already talk about a fight with Facebook to “control the Metaverse” (FT). Meanwhile Facebook will deploy physical stores, to showcase ”Metaverse hardware” (NYTimes)
Cars: Ford thinks future cars will be “like iPhones” (WSJ). Apple works to better integrate iPhones with current cars (WSJ). Rivian plans an IPO at a $60bn valuation (WSJ). BMW & Toyota convince investors about a slow transition to fully electric (FT)(WSJ). Several autonomous cars startups are going public (WSJ)
Biotechnology: Alphabet launches Isomorphic Labs, a DeepMind spin-off to work on new drug research (NYTimes)(FT)
What it means
Claims grow about the need to address the climate change challenge through markets and private investment. Many investors (including celebrities like Bill Gates and Jeff Bezos)seem to sympathize. But everyone agrees that governments have a significant role to play in setting clear rules for this game, and in requiring companies to be transparentabout key metrics for investors to make their decisions
Meta Platforms (aka Facebook) runs the risk that the (still badly defined) “Metaverse” concept gets commoditized and loses steam with users and investors. The ”me too” presentation of Microsoft this week could be perceived in this way
Alphabet’s DeepMind has the skills and the credibility to lead the application of AI todrug research. But it will be difficult
4. Building new rules for the (digital) game
What is happening
Customer protection: privacy & safety:
Facebook will shut down facial recognition in its apps, as a sign of privacy-awareness (WSJ).
The WSJ keeps making noise about how FB knows about the negative effects caused by its products (WSJ)
And the ex-CEO of Google agrees with that (Bloomberg)
Antitrust:
An opinion article at The WSJ questions if Facebook is really a monopoly (given current competitive pressures) (WSJ)
Pressure grows against Apple and Google for their control of the mobile OS (Bloomberg). Google opens its App Store in South Korea (Bloomberg). Apple claims against Europe’s Digital Markets Act (Bloomberg)
Tech geo-strategy:
A TSMC founder is skeptical about the US ability to become self-sufficient in chip production (FT)
The fight against climate change could accelerate globalization, and even “kill national sovereignty” as we know it, according to a recent analysis (Bloomberg)(ForeignAffairs)
The current supply chain crisis could reduce geo-strategic tensions between US and China (WSJ)
What it means
The App Store is becoming a major point of regulatory vulnerability for both Apple and Google. After a first decision against them in South Korea, there is the risk that the pressure expands to other regions
Facebook’s challenges from Apple (privacy controls) and from TikTok & Snap (young users’ engagement) are making people question if they’re anything close to a “monopoly”
It is becoming clear that the need to co-ordinate radical actions to protect the Earth fromclimate change could lead to an increased pressure to eliminate frontiers, on top of the existing one, from the shift to software and digital technology. The risk is that resistance to this necessary changes could increase political tensions