Great post. Two quick thoughts:
1. Michael Kors recently released a hybrid smartwatch (built in partnership with Fossil) – it is too early to say whether the product will be a success, but on the surface it has a lot in common with the TAG Connected. I think it’s safe to assume that the space will only get more crowded from here.
2. What I thought was also interesting about the TAG Connected is that buyers have an option to trade it in for a regular Carrera (after a certain time period) at a discounted price. This helps TAG (re)capture a customer who decides that hybrid is not for him, and prevent churn. I have not seen other watchmakers utilise this strategy but I think it’s a good move. This is not something that Apple, Samsung or mid-price watchmakers can offer. In the electronics space, it is harder to sell the vision of eternity, that the product is something that you can ‘pass on to the next generation’. You want also want to avoid associating the product with general consumer electronics (i.e. something that is cheap, breaks easily, and gets obsolete quickly). It’s not clear how this puzzle can be solved, but the trade-in / churn re-capture mechanism seems like a good place for TAG to experiment.
P.S. Bezos was a quant in the early 90s, but luckily for all of us, he ditched being a quant to do something else.
LST – excellent write-up.
I’m a huge fan of what Betterment is doing for society. You could probably throw in Wealthfront or Nutmeg in the same category. As a citizen and as a fan of setups that maximize societal utility, I am glad that Betterment exists. There will invariably be losers. Frankly, the ‘right’ size for the investment management industry is one where 50% of all RIAs, 50% of brokers, 50% of all mutual fund houses and 50% of all hedge funds go away; and all who do survive will not actually be better off because lower-cost solutions such as Betterment (and Vanguard) will capture the larger portion of the pie. Even if the incumbents’ response to Betterment is somewhat effective, Betterment would have achieved its goal of bringing some much needed innovation to the sector that has long been ripping off the consumer. One analogy that I can think of is Interactive Brokers – they have not taken over the world, but they have kicked off a trend of declining costs across the industry, with consumers as the ultimate winner.
DSN – great write-up. NovChopin – great comments.
Quantopian’s “sweet-spot” is the quant who is skilled enough to find a mispricing that can be systematically exploited, but is not sufficiently capitalized or sophisticated (from a trading systems perpspective) to take advantage of that mispricing. Numerai is a business that is similar to Quantopian, and is backed by a RenTec founder. This business model fundamentally depends on the funnel of newly-minted STEM graduate degrees – this sounds to me like a great business model. As aspiring MBAs and TOM students, we should probably admire this sort of business architecture. The parallels to some of our previous cases are clearly there – maximize the initial data funnel, and use the best items in the funnel for monetisation (sounds a bit like Threadless).
But is this thing really ‘beautiful’ or ‘useful’ from a societal perspective? Does being a good quant help anyone other than yourself? Hundreds (or thousands) of the world’s STEM Phds every year are defecting from hard sciences to dedicate themselves to becoming quants. They would probably do more good for the world had they stuck with science. Imagine an alternative state of the world where an Elon Musk or a Jeff Bezos went into quant finance instead of starting Tesla, Amazon or Blue Origin; something like this probably is happening every single day, and we’ll never even know about it.
A handful of quants who make it to the top (Simons, Shaw, etc) become fabulously wealthy and engage in large-scale philantropy. But many are probably wasting their lives, and are creating a deadweight utility loss to society. To be fair, this argument could be extended to any other purely rent-seeking profession out there.
Thanks for the write-up. I’m a (reasonably satisfied) BofA customer. I agree with many of the points you made in your write-up. I think BofA and other large U.S. banks will always have a role to play in the everyday life of the consumer, for the simple reason that we all need a safe place to park our cash. Incremental improvements such as contactless cards will further lock us into keeping our cash deposits at our banks. However, what about the loan side of the equation? Here, I am not so sure. 10 years ago, consumers and SMBs looking for a loan had few realistic options other than asking their bank for one. Today, the situation is different and the number of options is multiplying thanks to fintech – look at LendingClub, LendingTree, Prosper, etc. This trend is gradually eroding BofA’s loan pricing power; the rules of microeconomics tell us that all else being equal, BofA will have to lower the rates they charge on their loans. If BofA does not find a way to properly respond to fintech on the loan side, their net interest margins will compress, and the business of banking then becomes a decidedly less attractive place to be in.
Great write-up, thanks. 2 quick questions:
1. Has Google adopted Waze’s crowdsourced functionality into Google Maps, or do they want to keep the two separate? I agree that Waze is (at scale) a better approach to road-mapping, but since Google Maps is probably installed on more phones, it still has greater reach. If there’s a way to put the two together, everybody would win. This raises the broader question of what happens to mission-oriented innovative companies that end up getting acquired by larger companies; ideally, they can leverage the parent’s platform to reach more people and expand the addressable market.
2. Do Waze drivers report obstacles/etc after they arrive at their destination, or whilst they are en route? If it’s the latter, is it not a little bit concerning from a distraction perspective (similar to texting whilst driving)?
Doug – I loved this piece.
I also wonder whether the relative failure of cleantech investments of that vintage has to do with VC tendency to fall for pitch slides touting massive TAMs. Cleantech founders (invariably?) tend to size their potential market in the multi-billions. More than other sectors, this has the effect of lulling the VC hearing the pitch into a ‘roll-the-dice’ mode: after all, when the TAM is massive, why spend the extra time worrying about the probability of a downside scenario?
Thanks Rafi – great piece.
I admire Elon Musk’s mission-driven nature. When he released some Tesla IP for broad consumption, Stephen Colbert asked him why he has done it, the implication being that it is foolish to do so, from a competitive perspective. Without missing a beat, Musk replied that we are all in a giant boat taking in water, and that if Tesla has a great design for a bucket, it makes sense to share that bucket design with everyone else so that we do a better job of bailing water.
This is all great, but whether or not the people who put up the equity capital for Tesla’s endeavour will be appropriately recompensed is an open question, in my view.
Great piece, thanks. I wonder how substitution to online shopping from Walmart (either direct or via Instacart) or from online competitors (Amazon) will impact these green initiatives? I feel like Walmart was in a better position to do this back when the skies were clear and they were the undisputed market leader with nary a sign of disruptive threats on the horizon – i.e. 20 years ago. Now their cashflows are under pressure as is – harder to make long-term investments.
Thoughtprovoking piece, Jordan – thank you. I agree, and I’m also a fan of sci-fi. Dreamers – artists and sci-fi writers – show the rest of us a way forward. However, it’s interesting that sometimes viewers appear to take away the wrong lessons from sci-fi. Some in the Silicon Valley are convinced that we indeed are living in The Matrix and are funding research to prove it. And films such as Interstellar can convince some that leaving this wretched old planet is a great solution and will devote their lives to making that happen (hello SpaceX), whereas perhaps a more sensible takeaway is that we should lal redouble our efforts to not let that happen. I’m not sure I want my grand(grand(grand))children to live on Mars.
Whilst we are on the topic of Sci-fi: highly recommend Black Mirror (out on Netflix).
Great piece. I admire that Airbus is working on really hard problems. I wonder whether electric airplanes could also be a way forward? I saw some article a while back where Elon Musk originated the idea of a vertical-takeoff electric airplane.