Weekly reading – 5th June 2021

Business

Sweetgreen Bet Big on Naomi Osaka. Then It Doubled Down. As the world becomes more divided nowadays, celebrity endorsements come with a risk that companies have to make uncomfortable decisions at times. This is one of those moments for Sweetgreen and personally I am happy that they support Osaka.

Self-Driving Cars Could Be Decades Away, No Matter What Elon Musk Said. If a company or an executive claims that their company’s bright future relies on self-driving cars, take it with a big grain of salt and ask a lot of questions because that future is highly uncertain and can be decades away.

Apple’s new App Store guidelines put scammers and bounty hunters on notice. Apple just did themselves and almost everyone else a favor by being more detailed and specific about their App Store guidelines. A major criticism of Apple and the App Store is that their guidelines are too ambiguous and not enforced equally. That’s a fair criticism and since Apple wants to hold a complete unchallenged power over the App Store, they can’t expect that we expect nothing, but perfect from them. I doubt this latest development will quell much the frustration by developers, but it’s a positive step in the right direction

An interesting chat between Kara Swisher and Margrethe Vestager on issues such as a global tax, court cases against big techs and potential remedies towards the oversized dominance of the likes of Apple.

Netflix debuted an online shop that sells merchandise related to their hit shows such as Lupin. This is a natural extension of their business. When some of their shows are fan favorites and garner enough following, why not capitalizing on such popularity? After all, that’s what Disney does. You watch Marvel or Disney movies and visit the theme parks for other experiences. I don’t think this is so much about being on level terms with Disney. Instead, this is about generating more margin and revenue.

What I found interesting

Jordan, Russell, Kareem, even the King of Pop — the astonishing mentors who shaped Kobe Bryant. Everyone wants to be like Kobe, but are they ready for the sacrifices and solidarity like Kobe was? Are they willing to go above and beyond for their obsession like Kobe?

Eddy Cue On Why Spatial Audio Is a Game-Changer

Shedding More Light on How Instagram Works. According to this post from Instagram, it uses a lot of data (they call it “signals”) to determine what content you get to see. There are two sides of this. On one side, it can be convenient and good that you get to see more of what you like. On the other hand, it means that Instagram or Facebook knows a lot about you. Had Facebook had a better track record in terms of privacy in the past, it wouldn’t have been a concern. The reality is that I am not sure users really use Facebook’s platforms because they are trustworthy. It’s likely because Facebook owns the biggest platforms in the world and users only use them out of convenience. Nonetheless, appreciate posts like this one

The World’s Northernmost Town Is Changing Dramatically

How the wealthiest in America avoid paying income taxes

In 2011, a year in which his wealth held roughly steady at $18 billion, Bezos filed a tax return reporting he lost money — his income that year was more than offset by investment losses. What’s more, because, according to the tax law, he made so little, he even claimed and received a $4,000 tax credit for his children.

Stats that may interest you

Solar makes up 4.5% of the US’s electricity, up from 0.1% in 2010

Passenger EV sales are set to increase sharply in the next few years, rising from 3.1 million in 2020 to 14 million in 2025.

Weekly reading – 5th June 2021

What I wrote last week

My experience after setting and maintaining a workout habit for 30+ days

Business

How to do long term. I totally agree with what Morgan Housel wrote here. It’s so easy to claim that whatever you are doing is for the long run. It’s much harder in practice. Have you ever held your nerves with a stock after two big drawdowns in a matter of a year? Have you ever felt pointless in whatever you do despite the grand plan you have in your mind?

Octahedroncapital organizes what they noticed from companies in several major themes. If you don’t follow earnings calls often, it’s a useful summary.

The Pizza Business Is Divided on Delivery. Whether working with a delivery service depends on several factors. How much can you invest in your business’ delivery service? Can you afford it? Are you willing to sacrifice the relationship with your customers? Are you willing to see your prices perceived as high by your customers? What are the priorities? Hence, the answer varies from one business to another. To some, delivery services bring more eyeballs and orders at the expense of a relinquished customer relationship and a lower profit. To others, they just don’t make sense. Nonetheless, I believe the likes of DoorDash, UberEats or Instacart are here to stay because they address some real needs in the market.

The Cost of Cloud, a Trillion Dollar Paradox. A very interesting post on the cost of having your infrastructure on the cloud. It claims that scale public software companies may lose billions in market valuations due to cloud costs, I am not sure what the alternative is, especially for those who operate globally. The exercise of building and creating infrastructure that can support SaaS model in various continents and regions is NOT for every company.

Driving weedshare: Uber and the hazy economics of delivering cannabis

What I found interesting

Here are a few photos of Y Ty rice terraces in Vietnam during the rainy season. If you are traveling to Vietnam, consider the Northern mountainous areas. They are beautiful. But the travel can be dangerous at times as there is no airport, trains are spotty and the roads are treacherous.

How Parking Destroys Cities. Quite a tricky topic. While I understand the point made in the article, required parking can be a source of a city’s revenue. If people don’t like to pay taxes and Republicans don’t want to levy taxes on corporations, how is a city supposed to pay for all the public services and infrastructure? I am a fan of public transportation. A lot of cities in Europe already ban cars in city center. In America, that would require a major rethinking and investment from many many angles.

Highway Fonts — Designed by Various

One of the rarest and most endangered trees in Africa and the world had a flower. The folks who work tirelessly to preserve and protect endangered species in the world don’t receive the headlines that venture capitalists or crooked financialists garner. But I am grateful for their work.

The story of Spain’s ‘terrifying confidence’ – and how it conquered the world. If you are new to football or what Americans call soccer, look for footages of the Spanish national team between 2008 and 2012. They played such a magical football and dominated the world. This is the story of how it all began

An incredible oral history of the events that led to the secret mission to kill Osama Bin Laden

America Has a Drinking Problem

Stats that may interest you

Americans paid more than $31 billion in overdraft fees in 2020. I repeat: $31 billion. A travesty

Wikipedia received $129 million in support and contributions in FY2020 while incurring around $16.7 million in expenses

Prices in April went up by 3.6% compared to the same month last year. It’s always important to put a lid on your expenses. It’s even more important now

The App Store facilitated $643 billion in billings and sales in 2020, an increase of 24% YoY, of which $86 came from digital goods and services. This amount is subject to commission to Apple

Stackoverflow has more than 100 million visitors every month. Visitors aren’t necessarily registered users. So the registered user base must be smaller than that. I am a fan of the platform though. The world is a better place because Stackoverflow exists.

According to a survey by Ben Bajarin, 57% of developers said their apps wouldn’t exist without Apple

I started and sustained my fitness habit for 30+ days. Here is what I learned

Yesterday marked the 34th day in a row that I completed my workout targets on the Apple Fitness app. To those who aren’t familiar, there are three rings. The red ring shows how much calorie is burned in a day, the green ring records how many minutes you work out and the blue ring refers to the number of hours in which you stand at least for one minute. I set my goals as 550 Calorie, 50 mins of workout and 11 hours of standing. Here are the lessons I learned after the last 30+ days

My challenge has been going on since 4/25/2021

A sprint or a disciplined marathon

While I could have gone for 1200 Calorie a day, I knew that sort of target wouldn’t be sustainable. I wouldn’t be able to keep that level of commitment for 30+ days. Hence, I set a target that is both challenging enough for me to put in real effort and realistic enough for me to maintain it for a month. Think of it as a choice between a sprint or a marathon. You can run at a high speed, but that burst of energy won’t last for long. After a couple of days of heavy workout, I’d probably take it easy the next day and completely fail the challenge. In some cases, rest would be precisely what my body requires. But I chose not to give myself that excuse. So, before you embark on a similar challenge, think of an appropriate goal for yourself. You can slightly low-bar it in the beginning and raise it gradually in the process. Just don’t start too big and fail too soon.

Pulling through the moments of demotivation matters

There were days when I woke up feeling energetic and couldn’t wait to start a workout. On the other hand, there were days when my level of motivation was low. You know what it feels like: a bad sleep, mood swings, effect from a gloomy weather, stress from work, fights with your loved ones. I had plenty of that during my challenge. There were times when I had to pull late workouts or put everything I had into a HIIT because I was behind. It’s tough to force your mind to go through those moments and commit to the mission at hand. But. I guess it’s one of those things that can help me mentally deal with other aspects of my life. As I am fully vaccinated, it increasingly becomes difficult to stay here and not to be able to return to Vietnam to visit my family, friends and girlfriend. It’s tough, but I definitely feel this little challenge helps a bit.

Yoga or HIIT

At 550 Calorie, I couldn’t sit around all day and meet the quota. Usually a long yoga or at least 20 mins of HIIT is necessary to get the job done. The question now becomes whether I am up for spending an hour on yoga or sweating out with maximum effort for 20 minutes. When your days are overburdened with commitments, a HIIT is a better option, but do you have the mental fortitude to go through 20 minutes of hard work? When your energy level is high enough for a HIIT but your body is sore from the day before, are you patient and committed enough to complete an hour of yoga? The same applies to real life. I am sure my writing would be a lot better if I spent 10-12 hours a day without a job on writing. The progress in a short period of time would be significant. On the other hand, I could choose to write less intensely but over a period of time and with a financial cushion from a day job. The progress would take more time obviously. What then is your preference in that case?

Sometimes it’s just too late

Here is how the Stand ring works. To record one hour on the ring, you have to stand for at least one minute straight during a clock hour. Somehow the motion tracking on Apple Watch can see if you are standing or sitting. It means that if you set your goal at 11 hours of standing like I do, you can’t load up everything by standing for 11 minutes straight in one hour and call it done. You have to stand for at least one minute between 7am and 8am, another between 8am and 9am, so on and so forth.

I have a friend whom I am doing this challenge with. One time, he texted me around 8:30pm and said that he still had 5 more Stand hours to go to meet his daily goal. I told him that he wouldn’t meet it that day because he only had 4 available hours left at most. The lesson here is that if you don’t consciously plan and start your standing early enough during the day, you likely won’t be able to succeed. It’s like coming into a 60-minute exam whose questions require at least 25 minutes to complete, when there is only 20 minutes to go. Or if a flight is about to take off in 30 minutes and you are still at home that is about 30 minutes or less away. Sometimes, it doesn’t matter how much money or effort you put in, time’s not available to buy.

Weekly reading – 29th May 2021

What I wrote last week

My review of Amazon Unbound

Business

A long post that outlines a bull thesis on Peloton

An excellent review of the new Apple store in Rome. Apple’s retail stores are great valuable assets. They build up the brand image of the company and function as hubs where customers can try out products, receive services and just really connect with the brand.

Instacart kicks off Priority Delivery. This new move by Instacart to deliver items in 30 minutes shows how cut-throat this market is. Competitors such as Instacart, Uber Eats or DoorDash strive to cut the delivery time to gain customers and market share. What remains to be seen is how it would affect Instacart’s bottom line. I don’t think that they are profitable yet. So, we’ll see when they release their S-1.

DoorDash and Uber Eats Are Hot. They’re Still Not Making Money. A pretty telling piece on delivery services

Amazon Briefing: A look inside Amazon’s cloud gaming ambitions

What I found interesting

Financial and emotional risks of working for a startup. Somebody took the time to write about the potential downsides of working at a startup. There are a lot of things to love about startup life and I am pleased to see people talk about it. But it’s also important to shed light on the risks as well

Google now lets you password-protect the page that shows all your searches. Privacy and security are powerful user preferences that are NOT going away any time soon. In fact, they will only get stronger. Google should do more and talk more about what they do in this area. I haven’t seen a lot of marketing efforts in talking about their initiatives to protect user data and privacy

How a Japanese Company Cut 80% of the Time Needed to Manually Count Pearls

Payment links from Stripe. This is what innovation should be

No, Millennials Aren’t Poorer Than Previous Generations. What stood out for me is that Millennials have more non-mortgage debts.

Stats that may interest you

As of 5/24/2021, 40%, 43% and 62% of Airbnb bookings for the summer of 2021 in Seattle, LA and NYC respectively were more than 28 days

75% of Target’s digital orders were fulfilled by their stores. 30 million Americans shop at Target every week

2.5% – 3.5% is what Costco reported as inflation in the latest quarter

iMac 2021’s thickness is 11.5mm, 1 mm slimmer than iPhone 2

Overwork Killed More Than 745,000 People In A Year, WHO Study Finds

Book Review – Amazon Unbound

Brad Stone followed his first book on Amazon “The Everything Store” with “Amazon Unbound” ten years apart. Similar to its predecessor, this book is the result of extensive research and journalism on the company that captures the imagination and admiration of the public and millions around the world. How much you like this book depends on how familiar you are with the company and its enigmatic and iconic founder, Jeff Bezos. Personally, having read quite a bit on both, I didn’t find some chapters very useful or interesting because I didn’t think it was necessary for me to know in details what happened internally. With that being said, I did find the book worth the time. If you are fond of business and Amazon, give it a try! Below are a few things that stood out for me

Bezos’ ability to think big and delegate

The chapters on the development of Alexa, Amazon Go, Indian market as well as the acquisition of Whole Foods is interesting. In these chapters, readers can see how Jeff’s ability to think big and push his team to think big resulted in unfathomable success. His vision and boldness led the team to enduring long working hours for years and challenges, both technically and from the market, to introduce services and products that have proven to be strategic assets to Amazon. His genius also lies in his willingness to delegate big & important projects to his team. His previous Technical Advisors led the charge on Alexa, AWS and India. In addition to opportunity and resources, Bezos also provides oversight and counsel, and often the push that his team needs to think big.

“By then, Amazon’s China bet was souring, so Bezos did not want to relinquish his shot at what seemed like the world’s next largest prize. In most OP1 sessions, he usually spoke last, not to sway the group with his formidable opinion. But this time, he interjected while Agarwal was still giving his presentation. “You guys are going to fail,” he bluntly told the Indian crew. “I don’t need computer scientists in India. I need cowboys.

“Don’t come to me with a plan that assumes I will only make a certain level of investment,” Bezos continued, according to the recollection of two executives who were there. “Tell me how to win. Then tell me how much it costs.” Another Indian executive at the meeting, Amit Deshpande, says the message was: “Go big and take risks. Make it happen. We have your backs.”

Excerpt From: Brad Stone. “Amazon Unbound.” Apple Books.

“Bezos and his employees riffed on the idea over email for a few days, but no further action was taken, and it could have ended there. Then a few weeks later, Hart met with Bezos in a sixth-floor conference room in Amazon’s headquarters, Day 1 North, to discuss his career options. His tenure as TA was wrapping up, so they discussed several possible opportunities to lead new initiatives at the company, including positions in Amazon’s video streaming and advertising groups. Bezos jotted their ideas down on a whiteboard, adding a few of his own, and then started to apply his usual criteria to assess their merit: If they work, will they grow to become big businesses? If the company didn’t pursue them aggressively now, would it miss an opportunity? Eventually Bezos and Hart crossed off all the items on the list except one—pursuing Bezos’s idea for a voice-activated cloud computer.

“Jeff, I don’t have any experience in hardware, and the largest software team I’ve led is only about forty people,” Hart recalled saying. “You’ll do fine,” Bezos replied.

Excerpt From: Brad Stone. “Amazon Unbound.” Apple Books.

Even heroes aren’t perfect

Jeff Bezos is known for making his employees put their ideas into a PR FAQ, which is a single pager that summarizes key points on a new product/service, or a 6-page memo that includes analysis and rationale for an idea or a big initiative. I love this approach. I think it makes a lot of sense to ask folks to put thoughts to paper and strengthen their ideas. However, when it comes to Jeff’s own ideas, he sometimes didn’t meet the high standard. Furthermore, Jeff instills the philosophy of “single-threaded leaders” into Amazon. The thinking here is that when somebody is responsible for an initiative, they shouldn’t be distracted by anything else. Jeff’s focus was initially only on Amazon. Over the years, he became distracted by his new girlfriend and his investments in Blue Origin & Washington Post. The book detailed how he missed meetings and went for days without a visit to the office. He was still involved at Amazon, but that’s not the standard of focus that he demands from his employees.

What I took away from this is the reinforcement of the belief that even your heroes are far from perfect. They don’t always practice what they preach. It doesn’t mean they don’t have good ideas, but it also doesn’t mean that they are perfect either. We should look at people, or at least try to, with some grain of salt, instead of blind loyalty or admiration.

“The first, which Bezos proposed in a free-flowing brainstorm session in 2014, started as a notion he called “the steak truck.” Imagined as “an ice cream truck for adults,” the original suggestion was to stock a van or truck with steaks, drive into neighborhoods with lights flashing and horn blaring, and sell them to residents, as Doug Herrington remembered it. It would be convenient and a great deal for customers, since the meat was being sold in bulk. Eventually, the company might even predict demand and eliminate the inefficiencies and wasted food of supermarkets.”

“But the service was never as ubiquitous or as endearing as Jeff Bezos and Doug Herrington had hoped. Internet critics were baffled by the project and sneered at some of the more inexplicable deals (“bidet sprayers for $19.99, 33% off!”). One empty Treasure Truck burst into flames in a West Philadelphia parking lot at 1:30 a.m. Bezos briefly touted the initiative in his 2017 shareholder letter, but an executive on the finance team told me that it never performed particularly well or was close to profitable. If Amazon wanted to arouse excitement and loyalty for its fledgling grocery services, it needed something else entirely—like a unique product that customers were passionate about.”

Excerpt From: Brad Stone. “Amazon Unbound.” Apple Books.

“Well, Bezos had an idea for that as well and it was just as bizarre. In August 2015, the Washington Post published an unappetizing article about how a single hamburger might contain the meat of up to a hundred cows. Sourcing a burger from just a single cow could theoretically produce a superior-tasting patty but that “would be hard and expensive,” a meat distributor told the paper. That caught Bezos’s attention. He seemed to have increasingly adventurous tastes, later sampling an iguana, for example, at a meeting of New York City’s Explorers Club. In another brainstorming meeting with Herrington, he suggested they find a ranch to produce a “single cow burger” and make it a unique item that customers could only buy from Amazon. “I really think you should try this,” Bezos told Herrington, who recalled thinking at first it was a joke. “How hard can it be?”

“The project once again represented a different style of innovation within Amazon. Employees didn’t “work backwards” from their idealized customers, who had never asked for such a creation. They worked backwards from Bezos’s intuition and were catering to his sometimes eclectic tastes (literally). Bezos was right a lot, particularly when it came to cutting-edge technology. But in the end, the single cow burger and other culinary innovations introduced within Amazon Fresh generated little buzz or increased business.”

Excerpt From: Brad Stone. “Amazon Unbound.” Apple Books.

“Still, many Amazon execs and alums would have a hard time moving on so easily. Bezos had always demanded that Amazonians comport themselves with discretion and impeccable judgment. He ripped documents in half and walked out of rooms when employees fell short of expectations. By conducting an extramarital relationship so carelessly that it became fodder for a salacious spread in the National Enquirer and then a high-profile media free-for-all, he had failed to meet his own high standards. Dozens of current and former executives would later say that they were surprised and disappointed by Bezos’s affair. Their infallible and righteous leader was, after all, a flawed human.

The revelations also might have explained some of the more curious changes in his recent behavior. Bezos had been increasingly hard to find in the Seattle offices over the past year; OP1 meetings had been delayed or postponed, and longtime deputies were finding it difficult to get time on his calendar. He was spending more time traveling, colleagues had noticed, and that November had popped up with only a few hours’ notice in the Santa Monica offices of Ring, the connected doorbell startup Amazon had acquired in February 2018.”

Excerpt From: Brad Stone. “Amazon Unbound.” Apple Books.

Dark side of Amazon

Amazon is not an angel. There is a dark side that involves using the practice of leveraging data from 3rd parties for their own advantage and sacrificing smaller merchants for their own profit. Are those practices cringe-worthy and distasteful? Yes. Are they illegal? It’s clearly in the grey right now as the government is still conducting its investigation and no charge has been announced on Amazon yet. Nonetheless, given the threat from the likes of Shopify, these practices can cause concern and fear from 3rd parties, which can ultimately lead to sizable losses and damage for Amazon.

“Wendell Morris largely agreed with that sentiment. The founder of the Santa Monica–based YogaRat was one of the first sellers on Amazon to hawk yoga mats and yoga towels; he later expanded into beach towels and microfiber blankets, all sourced from China. In 2014, he became one of the few Amazon sellers that Jeff Bezos touted by name in his widely read annual letters to shareholders. “The beauty of Amazon is that someone can say, ‘I want to start a business,’ and they can go on Amazon and really start a business,” Bezos had quoted Morris as saying that year. “You don’t have to get a lease on a building or even have any employees at first. You can just do it on your own. And that’s what I did.”

But by the time I talked to him, Morris, like Saunders, had changed his opinion. In 2016, when YogaRat employed seven people, he found that his listings were inexplicably disappearing from Amazon’s search results. He spent hours on the phone with an Amazon customer support staffer in India and wrote pleading emails to Bezos’s public email address. His listings were finally restored, though they never returned to their previous positions at the top of search results. A year later, his seller account was suspended altogether because some of the images on his listings violated Amazon’s guidelines against depicting groups of people in product photos. Morris conceded the error while bitterly showing me how countless other sellers violated the same rules without penalty. Someone—probably a competitor—had singled him out to Amazon’s enforcement team.”

“While Morris scrambled to reinstate his account, other sellers of the same merchandise replaced him atop search results. YogaRat never recovered. He now runs what’s left of his firm alone with his wife, and the challenges are daunting. He is constantly fighting overseas knockoffs of his designs and reviews of his products that mysteriously show up on rival listings. When he calls Amazon customer service, he suspects the reps’ primary metric for success is how quickly they can get off the phone. Once a devoted yogi, Morris can barely stand to look at a yoga mat anymore.”

Excerpt From: Brad Stone. “Amazon Unbound.” Apple Books.

“Aarstol tried to advertise on Amazon to boost his visibility but that gutted his profits. In the years after he was mentioned in Bezos’s letter, he went from employing ten people to three and from recording $4 million in annual sales to less than $1.5 million. “Amazon doesn’t give a shit about brands,” said Aarstol, who by 2020 was almost completely off Amazon and focusing on sales over his own website. “They don’t care whether you live or die.”

Excerpt From: Brad Stone. “Amazon Unbound.” Apple Books.

“Speaking on the condition of anonymity, several private-label managers admitted to exploiting a resource that was even more precious than product reviews—prominence in Amazon’s search results. When they introduced a new brand, like Mama Bear diapers, a practice called “search seeding” allowed the brand managers to pin the initial relevancy score for the new product to the score of an established product, such as Pampers, at least for the first few days. The Amazon product would then appear at the top of search results, rather than starting on the unseen last page with other new brands.

When I asked Doug Herrington whether Amazon changed search results for its private-label products, he flatly denied the practice occurred. “We don’t manipulate search results at all,” he said. He added that Amazon brands were sometimes given prominent advertising slots in search results when they were a “great deal for the customer,” and if customers didn’t respond, the Amazon products quickly vanished. He also compared Amazon’s tactics to those of competing physical retailers, who put generic products like painkillers right next to Tylenol and Advil, taking up limited shelf space. Amazon, on the other hand, had “infinite aisles,”

One who worked on a new lifestyle brand called Solimo said she originally assumed third-party data was off limits when she joined the company in 2016. A year into her job, her boss showed her how to access the sales data and told her to ask Amazon’s data analysts if she needed help. The employee, who asked that her name not be used, subsequently examined third-party sales to determine the fastest-selling vitamin supplements, how many units were sold, and the average selling price and profitability of each.”

Excerpt From: Brad Stone. “Amazon Unbound.” Apple Books.

Other interesting anecdotes

“Logistics employees who worked on the California service said this hub-and-spoke model ended up being inefficient and unreliable; one said that Amazon was “basically stapling a $10 or $20 bill to every order.” The Fresh team also tracked a metric called “perfect deliveries”—when an order was promptly delivered and included every item. They found they were hitting that target less than 70 percent of the time. Grocery industry veterans belittled the effort from afar. “Amazon Fresh is their Waterloo,” John Mackey told me during our chat in 2014. “What’s the one thing people want? Convenience. You can’t do that with distribution centers and trucks.”

“Success in delivering online groceries relied on getting the logistics exactly right and amassing enough demand to make it profitable to send drivers into residential neighborhoods. Amazon had set up warehouses too far from customers, made it too expensive for them to sign up, and saddled them with bulky tote bags and sacks of dry ice after each delivery. Bezos had finally agreed with Doug Herrington that Amazon needed to reinvent its retail business, but they were going to have to find a different way to do it.”

Excerpt From: Brad Stone. “Amazon Unbound.” Apple Books.

“For the next few quarters, Amazon avoided buying Google ads in Mexico and tried to compensate with billboards, radio, and TV ads, and shipping discounts. As Garcia had feared, it hobbled the site. The offline ads were more expensive and less effective. Google brought in $70 billion in annual advertising revenues because search ads worked and were a relatively inexpensive way for websites to attract visitors. “I wanted to see if we could get traction in a country launch without using Google,” Wilke later said, “and it turned out, the answer was no…. We weren’t reaching enough customers.”

Excerpt From: Brad Stone. “Amazon Unbound.” Apple Books.

“Internally the program was called AMPED. Amazon contracted with an Australian data collection firm, Appen, and went on the road with Alexa, in disguise. Appen rented homes and apartments, initially in Boston, and then Amazon littered several rooms with all kinds of “decoy” devices: pedestal microphones, Xbox gaming consoles, televisions, and tablets. There were also some twenty Alexa devices planted around the rooms at different heights, each shrouded in an acoustic fabric that hid them from view but allowed sound to pass through. Appen then contracted with a temp agency, and a stream of contract workers filtered through the properties, eight hours a day, six days a week, reading scripts from an iPad with canned lines and open-ended requests like “ask to play your favorite tune” and “ask anything you’d like an assistant to do.”

The speakers were turned off, so the Alexas didn’t make a peep, but the seven microphones on each device captured everything and streamed the audio to Amazon’s servers. Then another army of workers manually reviewed the recordings and annotated the transcripts, classifying queries that might stump a machine, like “turn on Hunger Games,” as a request to play the Jennifer Lawrence film, so that the next time, Alexa would know.

The Boston test showed promise, so Amazon expanded the program, renting more homes and apartments in Seattle and ten other cities over the next six months to capture the voices and speech patterns of thousands more paid volunteers. It was a mushroom-cloud explosion of data about device placement, acoustic environments, background noise, regional accents, and all the gloriously random ways a human being might phrase a simple request to hear the weather, for example, or play a Justin Timberlake hit.

The daylong flood of random people into homes and apartments repeatedly provoked suspicious neighbors to call the police. In one instance, a resident of a Boston condo complex suspected a drug-dealing or prostitution ring was next door and called the cops, who asked to enter the apartment. The nervous staff gave them an elusive explanation and a tour and afterward hastily shut down the site. Occasionally, temp workers would show up, consider the bizarre script and vagueness of the entire affair, and simply refuse to participate. One Amazon employee who was annotating transcripts later recalled hearing a temp worker interrupt a session and whisper to whoever he suspected was listening: “This is so dumb. The company behind this should be embarrassed!

But Amazon was anything but embarrassed. By 2014, it had increased its store of speech data by a factor of ten thousand and largely closed the data gap with rivals like Apple and Google. ”

Excerpt From: Brad Stone. “Amazon Unbound.” Apple Books.


Weekly reading – 22nd May 2021

What I wrote last week

I gave examples of how prices on Amazon can be much higher than what you can find at retailers

A couple of great clips about soy sauce and its history

A review of Disney’s Q2 FY2021 results

My thoughts on Paypal

Business

A Moneyball Experiment in English Soccer’s Second Tier. Although people are quick to point out that Billy didn’t win a title with his Money Ball method, his team did improve within his limited resources. Barnsley will unlikely win any title, especially the Premier League. However, as long as the team makes it to the top tier and earns more money by just showing up, it should be an astounding success itself.

Why former Google ads boss Sridhar Ramaswamy is building an ad-free search engine. A pretty interesting interview. I wonder what would make such a search engine attractive enough that people would pay to use it. I mean, DuckDuckGo is pretty great and it is privacy-focused. And it’s free.

Panera Bread’s new design transforms it into a neighborhood bakery in a bid to build loyalty. Retailers have to focus on delivering experience. The physical goods are a must, but it’s just part of the puzzle.

What I find interesting

Khmer Temple-Hopping Motorbike Loop | Tra Vinh. Vietnam has a lot to offer in terms of tourism. I’d say that instead of frustrating yourself in touristy places, you should head to destinations like Tra Vinh, which have their own charm, beauty and history. Personally, I prefer Tra Vinh to cities like Nha Trang or Mui Ne.

Hyundai Nexo breaks world record for longest distance travelled in a FCEV. Even though a long distance was achieved with one tank of hydrogen fuel, eventually these cars still need to refuel. Hence, the challenge of propping up fuel stations in popular areas still remains. Unless that is accomplished, there is still a long way to go for fuel-cell-electric vehicles. Though the way got a tiny bit shorter.

Censorship, Surveillance and Profits: A Hard Bargain for Apple in China. Not only is China a $50 billion market for Apple, but it also houses its main irreplaceable yet supply chain. Even a local billionaire hero like Jack Ma disappeared over night and lost his influence after angering the government and President Xi. What chance does Apple have to be anything different? If Apple still wants to do business in China, it has no choice but to do everything it can to balance between appeasing Xi and protecting its customers as well as principles. Some may say that Apple could have pulled out of the country like Google. Well, that’s Google principle. Tim Cook’s principle is to show up because “nothing changes from being on the sideline”. You can disagree with his or Apple’s principle, but you can’t just change it. Additionally, as a Vietnamese, I don’t think it would be much better to relocate all the supply chain to my country. The story would be more of the same. Well, in many countries, it would still be more of the same.

Google Workspace got a huge upgrade. At first glance, the upgrade looks so interesting.

The 1,400-year-old invention Peru is reviving. In the age of technology when our societies are more technologically advanced than ever, ancient techniques tested over the years continue to be effective.

Apple previews powerful software updates designed for people with disabilities

You may soon be able to buy pre-IPO stocks

Stats that may interest you

Ethereum will use at least ~99.95% less energy post merge

There are 3 billion active Android devices

The average age of bridges in America is 44 years

Let’s talk Paypal. No longer merely a P2P player

The story of Paypal started in 1998 when Max Levchin, Peter Thiel and Luke Nosek founded Confinity, a digital wallet company. They later merged Confinity with X.com, launched by Elon Musk, and altogether rebranded the new entity as Paypal. In 2002, the company went public under the ticket $PYPL. Later in the same year oof its IPO, it was acquired by eBay and became the prominent payment option on the famous marketplace. In 2015, Paypal left the eBay family to become a separate and independent entity. Six years later, it is now one of the most trusted brands in the world, available in more than 200 countries and valued at almost $300 billion.

At the core, Paypal provides payment and financial services to both consumers and merchants. Originally, it used to be one of the primary methods of person-to-person (P2P) transactions. Over the years, Paypal has transformed itself into a more expansive platform. Consumers can now use Paypal to send and receive money from others as well as to pay merchants, whether the transactions are online or in stores with debit cards, credit cards, tap to pay and QR Codes. On the merchant side, Paypal offers a host of solutions, including payment processing, marketing tools and financing options.

Paypal's breadth of services
Figure 1 – Paypal’s services. Source: Paypal

As a two-sided platform, Paypal needs one side to feed the other. From the consumer perspective, they only find Paypal useful when they have friends and families on Paypal network. Additionally, Paypal must be accepted at various merchants, whether transactions take place in physical stores or on websites. Otherwise, what would be the point of having a Paypal account? From the merchant perspective, Paypal’s value propositions lie in their payment solution and the brand name as well as trust cultivated with consumers. If consumers didn’t trust or use Paypal, there would be plenty of other alternatives. But that’s also one of their three moats. It’s super hard to be a two-sided platform because of the chicken-and-egg problem. Not only did Paypal have to solve that problem between consumers and merchants, but they also had to deal with it within the consumer space.

Another moat of Paypal is that the company has cultivated trust in consumers and merchants alike with its track record of security. Even though security breaches are almost inevitable to any company, so far Paypal hasn’t recorded too many incidents. When it comes to handling people’s money, security should be at the top of any company’s agenda. I mean, anyone can boast that they can exercise two hours in a row. I don’t doubt it. But it’s a completely different challenge to exercise two hours a day for 30 days in a row, let alone for years. To replicate such a track record, a competitor needs to invest in security and more importantly, it needs time. No matter what a newcomer says about its own security, only time can seed the trust in the constituents of its network. Unfortunately, time isn’t something that human brains or money can buy. And while a newcomer or existing player builds up its track record, Paypal is not likely to stand still. Just look at their M&A activities in the last few years: Venmo & Braintree (2013), Xoom (2015), iZettle (2018), Honey (2019), GoPay & Happy Returns (2021).

Finally, Paypal is operating at an enormous scale. In Q1 FY2021, it processed $285 billion in transactions, growing at 49% YoY. That annualizes to more than $1 trillion. As you may know, scale is the magic in business. Paypal’s gigantic scale should give the company a cost advantage over competitors. Plus, the breadth of Paypal offerings poses a daunting challenge to anyone wishing to match them. Just look at Figure 1 to see how many services are available, not to mention the acquisition of Happy Returns. It’s hard to spread resources and make investments on multiple fronts when you are on the back foot in terms of unit costs. Just to give you an example of what the scale of Paypal’s existing active account base and its brand name can do, let’s take a look at the rollout of Buy Now Pay Later and QR Code. Paypal introduced its Buy Now Pay Later only in August 2020. As of Q1 2021, its Pay in 4 already had over $2 billion in TPV globally, of which $1 billion came from the US. Pay in 4 also had 5 million unique customers. In addition to its popularity and reach, Paypal offers the service to merchants without charge. Normally, merchants have to pay BNPL providers several times the normal interchange, but Paypal is willing to subsidize merchants to gain market share. Also, the company enabled pay by QR Code some time in the latter half of 2020, but it already amassed 1 million merchants as of Q1 2021 that used the service, up from 500,000 two quarters prior.

How Paypal benefits merchants
Figure 2 – Value propositions of Paypal to merchants. Source: Paypal

How does Paypal make money?

We generate revenues from merchants primarily by charging fees for completing their payment transactions and other payment-related services.

We generate revenue from consumers on fees charged for foreign currency conversion, optional instant transfers from their PayPal or Venmo account to their debit card or bank account, interest and fees from our PayPal Credit products, and other miscellaneous fees.

Source: Paypal’s latest Annual Report

In short, Paypal charges merchants on every processed transaction and for other additional services. On the consumer side, P2P transactions don’t yield much revenue, but if consumers want to have instant deposits or have an outstanding unpaid balance on their credit cards with Paypal or Venmo, then the company earns additional fees and interest on the balance.

Take-rates which indicate what Paypal gets in revenue over the transaction volume depend on the kinds of transactions. Normally, bill payments and P2P transactions have low take-rates. Transactions funded using debit or credit cards are more expensive to process than those funded using bank accounts or balance within Paypal or Venmo. Commercial transactions such as those on eBay or cross-border transactions that require a foreign exchange are more lucrative. Obviously, Paypal would love to maximize revenue and profits, but there is necessarily a balancing act to be had here. Although bill payments and P2P have a low yield, they are sticky. They are what keeps users engaged and in the network. Payments is a highly contested industry. Any transactions processed by legacy banks, other providers such as Square or Apple Pay and fintechs are transactions that Paypal loses. Hence, I think for the time being, it’s better for the company’s future that they are prioritizing the growth of the active account base and engagement.

Venmo and Paypal TPV
Figure 3 – Paypal and Venmo TPV
Paypal's active account base
Figure 4 – Paypal’s active account base
Paypal and Venmo YoY Growth in TPV
Figure 5 – Paypal & Venmo YoY Growth in TPV
Transactions per active accounts from Paypal
Figure 6 – Transactions Per Account

In short, I am bullish on Paypal. The company has a brand name known and trusted in many countries around the globe. It has the expertise after spending more than two decades in the industry and the ability to transform itself into a more expansive and competitive entity. It has a nice track record of acquiring other businesses to add needed capabilities. Currently, Paypal is the only Western company with 100% ownership of a Chinese payments company after it acquired 100% stake in GoPay. Additionally, it announced the acquisition of Happy Returns with the aim of offering merchants as well as shoppers convenient return services. As payments are pretty fragmented, I believe Paypal will not have any trouble from regulators with regard to future M&A. Yes, competition is plenty and stiff, but as you may already see at this point, there are reasons to like Paypal and what they are doing.

Disclosure: I have a position on Paypal.

Review of Walt Disney’s Q2 FY2021 results

There are two main stories regarding Disney: Disney+ as well as other streaming services and their non-streaming segment.

As more and more folks in the US are vaccinated and the CDC relaxed its guidelines, Disney reopened its theme parks and resorts in the last quarter. Traditionally, this segment is the key source of Disney’s profit, but was severely hit by Covid-19. Compared to the prior year quarter, Q2 FY2021 saw revenue from Parks, Resorts, Cruise and Merchandise drop by more than 50%.

Figure 1 – Breakdown of Disney’s Q2 FY2021 Revenue – Source: Disney

Hence, having their physical attractions open is definitely good news to investors. It’s also a testament to the resiliency and health of the business. Its cash cow was hit very hard by the catastrophe that is Covid-19, yet it pivoted successfully to Direct-to-Consumer while waiting for better days to come. In addition, Disney is going to launch an all-new Avengers campus in California on June 4 and allow bookings for its new cruise ship Disney Wish starting May 27th. The Avengers campus, I suspect, will be a big hit to consumers. Thousands, if not millions, love the 10 year story arc with about 23 Marvel movies. As the original cast such as Chris Evans or Robert Downey Jr is more or less out of the picture and the new generation of superheroes are slowly making their way to the scene, fans will cherish a chance to connect physically with their old and new heroes. That’s the power of Disney. They invest a lot of money in creating content and then luring consumers to visit their parks, resorts, cruise lines and buy merchandise. While other streamers can compete with this company on the content front, few, if not none, have the capability and resources to replicate what Disney has on the other part of the equation.

Disney’s Streaming Services

Because Disney+ is touted as the company’s single most important priority, all attention is fixated on the health of the service. At the end of Q2 FY2021, Disney+ has almost 104 million paid subscribers, up from 95 million in the previous quarter. The net add of 8.7 million paid subscribers is much lower than what Disney added in the previous three quarters during Covid. The executives blamed the following for the smaller add:

  • Covid pulled forward subscribers
  • A price increase in two main markets: EMEA and North America
  • No new market launch. The launch of STAR+ in Latin America is postponed to the end of August to leverage major sports events such as the new season of Premier League, La Liga & Copa Libertadores
  • A disrupted schedule of Indian Premier League, India’s national cricket league

On the earnings call, the company reaffirmed its target of 240-260 million paid subscribers on Disney+ at the end of fiscal year 2024. To meet the lower end of that target, by my calculation, Disney needs to have a net add of about 12.5 million subscribers every quarter between now and Q4 FY2024. As you can see above, there are quite a lot of factors that can affect the number of subscribers, but if I have to make a bet, I’ll say that they can do it. There are two reasons. The first one is that Disney+ right now is only available in 31 countries. It’s not even live yet in Asian or LATAM countries where there are a lot of folks. My country alone has 96 million people and 50% of those are between 18 and 54 years of age. There are a lot of spots on the world map where Disney+ can expand its presence. The second reason is that the company lowballed their subscriber target before. It’s likely that they may be doing it again with the current one.

The main criticism of Disney’s current growth strategy is that it relies too much on the low ARPU market in India. Hotstar makes up 1/3 of Disney+ total subscriber base, up from 25% two quarters ago. The low price in India suppressed ARPU of Disney+ from $5.61, excluding Hotstar, to just $3.99, including Hotstar. While ARPU is obviously an important part of a streaming business, it’s equally important to take into account where Disney+ is at the moment. Fans of Netflix usually cite its scale as the main competitive advantage. In other words, Netflix has a cost advantage because it can spread content expenses over many more subscribers (around 200+ million). To negate that advantage of Netflix, Disney+ has to grow its base, but it would need a magic wand to acquire more users and grow ARPU because that’d be virtually impossible.

Disney subscribers, net adds and ARPU
Figure 2 – Disney’s Subscribers, Net Adds and ARPU

Any comparison between Netflix and Disney+ at this stage is very challenging. First of all, Netflix is available in 190+ countries whereas Disney+ is only in 31. When Netflix started, the category didn’t exist and it had to be a trailblazer. But it also means that Netflix didn’t have a fierce competitor like its current version nowadays. Any price it set was essentially the best price at the moment. On the other hand, while Disney+ doesn’t have to create a whole new market like Netflix did, it has to compete against an established and experienced rival that has a major cost advantage. There is a vicious cycle at play here. Netflix’s competitors have a cost disadvantage because they have a smaller scale. The longer that disadvantage persists, the hard it is to plow billions of dollars a year into content. Without content, there wouldn’t be any subscribers, hence, Netflix’s advantage is reaffirmed. As a result, the likes of Disney+ have to prioritize scale over ARPU for the time being, to avoid being sucked into that vicious cycle. Another difficulty lies in the different operating models. Netflix’s content is rarely available in theaters. Its content library is available to all subscribers without restrictions. Meanwhile, Disney+ releases its content in different fashion:

  • Exclusively available to all subscribers without additional charge
  • Exclusively available to subscribers with Premier Access (about $30 per title) for a few weeks before being widely available to all
  • Available first in theaters for a period of time (45 to 90 days) before going to Disney+

The variety in the release strategy may affect the user acquisition to Disney+, compared to Netflix, but who is to say that it doesn’t help Disney generate more money or profit from taking a different path? Disney+ tried the Premier Access with Wulan and a couple of movies afterwards. I reckon that it must have yielded some success so that they decide to keep it moving forward. With an exclusive theater period, Disney is trying to see if the high margin revenue from theater owners are worth suppressing the subscriber base on its flagship streamer. Whether the flexible model employed by the iconic brand or the dedicated philosophy of Netflix will prevail remains to be seen.

Besides Disney+, I am excited about ESPN+. The service has been growing very nicely in terms of subscriber count and ARPU. At 13.8 million subscribers, there is still a lot of upside within the US to go. For sports fans, its content library is very appealing with Serie A, Bundesliga, UFC, Australian Open, US Open, Wimbledon, MLS & College Basketball. The new deals with Major League Baseball to stream 30 games per season till 2028 and with La Liga in an 8-year deal to stream 300+ matches per year in both English and Spanish will absolutely make it more attractive. Since streaming rights need to be negotiated for every geography, it remains to be seen how or if Disney is able to grow ESPN+ out of the US.

A 750-year-old soy sauce secret and an iconic product design

As an Asian, I love soy sauce. That’s what I grew up with and continue to use it regularly in my own cooking. So it was a pleasant surprise that I came across two very interesting clips. The first one talks about how a method to make soy sauce has survived centuries and generations in the birthplace of soy sauce in Japan. The second one discusses the iconic product design of Kikkoman. Not only is their dispenser’s design recognizable without any logo or branding, but it also bolsters customer experience.

Isn’t the world interesting? The design that we usually take for granted took the original designer, Kenji Ekuan, several years to develop. The sauce that we dip our sushi or pour on our food has been around for centuries. This is the main reason why I want to travel the world, to learn about new things.

You may be ripped off on Amazon. Do yourself a favor and check other retailers’ prices

I noticed that there were a few products that were much more expensive on Amazon than from other retailers. Take Choc Zero chocolate and hazelnut spread as an example. This is a product I really like because 1/ it’s chocolate and 2/ it’s keto. While a 12oz jar is sold for $9 on Choc Zero’s website, you’ll have to pay $20.81 for the same jar on Amazon, whether you have a Prime membership or not. Sure enough, with Prime, you don’t have to meet a minimum order requirement from the manufacturer itself, but after including the shipping fee of $5 from Choc Zero, the whole order will still be much cheaper than what is available on Amazon.

A 12oz jar of Keto Chocolate Hazel Nut Spread
Figure 1 – A 12oz jar of Keto Chocolate Hazel Nut Spread on Choc Zero’s website. Source: Choc Zero
Figure 2 – The same jar on Amazon. Source: Amazon

Another product that has the same issue is Fromm Tunachovy Cat Dry Food. A 5lb bag of Fromm Tunachovy Grain Free Salmon Dry Food costs around $20-$21 at normal retailers. The same product is running at $35.49 on Amazon with or without Prime.

Fromm Tunachovy Cat Dry Food at retailers
Figure 3 – A 5lb bag of Fromm Tunachovy Cat Dry Food costs around $21 at retailers
Fromm Tunachovy Salmon Cat Dry Food on Amazon
Figure 4 – The same bag costs $35.5 on Amazon. Source: Amazon

The difference in price likely results from multiple fees and commissions that retailers have to pay for the privilege of being on Amazon. To keep the same margin, retailers have no option but to raise prices. However, increased prices make their products look less competitive and friendly to consumers. How many consumers wanted to buy the two products above on Amazon but abandoned the plan because they look too pricey? I mean, how many are not deterred by a jar of chocolate spread costing $20? I sure was. Much as I like the convenience of shopping with Amazon, I’d rather buy more in quantity than what I actually need at the moment to save me quite a bit of money.

The lesson here is that: check the prices of what you are about to buy with other retailers before hitting that “Order” button on Amazon.