Power, Responsibilities, Choices and Agendas

In the aftermath of the terrorist attack on the Capitol Building on the 6th of Jan 2021, multiple companies either severed their business relationships with Trump’s organizations or banned him on their platforms altogether. Different views arose. Some agreed that Trump was too radioactive and too harmful. His supports protested the backlash levied on their hero. Others pondered whether some companies like Twitter and Facebook should have the power to ban even the President of the United States.

It has been a week since that happened and I thought a lot about two things. The first is the famous line that Spider Man’s uncle told him: with great power come great responsibilities. The other is this clip:

If you’re not a Marvel fan, this is the scene where the superheroes debated whether they should be put under guidance and supervision by a panel, instead of making their own choices. Some led by Tony Stark thought they should be, while others led by Captain America disagreed, saying that the panel would be run by people with agendas and agendas change. Cap reasoned that surrendering their right to choose and submitting to people’s agendas, especially with their superhero power was too big a risk.

There are multiple issues here. First, think about what Captain America said about agendas and what happens in real life. The legislative and judicial systems are supposed to be there to rein in the Executive Branch, especially the President. What has happened in the last 4 years is nothing but that. The Republican officials in Congress did Trump’s bidding and closed their eyes on the crimes and misdemeanor that he has committed. Why? Because they follow their own agendas and want to stay in power. Angering Trump will provoke him to turn on them and tell his supporters to remove the dissenters from office. What is supposed to supervision and a check against balance becomes gas to the fuel.

Some argued that powerful platforms should be supervised by a committee or panel of experts or regulated by the government. Either option is run by people with agendas and like Cap said, agendas change. What if the government doesn’t like criticisms made on a government-controlled Facebook and decides to ask the company to censor them? What if the politicians and the powerful work behind the scenes to install friendly faces on the supervising panel/committee? It’s not an exaggeration to say that the likes of Google, Facebook or Twitter have superpower heroes. Used the right way, they can further the society’s interests. Used the wrong way, they can be very harmful weapons.

But should these companies have that much unchecked power at their disposal? Let’s talk about the accusation that they censor content on their platforms. The extreme case first. Trump is the President of the United States. As long as he has something to say, media outlets all over the world will likely broadcast it, even when it is an outrageous claim. He can have a press conference, a rally or he can call in right-wing media which also has significant reach to broadcast his messages. Being banned on Facebook or Twitter doesn’t amount to a complete censor. He was banned because he repeatedly violated the terms of services written and imposed by private entities; which gives them the right to act like they did. Had he not pushed the envelope too far like when he incited violence on the 6th of Jan 2021, he wouldn’t have been banned. Two months after the election, he repeatedly called into question the legitimacy of the election, yet the likes of Facebook and Twitter didn’t ban him. That should be the evidence that if anyone is to blame for Trump not being on Twitter or Facebook, it will be him and him alone.

The same goes for other users. These social media platforms want and need you to engage with their platforms so that they can bring in valuable ads dollars. If you don’t commit grave offenses that warrant a ban, there is economic benefit to these platforms to ban and purge you without a legitimate reason. What’s the point of building a platform and acquiring users without wanting to keep them? Plus, the Internet allows anyone to broadcast his or her opinion in multiple ways. Banned on Twitter? Try Facebook. Banned on Facebook? Try Snapchat. Banned on Snapchat? Try writing an op-ed to a newspaper and getting it published. That doesn’t work either? Try having a blog and advertising it. Want to get the message out in person? Try having a small rally or a speech at a market.

Social media platforms connect people, including the good guys and the deplorable. They are also essentially megaphones that send wide and far well-intentioned messages or on the opposite, purely harmful agendas. A knife is a great cooking tool, but in the hands of a criminal, it’s a weapon that can take one’s life. How social media are used hinges much on the users. Since it’s practically impossible to prevent the extreme or the propagandists, the platforms have to take up the responsibility to ensure their platforms do more good than harm.

As private entities, these companies have agendas. The people like Mark Zuckerberg and Jack Dorsey and their confidants have agendas. If they were just “normal” folks, their ethics would affect only themselves and those around them. However, because they are vested with immense power, the importance of their own ethics is amplified so that they can wield the power responsibly. Their ethical compass will dictate what their agendas are and whether the greater goods look like. As to what can be the fail-safe/safeguard against these powerful individuals, I would argue that it would be competition. Powerful as politicians in the US are, they listen to their donors which, in turn, listen to their customers to some extent because of the risk that customers will flock to their competitors. In the aftermath of the terrorist attack last week, big companies and political donors decided to stay away from Trump and some halted their political donors to those that voted against the certification of the election. That should have a sway on the elected officials’ mind, whether they publicly take action or not. Moreover, Whatsapp delayed the rollout of their new privacy terms which would make it easier for them to share data with Facebook because users protested and flocked to rival apps such as Signal. Without competition and action by users, such a reversal wouldn’t happen. Powerful as Facebook is, they are not immune to the threat from competition.

I don’t claim to know how to encourage healthy competition in the market. I refer it to the people whose full-time job is to make laws. What I am trying to say is that between encouraging competition and creating an oversight that can be tainted by personal agendas, I would prefer the former. I don’t know about you, but my experience in Vietnam the US so far hasn’t given me much confidence in the latter.

Weekly reading – 16th Jan 2021

What I wrote last week

The Costco Model

Business

The latest memo from Howard Marks, just like his previous, doesn’t disappoint. He mentioned all the common senses in his memo which a lot of analysts and investors don’t seem to remember, myself included.

An informative interview by Patrick on an expert in the food industry

Neil struck it again with a sensible post on Apple’s share buyback

Visa’s new study on worldwide contactless payments after Covid

Bill Gates: America’s Top Farmland Owner

Second Measure looked at retention rate for different cohorts of Disney+ subscribers. I have quite a few questions here. How much of the bundle base came from the 3-year subscriptions sold at D23? Does the Prime Video include Prime Subscription which automatically includes Video?

Technology

You will soon be able to unlock your BMW with an iPhone in your pocket

Apple’s M1 chip can help you train models faster

DuckDuckGo is hovering around 100 million users/a day now

What I found interesting

What it’s like to go through a dramatic career change

If you are a left-wing protester, you’re 3x more likely to be forcefully confronted by the police in the US. My guess is that except from the aggressive looters, left-wing protesters are peaceful and give an impression to the police that they can use force against the protesters. Right-wing protesters appear more aggressive and intimidating. Plus, I wonder if the results are skewed because there are more states with the GOP-controlled local authorities than those with Dems-controlled authorities.

Dire Wolves Were Not Really Wolves

European Union gave citizens the “right to repair

This video clip is about how much Swedes trust their government and believe that their high taxes are in their benefits through free healthcare, education, great infrastructure and a great living standard. It can’t be more different from the US. Here, every time social benefits are mentioned, a lot of people can’t call them “socialists” or “communists” fast enough. It’s super fascinating to see people increasingly pay more taxes (as %) compared to billionaires and are convinced that a little bit of saving on taxes every month is worth having a low living standard and paying a lot of money for everything else. There is a natural and inherent distrust in the government that is the root of so many problems around here

Trump’s coup attempt of 2020-21, like other failed coup attempts, is a warning for those who care about the rule of law and a lesson for those who do not. His pre-fascism revealed a possibility for American politics. For a coup to work in 2024, the breakers will require something that Trump never quite had: an angry minority, organized for nationwide violence, ready to add intimidation to an election. Four years of amplifying a big lie just might get them this. To claim that the other side stole an election is to promise to steal one yourself. It is also to claim that the other side deserves to be punished.

When that violence comes, the breakers will have to react. If they embrace it, they become the fascist faction. The Republican Party will be divided, at least for a time. One can of course imagine a dismal reunification: A breaker candidate loses a narrow presidential election in November 2024 and cries fraud, the Republicans win both houses of Congress and rioters in the street, educated by four years of the big lie, demand what they see as justice. Would the gamers stand on principle if those were the circumstances of Jan. 6, 2025?

Source: The New York Times

The Costco Model

Costco is a household name in America. It’s not an exaggeration that some even call it a cult. The company is a warehouse-styled chain of giant stores where young people and families shop on a weekly basis. To be able to shop at Costco, shoppers have to pay an annual fee from $60 to $120 for the privilege. How does Costco convince shoppers to shell out that money in advance when there are various other alternatives? Somehow throughout its history, Costco managed to establish a resilient and great operating model that combines scale, low prices and customer services. Shoppers know that by shopping by Costco, they can save money because of the low prices and the savings should be more than enough to justify the annual fee up front. As more people sign up and shop at their stores, Costco leverages the scale to negotiate low prices with suppliers. The low prices, while quality is maintained, drive shoppers to Costco and the virtuous cycle keeps going. It sounds easy, but it’s not. The model presents a chick-and-egg problem. To replicate Costco and convince folks to pay upfront for the privilege, a retailer would have to offer low prices, customer services and adequate quality. Those things aren’t cheap and the retailer in question would need enough shoppers to make the scale operable. In that case, it would have to take a lot of losses on its chin and there is still no guarantee that it could be another Costco.

Costco's membership tiers
Figure 1 – Costco Membership Tiers. Source: Company Website
Costco model
Figure 2 – Costco Model

Costco in numbers

More than 97% of Costco’s annual revenue comes from net sales while the rest is from membership fees. In 2020, the company’s revenue reached $167 billion, $3.5 billion of which came from membership fees. On a year-over-year basis, Costco’s revenue grew around 7-9% a year. On a comparable net sales change basis (excluding the impact of foreign current and fuel), it outperformed Walmart US and Sam Club US for the last 4 years. Retailers use comparables’ data without fuel to better show the changes every year in its core operations. It’s particularly helpful in removing the impact of new or closed stores when evaluating performances.

Costco's revenue breakdown
Figure 3 – Costco’s revenue breakdown
Costco's YoY revenue growth
Figure 4 – Costco’s YoY revenue growth

Costco is essentially a low margin business. Its net sales gross margin is less than 12% while its operating margin is a low single digit. If we look at Costco’s gross margin and its SG&A share of revenue, it’s safe to say that membership fees are responsible for most of the company’s operating margin and profit. The good news for Costco is that part of the business seems to be growing healthily. The number of members grew at more than 5% every year and the number of the more lucrative Executive members grew at an even faster rate (6%)

Costco's comparable net sales
Figure 5 – Costco’s comparable net sales
Costco's member count
Figure 6 – Costco’s member count
Costco's executive member count
Figure 7 – Costco’s executive member count

I think about Costco’s membership fees as a customer retention tool, not a customer acquisition tool. Nobody ever comes to Costco because they want to pay $60 or $120 upfront for the privilege. They come thanks to the brand’s appeal and the word of mouth. As they buy in with the annual fee, the switching cost becomes high and they are more incentivized to shop ore to justify the fee. Because Executive Members “generally shop more frequently and spend more than other members”, the fact that the higher tier base grew faster than the overall member base goes to show that shopper buy in this concept more and are willing to pay extra for the privilege. And it is reflected to some extent in the growth of comparables net sales, especially in comparison with Walmart US and Sams’ Club. That kind of brand, trust and relationship with customers is a powerful competitive advantage that even money can’t buy.

I came across two stories about how Costco went out of their way to improve their customer service and satisfaction

So how did we arrive at this point? It all started in 1987 with a salmon fillet and a mission to offer customers the highest possible value for the lowest price. The following anecdote is well known within Costco as the “salmon story.” It is regularly re-told and held up as an example of the company’s dedication to continually striving for improvement. It goes something like this:

When Costco first established its meat department in 1987, a team was dedicated to creating a quality salmon fillet. The first product was a high-quality, skin-on fillet for $5.99 per pound — an excellent value — but the salmon team saw room for improvement. In stage two, excess parts of the fish were removed and even though the quality was improved, the price was reduced to $5.29 a pound.

Later, the buying team found another way to enhance the product by offering a fully trimmed, skinless, and boneless fillet — and lowered the price to $4.99 a pound. In stage four, the team found that buying in bulk from Chile and Canada enabled them to lower the price even further, to $4.79. In stage five, the quality was further improved through certain trimming, but Costco maintained the same price.

At each point in this story, Costco could have raised the price for the improved product, but chose not to. This continues today as Costco goes to great lengths to improve its product offering while providing greater value for its members.

Source: MG2

When Costco president W. Craig Jelinek once complained to Costco co-founder and former CEO Jim Sinegal that their monolithic warehouse business was losing money on their famously cheap $1.50 hot dog and soda package, Sinegal listened, nodded, and then did his best to make his take on the situation perfectly clear.

“If you raise [the price of] the effing hot dog, I will kill you,” Sinegal said. “Figure it out.”

Taking his words to heart, Jelinek—who became Sinegal’s successor in 2012—has never raised the price on Costco’s hot dog. Incredibly, it has sold for the same $1.50 since the retail club first introduced the dogs to customers in 1984. The quarter-pound, all-beef tube and 20-ounce soda combo appears to be inflation-proof and immune to the whims of food distributors.

Source: Mentalfloss

When you have thousands of employees on your payroll and $166 billion in revenue a year, having the culture and the discipline to stick to your operating model is nothing short of incredible. It is among one of the toughest capabilities for any competitor to replicate and overcome. Rivals can read as much as they want about how Costco operates, but if they can’t maintain the culture and discipline year after year, they won’t be able to copy the Costco model.

I don’t think Costco is 100% risk-free. Companies come and go. There is no telling what will happen in the future, but if it can preserve its culture like it does now, the company has a bright outlook in the near future.

Disclaimer: I own Costco, Amazon and Walmart stocks in my portfolio.

P/S: if you are a fan of Kirkland, Costco’s signature private label, here is a quick look at its importance to the company.

Kirkland's net sales and as % of total sales
Figure 8 – Kirkland’s net sales and as % of total sales

Weekly reading – 9th January 2021

What I wrote last week

My review of the NYTimes as a business

If you haven’t heard of MDSave, read about my experience with it and how it can save you money

I talked about why I thought Apple’s Services have just only begun

Business

In the Face of Lockdown, China’s E-Commerce Giants Deliver

Consumer spending on the App Store reached $72 billion, compared to almost $39 billion generated on Google Play

A merchant detailed his dealing with Amazon. It’s mind-blowing to see how much Amazon charges merchants for being on their site and how much these merchants rely on the behemoth for revenue. While the total commission is high, that’s the price to pay when you don’t own the customer relationship.

Autodesk's sales growth after its SaaS transition
Source: Polen Capital

Technology

EV vehicles’ market share in France hit 19%, up 6x YoY

South Korea has 11 million 5G subscribers

Facebook published usage stats of their apps on New Year’s Eve. More than 1.4 billion voice and video calls were made on Whatsapp on New Year’s Eve

What I found interesting

The Eerie Beauty Of The Apple Watch Solar Face, And The Anatomy Of Nightfall

Hawaii beaches face the threat of erosion

Impressive as it is, Apple’s Services is still in the early days

Long known as an iPhone company, Apple has transformed itself in recent years to become less dependent on the iconic consumer gadget. I doubt the transformation stemmed from a desire to get rid of the association. Rather, the transformation is to respond to the consumers’ tendency to hold on to their devices longer and to keep the ecosystem strong as well as the products sticky. In FY 2014, Services was responsible for only 10% of Apple’s revenue. In FY2020, the figure doubled to 20%. It may not sound much, but it is given that we’re talking about a company of Apple’s size, stature and $250+ billion in annual revenue.

The growth of their Services is also reflected by the steadily expanding number of paid subscribers. In Q4 FY2020, Apple announced that they had 585 million paid subscribers and were well on track to finish the calendar year 2020 with 600 million subscribers. Only two years ago, the subscriber base stood 330 million as of Q4 FY2018.

Two days ago, Apple provided a few data points with regard to their services:

  • Developers have earned $200 billion through the App Store since 2008
  • Between Christmas Eve and New Year’s Eve in 2020, consumers spent $1.8 billion on digital goods and services on the App Store, with $540 million alone on New Year’s Day
  • Apple Music added 52 new territories and now has 70 million songs and 250,000 exclusive radio episodes
  • Apple TV App is “1 billion screens in over 100 countries and regions”
  • Apple Pay is available in 90% of stores in the US, 85% in UK and 99% in Australia
  • Apple Books has 90 million monthly active users
  • Apple Podcast is available in over 175 countries with programming in more than 100 languages
  • “More than 85 percent of iCloud users are protected with two-factor authentication”

I wish there would be more context for us to judge these numbers, but two data points specifically stand out for me. First of all, developers earned more during the Holiday Week between 24th Dec and 1st Jan in 2020 than they did in 2019. The App Store’s spending in 2020 went over $72 billion, easily dwarfing the $39 billion that Google Play had to offer. When consumers spend more on the App Store year after year, developers have more incentives to produce apps which, in turn, make the App Store even more vibrant. Plus, even though Android is on more devices than iOS, the App Store still generated more consumer spending, confirming the long observation on the market that Apple users are a more lucrative clientele for developers. If resources are constrained, why not focusing on where the money is?

Second, 85% of iCloud users enable two-factor authentication. Personally I only turn on the two-factor authentication for important accounts like my bank accounts, Gmail and iCloud. The figure provided by Apple indicates to me how iCloud users think about their account, implying a high degree of attachment and stickiness.

When it comes to Apple’s Services, I don’t consider them user-acquisition tools. Acquiring users is more like the job of the company’s legendary brand, marketing and hardware. I don’t think anyone switches from Android to iOS simply because they want to use either Apply Pay, Apply Books or Apple Podcast. Rather, Services keep users engaged and locked into the ecosystem. So far, these Services have done wonders for Apple and there is so much room to grow. Some s such as Apple Card, Apple TV+, Apple Fitness+ or Apple One are very new and limited to only a few markets. They are still in the development stage. Once they are further developed and introduced to more markets, Apple’s Services pie will grow bigger and their “overseas” customers will be even more locked in.

And then there are areas where Apple can potentially make inroads. The company has a knack for making small, incremental yet meaningful changes in complicated matters. It will not surprise me if they find a way to make our lives easier in areas such as our job, education or insurance. These offer plenty of opportunities for improvement and they are very personal; which is what Apple is all about. The company doesn’t even need to come up with paid services to generate more revenue. Even free services that can keep customers happy and locked in would already be valuable. Once customers are happy and locked in, the money will come later.

I heard and saw criticisms about Apple’s Services such as Apple TV+ or News+ or Fitness+. While some of those criticisms were warranted, it’s worth remembering that it’s rare to get something perfect at first try. Apple launched great and disappointing products before. Yet, the company is still here and among the top 5 richest companies in the world. The company is in the early days to grow their Services portfolio, trying, tweaking and expanding as they go along.

Disclaimer: I own Apple’s stocks in my portfolio

Pay less for medical procedures with MDSave

If you’re having some health issues, thinking about receiving health procedures, but feeling concerned about medical bills, try MDSave. It is a website that have connections with many hospitals in the country and offer medical procedures at a significant discount in the form of vouchers. Here is my own experience.

A couple of weeks ago, I had some weird feelings in my abdomen that led me to a doctor visit and a blood test. The blood test turned out good and the doctor said I didn’t have anything to worry about. However, abs still nagged me. Paranoid as I am, I asked the doctor to order a CT scan so that I would be surer about my body and health. After the doctor office confirmed that the scan was ordered, it was up to me to call the hospital to set up an appointment. Knowing how expensive medical care can be in this country, I made a point of asking about the potential cost in advance.

After agreeing on the appointment date and time, the operator connected me with the Finance department or something like that. The person told me that the scan would cost $5,800. I was floored. Even with insurance, I would have to pay around 60% of that before the insurance kicks in due to my high deductible. And she wasn’t joking. Here is what UMC Health listed as the price for my procedure.

I was about to give up on this test because there is no way that I would shell out that much for a test that my doctor didn’t even think I need. But the person on the other end of the phone quickly told me to look up MDSave and see if there is any voucher for this procedure. As it happened, there was and still is. For the same procedure at the same hospital, the voucher costs $484.

Cost of CT Scan of Abdomen and Pelvis with Contrast on MDSave
Source: MDSave

With the voucher, I essentially would receive the same care for less than 10% of what they would charge me. How insane that is! Please note that whether what you pay MDSave can be counted towards your deductible depends on your insurer. Mine doesn’t allow that. But it may be possible to get reimbursed by your HSA provider.

Luckily my scan turned out well and showed that I do not have any major underlying condition with my abs and internal organs nearby, for now. But this experience is really enlightening for me. How on Earth could something like that happen? I talked to a few people in my office, including my well-educated American boss and he hadn’t even heard of MDSave. How many people had to pay much much more than what they would have to? And then, I thought of this

40% of Americans don't have $400 for emergency expenses
Source: ABCNews

How many people have to roll a dice with their health every day because they can’t afford it? I took the scan because I didn’t want to go by my days, fearing for my health and knowing that I could have done something, but didn’t. That would be a horrible feeling to carry. With that kind of feelings, you can’t be happy. But many people likely don’t have the luxury to assuage themselves, simply because the system is so broken.

Subscriptions reached 70% of NYTimes’ total revenue as ads revenue dropped by 30% YoY

NYTimes is one of the newspapers that saw the writing on the wall a few years ago when it committed to the transition from an advertising-dependent model to a subscription-centric one. Let’s look at their performance.

In Q3 2020, The New York Times recorded more than $300 million in Subscriptions revenue, out of $427 million in total revenue. In other words, 70% of the company’s revenue came from subscriptions. In the meantime, advertising dropped significantly by 30% YoY and made up only 19% of the total pie, down from 26% from the same period last year.

Figure 1 – Segment Revenue as % of Total Revenue. Source: Company Filings
Figure 2- YoY Growth. Source: Company Filings

In hindsight, it was a great move of the newspaper to move to subscriptions. Had they not done that, Covid-19 would have wrecked their financials as companies cut back on advertising. The company still needs to look at their revenue growth. Even though 2020 can be excused because of Covid, last year still saw only about 2-3% of YoY revenue growth. Plus, while the company’s gross margin is about 50-60%, their operating margin hasn’t reached two digits for the last 4 third quarters. Since NYTimes doesn’t break out operating margin for segments, it’s hard to tell which fares better than the others.

Despite the fact that the outlet is now focused more on digital products, print advertising still made up for 40% of the company’s ads revenue. However, print advertising dollars dropped significantly this year by 47% YoY, to about $32 million, compared to the 13% drop by digital advertising.

Figure 3- YoY Ads Revenue Growth. Source: Company Filings
Figure 4 – Ads Revenue Breakdown. Source: Company Filings

With regard to paid digital subscriptions, the New York Times recorded 6.1 million paid digital subscriptions as of the end of Q3 2020, up from 4.1 million a year ago. When breaking down this digital subscriber base, digital news subscriptions grew by 46% YoY and other digital subs (crosswords and cooking) by 63%. The growth in digital news subscriptions was very encouraging for the news outlet, even though it’s likely that Covid-19 may have had a positive contribution.

 Q3 2017Q3 2018Q3 2019Q3 2020
Digital News Subs (in thousands)2131254131974665
Other Digital Subs (in thousands)3555548561398
Digital Subs (in thousands)2486309540536063
Print Subs (in thousands)  865831
Total Subs (in thousands)2486309549186894
Figure 5 – Subscription Breakdown. Source: Company Filings
Figure 6 – YoY Subscription Growth. Source: Company Filings

In short, things look relatively positive for the New York Times. The transition to the subscription-centric model seems like a success. Despite the unprecedented health crisis that we are facing, the company’s business looks resilient enough with great growth in digital subscriptions and momentum. Compared to other news outlets, the paper is miles ahead in terms of paid digital subscription. Even after Trump leaves office, the appetite for quality journalism, whatever “quality” means is in the eyes of the beholders, will still persist, I believe. Whether the company can maintain its appeal to readers or come up with other products to improve revenue growth and operating margin remains to be seen. Personally, I came so close to being a subscriber myself many times, but the Opinion column of the NYTimes put me off with some outlandish articles.

 Count (in millions)SourceAs of
Washington Post3AxiosNov-20
NYT Times6.1Company FiguresSep-20
Gannett1.03PoynterSep-20
Los Angeles Times0.26PoynterDec-20
Tribune Publishing0.3PoynterSep-20
WSJ2Company FiguresFeb-20
Bloomberg News0.25WSJNov-20

Weekly reading – 2nd January 2021

What I wrote last week

I reviewed two books: Operaatio Elop and Turning The Flywheel

I wrote about an important lesson I will take with me into 2021

Business

How Domino’s Pizza Drove a 90x Increase in Stock Value

How to use Pinterest for Marketing

The fear of missing out seems to fuel venture capitalists and investors to value startups many many times over its revenue

How to build tech products for a diverse user base

WordPress has 40% market share

Restaurants complain about not making money with Instacart. If you outsource the relationship with your customers and accept the behind-the-scene role, you cede control as well as any profitability to Instacart.

Airlines are making it really hard for customers to use credits. All airlines try to make customers use credits, rather than get reimbursed with cash. But some, like United Airlines, are exceptionally terrible. It’s rich to claim you are about serving your customers when claiming flight credits because of Covid-19 is difficult.

Inside the deal between Google and Facebook that drew antitrust attention

The App Store and Google Play notched more than $400 million in spending on Christmas 2020, up 35% YoY

An interview with Strip Co-Founder. Stripe’s revenue in EMEA is reportedly almost $530 million in 2018.

Covid-19 has been good for streamers so far

A horrifying account of working at Apple by an international student

Oyo Chain Hotel is facing great challenges amidst Covid-19

Technology

How Apple’s rivals plan to catch up with the mighty M1 chip

EU Signs €145bn Declaration to Develop Next Gen Processors and 2nm Technology

What I found interesting

She Noticed $200 Million Missing, Then She Was Fired

What the Dunning-Kruger effect is and isn’t

Chinese Demography

China’s Empire of Concrete

Abortion, Once Unthinkable in Argentina, Becomes Legal

How ‘Feierabend’ helps Germans disconnect from the workday

A long read about the US’ response to Covid-19. I don’t know how anyone can read this report and say anything other than: there is blood on those who are supposed to be in charge, but fail their duty miserably.

A great read on why Trump supports connect with him. It’s not about policies or principles. It’s feelings. It’s about long held frustration.

One last message to take to 2021

As I was having my morning coffee today, I came across this email from Ryan Holiday, who is a fantastic writer and somebody that you should subscribe to, I couldn’t help, but think that this message below is an important one to take to 2021:

One of the best pieces of advice from Seneca was actually pretty simple. “Each day,” he told Lucilius, you should “acquire something that will fortify you against poverty, against death, indeed against other misfortunes, as well.” Just one thing. One nugget. This is the way to improvement: Incremental, consistent, humble, persistent work. Your business, your book, your career, your body—it doesn’t matter—you build them with little things, day after day.  Epictetus called it fueling the habit bonfire. The filmmaker, entrepreneur, author, former governor of California, professional bodybuilder, and father of five Arnold Schwarzenegger gave a similar prescription for people trying to stay strong and sane during this pandemic: “Just as long as you do something every day, that is the important thing.” Whether it’s from Seneca or Epictetus or Arnold, good advice is good advice and truth is truth. One thing a day adds up. One step at a time is all it takes. You just gotta do it. And the sooner you start, the better you’ll feel… and be. 

In his book Atomic Habits, James Clear talks about something he calls “The Plateau of Latent Potential.”  This plateau can be likened to bamboo, which spends its first five years building extensive root systems underground before exploding 90 feet into the air within six weeks. Or to an ice cube, which will only begin to melt once the surrounding temperature hits 32 degrees (or the resulting water that only boils at 212 degrees). Just because it sometimes takes longer than we’d like to see the results of our efforts doesn’t mean that our efforts are going to waste. In fact, most of the important work—the build up—won’t seem like it’s amounting to anything, but of course it is. Plutarch tells the story of Lampis, a wealthy ship-owner who was asked how he accumulated his fortune. “The greater part came quite easily,” Lampis supposedly answered, “but the first, smaller part took time and effort.” Any goal we have will take time and effort to accomplish, and beginning it will most likely be harder than finishing. But we have to keep going, because habits and hard work compound. Remember always that greatness takes time. Most importantly, remember what Zeno said: that greatness “is realized by small steps, but is truly no small thing.”

Source: Ryan Holiday

It took me back to what has happened in my life since I came to the US 4 years ago. I came here with just around $4,000 in my pocket, a computer, a graduate assistantship at University of Omaha, Nebraska and a desire to have a better life. Initially, I rented a room in a house that was about 15 minutes of walk or a couple of bus stops from my university campus and had 5-6 other tenants. I hadn’t known how to drive and didn’t have enough money to buy a car or to learn how to so. My sole income at the time was the $1,200 stipend from the school. Nothing else. After rent, food and everything else, I managed to have just about $300 in savings. Nothing much, but I got by.

Public transportation in Omaha is spotty and leaves much to be desired. I used to ride bus #2 to school and that bus runs once every 15 minutes during the weekdays before 6pm. After 6PM, it runs more slowly at once-every-30-minute frequency. On the weekends and especially Sundays, buses in Omaha either stop or run at a very low frequency. In the fall, missing a bus wasn’t that big of a deal because I could comfortably walk to school. In the harsh winter of Omaha when streets were slippery, I often had to watch the bus schedule closely so I wouldn’t miss it. For groceries, it was a bigger challenge. I used bus #18 to go to Walmart, which has arguably the cheapest groceries. The bus runs once every 30 minutes, so to save time, I had to game it out before hand what I needed to buy and how to leave Walmart just in time to catch the bus. Besides school and grocery trips, it was a bit tricky and time-consuming to go anywhere with buses around here without wasting precious money on Uber/Lyft, money that I didn’t have much at the time.

The following summer, I had to find a job. My school stipend wasn’t available during the summer when I didn’t have to work at school. Luckily I got a 10-week internship at one of the eCommerce companies in Omaha. But I knew that I would have to line up the next job after the internship to gain more experience here in the US and make more money. As an international student, you’re not allowed, as far as I know, to have an internship during the first school year. You can have a 20-hour/week job after the first year and luckily a graduate assistantship at school on top of that. So I got an internship at a managed service provider in Omaha on top of my job at school. That earned me more money. The catch was that I had to work 40 hours a week and completed 4-5 courses a semester, since I wanted to graduate as early as possible. I graduated in December 2018 and landed my current permanent job in Feb 2019. Had I graduated a year later, I would likely have been jobless because of Covid.

The strain of study and 40-hour work made me wonder at times what I was doing during my 2.5 years at the university. I felt frustrated and hopeless at times because I didn’t feel like my life was inching forward. I had to work a lot to reduce my jealousy and avoid comparing myself with others. Certainly, looking at my peers and their lives was a bit hard for me at some point. Fast forward to now, I have a job, my own apartment, a car and some savings. I am grateful whenever I reminisced wishing for a car while I was walking to school or on a bus to a grocery store in the middle of Omaha winter. On some winter days, I felt deeply hopeless and frustrated. Like my life wasn’t going anywhere and being here was a goddamn giant mistake. Harsh coldness, alone from family and friends and a feeling that whatever I was doing wasn’t leading anywhere. Obviously, I had no idea that the struggles were necessary for what was to come next. I just had faith, for absolutely no reason, that it would work out. Thankfully, so far, it has.

Another reason why I relate so much to Ryan’s quote is this blog. It’s called onepercentamonth because I want to have personal progress every month. Enough to feel that I am progressing gradually and consistently, but not too much to miss other funs that life has to offer. My other intention is that this is the getaway space for my thoughts, a place where I put thoughts to words to hone my thinking and my writing. I haven’t advertised this blog before, even on social media. I figure what is the point when fame isn’t what I am after here. Nonetheless, it’s good to see the blog’s growth. All traffic came from WordPress, word of mouth and the search engines. At first, there was little traffic. But I continued to toil at it and after two years, I could get traffic for the whole month of Jan 2019 in 2-3 days. My little blog is nothing compared to that of many other people, but it’s something that gives me comfort and joy. Plus, I could see the last two years as the plateau of Latent Potential for what it is now and hopefully what it is now is the buildup for something greater that will come in the future.

Those are my two stories which serve as concrete evidence for what Ryan said above. As 2020 is drawing to a close and I am sitting here, reminiscing the past and reflecting on what happened, I feel that this is an important lesson to take with to 2021. If you come across this entry, I wish you health, luck and happiness in the next 12 months. If you feel stuck at times in your life that nothing is progressing, I hope Ryan’s message and my life stories should help as a reminder that you’re likely paying the dues, that you are planting the seeds for future fruits, that you’re growing your own bamboo.

Until next time!

Book review: Operaatio Elop and Turning The Flywheel

Operaatio Elop

This book is based on interviews with more than 100 people who had indirect or direct experience with Nokia at the time. It’s about what happened between 2010 and 2013 under the reign of the former CEO – Stephen Elop and how Nokia fell apart in a matter of years. The book was originally in Finnish only, but some volunteers created an English version and that version was generously shared with the world for free here.

Nokia was at the peak of its power back in 2005 to 2007. At the time, there were seismic changes in the cut-throat personal phone industry with the introduction of Android and iOS, the iPhones, iPad and the App Store. Nokia, at the time, started to realize it had problems at hand and the CEO wasn’t up to the task. The search for a new CEO culminated with the appointment of a Canadian named Stephen Elop. Stephen introduced a host of initiatives during his time, but couldn’t turn around the fortune of the Finnish giant. The tumultuous reign ended with the controversial acquisition of Nokia by Microsoft, a shocking fate for a brand that just a few years prior had been among the top 5 in the world.

Nokia had a lengthy list of problems. The Board had insufficient industry experience and the Chairman was widely regarded as one of the main culprits for the fall of Nokia. Their go-to-market strategies faltered. For example, Nokia couldn’t have the same relationship with network providers in the US. It didn’t launch early enough the dual SIM feature in India. It also missed a critical Lunar New Year shopping period in China one year. Moreover, their product development couldn’t deliver. They didn’t have the advanced chip used by other competitors at the time. Their feature phones slowly became a thing of the past, but their smartphones couldn’t sell. Nokia couldn’t get developers to develop apps for their new phones and as a consequence, the lack of useful apps rendered their phones less appealing to consumers. The vicious cycle kept going on. Their partnership with Microsoft wasn’t perfect as Windows had a modest market share and developers didn’t have a lot of love for Microsoft at the time.

Nokia had many capabilities and assets at the time. Yet, it failed to address internal problems and respond appropriately to the changes in the external environment. This is a lesson for businesses. Past achievements mean little for survival when there is a lack of responses to the changing environment.

The author made it clear that the book mainly offered another perspective on Nokia and its collapse, rather than had exclusive truth on what actually happened. Also, even though many could fault Elop for the collapse and they might be right, given his managerial blunders, the book made it clear that with all the challenges the company faced at the time, it’s unclear if anyone could do better than him. That’s kinda what I feel. Hindsight bias is the easiest. Anyone could look back and critique others on what they should or shouldn’t have done, especially all these analysts I see on Twitter. The fact and the matter is that inside a company, there is a lot going on. Managing a multi-national company is no easy feat. We can and should keep the powerful honest and in check, but we shouldn’t be too arrogant.

Out of the three members of the appointment committee, only Ollila had experience in the technology industry, but even he, according to many, was not in touch with the service-driven internet-age mode of operation.

“Two of Nokia’s fiercest competitors, Apple and Google, obviously had boards more competent in global technology and internet knowhow than Nokia. To aggravate the situation, the Nokia Board of Directors was manned more with fine titles than substance. Scardino was the only American on the board despite the fact that the highest level of software competence was found in the US”

Excerpt From: Pekka Nykänen. “Operation Elop.” Apple Books.

The situation was worst for the company’s biggest money maker, its smartphone operating system Symbian. With over 6 million lines of code, the software platform had become unmanageable. Hardware design and Symbian software development were almost in a state war and were at each other’s neck daily.

Excerpt From: Pekka Nykänen. “Operation Elop.” Apple Books.

“For example, the normal trial-and-error software development technique was no longer used in Symbian software development. A person who was in charge of software development says that the problem was in the management which adjusted and fine-tuned projects ad nauseam. Even according to Nokia’s internal evaluation, the projects with the least management level involvement were the ones best on schedule. When the engineers were left alone to do their work, the results came forth.”

An employee working in the strategy department resorted to check the true status of upcoming phone projects from a friend working in development, because the official status given could not be trusted. Nokia was the emperor with new clothes, but nobody dared to say it out loud.

Excerpt From: Pekka Nykänen. “Operation Elop.” Apple Books.

“In just three months Nokia had made the decision that would seal its destiny. This decision were prepared by a man who had only worked for the company for five months — a CEO who had come from outside the industry.”

Excerpt From: Pekka Nykänen. “Operation Elop.” Apple Books.

“The N9 became an awkward pain point to Elop. Critics liked the phone but Nokia could not promote it because there was a fear that it would dilute the success of the Lumia phones. It looked like the success of the N9 came as a surprise to Elop. It would have been difficult to imagine how consumers would be interested in a device that was a dead end with a limited supply of applications. When Elop had been asked in London why anyone would buy the first and the last MeeGo phone, the man with a flu had responded: “I guess you just answered your own question.”

Excerpt From: Pekka Nykänen. “Operation Elop.” Apple Books.

Carolina Milanesi is an analyst who has been following Nokia for several years. She believes the crucial mistake at Nokia was to cling to Symbian for too long. The end result could have been different if the Symbian ramp-down had begun in already early 2010 and all development and marketing investment shifted to MeeGo.

“The credibility vanished. Developers were faced with a dilemma: Why build Symbian applications when the market fell from under the platform? Why build Windows Phone applications when there was no market?”

Excerpt From: Pekka Nykänen. “Operation Elop.” Apple Books.

Missing the Chinese New Year — the best shopping season of the year — was a pivotal mistake by Nokia in a situation where their market share on the Chinese smartphones market was already less than one percent.

The most significant markets for Nokia’s mobile phones were in India. Nokia made a critical mistake in bringing dual-SIM phones late to the market. According to Ramashish Ray, who was responsible for retail sales in India, Nokia was two years late: “Slow reaction to market reality, leadership bureaucracy and the diffusion of the decision making to too many forums”, Ray lists the reasons for the delay of the dual-SIM phones.

Excerpt From: Pekka Nykänen. “Operation Elop.” Apple Books.

Nokia’s phones were not killed off by a murderer from Canada. What killed them was the arrogance born in Nokia’s own country, concentrating on costs, unclear responsibilities, and bad decisions made by the company’s board.

Excerpt From: Pekka Nykänen. “Operation Elop.” Apple Books.

Turning The Flywheel

Unlike Operaatio Elop, Turning The Flywheel is a very short book. It is a summary of the Flywheel concept that Jim Collins discussed at length in his previous book: Good to Great. This concept essentially looks at a few select activities that a company must do, in relation to one another, so that the company can stay competitive. For instance, Amazon manages to sell goods at a lower price and in a big variety. That attracts consumers; which in turn attracts merchants to Amazon. Because of the bigger bargaining power, Amazon can lower the prices and expand its catalogue. The cycle keeps going on.

Each pillar in the Flywheel can constitute several critical capabilities of a company. I consider this concept as a useful practice for management to really think about what a company can do and should focus on. By no means does it mean that the Flywheel is an answer to everything. Businesses still need to pay attention to the external environment. We already saw with my review of Operaatio Elop above that Nokia, despite having resources and capabilities, still failed to adapt to the changing environment and collapsed. It’s the job of the management to constantly assess whether the current capabilities are still up to date and can help the company respond to the external challenges.

The book should serve as a launchpad and guide readers to more materials and references on business strategies and the Flywheel concept. If you’re new to it, it should be a helpful read.