Weekly Readings – 6th April 2019

The Enormous Numbers Behind Amazon’s Market Reach. A nice overview of where Amazon stands in various industries with visuals. 42% of the book retailing market, 45% of the E-commerce space, 32% of the cloud computing market, 35% of the online apparel area. From a business strategy and execution standpoint, Amazon is a remarkable success.

Death by a Thousand Clicks: Where Electronic Health Records Went Wrong. An astonishing and remarkable (long) read on Electronic Health Records in America. I urge you to have a read if you stumble upon this post of mine. Despite throwing billions of dollars at the nationwide EHR effort since President Obama’s first tenure, America has had little to show for it. I’ll let the former Vice President – Joe Biden share his story: “I was stunned when my son for a year was battling Stage 4 glioblastoma,” said Biden. “I couldn’t get his records. I’m the Vice President of the United States of America … It was an absolute nightmare. It was ridiculous, absolutely ridiculous, that we’re in that circumstance.”

Digital India. A very interesting report by McKinsey on the digital landscape in India. Sneak peek below

By McKinsey

Howard Marks’ latest memo. As insightful and enlightening as always.

Amazon’s Rise in Ad Searches Dents Google’s Dominance. Amazon as an advertising giant is here. Established ads agency such as WPP or Omnicom reportedly spent a good chunk amount of money on Amazon ads on behalf of their clients.

Book: Retail Disruptors: The Spectacular Rise and Impact of the Hard Discounters

For the past two months, I lost interest in picking up a book for some reason. Nonetheless, the streak ended today as I finished this book.

The book offers a detailed and insightful view on hard discounters which usually act as disruptors in a local retail market. The book defines hard discounters as follows:

Hard-discount retailers offer basic goods and daily necessities at the lowest possible prices, while maintaining high-quality standards. A hard-discounter store differs from discount supermarkets or hypermarkets like Asda, Kaufland, or Walmart. Hard-discount stores are typically about 8,000-15,000 square feet, less than one-tenth the size of a Walmart Supercenter, with probably lower staffing levels.

To reduce costs, hard discounters often display items on shipping pallets and in the boxes in which they arrive. The store is minimally decorated and offers a limited assortment of consumer packaged goods and perishables – typically less than 2,000 stock-keeping units (SKUs). In contrast, the average US supermarket carried 40,000 to 50,000 SKUs in 2017, while a Walmart Supercenter sells over 100,000 grocery and non-grocery items.

Here is what I learned from it

Beware of potential threats in the market. The book told stories of retailers around the world that paid the price for under-estimating hard discounters. They dismissed the arrival of hard discounters at first and when they realized the threat was real, it was already too late to stop the hard discounters.

Benefits of offering a limited assortment of SKUs. I am usually overwhelmed by a plethora of choices at restaurants or supermarkets. As the book says, to shoppers who are under time pressure or who intend to buy rather than browse, a better shopping experience is to be offered streamlined options or a limited range of choices. Plus, retailers who sell a limited assortment, especially private labels, can negotiate a better economic deal with suppliers due to economies of scale. A better deal will help the margin of hard discounters. Additionally, a limited assortment of goods means smaller stores – lower rent, saved costs on logistics and staff.

Go-to-market strategy. Hard discounters tend to enter a new country through a specific market first. Get the foot in, the logistics and operations in and then expand. Also, each go-to-market strategy varies from one country to another due to a host of factors such as household income per capita, economic growth, shopping preferences. Blindly adapting a blanket strategy to different markets may lead to failures.

The book offers a comprehensive view on different aspects of hard discounters and retail in general. It confirmed my belief that a competing strategy can be made up of so many factors that are intertwined together, including to not limited to:

  • The size of assortments
  • Whether a retailer carries more private labels or national labels
  • How man perishable items a retailer carries
  • Whether it has a good brand name
  • Whether it has economies of scale
  • Whether the shopping preferences of local shoppers are a good fit
  • How much a retailer spends on marketing, promotions and discounts; and for how long it can sustain the effort.
  • A retailer’s culture

After penetrating a market, whether a retailer can survive the competition depends on the retailer’s ability to carve out a niche in the market where it can be competitive, using a combination of the above factors or more.

A few notable stats

  • Private labels account for somewhere between 70-90% of hard discounters’ assortment
  • In 2017, middle-class shoppers in the UK account for 60% of shoppers at Aldi and Lidl
  • In Germany, hard discounters accounted for three out of every ten euros spent on grocery purchases or 60 billion euros in 2017
  • Aldi entered Australia in 2001, and by 2017, had cost conventional retailers like Woolworths and Coles AU $16 billion in lost annual revenues
  • Trader Joe’s offers around 3,500 different items, Lidl between 1,500 and 2,000 while Aldi carries between 1,200 and 1,400 products
  • In Germany, Lidle was the largest advertiser among grocery retailers in 2017 (almost 280 million euros) and the sixth-largest advertiser in the country ahead of McDonald’s, Daimler, Unilever and Samsung
  • Trader Joe’s sales per square foot is $1,633, twice that of Aldi and Lidl, four times that of a Walmart supercenter and 8 times that of Dollar General
  • In Australia, 26% of Aldi shoppers were from high-income families in 2006. The figure shot up to 50% in 2014
  • For the average US grocery retailer, a loss of 1% in sales leads to a loss of 17% in operating profit

Why I blog

One of my goals in 2019 is to write often and specifically, have at least 200 published blog posts when the year closes its curtains. So far I have been on track to meet the target. As I look back at the last 8 months of consistent blogging, this endeavor has brought to me so much more than I anticipated.

Last August, I started this blog as a medium to practice what I learned, share my opinion in my own way to give back, create a healthy habit and build up my self-confidence. Fast forward to now:

  1. I have learned a lot more along the way. To really write about something, first I need to know what I am going to write about. I read more quarterly/annual reports, earning call transcripts, industry reports, long blog posts, you know, the boring stuff to many of my peers. I listen to more podcasts, interviews. I read more books. I analyze reported numbers by companies more. And it leads to a lot learning; which fits the name of this blog.
  2. I enjoy the process. Writing is such a pleasant experience to me nowadays that I often really look forward to it as a highlight of my day, especially when I have a long day at work. Anne Lamott said it best: “Writing has so much to give, so much to teach, so many surprises. That thing you had to force yourself to do – the actual act of writing – turns out to be the best part. It’s like discovering that while you thought you needed the tea ceremony for the caffeine, what you really needed was the tea ceremony. The act of writing turns out to be its own reward.”
  3. I feel much more confident about blogging now than when I first started. Not because I am an expert now. I still have a long way to go. But I believe it is because of the practice. Blogging often helps me reduce my self-doubt and shyness bit by bit and gives my confidence a little boost. Even though the progress is nothing earth-shattering, as long as I don’t stand still, I am happy.
  4. I came to realization that this blog gradually is becoming a collection of my notes, a bookmarking tool, a mind-refresher. Sometimes, I come back to remind myself of some highlights in a book I read, of some code I wrote and of something that I jogged down. Instead of carrying an actual notebook which would be challenging to categorize and search, I know where to find what I need with just a few key strokes.

I came across a post by M.G. Siegler that really hit home to me:

Imagine the humiliation of putting yourself out there and zero people caring because zero people saw it. I know a lot of people feel this way when they start doing something with regard to content on the internet — I applied it to blogging, but I imagine it’s the exact same story with recording videos for YouTube, starting a podcast, etc. Just keep at it.

This is, of course, easier said than done. It takes time to do anything, no matter the type of content you’re focused on. The good news is that even if the audience doesn’t show up at first, the work pays off in other ways. Namely, you’ll get better at what you’re doing.

I look back at some of my early blog posts and cringe. They were awful. I was foolish. But I kept going and the posts got less awful and less foolish (this statement is subject to review in another decade). I honestly think the worst thing that could have happened was getting a large audience from day one. I wouldn’t have been ready for it (even if I thought I was).

And so again, the advice is simply to keep at it. Even if the next post gets zero readers too. And the next one. Eventually, zero turns to one and then one to two and then you’re off to the races.

M.G. Siegler

I know the feeling of having zero people view what you wrote all too well. Part of it is I don’t advertise it. I put a link to my blog on my Instagram profile, LinkedIn profile and in my resume. That’s it. I don’t actively post on Facebook or tweet about it whenever I publish. I am doing this for me first and foremost, not to be validated by others. Plus, I know I am not ready. Even though this blog has gained traction in the last few months , I am still on my way from zero to one. Good news is that I am willing to keep at it.

A podcast on the importance of sleep

I wrote about the book: Why We Sleep before. If you are interested in the subject, yet don’t find the time or the motivation to dive into the pages, you can get the gist of the book at the podcast series here. If you care about your health and brain, I urge you to have a listen.

One of the things I would like to call out here is the unhealthy practice of boasting how little sleep one has in public. Some folks tend to take their deprivation of sleep as a badge of honor. I used to be the same. There was a time before I graduated when I lived on coffee and sweet, to keep myself awake. And I talked about that to my friends with a little bit of pride. However, I learned that it was stupid of me. I was killing my brain and myself. The author is right in calling BS on the “sleep is for the weak. You can have all the sleep after you die” notion.

One of my goals in 2019 is to form the habit of sleeping 7-8 hours a night. Admittedly, I have failed spectacularly so far in the year. There is a lot of work to do…

Lyft stock down by 12% and some thoughts on investing

After popping up 8% on the first day of its IPO last Friday, Lyft’s stock dropped by almost 12% today. That’s what I find baffling about the stock market. How much of the business could change in the span of 4 days? I haven’t encountered news that could justify the drop of that size. What changed? Will it go further down tomorrow? Or will it shoot back up again? And by how much? I literally have zero idea.

Charlie Munger once said that if you want to make money by buying low, you have to know when to sell high and it’s hard. Given what I have seen so hard, he is right. You don’t know when it is “high” enough to satisfy your own greed. Some may say that determining an intrinsic value of business by discounted cash flow (DCF) will be helpful in knowing when to buy and when to sell. That’s true, but DCF itself isn’t an easy and straightforward practice. It’s really hard. Here in this clip (around 6:50), Charle (not sure if he was 100% serious) mentioned that he never once saw Warren Buffett do a DCF. Plus, a renowned expert in valuation, Aswath Damodaran, admitted that he missed the mark way off when he tried to value Uber in 2014. I once participated in an M&A competition with three of my close friends. In the course leading up to the contest and the contest itself, we had to do quite a few valuation with DCFs. The method involves a lot of assumptions and it’s more art than science. Each company requires a different approach and almost no valuation is the same. If an expert such as Professor Damodaran struggled to get it right, what are the odds of ordinary folks nailing it? My money is on the “not very high” bet.

I don’t know a perfect method in investing, but I agree with Warren Buffett that buying or selling on prices is not investing. I’d recommend these two books if you are interested in life advice and investing. Poor Charlie’s Almanack and The Most Important Thing: Uncommon Sense for The Thoughtful Investor. If you have time, read more from Charlie Munger. He is really a wealth of wisdom. Plus, you can read financial reports (SEC filings of the companies) or S-1 if companies are filing to go public and subscribe to Seekingalpha.com or Yahoo.com to read the transcript of their earning calls. Plenty of useful information can be had from such sources.

I have my own reasons to invest in the companies in my small portfolio and if I go bust, at least I will learn a ton about business and go out on my own terms.

Deadlines and leadership

I came across this insightful and engaging read from a PhD in clinical psychology on the impact of deadlines and leadership. If you care about these two issues, I urge you to have a read.

I am usually baffled by all the fancy recommendations on how to be successful. To me, it’s very simple. First and foremost, don’t be an asshole. If you manage to do that, you already go a long long way. If you grow old and don’t realize you are an asshole to others or don’t have family or friends tell you that, you’ll have a bigger problem than your career.

Furthermore, in my book, leadership is not about age or title or years of experience. It is about nurturing others, being the last to take credit and and being the first to shoulder the blame. Otherwise, why would others put you in a position of authority? If a manager never grows you, doesn’t acknowledge your work and always places the blame on you, will you consider manager a good leader? Or will you just deride the person as someone that just happens to have authority over you?

In addition, I believe leaders should also have compassion and interpersonal skills. I remember the time when I was lucky enough to be in a managerial position in Vietnam. While I received positive feedback on being a leader, I admittedly failed spectacularly as managing my staff and firing one of them. The experience taught me how difficult it was to have leadership skills. It’s not just about “being the head of a team or an organization”. It’s about how you took a bullet for the team, how you nurtured your folks, how you shared the credit, how you managed the interpersonal relationships and how you dealt with difficult conversations.

I know I failed, at minimum, at two of those. But I would love to have a chance to be in a managerial position again, this time in the US.

Bundling and Unbundling with Apple

“Gentlemen, there’s only two ways I know of to make money: bundling and unbundling.”

Barksdale

Bundling is the act of adding several individual services or features together in one package. Think of Amazon Prime as the example of bundling. With Prime, you’ll get fast deliver (my experience lately hasn’t exactly matched that), free return, Prime Videos, audiobooks and access to exclusive deals, just to name a few.

Unbundling refers to the act of selling a service/feature separately from an usually bundled service or product. Think of flight tickets as an example. Before low-cost no-frill, flights tickets had many features, but low cost fliers such as Ryan Air were the pioneers of selling only flight tickets and making the other features such as luggage, priority check-ins as add-ons and additional revenue.

With Apple, an example of their bundling is Apple Card/Pay. I have seen quite a bit of criticisms online about the features of the service aren’t anything new. To some extent, yes, that may be true. The thing is that Apple managed to bundle all the following features together to make an attractive product that is yet to be seen elsewhere.

  • Beautifully and elegantly designed titanium card
  • No fees
  • Rewards and immediate cashback
  • Acceptance everywhere (Apple claimed) for Apple Card and 40+ countries for Apple Pay
  • In-app management
  • Security as in that biometric validation is required for payments with both Apple Card and Apple Pay
  • Privacy as in that consumer data won’t be used or shared with advertisers
  • Application process is fairly easy, reportedly, through Apple Wallet, which is loaded on your phone by default
  • Integration between Apple Card and Apple Pay

With regard to unbundling, I think that’s what Apple is doing with their hardware and services. Most services can only be enjoyed on Apple devices, yet such services lure consumers to the luxury devices which have been highly profitable to Apple. On the top of my head, there are three subscription services from Apple that an average consumer may likely use: Apple News+, Apple Music and iCloud. Soon there will be Apple Arcade too. Selling services separately and services from hardware gives users freedom to choose. If Apple bundled everything into, let’s say, $100/month for 1.5 years for the use of a new iPhone and all services, that would make some customers pay for what they didn’t use. Nonetheless, if the usage of paid services is high and consistent, I wonder if Apple will have an optional bundle for services alone for power users.

Weekly readings – 30th March 2019

What even is AirBnb anymore? Questions that AirBnb will face ahead of its IPO and after.

2018 Theme Report. An informative study on the theatrical and home entertainment market environment in 2018.

How Kirkland Signature powers Costco’s success. A nice coverage on the signature private label of Costco.

2019 State of the Cloud. A framework to look at cloud businesses by folks at Bessemer Venture Partners.

The 2019 Drunk Shopping Census. An interesting piece on drunk folks’ purchase behavior. It must be tough for one to recall back the purchases made when drunk when one participates in the survey. The folks at The Hustle are good with words and sometimes have pretty good content. Give them a follow if you want daily email with overview of what happens in business and tech.

AirPods. I totally agree with the author of this post. AirPods are truly a massive success. Since I bought them last May, I have used them at least 6-7 hours a day every day. Sometimes, I don’t even feel that they are in my ears. Convenience goes up significantly. The sound may be not as good as power users of wireless headphones would want, but it is good enough for average users like myself. The design is just right. You can exercise without worrying about losing them. (Follow Horace Deliu if you are a fan of micro-mobility and Apple)

The State of Online Travel Agencies – 2019. A good overview of Online Travel Agencies’ performance last year.

How Spotify & Discover Weekly Earns Me $400 / Month. A specific and personal example of how Spotify helps obscure artists get paid for their work. This is why I love Spotify.

Don’t judge a person for his/her broken English

I had lunch with a friend whom I met in college today. It has been a while since we met and the meet was pleasant. In addition to catching up with what the other was doing, we touched upon what would seem to be quite a deep topic for lunch, but you could tell that we were close enough to open up on it.

Long story short, I told him the last time we met that I somehow felt looked down up on by Americans because I am Asian, because I don’t look big enough and because I don’t speak English like a native speaker. I have been trying hard since I was 16 and I wish I could, but the fact is that even though I speak the language well enough to get me a job and two Master’s degrees, I don’t talk like a native speaker.

The friend brought it back today. He talked about his encounter with a French engineer who uprooted his life back home to come to America to have a better career and life. The French guy doesn’t speak English well, said my friend, but my friend admired the courage taken to go to a foreign country alone, as he once told me. My friend said that the biggest lesson he had in the last few years was to learn that it wasn’t easy for others to come to the US and that no matter how good or bad someone’s English is, the effort to speak the language is already admirable and it shouldn’t be the basis on which judgement is passed.

As an immigrant, of course, I understand the sentiment, yet it is great to hear it from my friend. But if I have to be honest, I don’t use my inability to speak English natively as an excuse. To me, if I succeed, good. I did put in the work, but I was lucky as well. If I fail, well I was just not good enough. Coming here to study and work is a game. I chose to participate in that game and it just doesn’t make sense to say that my failure is justified because the rules are not in my favor. Nonetheless, I am happy to hear that from my friend and proud to have him as a friend.

For the compassion and humility, I have learned a great deal myself from learning technical topics such as coding and IT. I am always a believer in the notion that we all should try to find answers on our own first before asking questions or for help from others. It matters more to me that a person actually tried on his or her own first than whether he or she succeeded in finding the answer. But admittedly, I easily got irritated. I was arrogant. I got annoyed whenever I thought people asked too easy questions.

Since learning how to code, I have realized that I was…well, an asshole. Code is very binary. It either works or it doesn’t. There is nothing in between. When trying to find answers to my coding problems, I encountered numerous times guys who were better than me, but gave replies that asked more questions than answers. Some guys on StackOverflow or at school answered, but in a way that you couldn’t fathom unless a significant amount of time is spent on that or the person elaborated more.

When I was still an intern at an IT company, all the technical details and jargon floating around the office were initially another language to me. I had to, if I am honest, disturb some engineers in the office to help me understand even the basic concepts in their mind. I told them: “please speak English to me. I am dumb. Dumb it down for me”. I am glad that they did because it helped me tremendously then, now and in the future I believe.

Since then, I have learned the value of humility and compassion more. I have consciously made an effort to be very specific with words and visuals when helping others. I have consciously tried to be patient and understanding that the person processes information differently than I do and that I used to or still am in that position.

Thoughts on Apple Card

On Monday, Apple introduced its in-house credit card called Apple Card. Since it’s not available yet and the details are quite numerous, you can read more in these two articles on TechCrunch and The Verge or watch the presentation yourself here. I’ll just lay out my thoughts on the card below

I am convinced that Apple Card will attract a lot of sign-ups. After all, it’s Apple. The application process is reportedly straightforward and easy (we’ll see soon in the upcoming months). You can apply for the card from your Wallet app and the card will be shipped to you. If you use an iPhone 6 or later and are a fan of Apple, you will likely want to try your hands on the beautiful-looking titanium card for free, as long as you qualify for one. Plus, there are millions of installed iPhone 6 or later out there. So getting folks to sign up won’t be an issue. What about the usage for Apple Card? For consumers to use the Card, Apple has to give them a reason to, an incentive.

Security & Privacy

Security & Privacy is a big sell from Apple and it’s no different in this case. Apple Card comes without the stuff that makes credit card fraud possible from the physical card perspective. Plus, the way Apple sets it up makes credit card fraud significantly more difficult

Because of the way it is set up, every purchase with Apple Card requires biometric identification aside from purchases with the physical card. In the case of a non-Apple Pay transaction online — you must get your card number from the app and that is unlocked via Touch ID or Face ID, so biometrics are still in the path. And, for Apple Pay transactions, they are authenticated at the time of transaction. I personally think it would be cool to optionally require a confirmation from your phone to let a charge go through as well, but that is likely a v2 situation.

From TechCrunch

In other words, somebody needs to steal your card, your phone and either your thumb(s) or your face to make an unauthorized purchase.

Apple claimed that it wouldn’t know anything about consumer purchases using Apple Card. Plus, Goldman Sachs won’t sell data to marketers. If you care about privacy, it is attractive. Now that I work in the credit card industry, I can tell you that the level of privacy intrusion by banks is crazy. It is entirely possible to track the location of a cardholder to a store, know whether a purchase is made and if a purchase is not made, use the user data to run ads offline and online to motivate spending. If Apple and Goldman Sachs can do what they claim, this is an appealing feature, but I doubt it will be the dominant one.

No fees

According to Apple, you won’t be charged with late fees or penalty fees. You will just incur interest on your late payments. A nice feature, but from my perspective, it is not a hugely attractive one, especially if you are like me who isn’t late on credit card payments. After all, late payments will affect your credit score and consequently future APRs.

APRs

Pretty in line with the industry standard. Nothing special about this as far as I am concerned

Visibility into purchase details

Apple claimed that users could see more details on what a purchase was and where it happened from the Wallet app, instead of the user-unfriendly lines you see from your balance statement or mobile app. Once again, a nice feature that won’t be a dominant one.

Cash back

Above is the cash back policy for Apple Card and Apple Pay. 3% on Apple-related purchases is nice, but it is not a daily event, given how expensive Apple items are. 1% cash back with the physical card is nothing special. It’s even less attractive than many credit cards out there on the market. The interesting one is Apple Pay

From Creditcards.com

Because other credit cards offer two percent cash back or more on certain categories only, two percent cash back on every category by Apple Pay is more beneficial to users. According to Apple, Apple Pay will be available in 40+ countries at the end of this year. The number of merchants that accept Apple Pay is impressively high in some countries. Here is what Apple reported on the presentation

There are cases in which Apple Pay will not be competitive. For instance, if you have a card that gives back 4% cash back on dining, it sure is a better alternative than Apple Pay, even if Apple Pay is an available option. Or if you have a co-branded credit card such as a hotel or airline co-branded credit card, there is a switching cost as you want to increase your rewards points.

But using a physical credit card isn’t as convenient as a contactless option such as Apple Pay, nor is it as secure. So which payment option works in a situation depends on what situation that is and what kind of credit card user you are. If you care a lot about rewards and cash back, as well as have the time and mental fortitude to remember all the details, using multiple cards is the way to go. Nonetheless, if you are like me, a “one guy, one card” type, I would prefer something simple and easy to use/remember. Then I can see the appeal of Apple Pay. Contactless, fast, secure and decent cash back.

A push for Apple Pay

I believe that Apple Card is another push for Apple Pay to make it the “iPhone” equivalent of payment methods. Since Apple Pay is not ubiquitously available, the Card offers the connection between Apple Pay and merchants who don’t accept the service yet. If you use the Card, you’ll earn cash back that can be, in turn, used for Apple Pay. As explained above, Apple Pay can seem to be an attractive payment method to a certain type of users. According to Apple, they are on their track to meet the goal of 10 billion transactions on Apple Pay this year. If you are already satisfied with Apple Pay, I suspect that you will get more hooked when Apple Card is launched.

It makes sense to push for Apple Pay as I think Apple will earn more revenue from the service than the Card. After all, whatever revenue from the Card will have to be split with Goldman Sachs as well.

To recap, I think that this is a push for Apple Pay from Apple, an attempt to thread a delicate line between getting into the financial world and not suffering from the regulatory headaches that come with actually getting in there. Personally, I don’t think it is a “winner takes all” situation. I suspect that users will carry multiple options around and that each type of credit card user will display different levels of love towards Apple Pay and Card. I am excited about the future updates from Apple for the Card, regarding features and benefits. After all, this is just their first iteration.