Weekly reading – 1st January 2022

Happy New Year! No matter where you are in the world, if you come across this little blog of mine, I wish you and yours a great year ahead with lots of health, luck and happiness. Also, with Covid finally behind us! Welcome to my first post in 2022!

What I wrote last week

Review of my 2021

Super Apps

Business

Thanks to podcasts, Spotify is the fastest-growing music service in the US, according to Morgan Stanley survey. “From 2019 to 2021, the streaming giant’s share of the average American’s listening hours increased from 7 per cent to 10 per cent, well behind AM/FM radio and YouTube, but strong among younger consumers who will make up the bulk of listeners over the next decade.”

American Airlines, Saddled With Debt and Growing Pains, Turns to New CEO. “Among airline executives, Mr. Isom is known for drilling down into details. A metric known as d-zero—when flights push back from the gate exactly on time or early—became a rallying cry under Mr. Isom, though it is something American has struggled with at times. Kerry Philipovitch, who worked for Mr. Isom at American until 2019, recalled Mr. Parker and CFO Derek Kerr marveling at how early Mr. Isom arrived at a company event, pointing out his prime parking spot. Ms. Philipovitch said: “That’s Robert. He works really hard. He’s going to get there early.”

Here’s What Happened to Biotech This Year. “Below is the harsh reality laid out in a chart. While the total return of the S&P 500 Index is up 29.4% year-to-date through December 27 (as represented by the SPY ETF that tracks it), the S&P Biotechnology Select Industry Index is down -18.2% over the same period (as represented by the XBI ETF that tracks it). In fact, biotech is the worst performing of any of the 11 S&P 500 sectors this year (note: XBI is equal weighted. Within the biotech community, it is generally believed to represent the performance of typical mid-to-small cap biotech stocks)”

The Super League Debacle Forced Manchester United’s American Owners to Listen to Fans. Football or soccer as it is called in the U.S is a business in which a drought of titles and a period of mediocrity can have major implications. When a club goes without a trophy for a while, great players don’t want to spend precious years at the club. Worse, they go to the competitors to help them win more titles and inflict more pain. The vicious cycle is very hard to break. Manchester United has been in that cycle since 2013, when Sir Alex Ferguson retired. The club hasn’t won a major trophy and it has lost its mojo. Prominent players don’t consider the club in the same breadth as the elite any more. It’s all down to the American club owners who don’t have the right management skill or the football culture in them. Everything is commercial. I am extremely sad to see how the club falls from grace

Apple ditched Intel, and it paid off. Taking control of an important technology stack such as the chips is a strategic masterpiece from Apple. They no longer have to rely on a dinosaur such as Intel while deepening their moat. Who else can compete with Apple in combining one of the most iconic brands in history, hardware expertise, the total control of operating systems, the network of retail stores, the world-class capability in supply chain and now an amazingly efficient chip?

Google and Tech Rivals Tap Cash Reserves to Realize Cloud Ambitions. While Amazon relies on AWS for margin, Google and Microsoft have no shortage of profitable segments to help their cloud departments catch up with a formidable rival. If you are not a first market mover, you gotta use the tools available to you.

Facebook’s Pushback: Stem the Leaks, Spin the Politics, Don’t Say Sorry. Facebook deploying the “divide and conquer” strategy with our lawmakers successfully is just surreal.

A Look Back at Q3 ’21 Public Cloud Software Earnings. A very informative post on public cloud software companies. Have a read if it’s your cup of tea

Other stuff I find interesting

Oscars: ‘Spider-Man: No Way Home’ Team Plans Best Picture Push, Tom Holland Open to Hosting. I am glad that Tom Holland, Kevin Feige and co fought for their work and the work of their colleagues in making these Marvel movies because I find it weird that some don’t consider them “art”. Spider-Man: No Way Home is a great movie. The box office and the online reviews say the same thing. Now that it’s likely a potential for Oscar nominations, would anybody come out and say it’s still not art?

New York City bans natural gas in new buildings. It all sounds well and good on paper for environmentalists as new buildings are banned from using natural gas. However, there are second-order effects as “New York’s move to all-electric buildings could mean a higher price tag for consumers using electricity for heat than those relying on gas. This winter, the average household in the U.S. Northeast is expected to pay $1,538 to heat their home with electricity, compared with gas at about $865. Almost half of the power generated in New York State so far this year came from burning fossil fuels (45% from gas and 4% from oil), with another 24% from nuclear and 22% from hydropower, according to federal energy data.”

In Hamburg, Surviving Climate Change Means Living With Water

Japan’s Paper Culture. “Old, traditional ways of using paper are still prevalent, from the gohei (a paper offering made to gods) in shrines, to the shūgi-bukuro (money envelopes) given at celebrations, and New Year’s cards. In more modern uses, purchases are typically made with cash; important documents are faxed rather than emailed; and nearly everyone uses hanko, a personalized stamp used in lieu of a signature.”

Stats

No new homes in November 2021 were under $200,000

37% of the world’s population have never used the Internet

Holiday spending in the U.S in 2021 increased by 8.5% compared to the same period last year. eCommerce retail spending rose by 11%

54% of adults in the United States have prose literacy below the 6th-grade level“. Prose literacy level refers to the ability to read and comprehend materials such as news stories or manuals.

Walmart drew one in four dollars spent on click and collect — with room to grow in 2022

Cardless – The fintech startup behind Celtics, Cleveland Cavaliers and Manchester United credit cards

If you support Celtics, Cleveland Cavaliers, Manchester United or Miami Marlins, you can show your love to the teams with the branded credit cards powered by Cardless. Even if these teams aren’t usually on your TV or device every week but you still want to take advantage of great benefits, check out their cards.

Take the Manchester United card for example (Figure 1). The card offers 10% off Manchester United merchandise on select channels, 5x points on dining every time the club has an official match, 5x on ride sharing and streaming services and 1x on everything else. During the first year, the points are doubled to a mouth-watering rate of 10x on dining, ride sharing & streaming services and 2x on everything else. Said another way, if you use Netflix, Spotify, if you eat out a lot and if you shop at Walmart, this card will give you almost unbeatable rewards during the first year. Reward points can be redeemed for statement credits or Manchester United gift cards at a slightly higher rate.

Manchester United credit card powered by Cardless
Figure 1 – Manchester United Credit Card. Source: Cardless

The card also reimburses users up to $5/month for a Peacock subscription provided that users have at least $500 in spend the month before. To sweeten the deal, Cardless waives all the fees, including annual fee, late fee, foreign transaction fee and overlimit fee. However, the APR is quite high at 29.99%. So, you do not want to revolve your balance with this card.

As mentioned above, these cards offer great benefits that are popular to consumers in all walks of life. If you are looking for a new credit card, you may as well give it a try. From a perspective of somebody who works in the card industry, here are my thoughts.

Cardless is a San-Francisco-based fintech startup that helps brands launch a credit card in “a matter of weeks, instead of months or a year”. Costco credit card is issued by Citi Bank. Cardless offers the same function essentially as Citi in this card-issuing process. Started in 2019, the startup has raised $50 million so far to date.

The partnership with sports teams is a great idea to increase the stickiness. It’s likely that a lot of these clubs’ loyal fans will want to sign up for card to use on match days or whenever they go to a stadium. Some will get a card for the sake of supporting their club or as a memento. Plus, these brands can help Cardless push the marketing side of the equation. One press release or one email may lead to many sign-ups. Hence, Cardless likely won’t need to spend much on acquisition. Traditional issuers spend a lot of money on direct mails. An issuer like Capital One easily sends out 60 million mail pieces a month to prospects. If a mail piece costs only $0.5, we are still talking about $30 million/month in direct mail expense that Cardless doesn’t have to worry about. That’s a significant advantage.

It’s intriguing to me how Cardless will make money. To attract prospects, they decide not to charge fees, leaving their revenue and profit dependent on interests on revolving balance and interchange. The problem is that any reward scheme that is higher than 3x is almost a loss-maker as interchange rates for consumer credit cards are less than 3%. In Cardless’ case, losing out on interchange is almost a given. Therefore, Cardless’ hope of profitability for a card program hinges on customers paying interests. If their portfolio consists of only transactors – the term we use in the industry to describe folks that pay balance dutifully – Cardless will keep subsidizing users with their own money.

For good measure, in addition to operational expenses, Cardless has others to worry about. Partnering with prestigious sport brands means that the startup has to pay these brands a finder’s fee whenever a new card is issued. Plus, the company has to pay their technology partners as well, including the card networks (Visa, Mastercard), their issuer – First Electronic Bank and their card management system provider CoreCard. That’s quite a lot to handle for a company that relies almost entirely on one source of revenue.

Cardless was started in 2019, only two years ago. The challenge for a young credit-card issuing startup like Cardless is that it doesn’t have the historical data to strengthen underwriting and minimize losses. Even the firm admitted it itself: “The incumbent issuers have a major advantage in this area: they can use their mountains of data and gigantic teams of analysts, engineers and scientists to make very educated and precise credit decisions”. Cardless has to find the perfect group of customers who use the card regularly (in order for them to acquire new partners), don’t charge off but don’t pay full balance so that Cardless can have interest income which, as I articulated above, is likely their only revenue source. Unfortunately, those who usually revolve have a low credit score and are more likely to charge off, making this a delicate & difficult challenge to solve. The startup can be better at underwriting by signing up more partners quickly and using the incremental data to feed their algorithms. But if their early model doesn’t predict losses well, they will lose a lot of money in the beginning. I, for one, really love to know how they are handling this issue.

My best guess is that Cardless keeps the lights on with VC money. That’s totally fine. Nonetheless, I don’t think they can keep introducing card programs with rich benefits that are limited in their capability to make money forever. Venture capitalists will push the company to improve profitability or won’t invest further if this model persists long in the future. It’s possible that Cardless may have a plan to pivot to other adjacent products or services in the future.

Boston Celtics credit card powered by Cardless
Figure 2 – Boston Celtics Credit Card. Source: Cardless

Manchester United’s defining challenges

Since Sir Alex Ferguson retired, Manchester United has been falling from glory to what seems to be a bottomless hole of troubles. The club has had 4 managers in the span of 7 years while Sir Alex managed the club for more than 2 decades. Presence in Champions League that used to be a default is a luxury these days. Once a contender for important titles such as Premier League and Champions League, we are reduced to aim for Top 4 finish every year in the national league. The club is in shambles and faces defining challenges

Wrong coaches

I believe that we have had coaches that don’t fit with the club’s culture since Alex Ferguson’s retirement. David Moyes wasn’t good enough. Van Gaal wasn’t who he used to be. Mourinho was world class tactically, but he didn’t have the attacking mindset that the club is known for. Ole Gunnar Solskaer is a legend and familiar with the club’s culture. But he hasn’t shown that he has the tactical prowess to bring the team back to its former glorious self. We need a manager who is not only a household name, but also a great tactician and manager. As the club doesn’t have the appealing standing any more, another way to attract talent is to have a world-class coach that players admire. The coach also favors home-grown talent, a tradition that MU has carried for decades. Our current manager, unfortunately, doesn’t fit the bill.

An egregious transfer policy and a roster of insufficient players

The club was blessed with world-class players in the past, including Giggs, Vidic, Rio, Scholes, Ronaldo, Tevez, Rooney, Van Persie, Carrick, just to name a few. We also have excellent role players who are willing to step up to the plate when needed such as Chicharito, Fletcher, Anderson, Nani, O’Shea. Nowadays, players that meet the standard at MU are in short supply. We have players who have the potential to be excellent such as Rashford, Martial, Scott, Greenwood, De Gea, Maguire, Wan-Bissaka and Pogba, but they need help and a coach to realize the full potential. Other players are simply just not good enough. The bench is thin and features players who should have been shipped out of the club a long time ago such as Young, Matic, Rojo and Jones.

We made seriously expensive mistakes in the transfer policy such as Alexis Sanchez. The failure to attract players with merit was offset by the willingness to overpay. To some extent, I was pleased to hear that we pulled out of the deal with Haaland due to the excessive demand from the player’s camp. We can’t keep overpaying for players to come to the club so that they succumb to pressure from a high price tag and flounder.

The current struggles can be a blessing in disguise. The club needs to develop home-grown talent and improve the scouting system. We need to get back to the basic by promoting potential young players and identifying gems that can be polished. A resource-rich club like MU, I firmly believe, is capable of discovering inexpensive potential players like we did with Evra, Vidic, Kawaga or Chicharito. That’s not to say that we can’t open the cheque book when necessary. The journey will take time, but I’d rather see that get started sooner or later.

Ed Woodward needs to go

A CEO either resigns or is let go if he or she doesn’t bring the required results. Hence, I am baffled and disappointed that Ed Woodward manages to keep his job after years of absolutely embarrassing performance on the football side. He may increase the revenue for the club, but what good does it do if the long-term sustainable state of MU is in danger. We need a better executive who knows football and cares more about our on-pitch performance.

Manchester United is blessed with a huge base of dedicated fans like myself, a household name, a great tradition and a lot of resources. We can return to the top, but we need much better leadership on and off the pitch.

Steep decline and loss of identity at Manchester United

Steep decline and loss of identity at Manchester United

The season is officially over and it can’t be over soon enough for Manchester United and its fans like myself.

Terrible performance domestically and continentally

Since 2013, the last season of Sir Alex Ferguson, the team has been a complete mess. There have been 4 managers in charge: David Moyes, Louis Van Gaal, Jose Mourinho and the current manager – Ole Solskjaer. With regards to the Premier League, the team’s end-of-season position was 7th, 4th, 5th, 6th, 2nd and 6th from 2013 to 2018, missing Champions League on 4 occasions. This season, the gap to Manchester City, the eventual champion, is a staggering 32 points. There hasn’t been such a large gap since Premier League was founded. Yes, MU won the Europa League with Jose Mourinho, but as a three-time Champions League winner and a formerly usual competitor in the tournament, winning a second-tier cup is more of a consolation than an achievement. This year’s presence in the Quarter Finals of the Champions League is the best we have had since 2011.

Alarmingly deteriorating player quality and abysmal transfer policy

Let’s talk about the transfer policy since Sir Alex’s departure. Below is the list of all big-ticket players coming to Manchester United in the past 5 years (Source: transfermarkt)

SeasonPlayerFees (£ mil)Selling Fees  (£ mil)DifferenceEvaluation (my own opinion)
13/14Juan Mata40  Average
13/14Marouane Fellaini2911-18Poor
14/15Di Maria67.558-9.5Poor
14/15Luke Shaw34  OK
14/15Ander Herrera320-32OK
14/15Marcos Rojo18  Poor
14/15Daley Blind1614-2Poor
14/15Falcao7  Poor
15/16Martial54  OK
15/16Schneiderlin31.521-10.5Poor
15/16Depay3114.4-16.6Poor
15/16Darmian16  Poor
15/16Schweinsteiger8  Poor
16/17Pogba95  Average
16/17Mkhitaryan3831-7Poor
16/17Baily34  Poor
16/17IbrahimovicFree yet very high salary  OK
17/18Lukaku76  Average
17/18Matic40  Poor
17/18Vindelof31.5  OK
17/18Alexis Sanchez31  Poor
18/19Fred53  Poor
18/19Dalot20  Average

Most signings haven’t met expectations so far in my book. Only a handful either have or possess so much promise that I give them the benefit of the doubt. More importantly, many players don’t particularly have a lot of resell value. They are at the peak of their market value and given the outrageous inflation of player value following Neymar’s transfer, Manchester United ended up overpaying for the players by a wide margin. Among the transfers, some are particularly terrible. Take Sanchez as an example. He is no longer the player he used to be. Yet, he commands the biggest wage at the club, causing unhealthy envy from his teammates who, admittedly, would deserve his salary more than he does.

Not only did the club fail to acquire quality players, but they were also unable to offload players who don’t meet the standard any more. Take Ashley Young. He is exceedingly disappointing and weak. Yet, he is the captain of the team and features in the starting line-up on a weekly basis. His disastrous performance against Barcelona in Champions League is just one among the many horrible performances over the past two or three years.

Loss of identity

United used to be known and feared for attacking football with flair and never-give-up mentality. United of the past few years has been nowhere near that former self. No creativity. No attacking football. No inspiration. Fewer goals. Only boring defensive football. Teams don’t fear United any more. We are relegated to battling with the likes of Wolves or Everton, which beat United 4-0 a few weeks ago.

United used to promote young players from the academy. Granted, some came through the hierarchy such as Rashford, McTominay, and a bit less from Greenwood or Tahith Chong. But it’s nowhere near enough given that we produced world class players in the past such as Class 1992, or good role players such as Brown, O’Shea, Welbeck, Evans, Rafael.

Manchester United is no longer what it used to be. Worse than the lack of performance on the pitch is the loss of culture, accompanied by the decline in reputation. No great players who want to do great things and achieve results want to play for us any more. City, Liverpool, Juve, Bayern, Barca and Real are all the raves these days. We are relegated to the second-tier club in Europe. Long were the days when United were in the semi-final of Champions League for 5 straight seasons or 3 finals in 4 years from 2008 to 2011. Long were the days when the name Manchester United commanded respect and fear. What is left now is just a well-oiled marketing machine living off of its glorious past with no direction back to redemption.

Jose Mourinho – A case of cultural mismatch and failed leadership

Jose Mourinho has been the manager at Manchester United for the last 3 years. The team is my childhood team and I have been a fan for more than 20 years. The last domestic Premier League win we had was in 2013 and the last Champions League we had was in 2008. Since then, it has been a rough 5 years to be an MU fan, but it has reached a breaking point for me under Jose Mourinho, a case of cultural mismatch and failed leadership. It goes to show that no matter how much the talent is in question, without a cultural fit and leadership, the hiring won’t just work.

Cultural Mismatch

Manchester United had been known for attacking football and flair. We were never that good on the defensive side. Otherwise, we would have won more championships, even though the collection over the past two decades was truly remarkable. Our style was always to dominate the ball and attack to win. Mourinho’s style is completely opposite. His mantra is to not lose first and foremost. Hence, the games are dull and boring. You can see the fear in players’ eyes and behavior on the pitch. They don’t want to attack. They just want to defend and avoid mistakes. There is no creativity in Manchester United any more. Defenders don’t dare to move forward. Midfielders’ priority is to hold position and not lose the ball, instead of creating innovative passes or plays. Strikers are asked to pull back when not having the ball. As a result, when MU wins back possession, there is no one up front to threaten the opposition. 

Additionally, Manchester United was known for promoting young players. Mourinho is not a believer in that, as far as I am concerned. His preference is always established players who are usually around 30 years old and very expensive.

We were always a team of class. However, his media handling has been increasingly ridiculous; which becomes a bit shameful for the team. Even though he was harassed by some fans, as the team manager of one of the biggest clubs in the world, he shouldn’t have some of the irritating and distasteful he has. 

The hiring of Mourinho is against every thing that Manchester United stands for. I’d rather have the team stick to our traditions and lose more than win a few games by not being ourselves.

Failed leadership

I am a big believer of the idea that leadership is about taking the bullets for the team. Mourinho isn’t like that. He chastises the players publicly and throws them under the bus. Sure, some players have an attitude issue, but managing them internally and discreetly is his job. Instead, he regularly complains about the players and singles them out in the press. He lost the locker room at Real Madrid and Chelsea badly. It seems that he is losing the one at MU as well. It is, first and foremost, his fault that the team doesn’t perform well. As the team manager, it is hard to deny his accountability. 

A manager in sports should be similar to a manager in business. When the team succeeds, you bask in the glory with everyone, but the credit should go to those around you. When the team hits trouble, you are the first in line to take the bullets. That’s what I believe leadership is, no matter what other definitions of the term say. Also, the manager has to fit the culture of the team. In some cases, an outliner may bring unexpected changes, but it’s not what usually works. In that sense, Mourinho is clearly a failure stemming from cultural mismatch and poor display of leadership. He has to go and the sooner that happens, the better it is for everyone, including himself.