What I wrote
Stuff that I found interesting
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What I wrote
Stuff that I found interesting
How cute is this?
What I wrote
Slack filed an antitrust complaint against Microsoft over Teams to the EU. On the surface, I don’t think Slack is going to win the case, if the EU decides to formally launch an investigation. How Microsoft structures their Microsoft 365 offers does give customers a choice to include Teams or not, a counterpunch to the core of Slack’s complaint. I wrote my thoughts here
In investing, when truly exceptional opportunities present themselves, Charlie Munger said: use a shovel, not a teaspoon
Both strategies yield the same result: that foreign affiliate employment increased as a direct response to increasingly stringent restrictions on H-1B visas. This effect is driven on the extensive and intensive margins; firms were more likely to open foreign affiliates in new countries in response, and employment increased at existing foreign affiliates. The effect is strongest among R&D-intensive firms in industries where services could more easily be offshored. The effect was somewhat geographically concentrated: foreign affiliate employment increased both in countries like India and China with large quantities of high-skilled human capital and in countries like Canada with more relaxed high-skilled immigration policies and closer geographic proximity. These empirical results also are supported by interviews with US multinational firms and an immigration lawyerSource: NPER
An interesting piece on what appears to be a change in strategy for Apple TV+. This streaming space is highly competitive. I look forward to how Apple will compete with other heavyweights. On a side note, I really enjoyed Greyhound. You should give it a try
A report commissioned by Apple on commission rates of other marketplaces, compared to Apple Store. It’s an interesting study and it’s definitely good to have all the facts in one document. On the surface, Apple Store’s commission rates don’t look outrageous, compared to those of other marketplace platforms. However, the debate doesn’t end only at take rates
What I think is interesting
For years, African countries have taken loan money for China to improve their infrastructure and economy, in exchange for the use of these countries’ vast reserve of rare metal and resources. Now, a report said that Africa is more aware of the strings attached to loans from China. For a good reason!
Disclaimer: I own Microsoft stocks in my personal portfolio.
Today, Slack filed an antitrust complaint against Microsoft in the EU over Microsoft Teams. Here is what Slack says in their blog
The complaint details Microsoft’s illegal and anti-competitive practice of abusing its market dominance to extinguish competition in breach of European Union competition law. Microsoft has illegally tied its Teams product into its market-dominant Office productivity suite, force installing it for millions, blocking its removal, and hiding the true cost to enterprise customers.
Slack’s objective is to force Microsoft to unbundle Teams from Microsoft Office 365 and sell it as a separate feature. The company reportedly had been discussing legal matters concerning Teams with the US authority for a while (per WSJ), but just decided to launch a formal complaint today. Given what has happened between the EU and big tech companies, it’s not difficult to see why Slack lodged the complaint there. Last year, the EU fined Google almost 1.5 billion euros for abusive practices in online advertising. It is also looking into Apple’s antitrust behavior with App Store rules. In 2004, Microsoft was fined half a billion euros for bundling Windows Media Player into its Windows. Perhaps, Slack is banking on the fact that the precedent and the current events as of late will be favorable to them in this case.
When I read the main part of the complain above, I was a bit surprised. My company is a bank in a highly regulated industry. We use licensed Microsoft Office 365, yet Cisco Jabber, not Teams, is our chat and video application. I don’t have a lot of confidence in our IT department to think that they can go around Microsoft and remove Teams if it’s not allowed by the Seattle-based company. In fact, if you look at how Teams is marketed, you will see that there are options to customers. There are three ways to get Teams: Office 365 Enterprise, Microsoft 365 Business and Microsoft 365 Enterprise. I know it’s not the easiest thing in the world to differentiate between the three, but here are the plans
As you can see from the three figures above, customers have at least one option in each category that allows them to use Microsoft Office 365 without Teams. To be clear, the screenshots above do not capture all features under each plan. It’s plausible that the other features which are not shown can force businesses to choose plans that only come with Teams. As a result, there are two points I want to make:
From Microsoft’s side, the company issued this following statement:
We created Teams to combine the ability to collaborate with the ability to connect via video, because that’s what people want. With COVID-19, the market has embraced Teams in record numbers while Slack suffered from its absence of video-conferencing. We’re committed to offering customers not only the best of new innovation, but a wide variety of choice in how they purchase and use the product.source: Techcrunch
A big advantage that Microsoft has over Slack when selling a competing product is that the former, in most cases, already has an established relationship with customers through Microsoft Office and other products. To sign any customer, Slack has to cultivate the relationship from scratch. The task is even made more difficult when Slack has to convince potential customers to make additional investments, on top of what they already pay for Microsoft applications. Imagine if a company already pays from $5 to $35/month for every one of hundreds of employees to use Microsoft Office, in case Teams is included, there has to be a very good reason why it should incur more expenses to use Slack.
The last publicly revealed figures put Microsoft Teams and Slack at 75 million and 12 million daily active users, respectively. Microsoft revealed that in Q4 FY 2020, there were 69 organizations that had more than 100,000 users of Teams, up from 20 organizations in Q3 FY 2020. In the past, Slack insisted that Microsoft Teams isn’t a true competitor to their product; a claim that I found bewildering. It’s clear that Slack has a big problem at hand and the fact that they are formally complaining about Teams contradicts the previous claim.
I am all for competition as it benefits end users. If Microsoft deployed underhanded tactics during negotiations with companies and it’s not publicly known or if Slack can prove that the dizzying and head-scratching offerings by Microsoft indirectly force customers’ hands, by all means, I do think Microsoft should be held accountable. However, I am not convinced that it’s harmful to the end users that Microsoft can offer value through bundling and establish a direct relationship with customers more easily than Slack. Microsoft has to invest a lot of resources in building and maintaining a lot of other features, not just Teams.
The difference between the 2004 case and this, I suspect, is that Microsoft didn’t give users a choice whether they wanted to install Windows Media Player while they do with Teams, at least on the surface. My guess is that Slack’s complaint won’t go any far, but it’ll be interesting to see how this actually pans out.
What do you think about this complaint from Slack? Let me know in the comment. Have a good day and stay safe!
The ingredients of a long life. Drinking coffee/tea every day, eating in moderation are nurturing the spiritual life are common in areas where people tend to have a long life
‘How Could the CDC Make That Mistake?’. CDC and some states inflated the number of tests to drum up the testing abilities and make it impossible to know the exact infection rate.
What I noticed in many businesses is that there are revenue makers and margin generators. Revenue makers refer to activities that draw in the top line numbers in the income statement, but small margin. In other words, these activities can bring in $10 of revenue, but about $1 or less of gross profit (revenue minus cost of revenue). On the other hand, margin generators refer to activities that don’t bring in as much revenue as revenue makers, but act as the source of most margin. Usually. these two complement each other. Let’s take a look at a few examples.
Apple sells their products and services that can only be enjoyed on Apple devices. Products bring in multiple times as much revenue as services, but products’ margin is much smaller than that of services. Take a look at their latest earnings as an example. Products’ margin is about 32% while services’ margin stands at 65%. Folks buy Apple devices mainly to use the services and apps that are on those devices. Apple continues to sell devices to maintain their own monopoly over their unique operating systems and ecosystem.
Amazon’s eCommerce segment is a revenue maker. They warehouse the goods and ship them to customers. It generates a lot of revenue, but the cost is high as well. Built upon the infrastructure Amazon created for eCommerce, 3rd party fulfillment is a margin generator. In this segment, Amazon acts as a link between buyers and sellers to ensure transactions go smoothly without having to store and ship the goods itself. Margin is significantly higher than that of eCommerce. Amazon takes it to another level with Prime subscriptions and AWS. While trying to figure out how to keep their sites up and running 24/7 smoothly, Amazon came up with the idea of selling unused IT resources. Long behold, AWS is now a $40 billion runrate business and Amazon’s arguably biggest margin generator.
Costco is a household name in the US. Families go to their warehouse-styled stores to stock up essentials and groceries. Due to the volume they sell every year, Costco manages to keep the prices low, but thanks to the cut-throat nature of the industry they are in, the margin is low, about 2-3%. That’s their revenue maker. To compensate for the low margin, Costco relies on their membership fees. Whatever customers pay to be able to shop at Costco is almost pure profit to Costco. There is virtually no cost to process an application and issue a card.
McDonald’s essentially has two business segments: their own McDonald’s operated restaurants and franchising. The brand’s own operated restaurants serve as references to franchise owners for how good McDonald’s brand is as an investment. However, it offers the brand way lower margin than their franchised restaurants.
Airlines make money by flying customers, but there are a lot of costs involved such as planes, airport services, food and beverage, fuel, etc…Airlines can generate more margin with their branded credit cards. Many airline-branded credit cards come with an annual fee. Plus, card issuers may pay airlines a fixed fee for new issued cards and a smaller fee for renewals. Plus, there may be a small percentage for first non-airline purchases. Agreements vary between airlines and card issuers, but it brings a lot of margin to airlines.
Ride sharing apps are notoriously unprofitable. Uber and Lyft lost billions of dollars in their main operations. Recently, they tried to launch a subscription service and in Uber case, a credit card, hoping that these services could help generate the margin they need.
We all know the saying in business: cash is king. Cash can only increase, from an operating perspective, when margin increases. Revenue is crucial because, well, a business needs to convince folks to pay for products or services first. Nonetheless, a business is more robust and valued when margin increases.
Since the stay-at-home order started around the globe, demand for videoconferencing has skyrocketed. Facebook even introduced a new video service for its users. What has caught my interest, though, is the battle between Zoom and Teams by Microsoft. Zoom stock has surged significantly for the past two months, especially after it reported that it had 300 million daily active users. Or so we thought
Zoom has confused the comparisons, though. Zoom originally stated it had “more than 300 million daily users” and that “more than 300 million people around the world are using Zoom during this challenging time.” Zoom later quietly deleted these references from its blog post, and it now only claims “300 million daily Zoom meeting participants.”
The differences are important, as is Zoom’s transparency around them. Daily meeting participants counts multiple meetings, so if you have five Zoom or Teams meetings in a day, then you’re counted five times. Zoom has not yet revealed exact daily active user counts, and it looks like Microsoft could be a lot closer to Zoom usage than many had assumed.Source: The Verge
For comparison, Microsoft announced today that it reached 200 million daily meeting participants in April. Since the two use the same label, does that mean Zoom has taken Teams’ lunch? Not quite there yet.
The daily meeting participant count can be misleading. For example, Teams doesn’t have a limit on call duration, to the best of my knowledge, while Zoom puts a 40-minute limit on calls that involve more than three participants. So if the participants are willing to set up another call after the free 40 minutes expires, it will bloat up the daily meeting participant count, even though it’s still one meeting that has the same folks involved.
Daily usage can be misleading as well. For instance, I use Jabber at work and it is powered up automatically on my work station. If I don’t interact with anyone on the app, does it mean I am among the daily users still? To be fair, the two companies don’t elaborate on this, but there is one comment from a Microsoft executive
It’s been phenomenal, if I’m honest with you. Let me just start with the DAU thing because there’s a lot of needling on this and we define the DAU. Daily active user for us is the maximum number of users who take an intentional action over a 24-hour period. That’s really important for me to hit. What we call passive actions do not count. So auto boot does not count. Minimizing a window does not count. Closing the app does not count. We also got a lot of questions about that. Skype does not count. So when we release our numbers, we just don’t feel like we want to get in the weeds of kind of argue with people, but the DAU very real.Source: Microsoft
Another reason is the mix of added users/usage. In its latest investor call in March, Zoom’s CFO commented the following
Granted, there may have been more development since the comment. Frankly, it’s unclear how the surge in usage benefits Zoom financially without the company’s disclosure. Nonetheless, it’s not surprising that the majority of the increased usage comes from the free tier.
On Teams side, it’s not particularly providing a clearer picture either. Back in January, during the Q2 earnings call, Microsoft announced they had 20 million daily active users. 3 months later, the figure stands at 75 million. Quite an achievement. But like Zoom, Microsoft has a free tier that allows video or calls. As a result, barring a comment from the Seattle-based company, it’s not clear how many Microsoft added as paying customers.
The point is that it’s really hard to determine which videoconferencing tool is the better performer between the two leaders Zoom and Teams. The way data is reported by the two companies makes it really challenging to have an apple-to-apple comparison.
Rise of contactless payment reported by Visa and Mastercard
It is so much faster and easier to just tap your card or phone on a reader than to use the chip or swipe. The frictionlessness of this payment method has clearly wowed users enough that it is on a rise, especially in the US.
In the card-present environment, we continue to see meaningful momentum in tap to pay, what we consider to be the most friction-free way to pay in person. We have reached a point where 1 in every 3 card-present transactions that runs over our network is [tax] versus 1 in 4 a year ago this quarter. This past year, we’ve doubled the number of countries whose face-to-face transactions are at least 2/3 contactless.
Transit continues to be a key user case and an important way to habituate tapping behavior. In New York City, on the NPA, Visa crossed 2 million taps in November from the beginning of the pilot and 3 million in January. The FDA recently announced the tap-to-pay expansion to their entire system by the end of 2020, and we are currently pacing a 350,000 Visa taps a week on the MTA and nearly 1 in every 10 transactions in the New York Metro area is a tap-to-pay on a Visa card.Source: Visa in its Q1 2020 Earnings Call Transcript, provided by Atom Finance
Echoing the sentiment was Mastercard in its Q4 2019 Earnings Call
..On to contactless, where as I said, we’re making real progress. This quarter, contactless made up over 30% of global card-present purchased (inaudible). Contactless provides a frictionless and fast payment experience, which is opening new categories of spend, including displacing cash on small-ticket purchases. The U.S. point for growth on this front and the New York City MTA is a good example of the potential for rapid adoption by consumers. In fact, they surpassed 5 million taps since the launch in May. And the MTA has planned to roll out contactless acceptance system-wide by the end of 2020.
I’m pretty certain that U.S. contactless will keep growing throughout 2020 quite attractively. Because if you look at the numbers of the number of bank partners that have committed to issue contactless cards for a [minute], let’s even forget Apple Pay and Samsung Pay that enable every card through their archive to be used. If you just look at the number of cards, we are talking about 70% of our total cards in the U.S. market will be reissued over this 12-month to 14-month period. My own personal cards are already contactless from Citi.
On the acceptance side, kind of all new terminals going on are embedded with contactless. So (inaudible) large retailers Target and 7-Eleven and CVS have announced that they will accept contactless payments. And in fact, over half of U.S. card-present transactions are now happening at contactless-enabled merchant locations. And when the MT rolls in on system-wide in New York City, and there are other transit systems beginning to do the same in their cities, I think you will get the impetus.Source: Atom Finance
Vietnam as an important emerging market for Apple
My country was mentioned repeatedly in the latest earnings call of Apple. In a positive light that makes me think that we are going to be, if we are not already, an important emerging market for the Cupertino-based company
Geographically, we established all-time revenue records in many major developed and emerging markets including, among others, the U.S., Canada, Mexico, Brazil, the UK, Germany, France, Italy, Spain, Poland, Thailand, Malaysia and Vietnam.Source: Seeking Alpha
For iPad, we saw growth in key emerging markets like Mexico, India, Turkey, Poland, Thailand, Malaysia, the Philippines and VietnamSource: Seeking Alpha
Phone revenue of $56 billion grew 8% year-over-year, as we saw a great customer response to the launch of our newest iPhones. We set all-time revenue records in several countries, including the U.S. Mexico, the UK, France, Spain, Poland, Thailand, Malaysia and Vietnam.Source: Seeking Alpha
Productivity and Business Processes keeps leading the margin game for Microsoft
Microsoft has three main business lines:
Azure likely receives the most attention, yet it is Productivity & Business Processes (PBP) that consistently took the crown in the margin game at Microsoft. In the latest earnings report, Microsoft reported almost 44% margin for PBP
Even though there have been only 2 quarters so far in 2020, the segment has generated more revenue and operating income than the full year 2019
Commission-free investing with Vanguard. Introduced by a…vanguard like Robinhood and adopted by others like TD-Ameritrade or E-Trade, commission-free trading is now available with Vanguard as well
The last Weekly readings episode of 2019. I have had fun doing this because this serves mainly as my notes. I hope you got something out of these notes
Rural America Turning to Grocers, High-Fee ATMs as Banks Leave. If I tell this to my dad, who idolizes America, he probably will say I am crazy!
I am surprised at how well Hello Fresh has been doing