Sean Higgins

Sean Higgins is the founder and CEO of BetterYou, a product that “nudges” you to make better decisions and work toward your goals. He is also an entrepreneur in residence at Techstars, a partner at Router Ventures, and previously founded VidGrid. Top 3 Takeaways  In schools across all grades, the presence of phones has changed everything from student focus to bullying and has magnified some existing issues, but also presents an opportunity to learn and behave more effectively. For businesses, managing employee wellbeing must now include digital wellness. This also presents both opportunities like more insight into personal health and challenges like invasion of privacy. Smartphone-based tools for managing digital wellness and tech addiction are mostly aimed at monitoring or gating app usage, but there is an opportunity around incentivizing use of and healthy engagement in good content.   Show Notes  [0:40] What does tech addiction mean for schools and for businesses. [2:50] Does the fact that kids are getting phones earlier make bullying worse? [4:15] Teachers and counselors have a hard time dealing with tech addiction and the impact of students having phones. [6:12] Do incentives for keeping students off their phones work? [10:09] Most tech addiction apps on the market are for monitoring or gating use rather than encouraging beneficial use. [10:45] What Sean has learned about working with education from building BetterYou. [12:50] Where does the responsibility for student success with respect to tech addiction fall? [14:50] How business differs from education when it comes to device usage management. [21:32] Companies will tie in personal health and happiness with overall health of the organization. [22:02] What is the right incentive structure to encourage digital health within companies? [23:35] Does a company tracking its employees’ habits for their benefit infringe on privacy? [26:30] Trust will be one of the most important elements for brands in the digital wellness space.  Selected Links  BetterYou Jonathan Haidt book Part 2 with Sean Higgins Part 1 with Sean Higgins  Disclaimer: We actively write about the themes in which we invest or may invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we may write about companies that are in our portfolio. As managers of the portfolio, we may earn carried interest, management fees or other compensation from such portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making any investment decisions and provided solely for informational purposes. We hold no obligation to update any of our projections and the content on this site should not be relied upon. We express no warranties about any estimates or opinions we make.

Sean Higgins is the founder and CEO of <a href="https://www.betteryou.ai/" rel="nofollow" target="_blank">BetterYou</a>, a product that “nudges” you to make better decisions and work toward your goals. He is also an entrepreneur in residence at Techstars, a partner at Router Ventures, and previously founded <a href="https://www.vidgrid.com/" rel="nofollow" target="_blank">VidGrid</a>. <h3>Top 3 Takeaways</h3> <ol> <li>In schools across all grades, the presence of phones has changed everything from student focus to bullying and has magnified some existing issues, but also presents an opportunity to learn and behave more effectively.</li> <li>For businesses, managing employee wellbeing must now include digital wellness. This also presents both opportunities like more insight into personal health and challenges like invasion of privacy.</li> <li>Smartphone-based tools for managing digital wellness and tech addiction are mostly aimed at monitoring or gating app usage, but there is an opportunity around incentivizing use of and healthy engagement in good content.</li> </ol> <h3>Show Notes</h3> <ul> <li>[0:40] What does tech addiction mean for schools and for businesses.</li> <li>[2:50] Does the fact that kids are getting phones earlier make bullying worse?</li> <li>[4:15] Teachers and counselors have a hard time dealing with tech addiction and the impact of students having phones.</li> <li>[6:12] Do incentives for keeping students off their phones work?</li> <li>[10:09] Most tech addiction apps on the market are for monitoring or gating use rather than encouraging beneficial use.</li> <li>[10:45] What Sean has learned about working with education from building BetterYou.</li> <li>[12:50] Where does the responsibility for student success with respect to tech addiction fall?</li> <li>[14:50] How business differs from education when it comes to device usage management.</li> <li>[21:32] Companies will tie in personal health and happiness with overall health of the organization.</li> <li>[22:02] What is the right incentive structure to encourage digital health within companies?</li> <li>[23:35] Does a company tracking its employees’ habits for their benefit infringe on privacy?</li> <li>[26:30] Trust will be one of the most important elements for brands in the digital wellness space.</li> </ul> <h3>Selected Links</h3> <ul> <li><a href="https://www.betteryou.ai/" rel="nofollow" target="_blank">BetterYou</a></li> <li>Jonathan Haidt <a href="https://www.amazon.com/Coddling-American-Mind-Intentions-Generation/dp/0735224897" rel="nofollow" target="_blank">book</a></li> <li><a href="https://loupventures.com/a-conversation-on-tech-addiction-with-sean-higgins-part-2/" rel="nofollow" target="_blank">Part 2</a> with Sean Higgins</li> <li><a href="https://loupventures.com/a-conversation-on-tech-addiction-with-sean-higgins/" rel="nofollow" target="_blank">Part 1</a> with Sean Higgins</li> </ul> Disclaimer: We actively write about the themes in which we invest or may invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we may write about companies that are in our portfolio. As managers of the portfolio, we may earn carried interest, management fees or other compensation from such portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making any investment decisions and provided solely for informational purposes. We hold no obligation to update any of our projections and the content on this site should not be relied upon. We express no warranties about any estimates or opinions we make.

A Conversation on Tech Addiction with Sean Higgins Part 3

Elon Musk

Dr. Kevin Luhman is a professor of astronomy and astrophysics at Pennsylvania State University and a renowned astronomer for having discovered both the third closest stellar system, now called Luhman 16, and the coldest brown dwarf star ever found, which too will soon bear his name. Top 3 Takeaways  Astronomy addresses the most fundamental questions of humanity such as the origins of life, the origin of Earth, the fate of life on Earth and whether or not we are alone in the universe. Sending humans to Mars won’t be as easy as Elon Musk makes it out to be. Elon is aiming for a 2024 arrival while NASA is expecting around 2034. There are many challenges, most notably deadly cosmic rays, that need to be solved before humans can safely travel to and spend time on the Red Planet. Earth is an oasis of life in the universe. Astronomy can help us appreciate the odds of a place like Earth existing and can provide a unique perspective on the importance of protecting it.   Show Notes  [0:58] Defining astronomy. [1:30] The early influences that led Dr. Luhman to dedicate his life to the study of the universe. [3:25] Why should the average person care about astronomy? [3:55] Practical examples of how astronomy is used in our everyday lives. [5:31] The past, present and future of satellites. [8:26] Dr. Luhman describes the events that transpired to now have a stellar system bear his name. [10:02] The status of NASA. [11:40] What astronomers talk about after work. [12:20] When are humans going back to the Moon? [14:32] The challenges of sending humans to Mars. [18:50] Is Elon Musk’s 2024 target of sending humans to Mars realistic? [20:02] Dr. Luhman’s thoughts on SpaceX. [20:43] One question Dr. Luhman would ask Elon Musk. [20:57] Fun rapid-fire questions to conclude  Disclaimer: We actively write about the themes in which we invest or may invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we may write about companies that are in our portfolio. As managers of the portfolio, we may earn carried interest, management fees or other compensation from such portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary 

Dr. Kevin Luhman is a professor of astronomy and astrophysics at Pennsylvania State University and a renowned astronomer for having discovered both the third closest stellar system, now called Luhman 16, and the coldest brown dwarf star ever found, which too will soon bear his name. <h3>Top 3 Takeaways </h3> <ol> <li>Astronomy addresses the most fundamental questions of humanity such as the origins of life, the origin of Earth, the fate of life on Earth and whether or not we are alone in the universe.</li> <li>Sending humans to Mars won’t be as easy as Elon Musk makes it out to be. Elon is aiming for a 2024 arrival while NASA is expecting around 2034. There are many challenges, most notably deadly <a href="https://www.extremetech.com/extreme/250547-cosmic-rays-twice-dangerous-mars-explorers-thought" rel="nofollow" target="_blank">cosmic rays</a>, that need to be solved before humans can safely travel to and spend time on the Red Planet.</li> <li>Earth is an oasis of life in the universe. Astronomy can help us appreciate the odds of a place like Earth existing and can provide a unique perspective on the importance of protecting it.</li> </ol> <h3>Show Notes </h3> <ul> <li>[0:58] Defining astronomy.</li> <li>[1:30] The early influences that led Dr. Luhman to dedicate his life to the study of the universe.</li> <li>[3:25] Why should the average person care about astronomy?</li> <li>[3:55] Practical examples of how astronomy is used in our everyday lives.</li> <li>[5:31] The past, present and future of satellites.</li> <li>[8:26] Dr. Luhman describes the events that transpired to now have a stellar system bear his name.</li> <li>[10:02] The status of NASA.</li> <li>[11:40] What astronomers talk about after work.</li> <li>[12:20] When are humans going back to the Moon?</li> <li>[14:32] The challenges of sending humans to Mars.</li> <li>[18:50] Is Elon Musk’s 2024 target of sending humans to Mars realistic?</li> <li>[20:02] Dr. Luhman’s thoughts on SpaceX.</li> <li>[20:43] One question Dr. Luhman would ask Elon Musk.</li> <li>[20:57] Fun rapid-fire questions to conclude</li> </ul> Disclaimer: We actively write about the themes in which we invest or may invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we may write about companies that are in our portfolio. As managers of the portfolio, we may earn carried interest, management fees or other compensation from such portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary

An Astronomer’s Thoughts on Elon Musk, NASA, and Humanity’s Fundamental Questions

TheLlamaSir is a content creator on YouTube and Twitch. He has over 1.1M subscribers on YouTube and his videos have been viewed over 100M times. TheLlamaSir primarily creates gameplay and guide videos for Fortnite, but has also created content for Rocket League, Call of Duty, and Minecraft. Top 3 Takeaways  The Llama Sir’s audience is split between those that are interested in the content due to the game, or due to The Llama Sir himself. It’s difficult for content creators to get a strong sense of audience turnover when they switch games, as they typically lose viewers who aren’t interested in the new game but pick viewers up at the same time. As glamorous as content creation seems, it’s hard to get a break. For YouTube content creators, there are always projects in the pipeline to get out to an audience. For live content creators, taking time off reduces income. There are also examples of losing subscribers after taking a break. Being a good content creator on any platform is a skill that takes time to develop.   Show Notes  [1:44] TheLlamaSir talks about his content creation and his movement into Twitch live-streaming. [2:35] TheLlamaSir shares how he started creating content on YouTube. [3:38] The moment when he knew he had a big opportunity in content creation, after hitting 100K subscribers. [4:52] TheLlamaSir talks about his audience and whether they stick around for the content due to the game or his delivery. [5:58] Fortnite felt special from the beginning, similar to Halo and Call of Duty, some of TheLlamaSir’s favorite games from his past. [7:30] Balancing games that you what to play with what you think your audience wants to see. [8:08] The hidden challenges of being a content creator. [9:58] TheLlamaSir creates and edits all of his own content. [12:19] TheLlamaSir’s motivations to continue to create content. [12:58] The idea generation process, and how Fortnite makes new content ideas easier to come up with. [14:50] The future of content creation.  Selected Links  Fortnite Week 2 Challenges Guide TheLlamaSir – YouTube TheLlamaSir – Twitch TheLlamaSir – Twitter  Disclaimer: We actively write about the themes in which we invest or may invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we may write about companies that are in our portfolio. As managers of the portfolio, we may earn carried interest, management fees or other compensation from such portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making any investment decisions and provided solely for informational purposes. We hold no obligation to update any of our projections and the content on this site should not be relied upon. We express no warranties about any estimates or opinions we make.

TheLlamaSir is a content creator on YouTube and Twitch. He has over 1.1M subscribers on YouTube and his videos have been viewed over 100M times. TheLlamaSir primarily creates gameplay and guide videos for Fortnite, but has also created content for Rocket League, Call of Duty, and Minecraft. <h3>Top 3 Takeaways</h3> <ol> <li>The Llama Sir’s audience is split between those that are interested in the content due to the game, or due to The Llama Sir himself. It’s difficult for content creators to get a strong sense of audience turnover when they switch games, as they typically lose viewers who aren’t interested in the new game but pick viewers up at the same time.</li> <li>As glamorous as content creation seems, it’s hard to get a break. For YouTube content creators, there are always projects in the pipeline to get out to an audience. For live content creators, taking time off reduces income. There are also <a href="https://twitter.com/Ninja/status/1006871220065746944" rel="nofollow" target="_blank">examples of losing subscribers</a> after taking a break.</li> <li>Being a good content creator on any platform is a skill that takes time to develop.</li> </ol> <h3>Show Notes</h3> <ul> <li>[1:44] TheLlamaSir talks about his content creation and his movement into Twitch live-streaming.</li> <li>[2:35] TheLlamaSir shares how he started creating content on YouTube.</li> <li>[3:38] The moment when he knew he had a big opportunity in content creation, after hitting 100K subscribers.</li> <li>[4:52] TheLlamaSir talks about his audience and whether they stick around for the content due to the game or his delivery.</li> <li>[5:58] Fortnite felt special from the beginning, similar to Halo and Call of Duty, some of TheLlamaSir’s favorite games from his past.</li> <li>[7:30] Balancing games that you what to play with what you think your audience wants to see.</li> <li>[8:08] The hidden challenges of being a content creator.</li> <li>[9:58] TheLlamaSir creates and edits all of his own content.</li> <li>[12:19] TheLlamaSir’s motivations to continue to create content.</li> <li>[12:58] The idea generation process, and how Fortnite makes new content ideas easier to come up with.</li> <li>[14:50] The future of content creation.</li> </ul> <h3>Selected Links</h3> <ul> <li><a href="https://www.youtube.com/watch?v=Qc61agVARuI" rel="nofollow" target="_blank">Fortnite Week 2 Challenges Guide</a></li> <li><a href="https://www.youtube.com/user/TheLlamaSir" rel="nofollow" target="_blank">TheLlamaSir – YouTube</a></li> <li><a href="https://www.twitch.tv/thellamasir" rel="nofollow" target="_blank">TheLlamaSir – Twitch</a></li> <li><a href="https://twitter.com/TheLlamaSir" rel="nofollow" target="_blank">TheLlamaSir – Twitter</a></li> </ul> Disclaimer: We actively write about the themes in which we invest or may invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we may write about companies that are in our portfolio. As managers of the portfolio, we may earn carried interest, management fees or other compensation from such portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making any investment decisions and provided solely for informational purposes. We hold no obligation to update any of our projections and the content on this site should not be relied upon. We express no warranties about any estimates or opinions we make.

Talking Content Creation with TheLlamaSir

Sean Higgins is the founder and CEO of BetterYou, a product that “nudges” you to make better decisions and work toward your goals. He is also an entrepreneur in residence at Techstars, a partner at Router Ventures, and previously founded VidGrid. Top 3 Takeaways  Many products and services employ techniques that play on our behavioral psychology to keep us engaged. Sean and Doug identify many of those techniques and propose tactics and hacks to limit tech addiction and take back your time. Stopping cues, or signals that the user should stop and asses whether they want to continue engaging in their current activity, could be a way to limit tech usage without going against company incentives. Time is the most valuable commodity to us humans, and BetterYou helps users make sure they are spending time on the things that are most important to them.   Show Notes  [1:25] Sean explains how he sees companies leveraging behavior hacks to keep us addicted to their products. [4:15] Doug says just having a phone on your person is an opportunity for content developers to take advantage of your downtime or boredom. [7:14] Sean introduced the concept of stopping cues – signals that you should take a moment to think if what you’re doing is actually what you want to be engaging in. [8:20] Netflix’s third-biggest competitor is sleep. [9:45] Doug explains the current self and future self dynamic. [14:45] Could services introduce a “break” product that generates revenue and promotes digital health? [18:20] Why emotions like anger are a form of addiction and how news apps prey on them. [26:35] Other “counter-hacks” you can use to limit the effects of tech addiction. [36:30] Does using tech less make us less likely to upgrade our devices and threaten companies like Apple? [37:50] Time is the most valuable commodity for human beings. How does BetterYou help people allocate that time to what they think is most important?  Selected Links  BetterYou Skinner box study (intermittent variable rewards) Bottomless soup bowl study Goodphone.co  Disclaimer: We actively write about the themes in which we invest or may invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we may write about companies that are in our portfolio. As managers of the portfolio, we may earn carried interest, management fees or other compensation from such portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making any investment decisions and provided solely for informational purposes. We hold no obligation to update any of our projections and the content on this site should not be relied upon. We express no warranties about any estimates or opinions we make.

Sean Higgins is the founder and CEO of <a href="https://www.betteryou.ai/" rel="nofollow" target="_blank">BetterYou</a>, a product that “nudges” you to make better decisions and work toward your goals. He is also an entrepreneur in residence at Techstars, a partner at Router Ventures, and previously founded <a href="https://www.vidgrid.com/" rel="nofollow" target="_blank">VidGrid</a>. <h3>Top 3 Takeaways</h3> <ol> <li>Many products and services employ techniques that play on our behavioral psychology to keep us engaged. Sean and Doug identify many of those techniques and propose tactics and hacks to limit tech addiction and take back your time.</li> <li>Stopping cues, or signals that the user should stop and asses whether they want to continue engaging in their current activity, could be a way to limit tech usage without going against company incentives.</li> <li>Time is the most valuable commodity to us humans, and BetterYou helps users make sure they are spending time on the things that are most important to them.</li> </ol> <h3>Show Notes</h3> <ul> <li>[1:25] Sean explains how he sees companies leveraging behavior hacks to keep us addicted to their products.</li> <li>[4:15] Doug says just having a phone on your person is an opportunity for content developers to take advantage of your downtime or boredom.</li> <li>[7:14] Sean introduced the concept of stopping cues – signals that you should take a moment to think if what you’re doing is actually what you want to be engaging in.</li> <li>[8:20] Netflix’s third-biggest competitor is sleep.</li> <li>[9:45] Doug explains the current self and future self dynamic.</li> <li>[14:45] Could services introduce a “break” product that generates revenue and promotes digital health?</li> <li>[18:20] Why emotions like anger are a form of addiction and how news apps prey on them.</li> <li>[26:35] Other “counter-hacks” you can use to limit the effects of tech addiction.</li> <li>[36:30] Does using tech less make us less likely to upgrade our devices and threaten companies like Apple?</li> <li>[37:50] Time is the most valuable commodity for human beings. How does BetterYou help people allocate that time to what they think is most important?</li> </ul> <h3>Selected Links</h3> <ul> <li><a href="https://www.betteryou.ai/" rel="nofollow" target="_blank">BetterYou</a></li> <li>Skinner box <a href="https://www.simplypsychology.org/operant-conditioning.html" rel="nofollow" target="_blank">study</a> (intermittent variable rewards)</li> <li>Bottomless soup bowl <a href="https://www.ncbi.nlm.nih.gov/pubmed/15761167" rel="nofollow" target="_blank">study</a></li> <li><a href="https://www.goodphone.co/" rel="nofollow" target="_blank">Goodphone.co</a></li> </ul> Disclaimer: We actively write about the themes in which we invest or may invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we may write about companies that are in our portfolio. As managers of the portfolio, we may earn carried interest, management fees or other compensation from such portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making any investment decisions and provided solely for informational purposes. We hold no obligation to update any of our projections and the content on this site should not be relied upon. We express no warranties about any estimates or opinions we make.

A Conversation on Tech Addiction with Sean Higgins Part 2

Sean Higgins is the founder and CEO of BetterYou, a product that “nudges” you to make better decisions and work toward your goals. He is also an entrepreneur in residence at Techstars, a partner at Router Ventures, and previously founded VidGrid. Top 3 Takeaways  In 2017, 90% of discretionary time was spent on a screen vs. 37% in 2007. Many common products employ more behavioral engineering that we realize. This means they play to our innate desires and tendencies to drive engagement and keep us on the platform as long as possible. BetterYou allows a user to input their goals, and it works in the background to keep you on track. BetterYou analyzes the data exhaust from using your device find areas where you are being inconsistent with what you said were important to you.   Show Notes  [0:45] How Sean thinks about the problem of tech addiction. [2:40] Why 2007 and the launch of the iPhone was the tipping point for tech addiction. [4:17] Actions you can take to limit your use of tech. [6:45] Sean explains behavioral design built into apps that want to drive engagement. [9:23] The efforts of Apple and Google to bolster awareness of device usage. [11:14] Sean explains what it’s like to use BetterYou. [15:48] The power of incentives and reinforcement in changing your tech behavior. [17:23] Do we stand a chance against data0driven companies that know how to capture our attention so well? [18:57] Where can we learn more about the problem of tech addiction and potential solutions?  Selected Links  BetterYou Irresistible by Adam Alter Tristan Harris blog Hilarie Cash’s reStart Clinic  Disclaimer: We actively write about the themes in which we invest or may invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we may write about companies that are in our portfolio. As managers of the portfolio, we may earn carried interest, management fees or other compensation from such portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making any investment decisions and provided solely for informational purposes. We hold no obligation to update any of our projections and the content on this site should not be relied upon. We express no warranties about any estimates or opinions we make.

Sean Higgins is the founder and CEO of <a href="https://www.betteryou.ai/" rel="nofollow" target="_blank">BetterYou</a>, a product that “nudges” you to make better decisions and work toward your goals. He is also an entrepreneur in residence at Techstars, a partner at Router Ventures, and previously founded <a href="https://www.vidgrid.com/" rel="nofollow" target="_blank">VidGrid</a>. <h3>Top 3 Takeaways</h3> <ol> <li>In 2017, 90% of discretionary time was spent on a screen vs. 37% in 2007.</li> <li>Many common products employ more behavioral engineering that we realize. This means they play to our innate desires and tendencies to drive engagement and keep us on the platform as long as possible.</li> <li>BetterYou allows a user to input their goals, and it works in the background to keep you on track. BetterYou analyzes the data exhaust from using your device find areas where you are being inconsistent with what you said were important to you.</li> </ol> <h3>Show Notes</h3> <ul> <li>[0:45] How Sean thinks about the problem of tech addiction.</li> <li>[2:40] Why 2007 and the launch of the iPhone was the tipping point for tech addiction.</li> <li>[4:17] Actions you can take to limit your use of tech.</li> <li>[6:45] Sean explains behavioral design built into apps that want to drive engagement.</li> <li>[9:23] The efforts of Apple and Google to bolster awareness of device usage.</li> <li>[11:14] Sean explains what it’s like to use BetterYou.</li> <li>[15:48] The power of incentives and reinforcement in changing your tech behavior.</li> <li>[17:23] Do we stand a chance against data0driven companies that know how to capture our attention so well?</li> <li>[18:57] Where can we learn more about the problem of tech addiction and potential solutions?</li> </ul> <h3>Selected Links</h3> <ul> <li><a href="https://www.betteryou.ai/" rel="nofollow" target="_blank">BetterYou</a></li> <li><a href="https://www.amazon.com/Irresistible-Addictive-Technology-Business-Keeping/dp/1594206643" rel="nofollow" target="_blank">Irresistible by Adam Alter</a></li> <li><a href="http://www.tristanharris.com/" rel="nofollow" target="_blank">Tristan Harris blog</a></li> <li><a href="https://netaddictionrecovery.com/" rel="nofollow" target="_blank">Hilarie Cash’s reStart Clinic</a></li> </ul> Disclaimer: We actively write about the themes in which we invest or may invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we may write about companies that are in our portfolio. As managers of the portfolio, we may earn carried interest, management fees or other compensation from such portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making any investment decisions and provided solely for informational purposes. We hold no obligation to update any of our projections and the content on this site should not be relied upon. We express no warranties about any estimates or opinions we make.

A Conversation on Tech Addiction with Sean Higgins Part 1

We pride ourselves on contrarian curiosity. When that curiosity leads us to new conclusions, we change our minds. As part of that exploration, the areas that we find most interesting evolve over time. What was once frontier eventually becomes commonplace. We’re committed to updating our investment thesis as necessary through a living manifesto derived from our ongoing research process.  A little over a year and a half ago, we launched Loup Ventures and published our Manifesto outlining our vision of the future — a world more automated by AI and robotics and more experiential through VR and AR. Since then, some things have changed, and some things have stayed the same. One thing has even changed and stayed the same: we’re bigger believers than ever in the emerging wave of innovation around automation and experience. It’s no longer a question that the world is becoming more automated. We’re already seeing automation influence how we work, shop, and move. The efficiency we expect in those categories has also rubbed off on how we communicate with one another — we expect more meaning in less time. As automation frees time for leisure, we’re finding new ways to create and play. Of course, all experience ultimately happens in the brain, and we’re seeing technology that interacts directly with the brain to change how we experience the world. Our original vision to invest across AI, robotics, VR, and AR has evolved: We invest in frontier tech companies automating the world and building new ways to experience it.  The Future of Work: We still think that 70% of jobs will be disrupted by automation long term, but it may take longer than we originally imagined. The Future of Retail: 1) Online commerce will slowly rise from ~10% today, closer to 55% long term; 2) Automated retail represents nearly a $50B opportunity; 3) We’re also bullish on empathic retail – uniquely human, personalized shopping experiences. The Future of Transportation: By 2040, we expect that over 90% of all vehicles sold will be “Highly” and “Fully” autonomous systems, classified as Level 4 and 5 automation, respectively. The Future of Communication: We spend 69% of our waking hours consuming information, so products that allow people to consume more meaningful information in less time will win. The Future of Play: In an automated world, we will be afforded more time for leisure and play. In our view, the interactive nature of gaming will heavily influence the future of play. The Future of the Brain: Neurotech allows us to manipulate the brain’s signals, enabling us to directly influence intelligence and experience – augmenting human capability.   The Future of Work In our first manifesto, we talked about the potential for 70% of jobs to be disrupted by automation long term. We still think that will be the case, but it may take longer than we originally imagined. We also have a brighter view on the creation of new jobs uniquely suited for humans. Net-net, while labor will certainly be disrupted by automation, jobs will exist for humans in the long-term future. As such, we see four core opportunities in the future of work: human-in-the-loop, human-as-AI, pure AI, and pure human. For at least the next decade, there will exist a gap between what enterprise customers want AI to do and what AI can viably do. To that end, we embrace the reality that humans, in many ways, are robots. We’re all full of habits (programs), biases (programs), and skills (programs). Humans will serve as the most efficient “AI” while we develop and train purely machine-driven forms. This is where the first two future of work opportunities exist.  The human-in-the-loop opportunity enables humans to be augmented by machines to perform tasks more efficiently. For human-in-the-loop, machines may be able to perform the majority of a task but need humans to finish it or take over in complex situations. An example is a call center that uses AI to handle basic requests, but turns over difficult situations to a human, or an autonomous vehicle that turns over control to a human, either in the vehicle or remotely, to navigate challenging environments. The human-as-AI opportunity creates a rigid set of instructions or processes for humans to follow as if they were a machine. There are certain tasks that are just more easily and efficiently done by humans. At least for now. For things like calendar management there are personal and business nuances that must be understood to do the task well, events that aren’t on one calendar or another, people that should be ignored or deflected, control over how events are grouped, preferred meeting locations, etc. For a machine to understand the all the nuances of scheduling is difficult. It’s not impossible, it’s just more practical today to have a human do it if you want it done well. Another example is a human using augmented reality to get instructions from a machine to perform a specific task. Both of these opportunities are most likely to impact entry level workers. The pure AI opportunity is automation as we all think about it — robots handling a task completely. Robots are especially well suited to perform repetitive tasks, both physical and digital, because they don’t need breaks and can work faster and with more precision than humans. Manufacturing, agriculture, and industrial applications are all beginning to use fully autonomous robots that monitor inventory levels, pick produce, and move vehicles. See more of our work on robotics for details.  Source: Loup Ventures As the pure AI category slowly replaces jobs created by the first two opportunities, the aforementioned 70% job disruption will become a reality. While some observers fear this disruption as permanent, we see a different future where both blue- and white-collar skilled jobs disappear while new jobs emerge. Pure human jobs will be driven by uniquely human capabilities: creativity, community, and empathy. These are the long-term future of human work because they are outputs that only a human can authentically deliver. Creative pursuit of the arts will become more valuable as work and play merge. Communities can only be led by human beings. Empathic, human-led customer service will be a true differentiator for businesses that are otherwise automated. If we do it right, we should be able to create a world where robots perform tasks for which they are optimally suited, and humans will do the same. The future of work is bright, not bleak; especially for humans. The Future of Retail We see the future of retail in three buckets: online commerce, automated retail, and empathic retail.  Online Commerce still makes up only ~10% of total commerce excluding gas and groceries. We estimate that number could eventually reach 55%. As crazy as it may seem, we’re still in the early innings of online commerce. 63% of Americans live within 20 miles an Amazon fulfillment center or Whole Foods store, according to data from Piper Jaffray. Amazon’s network is impressive, but not good enough. Tighten the range to 5 miles and the addressable customer base drops to just 12% of Americans. Same day delivery isn’t solved yet. It’s why we still see $35 minimums and $5 on-demand delivery fees. There remains an opportunity for online retailers to broaden the distribution network and improve their same day delivery solutions. In our view, more efficient same day delivery will drive the next step change in online commerce growing as a percentage of wallet share. The biggest challenge for online retailers is, unsurprisingly, figuring out how to compete with Amazon. Offerings built around proprietary brands and products seem to have the best chance, and we’re likely to see a continued emergence of these types of brands that try to own a large niche.   Automated Retail took a big step forward with Amazon’s Amazon Go store. While Amazon may have created a great experience with Go, the technology is expensive and impractical to apply to retail formats larger than a convenience store; however, anywhere retailers compete primarily on price, automation must be the future. Reducing employee overhead will enable lower prices for consumers and, if the technology is applied correctly, a better experience. In 2016 there were 3.5 million cashiers in the U.S., according to the Department of Labor, with an average salary of $13,574 (Data USA). That represents a nearly $50 billion opportunity in cashier-less retail. Of those 3.5 million cashiers, 323,000 are convenience store or gas station employees, 9% of the cashier workforce. We expect c-stores to be the first category to undergo the dramatic shift to automated retail.   Empathic retail ties directly to the core human traits that represent the future of work. Of the three future of retail categories, empathic retail is the most nascent and also the most open for innovation. For offline retailers that wish to compete on a basis other than price, their premium will be driven by the experience they provide shoppers.  Humans, not robots, are likely to deliver the greatest differentiated experience. There’s a quality of connection when your favorite retail locations know who you are and what you like that’s hard to replicate. We think great customer service delivered by humans will become the most valuable differentiator in an empathic retail space and be augmented by AI and robotics, but not replaced by them. The Future of Transportation We see a future where humans not only won’t have to drive but won’t be allowed to drive. Admittedly, we’re still several decades from achieving that future, but autonomous transportation feels, in many ways, like a foregone conclusion. Billions of dollars have been invested in autonomous driving platforms and we’re beginning to see early solutions come to market like Tesla’s Autopilot (level 2 enhanced ADAS) and Waymo (level 4), but it will likely take billions of dollars more before we reach a fully autonomous transport future. See our Auto Outlook 2040 for details. Source: Loup Ventures Despite the amount of investment and attention on autonomous vehicles, our infrastructure is well behind our vehicles. Smarter energy grids, EV charging, roads, and maintenance will all be core components of our autonomous future. Governments seem to be interested in investing in these technologies but will be slow to act. Companies that find ways to limit upfront costs to cities and push the majority of monetization to private players in the transit ecosystem are most likely to thrive. Experience will be a major derivative benefit from the move to autonomous transit in several ways. First, since humans will be free from the task of driving, they will have more time to engage in communicating with others, creative work pursuits, or other play. We’ll also recoup lost time spent in traffic. Second, the many dangers of the road, namely distracted driving, will be eliminated. Third, vehicle ownership will transform, which may free dollars up for other discretionary spending. Fourth, urban and suburban centers will change. Vehicles, whether corporately or personally owned, will stay maximally utilized by fleets. Parking should be a thing of the past, which will allow streets to be lined by trees and pedestrians. And people on scooters. And delivery robots. The Future of Communication Meaning divided by time. That is our simple fundamental thesis on how the future of communication will evolve. Products that allow people to consume more meaningful information in less time will win. Products that allow us to reduce holistic noise and allow us to tell more engaging stories will win. Information is plentiful. We spend more time with information than ever before, from more sources than ever before, including social media and professional content. Thus, content has to be extremely compelling to break through in our busy lives. The richer, more creative, and more compelling the content (relevance is an everlasting imperative as well), the more we will want to consume it. See our piece on the future of information consumption for details. Source: Loup Ventures Much of the innovation over the past decade has happened for asynchronous communication tools from Twitter to Instagram to Snapchat; platforms where real-time engagement isn’t necessary or expected. Synchronous communication tools have, by comparison, languished. While we have multiple video conferencing tools like FaceTime, Hangouts, Skype, and Zoom for synchronous communication, they haven’t transformed the way we interact on the same order as the aforementioned asynchronous tools. There’s still an opportunity for a step-function improvement in synchronous communication that will shift users toward live and real time. This doesn’t mean we’re done innovating in asynchronous communication either. Tools for both mechanisms will continue to evolve by leveraging product features like time restrictions, non-fungible content enhancements, combining multiple content formats, and, of course, augmented reality. All of these mechanisms enhance meaning/time, which enhances our experience as consumers. The Future of Play Humans love competition and entertainment. That’s why we watch sports. That’s why we love games. With more time available for leisure in an automated world, we will be afforded more time to engage in play. As we’ve already witnessed with the rise of eSports, the future of play will not be beholden to traditional sports. Gaming will be the basis for much of the evolution of play. Like traditional sports, games are accessible to all, but mastered by few, and anywhere there is a skill to be mastered, there is beauty. We watch in awe as Ninja plays Fortnite just as we watch Lebron play basketball. Source: Loup Ventures The interactive nature of gaming will influence the future of play. ‘Live’ and ‘sports’ have always gone well together. We want to see greatness as it happens, not in a replay, to gain the social credit of “being there.” Live streaming combines the excitement of being there with a unique ability to engage with fans in ways not possible in traditional sports. We see this combination as the blueprint for new sports and other forms of play to amass large fan bases. While gaming will be a large component of the future of play, passion activities like music, art, and other forms of human creativity will also enrich and entertain us. Platforms will emerge to not only encourage, but also financially reward participants as play becomes work. See more of our work on gaming for details. The Future of the Brain – Neurotech The human brain is the basis for both intelligence and experience. Neurotech allows us to understand, and even manipulate, the brain’s signals, allowing us to directly influence intelligence and experience. Our focus on neurotech could be considered the future of the future of experience, since it will have a profound impact on how we engage with the world through both clinical and consumer applications. On the clinical side — typically invasive/implantable medical devices — our growing ability to simulate sensory experience and stimulate motor function can solve previously unsolvable problems. We have, for example, already witnessed groundbreaking work to restore motion in paralyzed patients. The next frontier is sensory information: we’ve heard about efforts to restore high-resolution vision to patients with retinal degeneration. A growing number of devices on the market treat pain through neurostimulation rather than pharmaceuticals. On the consumer side — exclusively noninvasive devices today — we can control things like video games and cars with our minds. We can learn new skills more quickly through specialized neurofeedback devices. And we’ve only just begun. In the longer-term future, neurotech could truly augment what it means for us to be “human.” Ideas exist for memory augmentation and brain preservation. We expect eventually we’ll find a way to simulate consciousness on a computer. While these probably require decades or more of technological and societal advancements, they illustrate a simple reality that drives our neurotech thesis: The brain is the key to all things in life, and to life itself. See more of our work on neurotech for details. Conclusion In our original manifesto, we outlined a future of vast automation and limitless, life-like experience; a future that would make Arthur C. Clarke proud. We still believe in that future and the path is slightly clearer than before. Some fear our vision for the future because progress always brings new challenges, but our future is bright. Human desire drives innovation, adaptation, and survival. We called it utopia; however, utopia, like many things in life, is relative. Utopia today raises expectations such that it isn’t utopia tomorrow. We may only approach utopia every now and then, but it’s always the journey that makes the destination worth it. Loup Ventures is excited to pioneer that journey. By Doug Clinton with Gene Munster and Andrew Murphy Disclaimer: We actively write about the themes in which we invest or may invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we may write about companies that are in our portfolio. As managers of the portfolio, we may earn carried interest, management fees or other compensation from such portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making any investment decisions and provided solely for informational purposes. We hold no obligation to update any of our projections and the content on this site should not be relied upon. We express no warranties about any estimates or opinions we make.

We pride ourselves on contrarian curiosity. When that curiosity leads us to new conclusions, we change our minds. As part of that exploration, the areas that we find most interesting evolve over time. What was once frontier eventually becomes commonplace. We’re committed to updating our investment thesis as necessary through a living manifesto derived from our ongoing research process. A little over a year and a half ago, we launched Loup Ventures and published our Manifesto outlining our vision of the future — a world more automated by AI and robotics and more experiential through VR and AR. Since then, some things have changed, and some things have stayed the same. One thing has even changed and stayed the same: we’re bigger believers than ever in the emerging wave of innovation around automation and experience. It’s no longer a question that the world is becoming more automated. We’re already seeing automation influence how we work, shop, and move. The efficiency we expect in those categories has also rubbed off on how we communicate with one another — we expect more meaning in less time. As automation frees time for leisure, we’re finding new ways to create and play. Of course, all experience ultimately happens in the brain, and we’re seeing technology that interacts directly with the brain to change how we experience the world. Our original vision to invest across AI, robotics, VR, and AR has evolved: We invest in frontier tech companies automating the world and building new ways to experience it. <ul> <li>The Future of Work: We still think that 70% of jobs will be disrupted by automation long term, but it may take longer than we originally imagined.</li> <li>The Future of Retail: 1) Online commerce will slowly rise from ~10% today, closer to 55% long term; 2) Automated retail represents nearly a $50B opportunity; 3) We’re also bullish on empathic retail – uniquely human, personalized shopping experiences.</li> <li>The Future of Transportation: By 2040, we expect that over 90% of all vehicles sold will be “Highly” and “Fully” autonomous systems, classified as Level 4 and 5 automation, respectively.</li> <li>The Future of Communication: We spend 69% of our waking hours consuming information, so products that allow people to consume more meaningful information in less time will win.</li> <li>The Future of Play: In an automated world, we will be afforded more time for leisure and play. In our view, the interactive nature of gaming will heavily influence the future of play.</li> <li>The Future of the Brain: Neurotech allows us to manipulate the brain’s signals, enabling us to directly influence intelligence and experience – augmenting human capability.</li> </ul> <h2>The Future of Work</h2> In our first manifesto, we talked about the potential for 70% of jobs to be disrupted by automation long term. We still think that will be the case, but it may take longer than we originally imagined. We also have a brighter view on the creation of new jobs uniquely suited for humans. Net-net, while labor will certainly be disrupted by automation, jobs will exist for humans in the long-term future. As such, we see four core opportunities in the future of work: human-in-the-loop, human-as-AI, pure AI, and pure human. For at least the next decade, there will exist a gap between what enterprise customers want AI to do and what AI can viably do. To that end, we embrace the reality that humans, in many ways, are robots. We’re all full of habits (programs), biases (programs), and skills (programs). Humans will serve as the most efficient “AI” while we develop and train purely machine-driven forms. This is where the first two future of work opportunities exist. <ol> <li>The human-in-the-loop opportunity enables humans to be augmented by machines to perform tasks more efficiently. For human-in-the-loop, machines may be able to perform the majority of a task but need humans to finish it or take over in complex situations. An example is a call center that uses AI to handle basic requests, but turns over difficult situations to a human, or an autonomous vehicle that turns over control to a human, either in the vehicle or remotely, to navigate challenging environments.</li> <li>The human-as-AI opportunity creates a rigid set of instructions or processes for humans to follow as if they were a machine. There are certain tasks that are just more easily and efficiently done by humans. At least for now. For things like calendar management there are personal and business nuances that must be understood to do the task well, events that aren’t on one calendar or another, people that should be ignored or deflected, control over how events are grouped, preferred meeting locations, etc. For a machine to understand the all the nuances of scheduling is difficult. It’s not impossible, it’s just more practical today to have a human do it if you want it done well. Another example is a human using augmented reality to get instructions from a machine to perform a specific task. Both of these opportunities are most likely to impact entry level workers.</li> <li>The pure AI opportunity is automation as we all think about it — robots handling a task completely. Robots are especially well suited to perform repetitive tasks, both physical and digital, because they don’t need breaks and can work faster and with more precision than humans. Manufacturing, agriculture, and industrial applications are all beginning to use fully autonomous robots that monitor inventory levels, pick produce, and move vehicles. See more of <a href="https://loupventures.com/category/themes/robotics/" rel="nofollow" target="_blank">our work on robotics</a> for details.</li> </ol> Source: Loup Ventures As the pure AI category slowly replaces jobs created by the first two opportunities, the aforementioned 70% job disruption will become a reality. While some observers fear this disruption as permanent, we see a different future where both blue- and white-collar skilled jobs disappear while new jobs emerge. Pure human jobs will be driven by uniquely human capabilities: creativity, community, and empathy. These are the long-term future of human work because they are outputs that only a human can authentically deliver. Creative pursuit of the arts will become more valuable as work and play merge. Communities can only be led by human beings. Empathic, human-led customer service will be a true differentiator for businesses that are otherwise automated. If we do it right, we should be able to create a world where robots perform tasks for which they are optimally suited, and humans will do the same. The future of work is bright, not bleak; especially for humans. <h2>The Future of Retail</h2> We see the <a href="https://loupventures.com/the-future-of-retail/" rel="nofollow" target="_blank">future of retail</a> in three buckets: online commerce, automated retail, and empathic retail. <ol> <li>Online Commerce still makes up only ~10% of total commerce excluding gas and groceries. We estimate that number could eventually reach 55%. As crazy as it may seem, we’re still in the early innings of online commerce. 63% of Americans live within 20 miles an Amazon fulfillment center or Whole Foods store, according to data from <a href="https://piper2.bluematrix.com/sellside/EmailDocViewer?encrypt=42391083-6139-40ee-9829-e703e7fd1e17&amp;mime=pdf&amp;co=Piper" rel="nofollow" target="_blank">Piper Jaffray</a>. Amazon’s network is impressive, but not good enough. Tighten the range to 5 miles and the addressable customer base drops to just 12% of Americans. Same day delivery isn’t solved yet. It’s why we still see $35 minimums and $5 on-demand delivery fees. There remains an opportunity for online retailers to broaden the distribution network and improve their same day delivery solutions. In our view, more efficient same day delivery will drive the next step change in online commerce growing as a percentage of wallet share. The biggest challenge for online retailers is, unsurprisingly, figuring out how to compete with Amazon. Offerings built around proprietary brands and products seem to have the best chance, and we’re likely to see a continued emergence of these types of brands that try to own a large niche.</li> </ol> <ol> <li>Automated Retail took a big step forward with Amazon’s <a href="https://loupventures.com/amazon-go-extends-amazons-dominance-to-brick-and-mortar/" rel="nofollow" target="_blank">Amazon Go</a> store. While Amazon may have created a great experience with Go, the technology is expensive and impractical to apply to retail formats larger than a convenience store; however, anywhere retailers compete primarily on price, automation must be the future. Reducing employee overhead will enable lower prices for consumers and, if the technology is applied correctly, a better experience. In 2016 there were 3.5 million cashiers in the U.S., according to the Department of Labor, with an average salary of $13,574 (Data USA). That represents a nearly $50 billion opportunity in cashier-less retail. Of those 3.5 million cashiers, 323,000 are convenience store or gas station employees, 9% of the cashier workforce. We expect c-stores to be the first category to undergo the dramatic shift to automated retail.</li> </ol> <ol> <li>Empathic retail ties directly to the core human traits that represent the future of work. Of the three future of retail categories, empathic retail is the most nascent and also the most open for innovation. For offline retailers that wish to compete on a basis other than price, their premium will be driven by the experience they provide shoppers.</li> </ol> Humans, not robots, are likely to deliver the greatest differentiated experience. There’s a quality of connection when your favorite retail locations know who you are and what you like that’s hard to replicate. We think great customer service delivered by humans will become the most valuable differentiator in an empathic retail space and be augmented by AI and robotics, but not replaced by them. <h2>The Future of Transportation</h2> We see a future where humans not only won’t have to drive but won’t be allowed to drive. Admittedly, we’re still several decades from achieving that future, but autonomous transportation feels, in many ways, like a foregone conclusion. Billions of dollars have been invested in autonomous driving platforms and we’re beginning to see early solutions come to market like Tesla’s Autopilot (level 2 enhanced ADAS) and Waymo (level 4), but it will likely take billions of dollars more before we reach a fully autonomous transport future. See our <a href="https://loupventures.com/auto-outlook-2040-the-rise-of-fully-autonomous-vehicles/" rel="nofollow" target="_blank">Auto Outlook 2040</a> for details. Source: Loup Ventures Despite the amount of investment and attention on autonomous vehicles, our infrastructure is well behind our vehicles. Smarter energy grids, EV charging, roads, and maintenance will all be core components of our autonomous future. Governments seem to be interested in investing in these technologies but will be slow to act. Companies that find ways to limit upfront costs to cities and push the majority of monetization to private players in the transit ecosystem are most likely to thrive. Experience will be a major derivative benefit from the move to autonomous transit in several ways. First, since humans will be free from the task of driving, they will have more time to engage in communicating with others, creative work pursuits, or other play. We’ll also recoup lost time spent in traffic. Second, the many dangers of the road, namely distracted driving, will be eliminated. Third, vehicle ownership will transform, which may free dollars up for other discretionary spending. Fourth, urban and suburban centers will change. Vehicles, whether corporately or personally owned, will stay maximally utilized by fleets. Parking should be a thing of the past, which will allow streets to be lined by trees and pedestrians. And people on scooters. And delivery robots. <h2>The Future of Communication</h2> Meaning divided by time. That is our simple fundamental thesis on how the future of communication will evolve. Products that allow people to consume more meaningful information in less time will win. Products that allow us to reduce holistic noise and allow us to tell more engaging stories will win. Information is plentiful. We spend more time with information than ever before, from more sources than ever before, including social media and professional content. Thus, content has to be extremely compelling to break through in our busy lives. The richer, more creative, and more compelling the content (relevance is an everlasting imperative as well), the more we will want to consume it. See our piece on <a href="https://loupventures.com/defining-the-future-of-human-information-consumption/" rel="nofollow" target="_blank">the future of information consumption</a> for details. Source: Loup Ventures Much of the innovation over the past decade has happened for asynchronous communication tools from Twitter to Instagram to Snapchat; platforms where real-time engagement isn’t necessary or expected. Synchronous communication tools have, by comparison, languished. While we have multiple video conferencing tools like FaceTime, Hangouts, Skype, and Zoom for synchronous communication, they haven’t transformed the way we interact on the same order as the aforementioned asynchronous tools. There’s still an opportunity for a step-function improvement in synchronous communication that will shift users toward live and real time. This doesn’t mean we’re done innovating in asynchronous communication either. Tools for both mechanisms will continue to evolve by leveraging product features like time restrictions, non-fungible content enhancements, combining multiple content formats, and, of course, augmented reality. All of these mechanisms enhance meaning/time, which enhances our experience as consumers. <h2>The Future of Play</h2> Humans love competition and entertainment. That’s why we watch sports. That’s why we love games. With more time available for leisure in an automated world, we will be afforded more time to engage in play. As we’ve already witnessed with the rise of eSports, the future of play will not be beholden to traditional sports. Gaming will be the basis for much of the evolution of play. Like traditional sports, games are accessible to all, but mastered by few, and anywhere there is a skill to be mastered, there is beauty. We watch in awe as Ninja plays Fortnite just as we watch Lebron play basketball. Source: Loup Ventures The interactive nature of gaming will influence the future of play. ‘Live’ and ‘sports’ have always gone well together. We want to see greatness as it happens, not in a replay, to gain the social credit of “being there.” Live streaming combines the excitement of being there with a unique ability to engage with fans in ways not possible in traditional sports. We see this combination as the blueprint for new sports and other forms of play to amass large fan bases. While gaming will be a large component of the future of play, passion activities like music, art, and other forms of human creativity will also enrich and entertain us. Platforms will emerge to not only encourage, but also financially reward participants as play becomes work. See more of <a href="https://loupventures.com/category/themes/gaming/" rel="nofollow" target="_blank">our work on gaming</a> for details. <h2>The Future of the Brain – Neurotech</h2> The human brain is the basis for both intelligence and experience. Neurotech allows us to understand, and even manipulate, the brain’s signals, allowing us to directly influence intelligence and experience. Our focus on neurotech could be considered the future of the future of experience, since it will have a profound impact on how we engage with the world through both clinical and consumer applications. On the clinical side — typically invasive/implantable medical devices — our growing ability to simulate sensory experience and stimulate motor function can solve previously unsolvable problems. We have, for example, already witnessed groundbreaking work to restore motion in paralyzed patients. The next frontier is sensory information: we’ve heard about efforts to restore high-resolution vision to patients with retinal degeneration. A growing number of devices on the market treat pain through neurostimulation rather than pharmaceuticals. On the consumer side — exclusively noninvasive devices today — we can control things like video games and cars with our minds. We can learn new skills more quickly through specialized neurofeedback devices. And we’ve only just begun. In the longer-term future, neurotech could truly augment what it means for us to be “human.” Ideas exist for memory augmentation and brain preservation. We expect eventually we’ll find a way to simulate consciousness on a computer. While these probably require decades or more of technological and societal advancements, they illustrate a simple reality that drives our neurotech thesis: The brain is the key to all things in life, and to life itself. See more of <a href="https://loupventures.com/category/themes/neurotech/" rel="nofollow" target="_blank">our work on neurotech</a> for details. <h2>Conclusion</h2> In our original manifesto, we outlined a future of vast automation and limitless, life-like experience; a future that would make Arthur C. Clarke proud. We still believe in that future and the path is slightly clearer than before. Some fear our vision for the future because progress always brings new challenges, but our future is bright. Human desire drives innovation, adaptation, and survival. We called it utopia; however, utopia, like many things in life, is relative. Utopia today raises expectations such that it isn’t utopia tomorrow. We may only approach utopia every now and then, but it’s always the journey that makes the destination worth it. Loup Ventures is excited to pioneer that journey. By Doug Clinton with Gene Munster and Andrew Murphy Disclaimer: We actively write about the themes in which we invest or may invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we may write about companies that are in our portfolio. As managers of the portfolio, we may earn carried interest, management fees or other compensation from such portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making any investment decisions and provided solely for informational purposes. We hold no obligation to update any of our projections and the content on this site should not be relied upon. We express no warranties about any estimates or opinions we make.

Manifesto 2.0

Brave early adopters are the hallmark of an innovation set to create immense human value. In this story, the innovation is cutting-edge technology for interfacing with the nervous system, and the brave early adopter is Ian Burkhart. Ian, a young man in his mid-twenties, suffered a C5 spinal cord injury (SCI) during a diving accident in 2010. The result was bilateral paralysis below his elbows. With an admirably positive attitude and a wonderfully helpful community, Ian was able to make modifications to his life and still live with a sense of meaning. One of the primary factors motivating Ian forward through the years of rehabilitation was the strong hope that, at some point in his lifetime, there would be biomedical advances capable of giving him back use of his hands. As it happened, such a possibility crossed his path.  Image: https://ianburkhart.com In 2014, Ian was presented with an incredible but uphill opportunity led by Dr. Chad Bouton of Battelle (he’s now with the Feinstein Institute): a team of researchers was looking for a patient to test out a system for restoring movement to the hands of a paralyzed patient. The catch was that it required brain surgery and extensive training. There are 5.4 million Americans living with some form of paralysis, and Ian is acutely aware of the challenges they face. But optimism is one of his defining characteristics: given the chance to pioneer a technology that could bring massive human value, he was willing to make a sacrifice. And so, in 2014, Ian risked his life by undergoing electable brain surgery, implanting a manmade electrode array into the left motor cortex of his brain. Over the four years since the operation, and hundreds of hours of tedious and extremely difficult training, Ian has collaborated closely with a team of researchers to improve the brain-machine interface system. Ian can now use the technology, which acts as a “bypass” to his damaged spinal cord, to play Guitar Hero using his right hand. Image: PBS The body has two information pathways, the vascular system and the nervous system. The typical conception of physiological medical care is that treatments should leverage the body’s vascular system, as in the case of pharmaceuticals; Ian’s system, in contrast, is based on the principle that medical care can be given by interacting with the nervous system. The names of the fields that embody this innovative approach are bioelectronic medicine (BEM) and brain-machine interfaces (BMI). Brain-machine interfaces are technological systems that read from and/or write to the brain. Bioelectronic medicine systems are technological systems that read from or write to the nerves in your body (the peripheral nervous system). Both of these types of neural interfaces can provide therapeutic value through the insight to target medical interventions at the nervous system rather than just the bloodstream. At Loup Ventures, we invest in domains of frontier technology that offer strong investment opportunities built on delivering unique human value-add. Bioelectronic medicine and brain-machine interfaces check both boxes with bold strokes. We’re here to explain these technologies and why you should care about them. Starting with a story Ian Burkhart was originally approved by the FDA to participate in a year-long trial using a Utah Array electrode implanted in his left motor cortex. When fully hooked up in the laboratory, the signals recorded from the Utah Array, a type of intracortical multielectrode array, are decoded by a neural decoding algorithm and used to control 130 surface electrodes wrapped around his right forearm (which he can’t move on his own). When current is run through the surface electrodes, it causes muscles in Ian’s forearm to contract in particular ways, ultimately controlling his hand movement. In other words, the researchers aim to understand what Ian’s neural activity looks like when he’s thinking about moving his hand. With this understanding, they can use his neural activity to decipher when he wants to move his hand. Then, knowing that he wants to move his hand, a computer program controls his muscles via the electrodes so he can actually move his hand. In essence, they skip right over the spinal cord injury responsible for his paralysis. Image: biomedicalcomputationreview.org Ian and his team of researchers have been so successful that the FDA has extended the experiment multiple times; he’s now in his fourth year of participation. Loup Ventures recently had the pleasure to talk with Ian about his experience and his outlook. Here’s some of what we learned (listen to one of our conversations with him on our Neurotech Podcast here):  Each day he uses the system, Ian has to retrain the algorithms that decode his neural activity. This is because the specific neural activation representing his thoughts changes frequently due to neural plasticity. When Ian first started with the BMI system, he would leave training sessions mentally exhausted. Over the years, however, it’s become much easier; training isn’t something he has to pay much attention to, now. This has implications for future BEM/BMI technologies: it will be critical to minimize training time and repetition and to make the necessary training as pleasant as possible for the user. Ian has spent time learning about the neural decoding algorithms themselves to the extent that he understands the different parameters the research engineers can tune. Now, when Ian is trying to make the BMI perform as well as it can, he can suggest that the researchers adjust specific parameters. This is similar, in a sense, to adjusting the speed of your mouse cursor on your computer screen. In general, this insight from Ian suggests that BEM/BMI systems ought to be designed like any piece of software, where there’s a symbiosis between the user and the machine. The better the user can intuit how the machine will understand him/herself (and vice versa), the more effective the system will be. Ian is very insistent that in order for mass adoption, the technology must be user-friendly; just because its value proposition (i.e. returned movement) is so large doesn’t mean that normal human-centric design considerations can be thrown out the door. Even though Ian is very excited about the progress he’s making with the research system in a laboratory setting, he can’t take the system out of the lab yet—partly due to regulation and partly due to the unwieldiness of the technology. Even amongst spinal cord injury patients, Ian sees resistance to the adoption of brain-machine interfaces. This paper has great data about which types of interfaces paralysis patients would be comfortable with, given specific types of benefits they can receive. For example, as compared to typing, controlling a cursor, and moving a robotic arm, patients were overwhelmingly most interested in using neural interfaces to control the movement of their own limbs. Ian emphasized to us over and over again that brain-machine interfaces and bioelectronic medicine systems must be designed to provide as much value to the user as possible; this bears repetition since most systems are currently in the hands of research scientists and research engineers, not user experience designers. We’re discussing a technology that plugs directly into a human brain; this conversation would be woefully incomplete without discussing ethics. Ian pushed this point, since he clearly sees the potential for good in neurotechnology, but acknowledges there’s also potential for bad. One example we think is particularly relevant given current conversation about software platforms is user privacy. User privacy takes on a whole new meaning when the data isn’t just behavioral (like clicking on an ad), but neural. Through the talks he’s given and the other SCI patients he’s spoken with, Ian recognizes that there will be big pushback on technologies that interface with the nervous system, and we think the pushback can be healthy if addressed constructively. With current screen-based interfaces, there have clearly been both positives and negatives. In general, as technology becomes more directly able to “extract” information from, and “input” information into us, the privacy and digital wellbeing stakes get higher. Any foray into the therapeutic benefits of BMI/BEM—whether as an interested onlooker, an investor, a researcher, or a company—would be ill-advised without strong considerations for, and safeguards to protect, the ethical implications of the BMI/BEM product.  In general, we take inspiration from Ian’s conviction about the positive value of nervous system-based interventions, and we take direction from his emphasis on the necessity for BMI/BEM engineers to focus on the practical value of their products. In speaking about his work to improve his own system for movement restoration so that other patients can use it, he says, “I see my involvement with the study as a job that I have to succeed in.” He sees no other choice; the upside is just too large to ignore. The general bioelectronic medicine approach Now that we’ve discussed bioelectronic medicine and brain-machine interfaces from the perspective of a real user, we’ll describe these related domains and their benefits to conclude this introductory article. Although the fields of bioelectronic medicine and brain-machine interfaces speak to different use-cases (bioelectronic medicine involves the peripheral nervous system and treats or diagnoses disease in the body; brain-machine interfaces involve the central nervous system and address sensory deficits and cognitive/affective disorders), we’re going to discuss both under the header of “bioelectronic medicine” for the sake of brevity and comprehensibility. At its highest level, bioelectronic medicine simply uses electronics to interface with the body where previously, chemicals/drugs would have been used. There are three basic components to any BEM system: a body, a device (either inside or outside of the human body), and a computer. In plain English, there are two general ways to use a BEM system:  A device is used to record electrical or chemical signals from the body, and a computer interprets those signals in order to understand the state of the body or a specific system within it. A device is used to stimulate electrical (or other) signals within the body in order to have a desired therapeutic or enhancing outcome, and a computer controls the stimulation.  Some examples of BEM systems include: brain-machine interfaces for restoring movement to paralyzed patients, as in the case of Ian Burkhart; retinal prostheses to return vision to the blind; stimulating the vagus nerve to treat rheumatoid arthritis; and recording electrical signals from the vagus nerve to understand the state of the body’s inflammatory response. Image: Tracey, 2007 The latter two use-cases exemplify an aspect of bioelectronic medicine that differs from central nervous system-focused brain-machine interfaces: bioelectronic medicine leverages reflexes. In this sense of the word “reflex,” we refer to the idea that the brain both keeps track of and controls organ function using peripheral nerves. This keeping track and controlling is a reflex to preserve homeostasis. Regulatory and cost advantage Aside from providing novel treatments and diagnostic opportunities that have yet to be achieved with pharmaceuticals, bioelectronic medicine products offer significant advantages over pharmaceuticals in terms of the FDA regulatory process. All medical devices and drugs are subject to regulation by the FDA. However, it takes between 30–50 months for a medical device (BEM devices classify as medical devices) to get through the FDA, as compared with 144 months for a drug to get through the FDA. A direct correlate of this is that BEM device development is significantly less expensive than pharmaceutical development: BEM devices cost ~$100M for high-risk devices, whereas drug development can require on the order of ~$1B (although the exact cost is uncertain and fluctuates). Frontiers There are several frontiers of bioelectronic medicine: technological, scientific, and social/political. Technologically, devices to record and stimulate the nervous system need to be able to record and stimulate at smaller spatial scales and to operate wirelessly (without a wire running from the implanted device, out of the skin, and to a power source). Additionally, neural recordings will be fused with sensors under development that focus on biological signals such as the activity within individual cells. In terms of basic science, researchers need a better understanding and more detailed atlas of the peripheral nervous system and are additionally working to characterize other nervous system reflexes within the body (“reflex” in the sense we described above). Finally, on the social/political front: although public forum discussion of BEM and BMIs is rather small right now, it’s likely that conversation picks up over the next ~5 years as ambitious interface companies like Neuralink, Kernel, and Paradromics hopefully bring progress to bear; almost certainly, the public conversation will focus on privacy and ethics. Market size: understanding the prospects To understand the massive market for therapeutic devices that interface with the nervous system, we’ll list six example opportunities and their respective market sizes:  Spinal Cord Injury – 280,000 patients in the US as of 2016, with a $2.3B global market as of 2017. Alzheimer’s Disease – 5.7M patients in the US, with a $1.7B market in North America as of 2017. Amyotrophic Lateral Sclerosis – 30K patients in the US, $16M market in the US as of 2018. Stroke – 795,000 strokes per year in the US (144,000 deaths per year caused by strokes); $6.5B market in the US as of 2016. Rheumatoid Arthritis – 1.5M patients in the US; $11.5B market in the US as of 2016. Mental Health/Substance Abuse – 43.8M adults in the US experience mental illness annually; based on data through 2013, the US mental health and substance abuse services industry was expected to produce $53.2B in revenues in 2017.  Expanding beyond these specific use-cases, any new class of treatment and diagnostic methodology like bioelectronic medicine is likely to have effects that trickle down and impact a large portion of the $3.3 trillion dollar US healthcare industry. In Conclusion In this piece, we’ve introduced the concept of bioelectronic medicine and brain-machine interfaces: providing therapeutic value to patients by interfacing with their nervous system instead of their bloodstream. We see huge opportunity in this space, driven by novel interfaces to the nervous system and new disease treatment paradigms. As we saw with Ian Burkhart, bioelectronic medicine and brain-machine interfaces are domains with enormous value to add, but whose development will be intricate and require careful ethical considerations. Stay tuned as we dive in-depth to understand the science, technology, and business of bioelectronic medicine. Special thanks to Ian Burkhart for sharing with us his story and insights. Through the Ian Burkhart Foundation, he works to improve the lives of individuals with spinal cord injuries. Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

A New Hope: The Nervous System

 CNBC reported on Friday that Amazon is building a health and wellness team inside its Alexa division to work on making Alexa a better tool for healthcare. Amazon, Berkshire Hathaway, and JP Morgan recently announced plans for a joint healthcare company focused on reducing costs and improving care for their combined 1.2m employees. The $3.3T U.S. healthcare industry is notoriously slow to innovate. We think Amazon will change healthcare on three fronts: 1) Logistics: Help reshape the $453B Pharmacy Benefit Management industry; 2) AI: Alexa will help both patients and providers with everything from in-home care to allowing providers more time with patients instead of paperwork; 3) Cloud: AWS will continue to allow Amazon to partner with the world’s leading patient data networks.   Dr. Alexa Today’s news around Amazon’s new Alexa healthcare team got us thinking about Amazon’s prospects for breaking into healthcare.  Companies across the entire healthcare industry are quickly discovering that AI will be used in everything from operations to enhancing quality of life for patients. Imagine the safety, information, connectivity, and entertainment that an Alexa near every hospital bed could offer patients. Amazon’s Medical History Amazon’s first foray into healthcare came with a 2014 deal with Cardinal Health leveraging Amazon’s e-commerce capabilities to sell medical supplies to hospitals and clinics. Amazon announced another major move into healthcare when they, JPMorgan Chase, and Berkshire Hathaway outlined plans to start a company that would provide and manage healthcare for the three companies’ combined 1.2m employees, focusing particularly on reducing costs. Separately, Amazon announced that they have put their plans to become a pharmaceutical wholesaler on hold (for now). The company found it difficult to bring major hospitals on board due to their reluctance to deviate from the purchasing process they’ve grown used to.  Amazon’s Next Moves We believe Amazon will have a major impact on the $3.3T U.S. healthcare industry by leveraging three core competencies: Logistics, AI, and cloud infrastructure to transform delivery of care, population health management, and healthcare software services.  Logistics: Logistical expertise will most directly impact the highly concentrated Pharmacy Benefit Management (PBM) sector. Rising drug prices and rising drug demand has driven considerable backlash recently among American consumers. We feel this could be a golden ticket for disruption to a cost-conscious, logistics expert like Amazon. AI: Alexa’s artificial intelligence could significantly reduce the amount of busywork for doctors and accelerate the adoption of in-home telehealth. From checklists to note taking to logging patient symptoms, Alexa could streamline many healthcare operational functions by eliminating menial tasks and allowing providers to spend more time with patients. In the home, patient rooms, and at senior living facilities, Alexa could do everything from reminding patients to take their medicine, to helping manage care for diabetics, to helping patients notify staff if they’ve fallen. Cloud: Amazon’s $5.4B AWS business is poised to provide incumbent electronic health record systems with the storage, analytics, and population health management tools needed to provide a full stack of services around patient data. Evidence of this came as Cerner, one of the world’s largest health technology companies, partnered with AWS to utilize the platform’s data analytics strengths to provide more real-time care coordination amongst providers. Cerner also looks forward to leveraging Amazon’s AI to take a more proactive approach to cross-sector population health and wellness, and we anticipate they will be one of many healthcare firms in the future using AWS in similar capacities.  Whole Foods + Healthcare The acquisition of Whole Foods gives Amazon another unique product and product delivery method, although we can’t call it a core competency yet. Food as medicine will be an important part of healthcare’s future and, as a leading grocer, Amazon is well-positioned here. Whole Foods locations also provide Amazon with the physical presence, and the brand recognition in health and wellness, to potentially address the need for more convenient healthcare clinics. Bottom line Amazon’s aspiration to be “Earth’s most customer-centric company” provides it with seemingly unlimited growth potential (and uncanny ability to find success in new markets). While they may be king when it comes to e-commerce, their entry into the healthcare market will likely prove to be one of their toughest tests to date. They face an extremely complex and concentrated industry and the regulatory quagmire that comes with it. Amazon has its work cut out in convincing the healthcare system that it belongs at the table, but it’s made sensible first steps and we’ve learned not to bet against them. Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

<ul> <li>CNBC reported on Friday that Amazon is building a health and wellness team inside its Alexa division to work on making Alexa a better tool for healthcare.</li> <li>Amazon, Berkshire Hathaway, and JP Morgan recently announced plans for a joint healthcare company focused on reducing costs and improving care for their combined 1.2m employees.</li> <li>The $3.3T U.S. healthcare industry is notoriously slow to innovate.</li> <li>We think Amazon will change healthcare on three fronts: 1) Logistics: Help reshape the $453B Pharmacy Benefit Management industry; 2) AI: Alexa will help both patients and providers with everything from in-home care to allowing providers more time with patients instead of paperwork; 3) Cloud: AWS will continue to allow Amazon to partner with the world’s leading patient data networks.</li> </ul> <h3>Dr. Alexa</h3> Today’s news around Amazon’s new Alexa healthcare team got us thinking about Amazon’s prospects for breaking into healthcare.  Companies across the entire healthcare industry are quickly discovering that AI will be used in everything from operations to enhancing quality of life for patients. Imagine the safety, information, connectivity, and entertainment that an Alexa near every hospital bed could offer patients. <h3>Amazon’s Medical History</h3> Amazon’s first foray into healthcare came with a 2014 deal with Cardinal Health leveraging Amazon’s e-commerce capabilities to sell medical supplies to hospitals and clinics. Amazon announced another major move into healthcare when they, JPMorgan Chase, and Berkshire Hathaway outlined plans to start a company that would provide and manage healthcare for the three companies’ combined 1.2m employees, focusing particularly on reducing costs. Separately, Amazon announced that they have put their plans to become a pharmaceutical wholesaler on hold (for now). The company found it difficult to bring major hospitals on board due to their reluctance to deviate from the purchasing process they’ve grown used to.  <h3>Amazon’s Next Moves</h3> We believe Amazon will have a major impact on the $3.3T U.S. healthcare industry by leveraging three core competencies: Logistics, AI, and cloud infrastructure to transform delivery of care, population health management, and healthcare software services. <ol> <li>Logistics: Logistical expertise will most directly impact the highly concentrated Pharmacy Benefit Management (PBM) sector. Rising drug prices and rising drug demand has driven considerable backlash recently among American consumers. We feel this could be a golden ticket for disruption to a cost-conscious, logistics expert like Amazon.</li> <li>AI: Alexa’s artificial intelligence could significantly reduce the amount of busywork for doctors and accelerate the adoption of in-home telehealth. From checklists to note taking to logging patient symptoms, Alexa could streamline many healthcare operational functions by eliminating menial tasks and allowing providers to spend more time with patients. In the home, patient rooms, and at senior living facilities, Alexa could do everything from reminding patients to take their medicine, to helping manage care for diabetics, to helping patients notify staff if they’ve fallen.</li> <li>Cloud: Amazon’s $5.4B AWS business is poised to provide incumbent electronic health record systems with the storage, analytics, and population health management tools needed to provide a full stack of services around patient data. Evidence of this came as Cerner, one of the world’s largest health technology companies, partnered with AWS to utilize the platform’s data analytics strengths to provide more real-time care coordination amongst providers. Cerner also looks forward to leveraging Amazon’s AI to take a more proactive approach to cross-sector population health and wellness, and we anticipate they will be one of many healthcare firms in the future using AWS in similar capacities.</li> </ol> <h3>Whole Foods + Healthcare</h3> The acquisition of Whole Foods gives Amazon another unique product and product delivery method, although we can’t call it a core competency yet. Food as medicine will be an important part of healthcare’s future and, as a leading grocer, Amazon is well-positioned here. Whole Foods locations also provide Amazon with the physical presence, and the brand recognition in health and wellness, to potentially address the need for more convenient healthcare clinics. <h3>Bottom line</h3> Amazon’s aspiration to be “Earth’s most customer-centric company” provides it with seemingly unlimited growth potential (and uncanny ability to find success in new markets). While they may be king when it comes to e-commerce, their entry into the healthcare market will likely prove to be one of their toughest tests to date. They face an extremely complex and concentrated industry and the regulatory quagmire that comes with it. Amazon has its work cut out in convincing the healthcare system that it belongs at the table, but it’s made sensible first steps and we’ve learned not to bet against them. Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Amazon’s Next Massive Market: Healthcare

Ready Player One showcased both the promise and the pitfalls of our technological future. A virtual world that enables your wildest dreams, on demand, on top of a real world that rots in decay because the virtual one is so much better. All great sci-fi achieves this balance — a healthy observation about what can go right and how right can evolve to wrong.   The core insight of science fiction is that all technologies live on a spectrum of good and evil, useful and harmful, and our perception of their place on that spectrum vacillates over time. It’s a truth that we’ve long known innately but are now being forcefully reminded of in our real world. In just the past couple months, we’ve dealt with major Facebook data privacy issues, multiple self-driving car accidents, and increasing discussion about smartphone addiction. These technologies that were largely accepted, if not embraced, have turned on us. Perhaps it’s more correct to say we turned on them. All technologies live on a spectrum of good and evil, useful and harmful. So, what is it that turns technology from good to evil in our eyes? It seems to happen for one of two reasons. First, in the early adoption phases of any technology, the majority tends to have a healthy skepticism laced with fear. It’s the reason why most people don’t adopt new technology, only innovators. When a new technology has early failings, the skeptical, fearful majority find reason to double down. They feel validation and their skepticism grows, allowing them to make a case for why some new technology is more evil than good; why it should never exist. This creates an even higher hurdle for a new technology to move into the early adoption phase. Autonomous vehicles seem to be living through a mild version of this scenario now. In fact, the discussion about the perils of AI in general also fits here. Second, in the later stages of adoption when a majority of people use a given technology, consumers tend to view the technology with a dose of fear laced with resignation that can easily flip to anger. When people believe that too much power is consolidated in any endeavor, technology included, there lurks a possibility of revolt. That possibility turns to reality when power is perceived to be abused and anger takes over. Evil is perceived to outweigh good, and people question whether they want to continue to engage in using the technology. Facebook is living through anger-driven revolt now. You could argue that the firearm debate also fits in this category. If a technology avoids the anger phase for a long enough period, it can move into a stable acceptance of the good and the bad. An example might be the car, which enables large scale movement of humanity and suburbanization, even though over a million people die every year in car accidents and gasoline-powered cars pollute the environment. The Internet fits here too, even if the smartphone as an extension of the Internet does not yet. Apple is doing all it can to demonstrate its respect of the power it wields in bringing highly addictive Internet services to everyone, all the time. Just as Viktor Frankl observed that, “No group consists entirely of decent or indecent people,” no technology is purely decent or indecent; none is purely good or bad, which are human judgements anyway. The lesson from Ready Player One as well as our situation today is that we should always be willing to accept good with evil as it comes to technology. We should think about what all technologies will mean to humans first, not how exciting the technology is or how much money it could make or some other measure about what the technology could do. Our guiding light should be to ask, “How sure can we be that this technology will improve human life?” If we can’t get comfortable with that answer, we should be prepared to revolt. If we can get comfortable with it, we should be prepared to accept. Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Ready Player One showcased both the promise and the pitfalls of our technological future. A virtual world that enables your wildest dreams, on demand, on top of a real world that rots in decay because the virtual one is so much better. All great sci-fi achieves this balance — a healthy observation about what can go right and how right can evolve to wrong. The core insight of science fiction is that all technologies live on a spectrum of good and evil, useful and harmful, and our perception of their place on that spectrum vacillates over time. It’s a truth that we’ve long known innately but are now being forcefully reminded of in our real world. In just the past couple months, we’ve dealt with major Facebook data privacy <a href="http://t.sidekickopen15.com/e1t/c/5/f18dQhb0S7lC8dDMPbW2n0x6l2B9nMJW7t5XYg1pNv9WN8qChbTQZbj6VcVQQM56dxkbf8TSxlR02?t=https%3A%2F%2Ftechcrunch.com%2Fstory%2Ffacebook-data-leak-politics%2F&amp;si=6465376618283008&amp;pi=5253a41b-b463-4811-db49-b6176a0e91ee" rel="nofollow" target="_blank">issues</a>, multiple <a href="http://t.sidekickopen15.com/e1t/c/5/f18dQhb0S7lC8dDMPbW2n0x6l2B9nMJW7t5XYg1pNv9WN8qChbTQZbj6VcVQQM56dxkbf8TSxlR02?t=https%3A%2F%2Ftechcrunch.com%2F2018%2F03%2F27%2Ftesla-fatal-car-crash-prompts-ntsb-investigation%2F&amp;si=6465376618283008&amp;pi=5253a41b-b463-4811-db49-b6176a0e91ee" rel="nofollow" target="_blank">self-driving car</a> <a href="http://t.sidekickopen15.com/e1t/c/5/f18dQhb0S7lC8dDMPbW2n0x6l2B9nMJW7t5XYg1pNv9WN8qChbTQZbj6VcVQQM56dxkbf8TSxlR02?t=https%3A%2F%2Ftechcrunch.com%2Fstory%2Fuber-self-driving-car-strikes-and-kills-pedestrian-while-in-autonomous-mode%2F&amp;si=6465376618283008&amp;pi=5253a41b-b463-4811-db49-b6176a0e91ee" rel="nofollow" target="_blank">accidents</a>, and increasing discussion about <a href="http://t.sidekickopen15.com/e1t/c/5/f18dQhb0S7lC8dDMPbW2n0x6l2B9nMJW7t5XYg1pNv9WN8qChbTQZbj6VcVQQM56dxkbf8TSxlR02?t=https%3A%2F%2Ftechcrunch.com%2F2018%2F01%2F07%2Ftwo-large-apple-shareholders-say-it-needs-to-research-the-impact-of-smartphones-on-kids%2F&amp;si=6465376618283008&amp;pi=5253a41b-b463-4811-db49-b6176a0e91ee" rel="nofollow" target="_blank">smartphone addiction</a>. These technologies that were largely accepted, if not embraced, have turned on us. Perhaps it’s more correct to say we turned on them. <blockquote>All technologies live on a spectrum of good and evil, useful and harmful.</blockquote> So, what is it that turns technology from good to evil in our eyes? It seems to happen for one of two reasons. First, in the early adoption phases of any technology, the majority tends to have a healthy skepticism laced with fear. It’s the reason why most people don’t adopt new technology, only innovators. When a new technology has early failings, the skeptical, fearful majority find reason to double down. They feel validation and their skepticism grows, allowing them to make a case for why some new technology is more evil than good; why it should never exist. This creates an even higher hurdle for a new technology to move into the early adoption phase. Autonomous vehicles seem to be living through a mild version of this scenario now. In fact, the discussion about the perils of AI in general also fits here. Second, in the later stages of adoption when a majority of people use a given technology, consumers tend to view the technology with a dose of fear laced with resignation that can easily flip to anger. When people believe that too much power is consolidated in any endeavor, technology included, there lurks a possibility of revolt. That possibility turns to reality when power is perceived to be abused and anger takes over. Evil is perceived to outweigh good, and people question whether they want to continue to engage in using the technology. Facebook is living through anger-driven revolt now. You could argue that the firearm debate also fits in this category. If a technology avoids the anger phase for a long enough period, it can move into a stable acceptance of the good and the bad. An example might be the car, which enables large scale movement of humanity and suburbanization, even though over a million people die every year in car accidents and gasoline-powered cars pollute the environment. The Internet fits here too, even if the smartphone as an extension of the Internet does not yet. Apple is doing all it can to demonstrate its respect of the power it wields in bringing highly addictive Internet services to everyone, all the time. Just as Viktor Frankl observed that, “No group consists entirely of decent or indecent people,” no technology is purely decent or indecent; none is purely good or bad, which are human judgements anyway. The lesson from Ready Player One as well as our situation today is that we should always be willing to accept good with evil as it comes to technology. We should think about what all technologies will mean to humans first, not how exciting the technology is or how much money it could make or some other measure about what the technology could do. Our guiding light should be to ask, “How sure can we be that this technology will improve human life?” If we can’t get comfortable with that answer, we should be prepared to revolt. If we can get comfortable with it, we should be prepared to accept. Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

All Technology Is Good and Evil

 Epic Games’ Fortnite has exploded in popularity over the past few months for four reasons. 1. It’s accessible to all (free to play, compared to similar games that cost $60, and easy to play, different than most complicated console games). 2. It’s fun (Battle royale style). 3. It’s high-quality (frequent gameplay, weapon, and skins updates). 4. No pay-to-play advantage (keeps level playing field. Most games make money selling play advantage). We believe these four factors will result in Fortnite being a top 5 game for the next several years.   Fortnite 101 Fortnite is a battle royale game, where 100 players parachute onto an island with the goal of being the last one standing at the end. A “storm” serves as a boundary that closes in at set intervals, shrinking the playable area and forcing players closer and closer together. Players begin with no equipment and must scavenge around the island looking for weapons and supplies to give them an advantage over the opposition. Fornite has screamed to the top of gaming titles recently and is the number 1 most viewed title on Twitch as of this writing. Easily accessible to all Fortnite is an extremely accessible game in a number of ways. For one, it’s free, making it easy to convince friends and family to try it out versus console games that usually run about $60. This is a major reason for its fast ascension to cultural phenomenon. When gamers see their friends playing a game or want to try a new one, they often must consider if it’s worth the investment. With Fortnite, users are able to play the online multiplayer without any upfront cost. Another facet of its accessibility is the graphics and visuals. The aesthetic of Fortnite is cartoony and a little silly, which makes it much easier for parents to get on-board and expands the audience of the game to a younger demographic. There is no gore, no dead bodies lying around and the weapons feel less like instruments of destruction and more like they’re made by NERF or SuperSoaker. PlayerUnknown’s Battlegrounds (PUBG), the first major battle royale title, has a much grittier, more realistic aesthetic that is targeted to an older audience. Fortnite looks and feels like it’s directed at kids, but has enough complexity and a high enough skill ceiling that it keeps older, more competitive players interested as well. It’s an example of the old adage, “easy to learn, difficult to master.”  Furthermore, it’s playable across platforms. It is available on PS4, Xbox One, PC, and iPhone, with Android support coming soon. Fortnite also supports cross-platform play, so players on the PC can play with their friends or family who play on Xbox (though PS4 and Xbox players can’t play together, Sony is blocking the option). This is the first time that this has been possible for any video game and could prove to be a major milestone for online gaming. It’s fun, battle royale’s rise Battle royale games are a relatively new phenomenon. One of the keys to Fortnite’s meteoric rise is that this genre is inherently fun. The longer the game lasts – and the closer you get to victory – the higher the stakes and the higher the stress. The exhilaration of being one of the few remaining players is a significant factor in the game and the genre’s popularity. Ultimately winning a game, emerging as the lone victor out of a hundred other players is an incredible feeling not found in other game modes. While Fornite was not the first game to embrace this format it was one of the earliest and brought its own unique spin by allowing in-game building of walls, ramps, and roofs. The building mechanic adds another layer to the game for players, giving them the ability to quickly reach previously inaccessible locations and create cover or an escape route under fire. High-quality game Fortnite’s battle royale format and accessibility would be non-factors if it weren’t for the fact that Fortnite is a high-quality product. The game is still in early access (i.e. it’s not a finished game), so there are some kinks here and there, but the Epic team is committed to the product and is visibly working hard to make sure the game is running smoothly and keeps players engaged. They have continued to add new weapons, equipment, locations, and other features to the game free of charge so one can continue to play and get the full experience without paying a cent. Fortnite brings in revenue is by selling cosmetics for players to personalize their in-game character, and a 10-week ‘Battle Pass’, essentially a subscription that gives players more challenges to complete and cosmetics to unlock during that period. The game looks good, feels good, and is free. It’s not a tough sell to get people to try, and once they do they are hooked. Below is an example of two of the latest in-game character skins that can be purchased.  No pay-to-play advantage While it’s hard to say how much the approach to in-game purchases contributes to Fortnite’s success, it is starkly different from how some major publishers approach in-game purchases. Electronic Arts has been successful with in-game purchases, especially with their FIFA games, but also faced notable backlash from the way the in-game purchases for Star Wars: Battlefront II were setup. EA allowed players to spend money to unlock items that grant a competitive advantage over those who elect not to spend extra. Fornite takes a different approach, offering its 10-week Battle Pass and limited-time character skins, items, and emotes, which are completely cosmetic and provide no competitive advantage. Some of these items are only available for purchase in a 24-hour window before they disappear from the store, driving users to get the items they like while they can. Despite the game being released for free, and in-game purchases providing no competitive advantage, Fornite earned $126M in revenue in the month of February alone. Since then, Epic Games has launched Fornite Mobile, which has reportedly reached $1.8M in revenue per day. Needless to say, their unique in-game purchase strategy seems to be working.  Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

<ul> <li>Epic Games’ Fortnite has exploded in popularity over the past few months for four reasons.</li> <li>1. It’s accessible to all (free to play, compared to similar games that cost $60, and easy to play, different than most complicated console games).</li> <li>2. It’s fun (Battle royale style).</li> <li>3. It’s high-quality (frequent gameplay, weapon, and skins updates).</li> <li>4. No pay-to-play advantage (keeps level playing field. Most games make money selling play advantage).</li> <li>We believe these four factors will result in Fortnite being a top 5 game for the next several years.</li> </ul> <h3>Fortnite 101</h3> Fortnite is a battle royale game, where 100 players parachute onto an island with the goal of being the last one standing at the end. A “storm” serves as a boundary that closes in at set intervals, shrinking the playable area and forcing players closer and closer together. Players begin with no equipment and must scavenge around the island looking for weapons and supplies to give them an advantage over the opposition. Fornite has screamed to the top of gaming titles recently and is the number 1 most viewed title on Twitch as of this writing. <h3>Easily accessible to all</h3> Fortnite is an extremely accessible game in a number of ways. For one, it’s free, making it easy to convince friends and family to try it out versus console games that usually run about $60. This is a major reason for its fast ascension to cultural phenomenon. When gamers see their friends playing a game or want to try a new one, they often must consider if it’s worth the investment. With Fortnite, users are able to play the online multiplayer without any upfront cost. Another facet of its accessibility is the graphics and visuals. The aesthetic of Fortnite is cartoony and a little silly, which makes it much easier for parents to get on-board and expands the audience of the game to a younger demographic. There is no gore, no dead bodies lying around and the weapons feel less like instruments of destruction and more like they’re made by NERF or SuperSoaker. PlayerUnknown’s Battlegrounds (PUBG), the first major battle royale title, has a much grittier, more realistic aesthetic that is targeted to an older audience. Fortnite looks and feels like it’s directed at kids, but has enough complexity and a high enough skill ceiling that it keeps older, more competitive players interested as well. It’s an example of the old adage, “easy to learn, difficult to master.” Furthermore, it’s playable across platforms. It is available on PS4, Xbox One, PC, and iPhone, with Android support coming soon. Fortnite also supports cross-platform play, so players on the PC can play with their friends or family who play on Xbox (though PS4 and Xbox players can’t play together, Sony is blocking the option). This is the first time that this has been possible for any video game and could prove to be a major milestone for online gaming. <h3>It’s fun, battle royale’s rise</h3> Battle royale games are a relatively new phenomenon. One of the keys to Fortnite’s meteoric rise is that this genre is inherently fun. The longer the game lasts – and the closer you get to victory – the higher the stakes and the higher the stress. The exhilaration of being one of the few remaining players is a significant factor in the game and the genre’s popularity. Ultimately winning a game, emerging as the lone victor out of a hundred other players is an incredible feeling not found in other game modes. While Fornite was not the first game to embrace this format it was one of the earliest and brought its own unique spin by allowing in-game building of walls, ramps, and roofs. The building mechanic adds another layer to the game for players, giving them the ability to quickly reach previously inaccessible locations and create cover or an escape route under fire. <h3>High-quality game</h3> Fortnite’s battle royale format and accessibility would be non-factors if it weren’t for the fact that Fortnite is a high-quality product. The game is still in early access (i.e. it’s not a finished game), so there are some kinks here and there, but the Epic team is committed to the product and is visibly working hard to make sure the game is running smoothly and keeps players engaged. They have continued to add new weapons, equipment, locations, and other features to the game free of charge so one can continue to play and get the full experience without paying a cent. Fortnite brings in revenue is by selling cosmetics for players to personalize their in-game character, and a 10-week ‘Battle Pass’, essentially a subscription that gives players more challenges to complete and cosmetics to unlock during that period. The game looks good, feels good, and is free. It’s not a tough sell to get people to try, and once they do they are hooked. Below is an example of two of the latest in-game character skins that can be purchased. <h3>No pay-to-play advantage</h3> While it’s hard to say how much the approach to in-game purchases contributes to Fortnite’s success, it is starkly different from how some major publishers approach in-game purchases. Electronic Arts has been successful with in-game purchases, especially with their FIFA games, but also faced <a href="https://www.cnbc.com/2018/03/16/ea-vows-to-never-offer-paid-loot-boxes-in-its-controversial-star-wars-battlefront-ii-game.html" rel="nofollow" target="_blank">notable backlash</a> from the way the in-game purchases for Star Wars: Battlefront II were setup. EA allowed players to spend money to unlock items that grant a competitive advantage over those who elect not to spend extra. Fornite takes a different approach, offering its 10-week Battle Pass and limited-time character skins, items, and emotes, which are completely cosmetic and provide no competitive advantage. Some of these items are only available for purchase in a 24-hour window before they disappear from the store, driving users to get the items they like while they can. Despite the game being released for free, and in-game purchases providing no competitive advantage, Fornite earned $126M in revenue in the month of February alone. Since then, Epic Games has launched Fornite Mobile, which has reportedly reached $1.8M in revenue per day. Needless to say, their unique in-game purchase strategy seems to be working. Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Victory Royale! Fortnite is Exploding

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The 5 Focuses: Analyzing The Top Priorities Of The Top Tech Companies

Conclusion. Get ready for another $10 a month drag on your credit card. It’s a rebranded, all in one Apple video and music offering in 2-3 years. An Emerging Area of Investment. It’s no secret that original content will be an emerging area of investment for Apple, given it will boost the increasingly important Services revenue line. The good news is the trend of more cord cutting is undeniable and consumers paying for multiple monthly streaming services. Multiple streaming services means there will be a handful of content provider winners. The bad news is Apple’s efforts in content have been limited to “learnings” (Carpool Karaoke and Planet of the Apps). We think that will change over the next 5 years as Apple ramps its original content investment from about $500m in 2017 to our estimate of $4.2B in 2022. It’s worth noting this will still lag our 2022 estimates for original content spend (excludes catalog spend) by Amazon at $8.3B which will likely surpass Netflix at $6.8B.   Fighting To Reach 75m Subs. We define a winning content platform as having 75m+ monthly subs. That’s a tall order given it’s a crowded field with more than 200 subscription video services in Sep-17 (Parks Associates). These video services are working to catch up to the creative achievements of existing players. In 2017, HBO won 29 Emmys, (most for the 17th straight year), Netflix won 20, NBC 15, and Hulu 10. Looking at monthly subs, today’s leaders are Netflix (estimated to end 2017 with 115m subs) and Amazon (~80m global Prime subs). Hulu is the 3rd largest with 12-15m U.S. subs, but that doesn’t clear our 75m hurdle. Apple should be able to quickly expand their sub base given they have a running start with just over 30m Apple Music subs that will have access to the video offering for the same $10 per month. Even though Apple employs the “iTunes Store” nomenclature to sell most of its video content, we expect an all in one offering (music and video) to take the form of a rebranded Apple Music sometime in the next 2-3 years.  This note puts Apple’s content ambitions in context with the other players. Apple. With over 30m Apple Music subs, Apple aims to bundle the music offering with an expanded selection of original content video (essentially two shows today) and will steer clear of license catalog content. Apple cares about original content because it will grow Apple’s Services business. Services will account for about 14% of revenue in CY17, growing at a high-teens rate for the next several years, which is more than double the growth rate of Apple’s hardware business. Separately, Services carry a gross margin which is around 2x Apple’s overall GM of 38%. We note content margins are slightly higher than Apple’s current business based on other streaming services’ margins that are around 45%. As Apple continues to invest in original content over the next few years (we estimate it will be around $800m-$1B in 2017), Services gross margin could decline by 3-5%, which would pressure overall Apple gross margin (currently at 38%) by about 0.5%. We expect will generally have a positive view of this growth vs. margin trade off given this is an investment in a measurable revenue generating in addition to Apple’s core business. Adding Talent &amp; Shows. Apple announced in early November they are developing a new TV show for its streaming service starring Jennifer Aniston and Reese Witherspoon. They beat out bids from Netflix and Showtime for the rights and could possibly spend over $10 million an episode, according to WSJ. The show, which doesn’t have a script yet, will follow the lives of morning news talk show anchors (think Today Show or Good Morning America). This is the second major content announcement for Apple recently, after announcing it is teaming up with Steven Spielberg to reboot his Amazing Stories series. On top of these two upcoming shows, Apple has been filling the ranks of its programming team with experienced entertainment executives. In late October Apple hired Jay Hunt, a rock star in UK original content, and in June hired Jamie Erlicht and Zack Van Amburg from Sony. Separately, these hires tie back to the acquisition of Beats and Jimmy Iovine joining Apple. Iovine was instrumental in bringing Erlicht and Amburg to Apple and has been the point man for Apple’s push into the original programming. Iovine has deep knowledge and a wealth of experience in the music industry — we consider him a “tastemaker” — and will likely work to expand their video offering into original programming, alongside their existing audio offering. Rebranding Apple Music &amp; iTunes. Obviously, what is offered with ‘Apple Music’ and in the ‘iTunes Store’ is more than just music, and is another data point Apple lags behind on name changes. Looking back, they were ‘Apple Computer, Inc.’ until 2007 when Steve Jobs decided to ditch ‘Computer’ to better reflect the products the company sold (the first iPhone model was released in 2007). In 2016, they dropped ‘Store’ from their physical retail locations, indicating the stores are more of an experience than simply a place where you buy things (e.g. Apple Fifth Avenue, Apple Lincoln Park, or “I need to stop at Apple”).  With the rebranding and expansion of its content library Apple’s positioned to be a player in original programming. Netflix. With 115m subs globally  (54m in the U.S) and expected to spend $7-8B in content in 2018, Netflix is the gold standard for over-the-top original programming. Over the years they have won 37 Emmy awards on 128 nominations, and hoping to increase that as they are expect to release 80 original films in 2018. Netflix’s strategy is to keep a steady stream of diverse content coming, as opposed to HBO for example with a few high-profile releases. They certainly have those prestige shows – Stranger Things, Narcos, The Crown, to name a few – but that is not the (sole) objective. Instead, Netflix focuses on offering a content library with a broad range of appeal to its diverse subscriber base, seeking overall commercial success ahead of critical successes here and there. They’re also rolling out this strategy internationally by continually entering new markets and even offering original shows in the local language for those international markets. Currently, native-language shows are available in Spain, Japan, Mexico, South Korea, Brazil, France, and Italy. Netflix has the largest library, budget, and geographic reach of the streaming services and will continue to be a formidable force for many years to come. Hulu. Subs of 12-15m, U.S. only. Hulu will spend around $2.5 billion on content in 2017. While Amazon and Netflix will both spend more than twice that this year, it’s important to remember that Hulu is only available in the US, while Amazon and Netflix are both distributed internationally. Hulu also is not aiming to be a leader in original programming, instead using it to supplement their focus on licensing quality content from major TV networks. However, they have still had success with their original programs. The Handmaid’s Tale won an Emmy for Outstanding Drama Series, the first such award for a pure streaming service. They have begun bundling their service with others’, notably offering college students both Hulu and Spotify Premium for only $4.99/month. They have Cinemax and HBO add-ons to their service as well, though there are no discounts involved and are simply integrated into the Hulu app. Hulu’s approach is to offer as much quality content as possible, both originals and programming licensed from major networks (recently added 7,500 episodes in Q3). Amazon. Subs of -90m Worldwide. We believe Amazon Studios’ content spend is budgeted at $4.5 billion for 2017, and they have recently communicated will increase in 2018. On the Sep-17 earnings call, Amazon said they were “bullish” on video given it helps drive more engagement and purchases on Amazon. Prime Video is only available to Amazon Prime members, and Prime members (as expected) spend about 3x more money than non-members. Amazon recently announced they’re expanding Amazon Studios, even after they’ve had management shakeups in the unit in the past month. Amazon Studios’ head resigned amid sexual harassment allegations, and they’ve added new heads of both scripted and unscripted content. Coupled with these management changes is a strategy change. CEO Jeff Bezos had indicated he’s looking to find a high-profile series with global appeal, and recently acquired the rights for a TV show based on J.R.R. Tolkien’s writings (i.e. The Lord of the Rings). Amazon paid $200-$250 million for the rights to the Tolkien IP (Bezos paid $250 million for The Washington Post in 2013), and will shoot two seasons for a reported $100 million each, bringing the financial commitment to nearly $500 million. This has the potential to legitimize their video entertainment ambitions in the eyes of non-Prime customers. Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Conclusion. Get ready for another $10 a month drag on your credit card. It’s a rebranded, all in one Apple video and music offering in 2-3 years. An Emerging Area of Investment. It’s no secret that original content will be an emerging area of investment for Apple, given it will boost the increasingly important Services revenue line. The good news is the trend of more cord cutting is undeniable and consumers paying for multiple monthly streaming services. Multiple streaming services means there will be a handful of content provider winners. The bad news is Apple’s efforts in content have been limited to “learnings” (Carpool Karaoke and Planet of the Apps). We think that will change over the next 5 years as Apple ramps its original content investment from about $500m in 2017 to our estimate of $4.2B in 2022. It’s worth noting this will still lag our 2022 estimates for original content spend (excludes catalog spend) by Amazon at $8.3B which will likely surpass Netflix at $6.8B. Fighting To Reach 75m Subs. We define a winning content platform as having 75m+ monthly subs. That’s a tall order given it’s a crowded field with more than 200 subscription video services in Sep-17 (Parks Associates). These video services are working to catch up to the creative achievements of existing players. In 2017, HBO won 29 Emmys, (most for the 17th straight year), Netflix won 20, NBC 15, and Hulu 10. Looking at monthly subs, today’s leaders are Netflix (estimated to end 2017 with 115m subs) and Amazon (~80m global Prime subs). Hulu is the 3rd largest with 12-15m U.S. subs, but that doesn’t clear our 75m hurdle. Apple should be able to quickly expand their sub base given they have a running start with just over 30m Apple Music subs that will have access to the video offering for the same $10 per month. Even though Apple employs the “iTunes Store” nomenclature to sell most of its video content, we expect an all in one offering (music and video) to take the form of a rebranded Apple Music sometime in the next 2-3 years. This note puts Apple’s content ambitions in context with the other players. Apple. With over 30m Apple Music subs, Apple aims to bundle the music offering with an expanded selection of original content video (essentially two shows today) and will steer clear of license catalog content. Apple cares about original content because it will grow Apple’s Services business. Services will account for about 14% of revenue in CY17, growing at a high-teens rate for the next several years, which is more than double the growth rate of Apple’s hardware business. Separately, Services carry a gross margin which is around 2x Apple’s overall GM of 38%. We note content margins are slightly higher than Apple’s current business based on other streaming services’ margins that are around 45%. As Apple continues to invest in original content over the next few years (we estimate it will be around $800m-$1B in 2017), Services gross margin could decline by 3-5%, which would pressure overall Apple gross margin (currently at 38%) by about 0.5%. We expect will generally have a positive view of this growth vs. margin trade off given this is an investment in a measurable revenue generating in addition to Apple’s core business. Adding Talent &amp; Shows. Apple announced in early November they are developing a new TV show for its streaming service starring Jennifer Aniston and Reese Witherspoon. They beat out bids from Netflix and Showtime for the rights and could possibly spend over $10 million an episode, according to WSJ. The show, which doesn’t have a script yet, will follow the lives of morning news talk show anchors (think Today Show or Good Morning America). This is the second major content announcement for Apple recently, after announcing it is teaming up with Steven Spielberg to reboot his Amazing Stories series. On top of these two upcoming shows, Apple has been filling the ranks of its programming team with experienced entertainment executives. In late October Apple hired Jay Hunt, a rock star in UK original content, and in June hired Jamie Erlicht and Zack Van Amburg from Sony. Separately, these hires tie back to the acquisition of Beats and Jimmy Iovine joining Apple. Iovine was instrumental in bringing Erlicht and Amburg to Apple and has been the point man for Apple’s push into the original programming. Iovine has deep knowledge and a wealth of experience in the music industry — we consider him a “tastemaker” — and will likely work to expand their video offering into original programming, alongside their existing audio offering. Rebranding Apple Music &amp; iTunes. Obviously, what is offered with ‘Apple Music’ and in the ‘iTunes Store’ is more than just music, and is another data point Apple lags behind on name changes. Looking back, they were ‘Apple Computer, Inc.’ until 2007 when Steve Jobs decided to ditch ‘Computer’ to better reflect the products the company sold (the first iPhone model was released in 2007). In 2016, they dropped ‘Store’ from their physical retail locations, indicating the stores are more of an experience than simply a place where you buy things (e.g. Apple Fifth Avenue, Apple Lincoln Park, or “I need to stop at Apple”).  With the rebranding and expansion of its content library Apple’s positioned to be a player in original programming. Netflix. With 115m subs globally  (54m in the U.S) and expected to spend $7-8B in content in 2018, Netflix is the gold standard for over-the-top original programming. Over the years they have won 37 Emmy awards on 128 nominations, and hoping to increase that as they are expect to release 80 original films in 2018. Netflix’s strategy is to keep a steady stream of diverse content coming, as opposed to HBO for example with a few high-profile releases. They certainly have those prestige shows – Stranger Things, Narcos, The Crown, to name a few – but that is not the (sole) objective. Instead, Netflix focuses on offering a content library with a broad range of appeal to its diverse subscriber base, seeking overall commercial success ahead of critical successes here and there. They’re also rolling out this strategy internationally by continually entering new markets and even offering original shows in the local language for those international markets. Currently, native-language shows are available in Spain, Japan, Mexico, South Korea, Brazil, France, and Italy. Netflix has the largest library, budget, and geographic reach of the streaming services and will continue to be a formidable force for many years to come. Hulu. Subs of 12-15m, U.S. only. Hulu will spend around $2.5 billion on content in 2017. While Amazon and Netflix will both spend more than twice that this year, it’s important to remember that Hulu is only available in the US, while Amazon and Netflix are both distributed internationally. Hulu also is not aiming to be a leader in original programming, instead using it to supplement their focus on licensing quality content from major TV networks. However, they have still had success with their original programs. The Handmaid’s Tale won an Emmy for Outstanding Drama Series, the first such award for a pure streaming service. They have begun bundling their service with others’, notably offering college students both Hulu and Spotify Premium for only $4.99/month. They have Cinemax and HBO add-ons to their service as well, though there are no discounts involved and are simply integrated into the Hulu app. Hulu’s approach is to offer as much quality content as possible, both originals and programming licensed from major networks (recently added 7,500 episodes in Q3). Amazon. Subs of -90m Worldwide. We believe Amazon Studios’ content spend is budgeted at $4.5 billion for 2017, and they have recently communicated will increase in 2018. On the Sep-17 earnings call, Amazon said they were “bullish” on video given it helps drive more engagement and purchases on Amazon. Prime Video is only available to Amazon Prime members, and Prime members (as expected) spend about 3x more money than non-members. Amazon recently announced they’re expanding Amazon Studios, even after they’ve had management shakeups in the unit in the past month. Amazon Studios’ head resigned amid sexual harassment allegations, and they’ve added new heads of both scripted and unscripted content. Coupled with these management changes is a strategy change. CEO Jeff Bezos had indicated he’s looking to find a high-profile series with global appeal, and recently acquired the rights for a TV show based on J.R.R. Tolkien’s writings (i.e. The Lord of the Rings). Amazon paid $200-$250 million for the rights to the Tolkien IP (Bezos paid $250 million for The Washington Post in 2013), and will shoot two seasons for a reported $100 million each, bringing the financial commitment to nearly $500 million. This has the potential to legitimize their video entertainment ambitions in the eyes of non-Prime customers. Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Apple Readies to Fight for Your Monthly Video Wallet Share

We’re bullish on esports and committed to learning more about the space. The following note is an introductory piece that ‘shows our work’ as we get up to speed. Given the recent explosion in popularity of esports leagues, we wanted to take a look at the economics of owning of an esports franchise. As esports has grown in popularity, the model for team ownership has begun to change. 2018 marked the first year of competition for two new franchise leagues for Overwatch and League of Legends, both of which now operate similarly to traditional professional sports leagues.  Traditional Esports Organization Traditionally, teams participating in esports were self-organized. Teams would find the necessary players to participate and join leagues and tournaments by paying an entry fee. By winning or placing near the top of these tournaments, teams would be compensated from the prize pool. As esports became more popular, more revenue opportunities presented themselves for teams. These opportunities included: sponsorships, merchandise, branded skins, and advertising opportunities on streaming platforms. With more revenue opportunities came better ownership organization. Ownership groups began to form, owning teams in multiple games. A team owner helps set up sponsorships, creates merchandise, and helps market the players. A good example of an esports organization is Team Liquid. Team Liquid was formed in 2000 as a Starcraft news site, before expanding to other games. It signed its first esports team in 2012 after recruiting a group of Dota 2 players. Since then, Team Liquid has added more players and teams, and now operates unique rosters in the following games:  Starcraft II League of Legends Counter-Strike: Global Offensive Dota 2 Heroes of the Storm Super Smash Bros. Brawl Street Fighter FIFA PlayerUnknown’s Battlegrounds Quake Rainbow Six: Siege  How do esports teams make money? The breakdown of income varies by organization, team, and game. The vast majority of revenue (roughly 70-80%) for esports organizations comes from sponsorships and advertising. The remaining revenue is split evenly between ticket sales, merchandising, and media rights. Sponsorships &amp; Advertising This category includes advertisements shown during televised and live-streamed events, as well as revenue from brands that sponsor individual teams. Companies are flooding esports players and teams with sponsorship opportunities, and it is only going to continue to grow. In addition, players and teams can earn money from product placement and recommendations. Team jerseys are essentially billboards benefitting from rapidly growing viewership. On Amazon’s live-streaming platform, Twitch, users can scroll down to see discount codes on gaming equipment, clothing, and other products, and streamers get a cut of the sales made using their discount code. Esports teams don’t earn advertising revenue from an individual player’s live-stream, but rather when the team is participating in an event. Esports is well-positioned as an advertising opportunity for a number of reasons. First, cord-cutters are turning to online platforms, like YouTube and Twitch, for live entertainment. Second, esports’ younger demographics are valuable to advertisers. Finally, esports franchising adds stability for teams, their sponsors, and advertisers (more on that below). With more users flocking to online streaming platforms, and the audience becoming more valuable to advertisers, media rights contracts are becoming more valuable, and advertisers are paying more money to esports leagues, teams, and players. Global brands including Coca-Cola, Mercedes-Benz, and Intel have recently begun sponsoring esports in various ways because they recognize the value and massive opportunity. This builds an attractive foundation for investment.  Ticket Sales Traditional esports events are held at event arenas around the world. The League of Legends World Finals has been held at Staples Center, and a mid-season League of Legends event was held at Wembley Arena. Other venues have included Commerzbank Arena in Frankfurt, San Jose SAP Center (also known as the Shark Tank), and Sang-Am World Cup Stadium in Seoul, South Korea. While the audiences vary in size, large events typically have between 10-15K in attendance, with some events attracting many, many more. Still, the lion’s share of esports fans watch the events online.  For franchise league esports teams, one difference when compared to traditional sports franchises is that they lack a home arena to sell tickets and merchandise. Instead, esports events are held at neutral, league-owned locations. As a result, teams and organizers share ticket revenue. Team-owned stadiums are very much on the mind of team owners, especially with the location-based teams in the Overwatch League. The Overwatch League currently holds all of their events at Blizzard Stadium in Burbank, CA. Source: Blizzard Entertainment NA LCS hosts events its own studio in Los Angeles, CA, across the street from Riot Games headquarters. Source: Riot Games Merchandising A major revenue contributor in the merchandising category are in-game skins. A “skin” is simply different design or color scheme for a playable character or in-game item. Think about giving Mario an astronaut suit instead of his famous red hat and blue overalls. While skins are cosmetic and offer no competitive advantage, they are a major source of revenue for game developers because players enjoy the customization, and are willing to pay for it. In fact, in-game purchases (which skins contribute to) generated more than half of Activision-Blizzard’s revenue in 2017, amounting to $4B. Developers of esports-compatible games have tapped into this digital goods market and begun to create team-specific skins for major pro teams. Fans can purchase these skins to show support for their favorite team or player. League of Legends and Overwatch are the two major games that have esports-specific skins, but games with smaller competitive scenes like Halo 5 and Gears of War 4 have them as well. We believe the adoption from the OWL and the LCS is an indication that this is a market future esports organizations will want to target.  League of Legends. Riot also creates skins for their league’s teams. When a world champion is decided at the end of each season, Riot makes a skin for the winning team. These are available for a similar price of about $5 worth of Riot Points, LoL’s in-game currency. The team receives 25% of the revenue from these skin purchases. Overwatch. Blizzard essentially created “jerseys” for each Overwatch League team and made them available for fans to purchase for $5 per skin via in-game tokens. See an example of playable Overwatch heroes wearing the team “jerseys” below. The competing teams also “wear” these skins during each and every OWL match, making it the esports equivalent of wearing your favorite team’s jersey. The revenue generated from this goes into a communal pot that is split evenly amongst the 12 teams.  Overwatch heroes wearing the Houston Outlaws skins Similar to other revenue sources, game publishers share revenues for skins with teams and organizations that create and promote them. Fans of specific esports teams can sport their favorite skins in-game. This is akin to wearing a Stefon Diggs jersey while pretending to catch game-winning touchdowns. Media Rights While the concept of watching others play video games may seem foreign to some, there are a surprising number of people that tune into esports events. Because of this, esports franchises have recently been able to benefit from broadcasting contracts, just as traditional sports. While some esports events reach cable television, the vast majority of viewership happens online. One of the most important players in the esports market is the Amazon-owned streaming platform Twitch. Acquired for $1B in 2014, Twitch had 355 billion minutes of content viewed and over 15 million unique daily visitors on its platform in 2017 and strong growth continues. More on Twitch’s metrics below:  On Twitch, gamers are able to stream their gameplay to viewers around the world. Believe it or not, one can make a living streaming gameplay on Twitch, and a fairly comfortable one at that. The revenue sources for streaming come from three main sources: advertisements, donations, and subscriptions.  Advertisements. Streamers can have video ads play before their actual stream is shown (just like on YouTube), earning money passed on the number of impressions their channel gets. They also often have endorsements and advertisements on their Twitch pages from, for example, companies that make gaming equipment and computer parts. This creates a similar effect to traditional sports equipment endorsements where fans and amateurs want to use the equipment the best does, and having a well-known player use your equipment adds value and drives sales. Donations. Another source of revenue is donations from viewers. The amount and frequency of donations are up to the donor, some as low as $2 but some up into the tens of thousands. Here’s a video of a streamer receiving $62,000 in donations. Spend some time watching a popular streamer and you would be baffled by how often they’re getting donations, whether directly via PayPal or by “cheering” with Bits. Subscriptions. Finally, streamers earn money from viewers subscribing to their channel. A subscription lasts for a month and costs $5.00, and the streamer will usually take about half of that money per subscription. Twitch operates on a revenue sharing model with top streamers on its platform. The more popular the streamer, the higher percentage of revenue they are able to negotiate. Subscribing to a channel offers benefits like ad-free viewing and special chat privileges like emotes and additional features. Note that viewers re-subscribe every month. Some streamers have 0 subscribers and some have managed to amass over 100,000.  Esports teams and organizations are able to stream as well. The structure is exactly the same as explained above for individual streamers, the money is just given to the collective group as opposed to one person. Many times, though, a player on a particular pro team will have a stream more popular than his overall team’s. It’s an example of how important personal brands are in esports. Teams, however, don’t make much from having a player with a large Twitch following. Sure, they have the team’s logo and name on the page/video and the streamer is clearly representing that organization with merchandise and even the name they go by online, but teams won’t see any money from one of their players’ streams. The popularity, and therefore most of the money, comes from viewers being drawn to the content the individual is producing. Media rights for tournaments, and the revenue shared with the teams from those deals, is where actual esports teams will be able to cash in on this trend as individuals don’t stream tournaments, organizations do. When it comes to tournaments themselves, massive audiences tune in to events online. The League of Legends World Championship amassed 60 million unique viewers. To help put that number in perspective, the 2018 Super Bowl reported just over 103 million viewers. While esports still has a long way to catch-up, it’s not dwarfed to the extent that some may think. Tournament Winnings For players, competition is what esports is all about. Players and teams compete to win tournaments and the associated prize pools. While these pools can be massive, such as the $24M+ pool for Dota 2, few players in the overall esports community take home winnings. Positively, most winnings are distributed directly to the players. While there are some large tournament pools, the vast majority of esports players and teams earn most of their income through the other sources we’ve talked about. Esports Franchise Leagues  In 2017, three different franchise leagues were put into place, with competition beginning in the 2018 season. While the franchise leagues operate with similar game rules to previous leagues and tournaments, they require teams to pay a franchise fee in order to participate. By paying a franchise fee, leagues benefit from stability of teams and players, and operate the entire league’s advertising, sponsorship, streaming, and merchandising opportunities. This format is similar to the way major professional sports leagues operate. This shift toward franchising is a huge step for the legitimacy of esports, in both the eyes of the public and investors. Thus far in its young life esports has been plagued by a lack of stability, making it difficult to land sponsors. Before the franchising announcement last year, teams that placed poorly in the League of Legends Championship Series were relegated – similar to the English Premier League – where the teams that finished at the bottom were sent down and had to had to grind their way back to competing against top teams. The possibility of being dropped to a lower league with far less viewership and no certainty of promotion made companies very hesitant to inject money into something that could very easily lose its relevance. With the stability of franchises in leagues with multi-year broadcasting deals, the investors and sponsors are pouring in. Today, there are three franchise leagues:  League of Legends North American Championship Series – by Riot Games Overwatch League – by Blizzard Entertainment NBA 2K League – operated by the NBA, game developed by Electronic Arts  League of Legends North American Championship Series (NA LCS) League of Legends, a multiplayer online battle arena (MOBA) game, was released in October 2009 by Riot Games. While the League of Legends Championship Series has been around since 2012, they organized into a partnership with their 10-teams last fall, requiring owners to pay franchise fees. In order to participate, six existing teams paid a franchise fee of $10M, while four new teams paid $13M. Many of the prominent esports teams have received support from professional sports owners or athletes. Of the four new teams to NA LCS, are all wholly- or partially-owned by NBA franchises: the Cleveland Cavaliers (100 Thieves), Houston Rockets (Clutch Gaming), Golden State Warriors (Golden Guardians), and Milwaukee Bucks (OpTic Gaming). The new teams aren’t the only teams with ties to professional sports. Echo Fox was formed by ESports Group, led by former NBA player Rick Fox. Team Liquid, one of the original esports brands, was acquired in 2016 by a group led by Jeff Vinik, owner of the Tampa Bay Lightning. NA LCS began its season on January 20th, 2018. Games are streamed on its own website, YouTube, and Twitch. The prize pool for the league is $200K. Overwatch League Overwatch, a team-based, first-person shooter, was released in May 2016 by Blizzard Entertainment. Blizzard Entertainment announced the Overwatch League in 2016, and established 12 teams in cities across the world. 9 teams are based in the US, with the other 3 teams based in Seoul, Shanghai, and London. Each team paid a franchise fee of $20M to join the league. There are already rumors of further expansion and increased franchise fees due to the early popularity and success of the league (10m viewers in its first week of matches). The Overwatch League began its season on January 10th, 2018. Matches were initially streamed on the OWL website as well as MLG’s, but in January Blizzard reached a two-year, $90m deal with Twitch to broadcast Overwatch League matches on the streaming platform. The prize pool for the league is $3.5M. NBA 2K League The NBA 2K league is the first esports league to be operated by one of the four major pro sports leagues in the United States. The 2K league hosted open tryouts for hopeful participants in February, and has scheduled a draft to be held on April 4th at Madison Square Garden. 17 NBA teams will have a team in the 2K league. Players drafted to each franchise will live in the city they represent. For the first season, all games will be played at one or two central locations. An interesting part of this league, is that viewers will not see current NBA players in the game. Instead, NBA 2K League participants will have their own created players that they will represent in the league. The NBA 2K League begins competition in May. The NBA is currently in media rights negotiations to determine where the games will be broadcast. What Does the Future of Esports Look Like? We are big believers in the future of esports and gaming. While we are excited to see where the industry goes, the concept of owning a team in a franchise-based league poses a unique challenge. Major professional sports have all been around for 100 years or more. If you ask fans of these sports, they believe that the games will exist in some form or another 100 years from now. Specific esports games on the other hand, eventually give way to newer options. On top of that, in esports, there is an entity that owns the game and has complete control over it, something traditional sports don’t have to deal with (no single entity “owns” the sport of basketball). While there are some outliers that have remained in the spotlight for a long time, there are concerns about long-term interest in games from a competition standpoint. 10 years ago, some of the most popular esports games were Starcraft: Brood War, Halo 3, and Counter-Strike: Source. While some of these franchises are still seeing success with new releases of the games, there are new games that have dominated the scene as of late. League of Legends was released in October 2009, Overwatch was released in May 2016, and our office-favorite, Fortnite, was released early access in July 2017. There will always be new games to come along, which poses a unique challenge for esports owners of franchise fee paying teams. The owner of the Toronto Maple Leafs doesn’t need to worry about whether fans will want to watch the team play in 50 years. There is confidence in the long-term interest of the game. For esports, the question about long-term interest is harder to answer. Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

We’re bullish on esports and committed to learning more about the space. The following note is an introductory piece that ‘shows our work’ as we get up to speed. Given the recent explosion in popularity of esports leagues, we wanted to take a look at the economics of owning of an esports franchise. As esports has grown in popularity, the model for team ownership has begun to change. 2018 marked the first year of competition for two new franchise leagues for Overwatch and League of Legends, both of which now operate similarly to traditional professional sports leagues. <h4>Traditional Esports Organization</h4> Traditionally, teams participating in esports were self-organized. Teams would find the necessary players to participate and join leagues and tournaments by paying an entry fee. By winning or placing near the top of these tournaments, teams would be compensated from the prize pool. As esports became more popular, more revenue opportunities presented themselves for teams. These opportunities included: sponsorships, merchandise, branded skins, and advertising opportunities on streaming platforms. With more revenue opportunities came better ownership organization. Ownership groups began to form, owning teams in multiple games. A team owner helps set up sponsorships, creates merchandise, and helps market the players. A good example of an esports organization is Team Liquid. Team Liquid was formed in 2000 as a Starcraft news site, before expanding to other games. It signed its first esports team in 2012 after recruiting a group of Dota 2 players. Since then, Team Liquid has added more players and teams, and now operates unique rosters in the following games: <ul> <li>Starcraft II</li> <li>League of Legends</li> <li>Counter-Strike: Global Offensive</li> <li>Dota 2</li> <li>Heroes of the Storm</li> <li>Super Smash Bros. Brawl</li> <li>Street Fighter</li> <li>FIFA</li> <li>PlayerUnknown’s Battlegrounds</li> <li>Quake</li> <li>Rainbow Six: Siege</li> </ul> <h4>How do esports teams make money?</h4> The breakdown of income varies by organization, team, and game. The vast majority of revenue (roughly 70-80%) for esports organizations comes from sponsorships and advertising. The remaining revenue is split evenly between ticket sales, merchandising, and media rights. Sponsorships &amp; Advertising This category includes advertisements shown during televised and live-streamed events, as well as revenue from brands that sponsor individual teams. Companies are flooding esports players and teams with sponsorship opportunities, and it is only going to continue to grow. In addition, players and teams can earn money from product placement and recommendations. Team jerseys are essentially billboards benefitting from rapidly growing viewership. On Amazon’s live-streaming platform, Twitch, users can scroll down to see discount codes on gaming equipment, clothing, and other products, and streamers get a cut of the sales made using their discount code. Esports teams don’t earn advertising revenue from an individual player’s live-stream, but rather when the team is participating in an event. Esports is well-positioned as an advertising opportunity for a number of reasons. First, cord-cutters are turning to online platforms, like YouTube and Twitch, for live entertainment. Second, esports’ younger demographics are valuable to advertisers. Finally, esports franchising adds stability for teams, their sponsors, and advertisers (more on that below). With more users flocking to online streaming platforms, and the audience becoming more valuable to advertisers, media rights contracts are becoming more valuable, and advertisers are paying more money to esports leagues, teams, and players. Global brands including Coca-Cola, Mercedes-Benz, and Intel have recently begun sponsoring esports in various ways because they recognize the value and massive opportunity. This builds an attractive foundation for investment. Ticket Sales Traditional esports events are held at event arenas around the world. The League of Legends World Finals has been held at Staples Center, and a mid-season League of Legends event was held at Wembley Arena. Other venues have included Commerzbank Arena in Frankfurt, San Jose SAP Center (also known as the Shark Tank), and Sang-Am World Cup Stadium in Seoul, South Korea. While the audiences vary in size, large events typically have between 10-15K in attendance, with some events attracting many, many more. Still, the lion’s share of esports fans watch the events online. For franchise league esports teams, one difference when compared to traditional sports franchises is that they lack a home arena to sell tickets and merchandise. Instead, esports events are held at neutral, league-owned locations. As a result, teams and organizers share ticket revenue. Team-owned stadiums are very much on the mind of team owners, especially with the location-based teams in the Overwatch League. The Overwatch League currently holds all of their events at Blizzard Stadium in Burbank, CA. Source: Blizzard Entertainment NA LCS hosts events its own studio in Los Angeles, CA, across the street from Riot Games headquarters. Source: Riot Games Merchandising A major revenue contributor in the merchandising category are in-game skins. A “skin” is simply different design or color scheme for a playable character or in-game item. Think about giving Mario an astronaut suit instead of his famous red hat and blue overalls. While skins are cosmetic and offer no competitive advantage, they are a major source of revenue for game developers because players enjoy the customization, and are willing to pay for it. In fact, in-game purchases (which skins contribute to) generated more than half of Activision-Blizzard’s revenue in 2017, amounting to $4B. Developers of esports-compatible games have tapped into this digital goods market and begun to create team-specific skins for major pro teams. Fans can purchase these skins to show support for their favorite team or player. League of Legends and Overwatch are the two major games that have esports-specific skins, but games with smaller competitive scenes like Halo 5 and Gears of War 4 have them as well. We believe the adoption from the OWL and the LCS is an indication that this is a market future esports organizations will want to target. <ul> <li>League of Legends. Riot also creates skins for their league’s teams. When a world champion is decided at the end of each season, Riot makes a skin for the winning team. These are available for a similar price of about $5 worth of Riot Points, LoL’s in-game currency. The team receives 25% of the revenue from these skin purchases.</li> <li>Overwatch. Blizzard essentially created “jerseys” for each Overwatch League team and made them available for fans to purchase for $5 per skin via in-game tokens. See an example of playable Overwatch heroes wearing the team “jerseys” below. The competing teams also “wear” these skins during each and every OWL match, making it the esports equivalent of wearing your favorite team’s jersey. The revenue generated from this goes into a communal pot that is split evenly amongst the 12 teams.</li> </ul> Overwatch heroes wearing the Houston Outlaws skins Similar to other revenue sources, game publishers share revenues for skins with teams and organizations that create and promote them. Fans of specific esports teams can sport their favorite skins in-game. This is akin to wearing a Stefon Diggs jersey while pretending to catch game-winning touchdowns. Media Rights While the concept of watching others play video games may seem foreign to some, there are a surprising number of people that tune into esports events. Because of this, esports franchises have recently been able to benefit from broadcasting contracts, just as traditional sports. While some esports events reach cable television, the vast majority of viewership happens online. One of the most important players in the esports market is the Amazon-owned streaming platform Twitch. Acquired for $1B in 2014, Twitch had 355 billion minutes of content viewed and over 15 million unique daily visitors on its platform in 2017 and strong growth continues. More on Twitch’s metrics below: On Twitch, gamers are able to stream their gameplay to viewers around the world. Believe it or not, one can make a living streaming gameplay on Twitch, and a fairly comfortable one at that. The revenue sources for streaming come from three main sources: advertisements, donations, and subscriptions. <ul> <li>Advertisements. Streamers can have video ads play before their actual stream is shown (just like on YouTube), earning money passed on the number of impressions their channel gets. They also often have endorsements and advertisements on their Twitch pages from, for example, companies that make gaming equipment and computer parts. This creates a similar effect to traditional sports equipment endorsements where fans and amateurs want to use the equipment the best does, and having a well-known player use your equipment adds value and drives sales.</li> <li>Donations. Another source of revenue is donations from viewers. The amount and frequency of donations are up to the donor, some as low as $2 but some up into the tens of thousands. Here’s a <a href="https://www.youtube.com/watch?v=o7uvtfmw7zc" rel="nofollow" target="_blank">video</a> of a streamer receiving $62,000 in donations. Spend some time watching a popular streamer and you would be baffled by how often they’re getting donations, whether directly via PayPal or by “cheering” with Bits.</li> <li>Subscriptions. Finally, streamers earn money from viewers subscribing to their channel. A subscription lasts for a month and costs $5.00, and the streamer will usually take about half of that money per subscription. Twitch operates on a revenue sharing model with top streamers on its platform. The more popular the streamer, the higher percentage of revenue they are able to negotiate. Subscribing to a channel offers benefits like ad-free viewing and special chat privileges like emotes and additional features. Note that viewers re-subscribe every month. Some streamers have 0 subscribers and some have managed to amass over 100,000.</li> </ul> Esports teams and organizations are able to stream as well. The structure is exactly the same as explained above for individual streamers, the money is just given to the collective group as opposed to one person. Many times, though, a player on a particular pro team will have a stream more popular than his overall team’s. It’s an example of how important personal brands are in esports. Teams, however, don’t make much from having a player with a large Twitch following. Sure, they have the team’s logo and name on the page/video and the streamer is clearly representing that organization with merchandise and even the name they go by online, but teams won’t see any money from one of their players’ streams. The popularity, and therefore most of the money, comes from viewers being drawn to the content the individual is producing. Media rights for tournaments, and the revenue shared with the teams from those deals, is where actual esports teams will be able to cash in on this trend as individuals don’t stream tournaments, organizations do. When it comes to tournaments themselves, massive audiences tune in to events online. The League of Legends World Championship amassed 60 million unique viewers. To help put that number in perspective, the 2018 Super Bowl reported just over 103 million viewers. While esports still has a long way to catch-up, it’s not dwarfed to the extent that some may think. Tournament Winnings For players, competition is what esports is all about. Players and teams compete to win tournaments and the associated prize pools. While these pools can be massive, such as the $24M+ pool for Dota 2, few players in the overall esports community take home winnings. Positively, most winnings are distributed directly to the players. While there are some large tournament pools, the vast majority of esports players and teams earn most of their income through the other sources we’ve talked about. <h4>Esports Franchise Leagues </h4> In 2017, three different franchise leagues were put into place, with competition beginning in the 2018 season. While the franchise leagues operate with similar game rules to previous leagues and tournaments, they require teams to pay a franchise fee in order to participate. By paying a franchise fee, leagues benefit from stability of teams and players, and operate the entire league’s advertising, sponsorship, streaming, and merchandising opportunities. This format is similar to the way major professional sports leagues operate. This shift toward franchising is a huge step for the legitimacy of esports, in both the eyes of the public and investors. Thus far in its young life esports has been plagued by a lack of stability, making it difficult to land sponsors. Before the franchising announcement last year, teams that placed poorly in the League of Legends Championship Series were relegated – similar to the English Premier League – where the teams that finished at the bottom were sent down and had to had to grind their way back to competing against top teams. The possibility of being dropped to a lower league with far less viewership and no certainty of promotion made companies very hesitant to inject money into something that could very easily lose its relevance. With the stability of franchises in leagues with multi-year broadcasting deals, the investors and sponsors are pouring in. Today, there are three franchise leagues: <ul> <li>League of Legends North American Championship Series – by Riot Games</li> <li>Overwatch League – by Blizzard Entertainment</li> <li>NBA 2K League – operated by the NBA, game developed by Electronic Arts</li> </ul> League of Legends North American Championship Series (NA LCS) League of Legends, a multiplayer online battle arena (MOBA) game, was released in October 2009 by Riot Games. While the League of Legends Championship Series has been around since 2012, they organized into a partnership with their 10-teams last fall, requiring owners to pay franchise fees. In order to participate, six existing teams paid a franchise fee of $10M, while four new teams paid $13M. Many of the prominent esports teams have received support from professional sports owners or athletes. Of the four new teams to NA LCS, are all wholly- or partially-owned by NBA franchises: the Cleveland Cavaliers (100 Thieves), Houston Rockets (Clutch Gaming), Golden State Warriors (Golden Guardians), and Milwaukee Bucks (OpTic Gaming). The new teams aren’t the only teams with ties to professional sports. Echo Fox was formed by ESports Group, led by former NBA player Rick Fox. Team Liquid, one of the original esports brands, was acquired in 2016 by a group led by Jeff Vinik, owner of the Tampa Bay Lightning. NA LCS began its season on January 20th, 2018. Games are streamed on its own website, YouTube, and Twitch. The prize pool for the league is $200K. Overwatch League Overwatch, a team-based, first-person shooter, was released in May 2016 by Blizzard Entertainment. Blizzard Entertainment announced the Overwatch League in 2016, and established 12 teams in cities across the world. 9 teams are based in the US, with the other 3 teams based in Seoul, Shanghai, and London. Each team paid a franchise fee of $20M to join the league. There are already rumors of further expansion and increased franchise fees due to the early popularity and success of the league (10m viewers in its first week of matches). The Overwatch League began its season on January 10th, 2018. Matches were initially streamed on the OWL website as well as MLG’s, but in January Blizzard reached a two-year, $90m deal with Twitch to broadcast Overwatch League matches on the streaming platform. The prize pool for the league is $3.5M. NBA 2K League The NBA 2K league is the first esports league to be operated by one of the four major pro sports leagues in the United States. The 2K league hosted open tryouts for hopeful participants in February, and has scheduled a draft to be held on April 4th at Madison Square Garden. 17 NBA teams will have a team in the 2K league. Players drafted to each franchise will live in the city they represent. For the first season, all games will be played at one or two central locations. An interesting part of this league, is that viewers will not see current NBA players in the game. Instead, NBA 2K League participants will have their own created players that they will represent in the league. The NBA 2K League begins competition in May. The NBA is currently in media rights negotiations to determine where the games will be broadcast. <h4>What Does the Future of Esports Look Like?</h4> We are big believers in the future of esports and gaming. While we are excited to see where the industry goes, the concept of owning a team in a franchise-based league poses a unique challenge. Major professional sports have all been around for 100 years or more. If you ask fans of these sports, they believe that the games will exist in some form or another 100 years from now. Specific esports games on the other hand, eventually give way to newer options. On top of that, in esports, there is an entity that owns the game and has complete control over it, something traditional sports don’t have to deal with (no single entity “owns” the sport of basketball). While there are some outliers that have remained in the spotlight for a long time, there are concerns about long-term interest in games from a competition standpoint. 10 years ago, some of the most popular esports games were Starcraft: Brood War, Halo 3, and Counter-Strike: Source. While some of these franchises are still seeing success with new releases of the games, there are new games that have dominated the scene as of late. League of Legends was released in October 2009, Overwatch was released in May 2016, and our office-favorite, Fortnite, was released early access in July 2017. There will always be new games to come along, which poses a unique challenge for esports owners of franchise fee paying teams. The owner of the Toronto Maple Leafs doesn’t need to worry about whether fans will want to watch the team play in 50 years. There is confidence in the long-term interest of the game. For esports, the question about long-term interest is harder to answer. Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Esports Franchise Economics

From time to time, we’ll review new products that are relevant to our focus themes: virtual reality, augmented reality, artificial intelligence and robotics. Our Feedback Loup series provides real customer feedback on the technologies shaping our future. We hope that our work helps, in some small way, to bring our focus themes to life and even accelerate their adoption. Cozmo is a great example of how real consumer AI and robotics are today.  Yesterday, my kids and I spent some time getting to know Cozmo, a robot toy by Anki. Three scientists from the Robotics Institute of Carnegie Mellon University co-founded the company and launched at WWDC in 2013. With their first product, Anki Drive, they brought AI and robotics to Apple’s keynote stage in the form of toy cars that are autonomously and remotely controlled. Anki released Cozmo in October 2016, and we’ve been eager to see what the latest in consumer, artificially-intelligent robotics has to offer. The bottom line: AI-driven robots aren’t a sci-fi future, and they aren’t just for big tech companies with billion dollar R&amp;D budgets. They’re a consumer reality, and they can be a lot of fun. Cozmo comes to life in his charger, his quirky eyes light up, blink a few times, then he comes out to play. Once you’ve got the Cozmo app downloaded, there’s a short sequence of setup and instructional steps facilitated in the app. Before you realize it, you’re playing with a new friend that’s just learned your name.  All this seems natural because Cozmo lives up to his tagline: Big brain. Bigger personality. He clearly expresses frustration when he loses a game, excitement when you want to play again, and cleverness in the heat of battle. He’s glad to meet you and sad to see you go. Cozmo’s personality is driven by a combination of artificial intelligence, robotics, and strong connection to a mobile device or interaction and control. The AI is timely, responsive and can be seen mostly in his eyes and during gameplay. The robotics add a strong physical response to the emotion created by the AI. But all of this impressive technology becomes irrelevant to the human counterpart as the interactions become more about the fun of being recognized and called by name or the frustration of getting outmatched by a robot in a matching game. The real magic of Cozmo is that he’s relational, breaking the stereotypes of robots and their place in society.  Over the next several decades, the combination of artificial intelligence and robotics will enrich our relationships with machines. Cozmo is one of the many steps we see being taken today, leading us towards this amazing future. We’re encouraged to see that these technologies are already moving into consumer products, and, therefore, everyday life – not just in autonomous driving projects or robotic manufacturing lines. AI-driven robotics are, in some ways, already becoming mainstream. Cozmo just had to introduce himself. Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

From time to time, we’ll review new products that are relevant to our focus themes: virtual reality, augmented reality, artificial intelligence and robotics. Our Feedback Loup series provides real customer feedback on the technologies shaping our future. We hope that our work helps, in some small way, to bring our focus themes to life and even accelerate their adoption. Cozmo is a great example of how real consumer AI and robotics are today. Yesterday, my kids and I spent some time getting to know Cozmo, a robot toy by Anki. Three scientists from the Robotics Institute of Carnegie Mellon University co-founded the company and launched at WWDC in 2013. With their first product, Anki Drive, they brought AI and robotics to Apple’s keynote stage in the form of toy cars that are autonomously and remotely controlled. Anki released Cozmo in October 2016, and we’ve been eager to see what the latest in consumer, artificially-intelligent robotics has to offer. The bottom line: AI-driven robots aren’t a sci-fi future, and they aren’t just for big tech companies with billion dollar R&amp;D budgets. They’re a consumer reality, and they can be a lot of fun. Cozmo comes to life in his charger, his quirky eyes light up, blink a few times, then he comes out to play. Once you’ve got the Cozmo app downloaded, there’s a short sequence of setup and instructional steps facilitated in the app. Before you realize it, you’re playing with a new friend that’s just learned your name. All this seems natural because Cozmo lives up to his tagline: Big brain. Bigger personality. He clearly expresses frustration when he loses a game, excitement when you want to play again, and cleverness in the heat of battle. He’s glad to meet you and sad to see you go. Cozmo’s personality is driven by a combination of artificial intelligence, robotics, and strong connection to a mobile device or interaction and control. The AI is timely, responsive and can be seen mostly in his eyes and during gameplay. The robotics add a strong physical response to the emotion created by the AI. But all of this impressive technology becomes irrelevant to the human counterpart as the interactions become more about the fun of being recognized and called by name or the frustration of getting outmatched by a robot in a matching game. The real magic of Cozmo is that he’s relational, breaking the stereotypes of robots and their place in society. Over the next several decades, the combination of artificial intelligence and robotics will enrich our relationships with machines. Cozmo is one of the many steps we see being taken today, leading us towards this amazing future. We’re encouraged to see that these technologies are already moving into consumer products, and, therefore, everyday life – not just in autonomous driving projects or robotic manufacturing lines. AI-driven robotics are, in some ways, already becoming mainstream. Cozmo just had to introduce himself. Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Feedback Loup: Cozmo by Anki

We’re investing in Enjoy as a counter-automation play on the future of retail. Read our thesis on retail’s future here. In short: retailers must either embrace full automation or compete on experience by focusing on uniquely human capabilities: creativity, community, and experience. We call it “empathic retail.” Enjoy delivers the future of retail by focusing squarely on empathic retail. Enjoy hand delivers products bought online from the world’s premier companies and delivers them with an experience. The service comes at no additional cost to consumers and it’s fast, with nearly 50% being delivered the same day.  Amazon is changing consumer expectations related to the price, availability, and delivery of products and services. But the in-person retail experience is outside of Amazon’s core competencies. Enjoy offers its premier companies (including AT&amp;T, Sonos, DJI, and others) a high-touch, personalized delivery and setup service. Enjoy optimizes the customer experience, reduces returns, and increases customer satisfaction.  At the same time, automation technologies are already replacing retail jobs. Enjoy offers its team of Experts (delivery and setup employees) flexible work, salaried, with benefits – a transformative employment model for the new retail workforce. In our view, Enjoy is creating the optimal go-to-market channel for premium brands in the automation age. Enjoy’s CEO, Ron Johnson, has spent his career innovating in retail. His experience as VP of Merchandising at Target, SVP and head of retail at Apple, and as CEO of JCPenney, along with his network of leaders at consumer electronics and luxury goods brands, uniquely positions Enjoy for success in these markets and beyond. We’re excited to be a part of delivering retail’s future with the team at Enjoy. Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

We’re investing in Enjoy as a counter-automation play on the future of retail. Read our thesis on retail’s future <a href="http://loupventures.wpengine.com/the-future-of-retail/" rel="nofollow" target="_blank">here</a>. In short: retailers must either embrace full automation or compete on experience by focusing on uniquely human capabilities: creativity, community, and experience. We call it “empathic retail.” Enjoy delivers the future of retail by focusing squarely on empathic retail. Enjoy hand delivers products bought online from the world’s premier companies and delivers them with an experience. The service comes at no additional cost to consumers and it’s fast, with nearly 50% being delivered the same day. Amazon is changing consumer expectations related to the price, availability, and delivery of products and services. But the in-person retail experience is outside of Amazon’s core competencies. Enjoy offers its premier companies (including AT&amp;T, Sonos, DJI, and others) a high-touch, personalized delivery and setup service. Enjoy optimizes the customer experience, reduces returns, and increases customer satisfaction. At the same time, automation technologies are already replacing retail jobs. Enjoy offers its team of Experts (delivery and setup employees) flexible work, salaried, with benefits – a transformative employment model for the new retail workforce. In our view, Enjoy is creating the optimal go-to-market channel for premium brands in the automation age. Enjoy’s CEO, Ron Johnson, has spent his career innovating in retail. His experience as VP of Merchandising at Target, SVP and head of retail at Apple, and as CEO of JCPenney, along with his network of leaders at consumer electronics and luxury goods brands, uniquely positions Enjoy for success in these markets and beyond. We’re excited to be a part of delivering retail’s future with the team at Enjoy. Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Investing in Enjoy

The sickness adoption hurdle. The timing of most tech adoption curves can be anticipated by a combination of cost and utility. The lower the cost, the higher the utility, the faster the adoption. We define mass adoption as 500m or more monthly users. We estimate monthly VR users to be about 25m today. It’s still very early. In addition to the standard tech adoption factors of cost and utility, VR has a third factor: sickness. In order for VR to go mainstream, simulation sickness is a problem that needs to be solved. We expect that over the next 5 years, technology will solve most VR sickness.  It’s important to understand why we get sick in VR and what can be done to reduce VR nausea. We visited a VR arcade to further investigate the issue.   Why do we get sick in VR? Users primarily experience sickness in virtual reality simulations due to the imbalance of inputs in their vestibular and visual systems. This sensory imbalance is related to motion sickness. In a common example of motion sickness, a passenger on a boat may become sick when the visual inputs to their body appear as if they are not moving, but their vestibular inputs give their body the perception that they are moving. In this example, motion is not seen by the user, but is felt by the vestibular system. Virtual reality can cause a type of motion sickness, where motion is seen by the visual systems but not felt by the vestibular systems. The most common theory posits that the imbalance of sensory inputs causes the brain to incorrectly believe that a user is hallucinating due to poison, and will attempt to induce vomiting. In addition to sensory and visual conflict, virtual reality sickness can also be caused between the lag in head movement and simulation refresh rate. If the simulation refresh rate can be brought down to within 5 to 10 milliseconds of our body’s movement (from on average 18 to 22 milliseconds today), sickness from refresh rate will be reduced or eliminated. Potential fixes. As mentioned, one solution to address VR sickness is to decrease the latency, or the time between a user’s head movement and the updated display content reaching a user’s eyes, to a level between 5 to 10 milliseconds. Improving latency inside VR is challenging, but achievable, notably through the introduction of eye tracking and foveated rendering. Eye tracking is when a VR headset has the ability to identify the specific area of the screen that a user is looking at. Foveated rendering is the process of rendering the specific area of the screen a user is looking at with a higher resolution. Areas outside of focus are rendered at a lower resolution. As such, foveated rendering is dependent upon a quality eye tracking system. Foveated rendering takes stress off of the GPUs, reducing the bandwidth necessary and potentially decreasing the latency. When it comes to sensory imbalance, there is still a lot of work to be done. There have been some VR applications that try to mimic movement in VR to limit the sensory imbalance, such as walking on a gaming treadmill. A less appealing, non-technological solution is for users to develop a tolerance for simulations and VR, slowly acclimating their sensory system to a simulated environment. Using VR more often for short periods of time can normalize one’s senses to the discrepancy between sensory inputs. We believe that over the next 5 years, technology will solve the vast majority of VR sickness. Measuring for VR sickness, our visit to VR game location. Madeleine Winges, an intern at Loup Ventures, visited Smaaash, a VR game location at the Mall of America in Minneapolis. Madeleine’s not a gamer, which made her the right person to do the testing. Here’s her report:  A great experience, even thought I felt slightly nauseous.  Overall, I had a great experience at Smaaash.  It was my first time in a high definition VR headset, and I would recommend it to anyone, especially those curious about the world of virtual reality.  I did get slightly nauseous (average of 3.6 on my 0-10 nausea scale) in the hour I tested the different VR experiences, and the nauseous feeling lasted for 45 minutes after I left.  One complaint about the particular location-based VR experience: Players need to wait for an attendant to set up the game for you, compared to the simplicity of a classic, walk-up arcade. While I am not likely to return due to my lack of interest in gaming,  I can see why groups of people would enjoy this unique experience. Game details.  There were a wide variety of games for all ages, and I tried out seven of them with the HTC Vive:  Extreme Drone Racing.  In this game, you sit on a stationary flying craft that is replicated in VR.  Similar to Mario Cart, you race the person next to you on a designated course using controllers on the craft.  The game was enjoyable and realistic, complete with tilt and a fan in front mimicking wind during the race.  The only aspect missing from this game was a stomach drop when going off of a steep cliff. Game time: 6 minutes Nausea scale: 3; after 2 minutes Recovery time: 2 minutes     Jurassic Escape.  Imagine a prehistoric world in first person from the front seat of a Jeep.  Once you put on the Vive, you are thrown into the world of Jurassic Park, being chased by a T-Rex on a bumpy ride.  The graphics were very realistic. I’m embarrassed to report I let out a slight scream at one point during the ride. Game time: 3 minutes Nausea scale: 0 Recovery time: NA     Nitro Wheelie.  This game had a unique setup in which the player is mounted on a stationary motorcycle that moves in coordination with steering while in VR.  The player can accelerate, brake, and even pop a wheelie.  It feels like you are actually inside of a race with the VR display showing a replicant of a real-life racing track.  The only aspect missing from the ride was the feeling one would expect when hitting a wall, which, I suppose, is a good thing. Game time: 4 minutes Nausea scale: 1; after 3 minutes Recovery time: 2 minutes     Flymax.  This was by far the most intense game I played while at Smaaash. (see photo above)  The player puts on a vest and leg straps and is hooked to cords on the machine that allow suspension over a platform.  The player then holds onto a floating bar, while still in suspension, and the attendant places the Vive on them, throwing them into a hand-gliding simulation.  I expected this game to be easy to handle, but I was proven wrong when the hand-glider took me on upside down loops over buildings and mountains. Game time: 4 minutes Nausea scale: 8; within 1 minute Recovery time: 10 minutes     World Moto Jump Championship.  This was my least favorite game due to unrealistic graphics and excessive jerkiness during the simulation.  The experience is meant to mimic extreme drag racing in the desert.  The player is not in control of the simulation, so no matter how annoying the stop-and-go is to you, there is no way to avoid the feeling. Game time: 4 minutes Nausea scale: 6; after 1 minute Recovery time: 7 minutes     Finger Coaster.  Despite poor graphics, this game was enjoyable. Before putting on the VR headset, the player gets to create their roller coaster with their finger on a touch screen connected to the ride.  It was set on a beach similar to that of the Casino Pier on the Jersey Shore.  Similar to other games, the stomach drop sensation was noticeably missing. Game time: 3 minutes Nausea scale: 4; after 2 minutes Recovery time: 3 minutes     Exterminator.  Based off of the Terminator movie series, this is a two-player VR simulation that encompasses world-end graphics in which players compete to destroy the most Terminator bots.  The greatest appeal to this game was the point system, allowing gamers’ competitive nature to shine through.  The player can move the large “gun” in all directions to get ahead of a competitor and terminate the Terminators. Game time: 6 minutes Nausea scale: 3; after 4 minutes Recovery time: 3 minutes    Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

The sickness adoption hurdle. The timing of most tech adoption curves can be anticipated by a combination of cost and utility. The lower the cost, the higher the utility, the faster the adoption. We define mass adoption as 500m or more monthly users. We estimate monthly VR users to be about 25m today. It’s still very early. In addition to the standard tech adoption factors of cost and utility, VR has a third factor: sickness. In order for VR to go mainstream, simulation sickness is a problem that needs to be solved. We expect that over the next 5 years, technology will solve most VR sickness.  It’s important to understand why we get sick in VR and what can be done to reduce VR nausea. We visited a VR arcade to further investigate the issue. Why do we get sick in VR? Users primarily experience sickness in virtual reality simulations due to the imbalance of inputs in their vestibular and visual systems. This sensory imbalance is related to motion sickness. In a common example of motion sickness, a passenger on a boat may become sick when the visual inputs to their body appear as if they are not moving, but their vestibular inputs give their body the perception that they are moving. In this example, motion is not seen by the user, but is felt by the vestibular system. Virtual reality can cause a type of motion sickness, where motion is seen by the visual systems but not felt by the vestibular systems. The most common theory posits that the imbalance of sensory inputs causes the brain to incorrectly believe that a user is hallucinating due to poison, and will attempt to induce vomiting. In addition to sensory and visual conflict, virtual reality sickness can also be caused between the lag in head movement and simulation refresh rate. If the simulation refresh rate can be brought down to within 5 to 10 milliseconds of our body’s movement (from on average 18 to 22 milliseconds today), sickness from refresh rate will be reduced or eliminated. Potential fixes. As mentioned, one solution to address VR sickness is to decrease the latency, or the time between a user’s head movement and the updated display content reaching a user’s eyes, to a level between 5 to 10 milliseconds. Improving latency inside VR is challenging, but achievable, notably through the introduction of eye tracking and foveated rendering. Eye tracking is when a VR headset has the ability to identify the specific area of the screen that a user is looking at. Foveated rendering is the process of rendering the specific area of the screen a user is looking at with a higher resolution. Areas outside of focus are rendered at a lower resolution. As such, foveated rendering is dependent upon a quality eye tracking system. Foveated rendering takes stress off of the GPUs, reducing the bandwidth necessary and potentially decreasing the latency. When it comes to sensory imbalance, there is still a lot of work to be done. There have been some VR applications that try to mimic movement in VR to limit the sensory imbalance, such as walking on a gaming treadmill. A less appealing, non-technological solution is for users to develop a tolerance for simulations and VR, slowly acclimating their sensory system to a simulated environment. Using VR more often for short periods of time can normalize one’s senses to the discrepancy between sensory inputs. We believe that over the next 5 years, technology will solve the vast majority of VR sickness. Measuring for VR sickness, our visit to VR game location. Madeleine Winges, an intern at Loup Ventures, visited Smaaash, a VR game location at the Mall of America in Minneapolis. Madeleine’s not a gamer, which made her the right person to do the testing. Here’s her report: A great experience, even thought I felt slightly nauseous.  Overall, I had a great experience at Smaaash.  It was my first time in a high definition VR headset, and I would recommend it to anyone, especially those curious about the world of virtual reality.  I did get slightly nauseous (average of 3.6 on my 0-10 nausea scale) in the hour I tested the different VR experiences, and the nauseous feeling lasted for 45 minutes after I left.  One complaint about the particular location-based VR experience: Players need to wait for an attendant to set up the game for you, compared to the simplicity of a classic, walk-up arcade. While I am not likely to return due to my lack of interest in gaming,  I can see why groups of people would enjoy this unique experience. Game details.  There were a wide variety of games for all ages, and I tried out seven of them with the HTC Vive: <ul> <li>Extreme Drone Racing.  In this game, you sit on a stationary flying craft that is replicated in VR.  Similar to Mario Cart, you race the person next to you on a designated course using controllers on the craft.  The game was enjoyable and realistic, complete with tilt and a fan in front mimicking wind during the race.  The only aspect missing from this game was a stomach drop when going off of a steep cliff. <ul> <li>Game time: 6 minutes</li> <li>Nausea scale: 3; after 2 minutes</li> <li>Recovery time: 2 minutes</li> </ul> </li> </ul> <ul> <li>Jurassic Escape.  Imagine a prehistoric world in first person from the front seat of a Jeep.  Once you put on the Vive, you are thrown into the world of Jurassic Park, being chased by a T-Rex on a bumpy ride.  The graphics were very realistic. I’m embarrassed to report I let out a slight scream at one point during the ride. <ul> <li>Game time: 3 minutes</li> <li>Nausea scale: 0</li> <li>Recovery time: NA</li> </ul> </li> </ul> <ul> <li>Nitro Wheelie.  This game had a unique setup in which the player is mounted on a stationary motorcycle that moves in coordination with steering while in VR.  The player can accelerate, brake, and even pop a wheelie.  It feels like you are actually inside of a race with the VR display showing a replicant of a real-life racing track.  The only aspect missing from the ride was the feeling one would expect when hitting a wall, which, I suppose, is a good thing. <ul> <li>Game time: 4 minutes</li> <li>Nausea scale: 1; after 3 minutes</li> <li>Recovery time: 2 minutes</li> </ul> </li> </ul> <ul> <li>Flymax.  This was by far the most intense game I played while at Smaaash. (see photo above)  The player puts on a vest and leg straps and is hooked to cords on the machine that allow suspension over a platform.  The player then holds onto a floating bar, while still in suspension, and the attendant places the Vive on them, throwing them into a hand-gliding simulation.  I expected this game to be easy to handle, but I was proven wrong when the hand-glider took me on upside down loops over buildings and mountains. <ul> <li>Game time: 4 minutes</li> <li>Nausea scale: 8; within 1 minute</li> <li>Recovery time: 10 minutes</li> </ul> </li> </ul> <ul> <li>World Moto Jump Championship.  This was my least favorite game due to unrealistic graphics and excessive jerkiness during the simulation.  The experience is meant to mimic extreme drag racing in the desert.  The player is not in control of the simulation, so no matter how annoying the stop-and-go is to you, there is no way to avoid the feeling. <ul> <li>Game time: 4 minutes</li> <li>Nausea scale: 6; after 1 minute</li> <li>Recovery time: 7 minutes</li> </ul> </li> </ul> <ul> <li>Finger Coaster.  Despite poor graphics, this game was enjoyable. Before putting on the VR headset, the player gets to create their roller coaster with their finger on a touch screen connected to the ride.  It was set on a beach similar to that of the Casino Pier on the Jersey Shore.  Similar to other games, the stomach drop sensation was noticeably missing. <ul> <li>Game time: 3 minutes</li> <li>Nausea scale: 4; after 2 minutes</li> <li>Recovery time: 3 minutes</li> </ul> </li> </ul> <ul> <li>Exterminator.  Based off of the Terminator movie series, this is a two-player VR simulation that encompasses world-end graphics in which players compete to destroy the most Terminator bots.  The greatest appeal to this game was the point system, allowing gamers’ competitive nature to shine through.  The player can move the large “gun” in all directions to get ahead of a competitor and terminate the Terminators. <ul> <li>Game time: 6 minutes</li> <li>Nausea scale: 3; after 4 minutes</li> <li>Recovery time: 3 minutes</li> </ul> </li> </ul> Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

VR Sickness Should Be Mostly Solved In 5 Years

Special thanks to David Kroger, Steve Van Sloun, and Austin Bohlig for their work on the Non-Tech AI Portfolio.  In ten years, every company will have to be an artificial intelligence company or they won’t be competitive. While traditional tech companies have been very forward about their advancements and investments in AI, there are many “non-tech” companies that are making investments in AI as well. As a fun exercise, we put together a portfolio of publicly-traded non-tech companies that are poised to benefit from their efforts in AI. To build our portfolio, we scraped the last earnings call of every company in the S&amp;P 500 to see which had specifically referenced “artificial intelligence” and/or “machine learning”. We also looked at companies that had been in the news talking about specific AI-related initiatives. Before we dive into highlighting individual companies, we want to clarify a few terms about AI that are sometimes confused: Artificial Intelligence is a general term that refers to a machine exhibiting intelligent behavior, which may include reasoning, learning, and audio/visual processing.  Machine Learning is a subset of artificial intelligence centered around giving a computer the ability to learn dynamically without human influence.  Deep Learning is a subset of machine learning, and is one of several techniques that enable more effective outcomes. For example, visual perception models use deep learning, i.e. self-driving cars are powered by deep learning systems.  Neural Networks are a component of deep learning in which a computer system is designed to mimic the way a human brain works. A neural network passes input data through a hidden layer of neuronal nodes with dynamic weights that change the output of the system.   One additional disclaimer before we start: We were former stock analysts and still pay a lot of attention to the public markets, but we never covered any of these companies or sectors. Consider our opinions here highly uneducated. Our analysis centered purely around each company’s efforts in AI and not fundamentals of the underlying business. Do you own diligence prior to any investment decision. Healthcare  IDEXX Laboratories (IDXX) – IDEXX manufactures and develops products for the animal healthcare sector. On the company’s last earnings call, management mentioned that its latest diagnostic products are utilizing machine learning so the instruments always have the ability to learn and train on new data. One product that leverages AI is their SediVue Dx analyzer. GlaxoSmithKline (GSK) – GSK is one of the bigger pharmaceutical companies leveraging AI and machine learning to help reduce the amount of time it takes to research and bring new drugs to market. GSK recently signed a $43M deal with Exscientia, which is a Scotland-based startup that helps automated drug design. GSK stated that Exscientia’s platform will be applied up to ten different diseases to determine if the technology can help lead the way to developing new drugs.  Retail  Macys (M) – If any industry needs the help of AI, it’s retail. Macy’s has been strategically increasing headcount with AI expertise and has partnered with IBM Watson to create On Call. On Call is an AI-powered assistant that can answer questions about products and departments in stores. While still early, we believe that experimental AI technologies that transform the brick and mortar shopping experience will be crucial to winning in the post-Amazon traditional retail world. Under Armour (UA) – Under Armour is leveraging artificial intelligence to better understand their customers. UA is using IBMs Watson’s machine learning platform to develop more personalized fitness and health apps that are designed to measure and manage your well-being. By gathering health data from these apps, Under Armour will be able to provide personalized marketing strategies based on an individual consumer’s lifestyle. The company is also using AI to help design new products, including shoes.  Logistics  FedEx (FDX) – FedEx is making strong investments in AI, robotics and self-driving vehicles. FedEx has created an AI-enabled Alexa app that allows consumers to activate orders through voice commands rather than filling out traditional forms. In addition, the company has teamed up with Peloton, a private company focused on semi-autonomous driving platforms, as well as leading automakers Daimler and Volvo, to research semi/fully autonomous driving technologies. We believe the future of delivery will be focused on autonomous systems, and FedEx appears to be preparing for the same future.  Professional Services   Accenture (ACN) – Over the past two years, Accenture has made significant investment in developing AI for both its internal operations as well as client offerings. Recognizing the positive impact that a strong AI platform can provide a business, Accenture has been creating tools to use in its consulting practice across various industries including healthcare, public safety, and financial services. The company has established Accenture Labs, which includes an Artificial Intelligence Research and Development group driving AI solutions for the broader business. Interpublic Group (IPG) – IPG is a leading advertising services company that has been aggressive in creating AI-driven businesses. The company’s Mediabrands subsidiary introduced an AI-focused arm called Society that leverages a proprietary system called HEART. HEART will enable advertisers to find “emotional resonance in social conversations” through NLP and machine learning. The company also launched the Marketing Tech Venture Studio, an accelerator that gives IPG early access to cutting edge AI marketing tech startups.  Finance  Northern Trust Corporation (NTRS) – NTRS, an asset management firm, highlighted investments in robotics, artificial intelligence, and blockchain on its last earnings that will allow the company to operate more efficiently and create superior solutions for their clients. Northern Trust is specifically trying to leverage AI and big data to decrease costs, which would allow the company to charge lower management fees in order to stay competitive. Nasdaq (NDAQ) – Nasdaq has developed products that leverage machine learning, including their Trading Insights data analytics platform and SMARTS market surveillance platform. In a world now dominated by algorithmic trading, AI is an imperative to stay relevant as an exchange. The company expects these AI-focused products to contribute more meaningfully to results as they progress over the next few years. Nasdaq has also invested in machine learning companies, including Digital Reasoning.  Transportation  Avis (CAR) – Avis recently announced a deal with Waymo, Alphabet’s self-driving car project, to maintain, store, and deploy its fleet of 600 self-driving Minivans in the Phoenix area. Avis was chosen because of its national presence and track record of efficiently maintaining and cleaning a fleet of vehicles. As Waymo expands its service, we expect it will expand its relationship with Avis. Boeing (BA) – At the Paris Air Show last month, Boeing revealed plans to begin testing fully autonomous commercial jets. While many planes use auto-pilot for portions of flight today, reducing or removing pilots from the aircraft would be a significant change. In addition to autonomous jets, Boeing is also making other AI investments through its venture arm, HorizonX.  Energy  Haliburton (HAL) – Haliburton is working to make its data more usable, laying a foundation for impactful artificial intelligence applications in the future. Haliburton recently outlined a data analytics advantage it gained simply by organizing and reading data where it was able to identify that one of its pumps was ill-equipped to handle a specific climate. We believe that companies making “dark data” accessible for learnings is a core precursor to effectively leveraging AI. Pioneer Natural Resources Company (PXD) – PXD, a petroleum and natural gas exploration company, has noted that predictive analytics have helped the company begin to use data in an effort to improve business outcomes. The company has plans to better leverage AI to determine where to drill and could eventually have artificially intelligent robots conduct drilling autonomously.  Food/Agriculture  Domino’s (DPZ) – Domino’s has been investing in multiple technologies in an attempt to improve its business. In autonomous delivery, the company has been testing delivery robots in Europe. In AI, Domino’s has invested in a virtual assistant that’s integrated in its mobile application, which aims to expedite and simplify the ordering process. Domino’s has also utilized AI to better route deliveries in real-time by tracking its drivers through GPS, which also happened to reduce driving incidents by 50%. Monsanto (MON) – Monsanto is using AI to improve crop protection techniques, recently partnering with Atomwise, a company that uses AI to accelerate the discovery and development process of medicines. Monsanto noted that the average crop protection product takes 11 years and $250 million to commercialize. AI should help to reduce both of those figures.  Construction  Caterpillar (CAT) – Caterpillar began integrating artificial intelligence into its business a few years ago by creating an analytics and innovation division. One key use case for AI in Caterpillar’s business is in preventative maintenance of its equipment, which can reduce down time and cost of operation. Additionally, Caterpillar’s venture arm has invested in Airware, a drone-tech startup that helps companies plan flights and analyze images gathered for insights, as well as other frontier tech startups. Deere (DE) – In March, Deere announced a partnership with Kespry, a drone-tech startup that helps mining, construction, and other businesses gain insights from aerial imagery. Deere construction and forestry equipment dealers will offer their customers Kespry Aerial Intelligence systems for use on job sites around the world. We expect AI and robotics to have a significant impact on agriculture over the next decade plus and would expect continued exploration from Deere in the space.  Non-Tech AI Portfolio vs. S&amp;P 500 Going forward, we will continue to track how our Non-Tech AI portfolio performs against the S&amp;P 500. Each company will be equally weighted in the portfolio. Backtesting over the past year, our Non-Tech AI portfolio slightly outperformed the S&amp;P 500. As detailed in the chart below, from July 1st, 2016 to present, the Non-Tech AI portfolio was up 17.1% versus the S&amp;P 500 up 15.5%. While past performance is irrelevant in this comparison, we believe the non-tech winners in AI are going to start to demonstrate clear competitive advantages over the next several years, which will ultimately be reflected in their stock prices.  Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make. Loup Ventures employees may currently or in the future hold positions in any or all of the stocks listed here. 

Special thanks to <a href="https://www.linkedin.com/in/davidkroger/" rel="nofollow" target="_blank">David Kroger</a>, <a href="https://www.linkedin.com/in/stevenvansloun/" rel="nofollow" target="_blank">Steve Van Sloun</a>, and <a href="https://www.linkedin.com/in/austin-bohlig-1a731588/" rel="nofollow" target="_blank">Austin Bohlig</a> for their work on the Non-Tech AI Portfolio. In ten years, every company will have to be an artificial intelligence company or they won’t be competitive. While traditional tech companies have been very forward about their advancements and investments in AI, there are many “non-tech” companies that are making investments in AI as well. As a fun exercise, we put together a portfolio of publicly-traded non-tech companies that are poised to benefit from their efforts in AI. To build our portfolio, we scraped the last earnings call of every company in the S&amp;P 500 to see which had specifically referenced “artificial intelligence” and/or “machine learning”. We also looked at companies that had been in the news talking about specific AI-related initiatives. Before we dive into highlighting individual companies, we want to clarify a few terms about AI that are sometimes confused: <blockquote>Artificial Intelligence is a general term that refers to a machine exhibiting intelligent behavior, which may include reasoning, learning, and audio/visual processing.  Machine Learning is a subset of artificial intelligence centered around giving a computer the ability to learn dynamically without human influence.  Deep Learning is a subset of machine learning, and is one of several techniques that enable more effective outcomes. For example, visual perception models use deep learning, i.e. self-driving cars are powered by deep learning systems.  Neural Networks are a component of deep learning in which a computer system is designed to mimic the way a human brain works. A neural network passes input data through a hidden layer of neuronal nodes with dynamic weights that change the output of the system.  </blockquote> One additional disclaimer before we start: We were former stock analysts and still pay a lot of attention to the public markets, but we never covered any of these companies or sectors. Consider our opinions here highly uneducated. Our analysis centered purely around each company’s efforts in AI and not fundamentals of the underlying business. Do you own diligence prior to any investment decision. Healthcare <ul> <li>IDEXX Laboratories (IDXX) – IDEXX manufactures and develops products for the animal healthcare sector. On the company’s last earnings call, management mentioned that its latest diagnostic products are utilizing machine learning so the instruments always have the ability to learn and train on new data. One product that leverages AI is their <a href="https://blog.idexx.com/pulse/did-you-know-artificial-intelligence-is-in-veterinary-medicine/" rel="nofollow" target="_blank">SediVue Dx analyzer</a>.</li> <li>GlaxoSmithKline (GSK) – GSK is one of the bigger pharmaceutical companies leveraging AI and machine learning to help reduce the amount of time it takes to research and bring new drugs to market. GSK recently signed a <a href="http://www.prnewswire.com/news-releases/exscientia-enters-strategic-drug-discovery-collaboration-with-gsk-632029553.html" rel="nofollow" target="_blank">$43M deal with Exscientia</a>, which is a Scotland-based startup that helps automated drug design. GSK stated that Exscientia’s platform will be applied up to ten different diseases to determine if the technology can help lead the way to developing new drugs.</li> </ul> Retail <ul> <li>Macys (M) – If any industry needs the help of AI, it’s retail. Macy’s has been strategically increasing headcount with AI expertise and has <a href="http://www-03.ibm.com/press/us/en/pressrelease/50212.wss" rel="nofollow" target="_blank">partnered with IBM Watson to create On Call</a>. On Call is an AI-powered assistant that can answer questions about products and departments in stores. While still early, we believe that experimental AI technologies that transform the brick and mortar shopping experience will be crucial to winning in the post-Amazon traditional retail world.</li> <li>Under Armour (UA) – Under Armour is leveraging artificial intelligence to better understand their customers. UA is using IBMs Watson’s machine learning platform to develop more personalized fitness and health apps that are designed to measure and manage your well-being. By gathering health data from these apps, Under Armour will be able to provide personalized marketing strategies based on an individual consumer’s lifestyle. The company is also using AI to help <a href="http://www.globalfuturist.org/2017/01/under-armours-new-trainers-are-inspired-by-nature-designed-by-an-ai-and-3d-printed/" rel="nofollow" target="_blank">design new products</a>, including shoes.</li> </ul> Logistics <ul> <li>FedEx (FDX) – FedEx is making strong investments in <a href="https://www.technologyreview.com/s/602896/fedex-bets-on-automation-as-it-prepares-to-fend-off-uber-and-amazon/" rel="nofollow" target="_blank">AI, robotics and self-driving vehicles</a>. FedEx has created an AI-enabled Alexa app that allows consumers to activate orders through voice commands rather than filling out traditional forms. In addition, the company has teamed up with Peloton, a private company focused on semi-autonomous driving platforms, as well as leading automakers Daimler and Volvo, to research semi/fully autonomous driving technologies. We believe the future of delivery will be focused on autonomous systems, and FedEx appears to be preparing for the same future.</li> </ul> Professional Services <ul> <li>Accenture (ACN) – Over the past two years, Accenture has made significant investment in developing AI for both its internal operations as well as client offerings. Recognizing the positive impact that a strong AI platform can provide a business, Accenture has been creating tools to use in its consulting practice across various industries including healthcare, public safety, and financial services. The company has established Accenture Labs, which includes an <a href="https://www.accenture.com/us-en/services-labs-artificial-intelligence" rel="nofollow" target="_blank">Artificial Intelligence Research and Development group</a> driving AI solutions for the broader business.</li> <li>Interpublic Group (IPG) – IPG is a leading advertising services company that has been aggressive in creating AI-driven businesses. The company’s Mediabrands subsidiary<a href="http://martechseries.com/social/social-media-marketing/ipg-mediabrands-unveils-ai-based-social-media-content-agency-hires-rob-bernstein-evp/" rel="nofollow" target="_blank"> introduced an AI-focused arm called Society </a>that leverages a proprietary system called HEART. HEART will enable advertisers to find “emotional resonance in social conversations” through NLP and machine learning. The company also launched the <a href="https://www.fastcompany.com/3062929/r-ga-and-interpublics-new-venture-seeking-the-next-great-marketing-tech-star" rel="nofollow" target="_blank">Marketing Tech Venture Studio</a>, an accelerator that gives IPG early access to cutting edge AI marketing tech startups.</li> </ul> Finance <ul> <li>Northern Trust Corporation (NTRS) – NTRS, an asset management firm, highlighted investments in robotics, artificial intelligence, and blockchain on its last earnings that will allow the company to operate more efficiently and create superior solutions for their clients. Northern Trust is specifically trying to leverage AI and big data to decrease costs, which would allow the company to charge lower management fees in order to stay competitive.</li> <li>Nasdaq (NDAQ) – Nasdaq has developed products that leverage machine learning, including their <a href="http://ir.nasdaq.com/releasedetail.cfm?releaseid=996718" rel="nofollow" target="_blank">Trading Insights data analytics platform</a> and <a href="http://www.investors.com/news/shale-producer-eyes-drilling-with-artificial-intelligence/" rel="nofollow" target="_blank">SMARTS market surveillance platform</a>. In a world now dominated by algorithmic trading, AI is an imperative to stay relevant as an exchange. The company expects these AI-focused products to contribute more meaningfully to results as they progress over the next few years. Nasdaq has also invested in machine learning companies, <a href="http://www.digitalreasoning.com/buzz/nasdaq-and-digital-reasoning-establish-exclusive-alliance-to-deliver-holistic-next-generation-surveillance-and-monitoring-technology.1884035" rel="nofollow" target="_blank">including Digital Reasoning</a>.</li> </ul> Transportation <ul> <li>Avis (CAR) – Avis <a href="https://www.nytimes.com/2017/06/26/business/waymo-avis-deal-self-driving-cars-maintenance.html" rel="nofollow" target="_blank">recently announced a deal</a> with Waymo, Alphabet’s self-driving car project, to maintain, store, and deploy its fleet of 600 self-driving Minivans in the Phoenix area. Avis was chosen because of its national presence and track record of efficiently maintaining and cleaning a fleet of vehicles. As Waymo expands its service, we expect it will expand its relationship with Avis.</li> <li>Boeing (BA) – At the Paris Air Show last month, Boeing <a href="https://www.inc.com/yoram-solomon/boeing-reveals-plans-for-self-flying-commercial-jets-at-the-paris-airshow.html" rel="nofollow" target="_blank">revealed plans</a> to begin testing fully autonomous commercial jets. While many planes use auto-pilot for portions of flight today, reducing or removing pilots from the aircraft would be a significant change. In addition to autonomous jets, Boeing is also making other AI investments through its venture arm, HorizonX.</li> </ul> Energy <ul> <li>Haliburton (HAL) – Haliburton is working to make its data more usable, laying a foundation for impactful artificial intelligence applications in the future. Haliburton <a href="https://www.talkingiotinenergy.com/single-post/2017/03/21/How-Halliburton-addresses-machine-learning-big-data-analytics" rel="nofollow" target="_blank">recently outlined</a> a data analytics advantage it gained simply by organizing and reading data where it was able to identify that one of its pumps was ill-equipped to handle a specific climate. We believe that companies making “dark data” accessible for learnings is a core precursor to effectively leveraging AI.</li> <li>Pioneer Natural Resources Company (PXD) – PXD, a petroleum and natural gas exploration company, has <a href="http://www.investors.com/news/shale-producer-eyes-drilling-with-artificial-intelligence/" rel="nofollow" target="_blank">noted that predictive analytics</a> have helped the company begin to use data in an effort to improve business outcomes. The company has plans to better leverage AI to determine where to drill and could eventually have artificially intelligent robots conduct drilling autonomously.</li> </ul> Food/Agriculture <ul> <li>Domino’s (DPZ) – Domino’s has been investing in multiple technologies in an attempt to improve its business. In autonomous delivery, the company has been <a href="https://www.recode.net/2017/3/29/15100748/dominos-deliver-pizza-robots-germany-starship" rel="nofollow" target="_blank">testing delivery robots</a> in Europe. In AI, Domino’s has invested in a virtual assistant that’s integrated in its mobile application, which aims to expedite and simplify the ordering process. Domino’s has also utilized AI to better route deliveries in real-time by <a href="https://www.dominos.com.au/inside-dominos/technology/gps-driver-tracker" rel="nofollow" target="_blank">tracking its drivers through GPS</a>, which also happened to reduce driving incidents by 50%.</li> <li>Monsanto (MON) – Monsanto is using AI to improve crop protection techniques, <a href="http://news.monsanto.com/press-release/corporate/monsanto-and-atomwise-collaborate-discover-new-crop-protection-options-using" rel="nofollow" target="_blank">recently partnering with Atomwise</a>, a company that uses AI to accelerate the discovery and development process of medicines. Monsanto noted that the average crop protection product takes 11 years and $250 million to commercialize. AI should help to reduce both of those figures.</li> </ul> Construction <ul> <li>Caterpillar (CAT) – Caterpillar began integrating artificial intelligence into its business a few years ago by <a href="http://www.caterpillar.com/en/news/corporate-press-releases/h/caterpillar-announces-new-analytics-and-innovation-division.html" rel="nofollow" target="_blank">creating an analytics and innovation division</a>. One key use case for AI in Caterpillar’s business is in preventative maintenance of its equipment, which can reduce down time and cost of operation. Additionally, Caterpillar’s <a href="https://techcrunch.com/2017/02/02/caterpillar-invests-in-airware-bringing-drone-tech-to-mining-and-construction-enterprises/" rel="nofollow" target="_blank">venture arm has invested</a> in Airware, a drone-tech startup that helps companies plan flights and analyze images gathered for insights, as well as other frontier tech startups.</li> <li>Deere (DE) – In March, Deere <a href="https://techcrunch.com/2017/03/07/john-deere-partners-with-kespry-to-bring-drones-and-aerial-data-to-construction-and-forestry/" rel="nofollow" target="_blank">announced a partnership</a> with Kespry, a drone-tech startup that helps mining, construction, and other businesses gain insights from aerial imagery. Deere construction and forestry equipment dealers will offer their customers Kespry Aerial Intelligence systems for use on job sites around the world. We expect AI and robotics to have a significant impact on agriculture over the next decade plus and would expect continued exploration from Deere in the space.</li> </ul> Non-Tech AI Portfolio vs. S&amp;P 500 Going forward, we will continue to track how our Non-Tech AI portfolio performs against the S&amp;P 500. Each company will be equally weighted in the portfolio. Backtesting over the past year, our Non-Tech AI portfolio slightly outperformed the S&amp;P 500. As detailed in the chart below, from July 1st, 2016 to present, the Non-Tech AI portfolio was up 17.1% versus the S&amp;P 500 up 15.5%. While past performance is irrelevant in this comparison, we believe the non-tech winners in AI are going to start to demonstrate clear competitive advantages over the next several years, which will ultimately be reflected in their stock prices. Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make. Loup Ventures employees may currently or in the future hold positions in any or all of the stocks listed here.

The AI Portfolio: Non-Tech Companies Making AI Investments

Simplicity is underappreciated. In many things. But most obviously right now in our world of consumer technology. Simplicity is a requirement of mass adoption. Look at the iPhone, Google, Amazon, and Uber as examples: The iPhone never shipped with a manual. Turn it on. Press the screen with your finger. It just works. Google gives you a box with two buttons. Type what you’re looking for and hit enter. There’s your answer. Amazon lets you order anything you can imagine. Even with one click. Then it shows up on your doorstep a few days later. Even sooner with Prime. Uber: I’m here. Take me there. Ok, done.   None of these products has a learning curve. They’re dead simple to use and they just work. You can make similar arguments for Facebook, Twitter, and Airbnb. Probably not Snapchat, and perhaps that is their biggest weakness. This isn’t to say that simple products don’t have extremely complex technical underpinnings. Almost no iPhone or Google user has any conception of the software that enables their seamless technology experiences. The part they touch makes the technology disappear. In this new wave of innovation, technology seems to be embracing itself. Tech is cool. Tech is sexy. And it feels like we’re trying less to hide tech with ease of use. With a friendly, non-tech face. That’s a mistake. In the consumer world, AI, robotics, VR, AR, even cryptocurrency, none of these will see mass adoption without the same simplicity employed by the incumbent giants. Simplicity is also underappreciated in investing. It’s easy to overthink things and build reasons why something can buck the reality of otherwise. We’re trying to employ the concept of simplicity in our investments. We’re not afraid to invest in complex tech, but when we do, we make sure the tech hides behind a friendly front that’s simple enough for mass adoption. Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Simplicity is underappreciated. In many things. But most obviously right now in our world of consumer technology. Simplicity is a requirement of mass adoption. Look at the iPhone, Google, Amazon, and Uber as examples: The iPhone never shipped with a manual. Turn it on. Press the screen with your finger. It just works. Google gives you a box with two buttons. Type what you’re looking for and hit enter. There’s your answer. Amazon lets you order anything you can imagine. Even with one click. Then it shows up on your doorstep a few days later. Even sooner with Prime. Uber: I’m here. Take me there. Ok, done. None of these products has a learning curve. They’re dead simple to use and they just work. You can make similar arguments for Facebook, Twitter, and Airbnb. Probably not Snapchat, and perhaps that is their biggest weakness. This isn’t to say that simple products don’t have extremely complex technical underpinnings. Almost no iPhone or Google user has any conception of the software that enables their seamless technology experiences. The part they touch makes the technology disappear. In this new wave of innovation, technology seems to be embracing itself. Tech is cool. Tech is sexy. And it feels like we’re trying less to hide tech with ease of use. With a friendly, non-tech face. That’s a mistake. In the consumer world, AI, robotics, VR, AR, even cryptocurrency, none of these will see mass adoption without the same simplicity employed by the incumbent giants. Simplicity is also underappreciated in investing. It’s easy to overthink things and build reasons why something can buck the reality of otherwise. We’re trying to employ the concept of simplicity in our investments. We’re not afraid to invest in complex tech, but when we do, we make sure the tech hides behind a friendly front that’s simple enough for mass adoption. Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

The Underappreciated Beauty of Simplicity in Tech

Amazon is the world’s largest online retailer, about five times bigger in that space than Walmart and its Jet.com subsidiary. Yet despite Amazon’s deep online roots and dominance over Internet shopping, I believe it will buy Target in 2018.  After digging into the realities of both companies, it becomes clear that Amazon buying Target isn’t as bold of a prediction as one might think. Here are three reasons why a merger makes sense. Offline sales will always be a big part of retail. It’s no secret that online retail is slowly killing offline. My firm, Loup Ventures, estimates that in the fourth quarter of 2017, about 10% of total U.S. retail sales, or about $125 billion, were online. The longer-term question is: How much of total retail will eventually happen online? Based on our analysis of U.S. retail sales by category (excluding gas and restaurant expenditures), 55% of total retail sales should eventually happen online. Even if half of commerce shifts to online, that still leaves a massive market offline at 45%. People in the future will still want to pick up groceries at a local store. As retail changes dramatically going forward, the biggest winners will promote both online and offline opportunities. They both pursue affluent customers.  Amazon’s acquisition of Whole Foods last year confirmed that the online giant’s focus is on the high-income consumer. Market research firm GfK MRI estimates the median household income for an Amazon shopper is $90,100, similar to Whole Foods at $95,200. Target reports its average shopper earns $87,000. These far exceed the U.S. median household income of $55,322. By buying Target, Amazon would solidify its dominance of the high-income consumer. Conversely, if Amazon were to acquire a company targeting lower-income customers, such as Dollar Tree, Amazon would steer its focus away from its core consumers. In my years of observing tech companies, I’ve seen that owning a demographic usually yields the best results. Brick and mortar will get more advanced. Over the following 10 years, I’d expect Amazon to convert Target and Whole Foods stores to an automated model with few employees. Stores would be monitored by computer vision systems; shelves would be stocked by robots; customers would be helped by service robots that understand natural language; and checkout would resemble Amazon Go locations, where customers simply walk out with their purchases. In this future, the lines between online shopping and automated brick and mortar stores would blur, as cost-focused stores become more like smart warehouses. The few employees working in stores would focus on delivering personalized service based on mutual understanding and empathy, which would enable retailers to differentiate themselves. Any number of factors could derail such a combination, including government intervention. But sometimes mergers make too much sense to ignore. Amazon buying Target is one such situation. This note was originally published on Fortune. Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

<a href="http://fortune.com/fortune500/amazon-com/" rel="noopener nofollow" target="_blank">Amazon</a> is the world’s largest online retailer, about five times bigger in that space than <a href="http://fortune.com/fortune500/walmart/" rel="noopener nofollow" target="_blank">Walmart</a> and its <a href="http://Jet.com" rel="nofollow" target="_blank">Jet.com</a> subsidiary. Yet despite Amazon’s deep online roots and dominance over Internet shopping, I believe it will buy <a href="http://fortune.com/fortune500/target/" rel="noopener nofollow" target="_blank">Target</a> in 2018. After digging into the realities of both companies, it becomes clear that Amazon buying Target isn’t as bold of a prediction as one might think. Here are three reasons why a merger makes sense. Offline sales will always be a big part of retail. It’s no secret that online retail is slowly killing offline. My firm, Loup Ventures, estimates that in the fourth quarter of 2017, about 10% of total U.S. retail sales, or about $125 billion, were online. The longer-term question is: How much of total retail will eventually happen online? Based on our <a href="http://loupventures.wpengine.com/the-future-of-retail/" rel="noopener noreferrer nofollow" target="_blank">analysis</a> of U.S. retail sales by category (excluding gas and restaurant expenditures), 55% of total retail sales should eventually happen online. Even if half of commerce shifts to online, that still leaves a massive market offline at 45%. People in the future will still want to pick up groceries at a local store. As retail changes dramatically going forward, the biggest winners will promote both online and offline opportunities. They both pursue affluent customers.  Amazon’s acquisition of Whole Foods last year confirmed that the online giant’s focus is on the high-income consumer. Market research firm <a href="https://www.digitalcommerce360.com/2017/06/16/amazon-solidifies-its-hold-on-affluent-shoppers-with-purchase-of-whole-foods/" rel="noopener noreferrer nofollow" target="_blank">GfK MRI</a> estimates the median household income for an Amazon shopper is $90,100, similar to Whole Foods at $95,200. Target <a href="https://targetmedianetwork.target.com/meetourguests" rel="noopener noreferrer nofollow" target="_blank">reports</a> its average shopper earns $87,000. These far exceed the U.S. <a href="https://www.census.gov/search-results.html?q=houshold+income&amp;page=1&amp;stateGeo=none&amp;searchtype=web&amp;cssp=SERP&amp;%3Acq_csrf_token=undefined" rel="noopener noreferrer nofollow" target="_blank">median household income</a> of $55,322. By buying Target, Amazon would solidify its dominance of the high-income consumer. Conversely, if Amazon were to acquire a company targeting lower-income customers, such as <a href="http://fortune.com/fortune500/dollar-tree/" rel="noopener nofollow" target="_blank">Dollar Tree</a>, Amazon would steer its focus away from its core consumers. In my years of observing tech companies, I’ve seen that owning a demographic usually yields the best results. Brick and mortar will get more advanced. Over the following 10 years, I’d expect Amazon to convert Target and Whole Foods stores to an automated model with few employees. Stores would be monitored by computer vision systems; shelves would be stocked by robots; customers would be helped by service robots that understand natural language; and checkout would resemble Amazon Go locations, where customers simply walk out with their purchases. In this future, the lines between online shopping and automated brick and mortar stores would blur, as cost-focused stores become more like smart warehouses. The few employees working in stores would focus on delivering personalized service based on mutual understanding and empathy, which would enable retailers to differentiate themselves. Any number of factors could derail such a combination, including government intervention. But sometimes mergers make too much sense to ignore. Amazon buying Target is one such situation. This note was originally published on <a href="http://fortune.com/2018/01/05/amazon-target-buy-walmart-whole-foods/" rel="nofollow" target="_blank">Fortune</a>. Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

3 Reasons Amazon Will Buy Target This Year

Every VC says they only invest in great founders, but the majority of venture-backed businesses still end in relative failure. Does that mean we as VCs are just bad judges of founders or do we not know what great founders look like? This is a question we’ve obsessed over since we started Loup Ventures — trying to define what makes a great founder and how to test for it. It’s hard. Great founders come from a host of different backgrounds, educations, genders, ethnicities. We’ve identified 10 traits across two categories that make great founders at the seed stage: Innate and Dynamic.  Innate Qualities of a Great Founder Innate traits are character elements that are difficult to impossible to learn — either the founder has them or they don’t. Regardless of the type of business a founder starts, there are five imperative innate traits for all great founders:  Intelligence Integrity Commitment to suffering Focused curiosity Resourcefulness  Warren Buffett has talked about a few of these traits as things he looks for in his managers. Naval Ravikant has also talked about a few of them, so they shouldn’t come as much of a surprise. Intelligence is probably the most obvious of the innate traits. To start a valuable company, a founder must have some kind of smarts because intelligence leads to interesting insights about a market (see the next section). These insights translate into vision, which is the only truly defensible element and most important asset of any startup business. Vision is how an entrepreneur attracts talent and creates strategy.    Pure book smarts matter, but emotional intelligence is important too. A founder has to deeply understand his or her customers to deliver products they want, not just products the founder wants to build. A founder also has to deeply understand his or her employees and what motivates them to sustain high levels of productivity. Integrity is the current buzz word in the startup world. We used to think about integrity as honesty, but that doesn’t seem to fully encompass the spirit of the trait. Honesty is a requirement because it means the founder learns from his or her mistakes. Dishonesty assumes problems are someone else’s fault, which means it’s impossible to learn. Ownership is a popular modern term for honesty – taking responsibility for things that happen whether they’re purely in your control or not. The interesting component about integrity as it relates to startups is that great founders need to be willing to break rules to build valuable businesses. However, there’s a line between what’s acceptable and what’s not, and sometimes it’s blurry. Salesforce.com hired fake protestors to disrupt a Siebel conference in its early days. Clever guerilla marketing. The cases of Hampton Creek, Theranos, and Zenefits are clearly in the unacceptable camp. The ride sharing legal disputes are blurrier, although we agree that the laws are outdated and ride sharing is a significant net positive to the world. In any case, dishonesty and unethical behavior are contagious, so integrity must come from the top and be a guiding light for any startup. The third quality of great founders is a commitment to suffering for at least five years. This might sound more extreme than necessary, but starting a company is a rollercoaster of suffering. You need to be comfortable with hearing no over and over and not let that destroy your will. You need to be able to withstand low periods that are inevitable — unexpected customer or employee losses, investor rejections, tax bills, fights with cofounders. Entrepreneurs don’t necessarily need to revel in difficulty, but it helps. We like to track the number of times we hear no during the week to reduce the negative reinforcement of it. Why five years of suffering? It usually takes at least two years before you have any reasonable traction to show that your business might be working, then another few years of driving growth to create something that looks like a moat. Then you can afford to breathe. A little. Focused curiosity might seem like an oxymoron, but curiosity that is targeted at a specific market leads to a commitment to testing new things. Testing new things leads to new business opportunities and products. Curiosity may be particularly necessary for seed stage founders (our focus) because their businesses are so nascent and require constant iteration. A lack of curiosity at the early stage leads to stagnation, which leads to death.  An early stage startup is an unending series of challenges. This is doubly true for first time founders who not only have to figure out how to deliver their specific offering to market, but how to operate a business in general. The final innate trait, resourcefulness, gives founders the ability to thrive in the face of persistent tests. A great founder is not one that says he or she couldn’t do something because they didn’t have enough capital or it was too difficult. They figure it out and keep figuring it out. Dynamic Qualities of a Great Founder Where the innate traits are binary and fixed, the dynamic traits of a great founder are five qualities that exist on a spectrum and evolve over time:  Market insight Operational capability Product sense Growth Leadership  Market insight is our term for the popular “founder/market fit.” What we want to see from a founder is that he or she has spent a lot of time thinking about and experimenting on a problem they’ve identified. In that sense, market insights are a byproduct of the innate intelligence trait being applied to a specific problem over a length of time. Founder/market fit to us implies that the founder has spent time involved in a market, thus the fit; however, prior market experience isn’t necessary for great founders. Jeff Bezos didn’t have founder/market fit when he started Amazon. He never ran a bookstore before, but he had a market insight about the Internet changing the way people shopped. The founders of Uber never worked in the livery business, but they had an insight about mobile changing the way people arranged transport. Airbnb is another example, and there are many others.  The other four traits are relatively straight forward business-related qualities. Operational capability is the founder’s ability to deliver their product or service and serve customers. Product sense is the founder’s ability to create a product or service that unexpectedly delights consumers. Product sense is what enables a founder to reach product/market fit. Growth is the founder’s ability to market and sell the product or service. Leadership is the founder’s ability to organize his or her team to meet objectives. All five of these traits work in conjunction with one another, and all five are necessary for an early stage founder to possess in some degree. However, numerous factors influence the relative importance of the dynamic qualities of a founder. In other words, some of the dynamic traits need to be more developed depending on type of the founder’s company. For example, in a highly social company, a founder’s product sense seems to matter more than any other trait because user growth will have to be organically rapid for the company to service. The immediate experience of the users will be what keeps them engaged and sharing the product with others. An enterprise founder should require stronger growth capabilities to directly sell their B2B product, software or otherwise. Hardware companies tend to need stronger operational capability given the manufacturing requirements of their product. The above observations were specific to seed stage companies, but stage of the investment also impacts the relative importance of the dynamic qualities in a founder. At the A/B round, product should be somewhat established, so market insights and growth might matter more as the founder tries to leverage his or her unique vision into some sort of durable advantage. In a pre-IPO or public company, the importance of leadership matters significantly more because of the likely larger number of employees at the company. If You’ve Got It, Go for It It’s boring to hear every VC say they only fund great founders, but it really is true, and their criteria probably isn’t much different from ours. Early stage companies are extremely fragile. VCs obsess over the quality of founders because it’s one of the few variables we can control. Recognizing these qualities in oneself is also an important variable an entrepreneur can control. Whether you’re running a small business or hoping to build the next Google, you must have all the innate traits and the correct balance of dynamic traits to be great. If you know you have them, then focus on your goal and be great. Hopefully we can help you along the way. Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Every VC says they only invest in great founders, but the majority of venture-backed businesses still end in relative failure. Does that mean we as VCs are just bad judges of founders or do we not know what great founders look like? This is a question we’ve obsessed over since we started Loup Ventures — trying to define what makes a great founder and how to test for it. It’s hard. Great founders come from a host of different backgrounds, educations, genders, ethnicities. We’ve identified 10 traits across two categories that make great founders at the seed stage: Innate and Dynamic. Innate Qualities of a Great Founder Innate traits are character elements that are difficult to impossible to learn — either the founder has them or they don’t. Regardless of the type of business a founder starts, there are five imperative innate traits for all great founders: <ul> <li>Intelligence</li> <li>Integrity</li> <li>Commitment to suffering</li> <li>Focused curiosity</li> <li>Resourcefulness</li> </ul> Warren Buffett has <a href="https://www.amazon.com/Warren-Buffetts-Management-Secrets-Personal/dp/1439149372/ref=tmm_hrd_swatch_0?_encoding=UTF8&amp;qid=&amp;sr=" rel="nofollow" target="_blank">talked</a> about a few of these traits as things he looks for in his managers. Naval Ravikant has also <a href="http://www.businessinsider.com/how-naval-ravikant-decides-what-to-invest-in-2015-8" rel="nofollow" target="_blank">talked</a> about a few of them, so they shouldn’t come as much of a surprise. Intelligence is probably the most obvious of the innate traits. To start a valuable company, a founder must have some kind of smarts because intelligence leads to interesting insights about a market (see the next section). These insights translate into vision, which is the only truly defensible element and most important asset of any startup business. Vision is how an entrepreneur attracts talent and creates strategy. Pure book smarts matter, but emotional intelligence is important too. A founder has to deeply understand his or her customers to deliver products they want, not just products the founder wants to build. A founder also has to deeply understand his or her employees and what motivates them to sustain high levels of productivity. Integrity is the current buzz word in the startup world. We used to think about integrity as honesty, but that doesn’t seem to fully encompass the spirit of the trait. Honesty is a requirement because it means the founder learns from his or her mistakes. Dishonesty assumes problems are someone else’s fault, which means it’s impossible to learn. Ownership is a popular modern term for honesty – taking responsibility for things that happen whether they’re purely in your control or not. The interesting component about integrity as it relates to startups is that great founders need to be willing to break rules to build valuable businesses. However, there’s a line between what’s acceptable and what’s not, and sometimes it’s blurry. <a href="http://www.businessinsider.com/marc-benioff-salesforcecom-chief-has-pulled-some-crazy-stunts-2012-3?op=1/#-hired-fake-protesters-to-disrupt-a-siebel-conference-and-drew-the-cops-in-1" rel="nofollow" target="_blank">Salesforce.com</a> hired fake protestors to disrupt a Siebel conference in its early days. Clever guerilla marketing. The cases of <a href="https://www.bloomberg.com/features/2016-hampton-creek-just-mayo/" rel="nofollow" target="_blank">Hampton Creek,</a> <a href="https://www.vanityfair.com/news/2016/09/elizabeth-holmes-theranos-exclusive" rel="nofollow" target="_blank">Theranos</a>, and <a href="https://www.bloomberg.com/features/2016-zenefits/" rel="nofollow" target="_blank">Zenefits</a> are clearly in the unacceptable camp. The ride sharing legal disputes are blurrier, although we agree that the laws are outdated and ride sharing is a significant net positive to the world. In any case, dishonesty and unethical behavior are contagious, so integrity must come from the top and be a guiding light for any startup. The third quality of great founders is a commitment to suffering for at least five years. This might sound more extreme than necessary, but starting a company is a rollercoaster of suffering. You need to be comfortable with hearing no over and over and not let that destroy your will. You need to be able to withstand low periods that are inevitable — unexpected customer or employee losses, investor rejections, tax bills, fights with cofounders. Entrepreneurs don’t necessarily need to revel in difficulty, but it helps. We like to track the number of times we hear no during the week to reduce the negative reinforcement of it. Why five years of suffering? It usually takes at least two years before you have any reasonable traction to show that your business might be working, then another few years of driving growth to create something that looks like a moat. Then you can afford to breathe. A little. Focused curiosity might seem like an oxymoron, but curiosity that is targeted at a specific market leads to a commitment to testing new things. Testing new things leads to new business opportunities and products. Curiosity may be particularly necessary for seed stage founders (our focus) because their businesses are so nascent and require constant iteration. A lack of curiosity at the early stage leads to stagnation, which leads to death. An early stage startup is an unending series of challenges. This is doubly true for first time founders who not only have to figure out how to deliver their specific offering to market, but how to operate a business in general. The final innate trait, resourcefulness, gives founders the ability to thrive in the face of persistent tests. A great founder is not one that says he or she couldn’t do something because they didn’t have enough capital or it was too difficult. They figure it out and keep figuring it out. Dynamic Qualities of a Great Founder Where the innate traits are binary and fixed, the dynamic traits of a great founder are five qualities that exist on a spectrum and evolve over time: <ul> <li>Market insight</li> <li>Operational capability</li> <li>Product sense</li> <li>Growth</li> <li>Leadership</li> </ul> Market insight is our term for the popular “founder/market fit.” What we want to see from a founder is that he or she has spent a lot of time thinking about and experimenting on a problem they’ve identified. In that sense, market insights are a byproduct of the innate intelligence trait being applied to a specific problem over a length of time. Founder/market fit to us implies that the founder has spent time involved in a market, thus the fit; however, prior market experience isn’t necessary for great founders. Jeff Bezos didn’t have founder/market fit when he started Amazon. He never ran a bookstore before, but he had a market insight about the Internet changing the way people shopped. The founders of Uber never worked in the livery business, but they had an insight about mobile changing the way people arranged transport. Airbnb is another example, and there are many others. The other four traits are relatively straight forward business-related qualities. Operational capability is the founder’s ability to deliver their product or service and serve customers. Product sense is the founder’s ability to create a product or service that unexpectedly delights consumers. Product sense is what enables a founder to reach product/market fit. Growth is the founder’s ability to market and sell the product or service. Leadership is the founder’s ability to organize his or her team to meet objectives. All five of these traits work in conjunction with one another, and all five are necessary for an early stage founder to possess in some degree. However, numerous factors influence the relative importance of the dynamic qualities of a founder. In other words, some of the dynamic traits need to be more developed depending on type of the founder’s company. For example, in a highly social company, a founder’s product sense seems to matter more than any other trait because user growth will have to be organically rapid for the company to service. The immediate experience of the users will be what keeps them engaged and sharing the product with others. An enterprise founder should require stronger growth capabilities to directly sell their B2B product, software or otherwise. Hardware companies tend to need stronger operational capability given the manufacturing requirements of their product. The above observations were specific to seed stage companies, but stage of the investment also impacts the relative importance of the dynamic qualities in a founder. At the A/B round, product should be somewhat established, so market insights and growth might matter more as the founder tries to leverage his or her unique vision into some sort of durable advantage. In a pre-IPO or public company, the importance of leadership matters significantly more because of the likely larger number of employees at the company. If You’ve Got It, Go for It It’s boring to hear every VC say they only fund great founders, but it really is true, and their criteria probably isn’t much different from ours. Early stage companies are extremely fragile. VCs obsess over the quality of founders because it’s one of the few variables we can control. Recognizing these qualities in oneself is also an important variable an entrepreneur can control. Whether you’re running a small business or hoping to build the next Google, you must have all the innate traits and the correct balance of dynamic traits to be great. If you know you have them, then focus on your goal and be great. Hopefully we can help you along the way. Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Do You Have What It Takes to Be a Great Founder?

Last week we wrote about simplicity as a driving force behind the world’s biggest technology offerings. We’re extending our thoughts on simplicity into a series that explores the necessity of simplicity in frontier technology. First, we’ll dive into AR.  Simplicity for AR in 2018 must start with a question: “What does AR do?” Not in the literal sense. We all know it overlays digital information on the real world. What the question needs to answer is what undeniable and unduplicable benefit AR confers to its users. What can only AR do?  The smartphone put a powerful computer in your pocket that lets you work and play from everywhere. Apple makes the smartphone so simple anyone can pick it up and start working and playing instantly. What can only AR do? The Internet connected you with the world’s information. Google sorts it for you. Amazon lets you buy things you find. What can only AR do? The answer isn’t that it puts a computer with the world’s information in your eye. That’s only marginally better, maybe not even, than what we have now. Marginally better is fine as an emerging feature on smartphones today, but it won’t drive mass adoption of AR wearables that people wear all day long. The problem is more obvious when asked what the killer use case of AR is. To be clearer, a use case the average consumer could engage in every day. It’s not envisioning a new couch in your living room or getting step-by-step instructions or doing facial/object recognition. AR doesn’t have the advantage of email, messaging, and web browsing as the smartphone inherited from the Internet. Because AR is a true paradigm shift in how we interface with computers, we need to rethink communication, information collection, and information consumption specifically for AR. That hasn’t happened in a meaningful way yet. Our tone here is tough, but only because we think the AR space has been taking a pass at answering this hard existential question in favor of experimentation with hopes that customers figure it out for them. We remain bullish on the future of AR and think the answer to our core question here might have something to do with the relative “nearness” of information it creates. To elaborate, we’ve evolved from a limited keyboard-style interface to a touch interface to a mixed reality interface that might incorporate gestures, thoughts, voice, etc. Interacting with information is becoming much closer to how we interact with the real world. This answer isn’t perfect, but we think it’s in the right direction. Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Last week we wrote about simplicity as a driving force behind the world’s biggest technology offerings. We’re extending our thoughts on simplicity into a series that explores the necessity of simplicity in frontier technology. First, we’ll dive into AR. Simplicity for AR in 2018 must start with a question: “What does AR do?” Not in the literal sense. We all know it overlays digital information on the real world. What the question needs to answer is what undeniable and unduplicable benefit AR confers to its users. What can only AR do? The smartphone put a powerful computer in your pocket that lets you work and play from everywhere. Apple makes the smartphone so simple anyone can pick it up and start working and playing instantly. What can only AR do? The Internet connected you with the world’s information. Google sorts it for you. Amazon lets you buy things you find. What can only AR do? The answer isn’t that it puts a computer with the world’s information in your eye. That’s only marginally better, maybe not even, than what we have now. Marginally better is fine as an emerging feature on smartphones today, but it won’t drive mass adoption of AR wearables that people wear all day long. The problem is more obvious when asked what the killer use case of AR is. To be clearer, a use case the average consumer could engage in every day. It’s not envisioning a new couch in your living room or getting step-by-step instructions or doing facial/object recognition. AR doesn’t have the advantage of email, messaging, and web browsing as the smartphone inherited from the Internet. Because AR is a true paradigm shift in how we interface with computers, we need to rethink communication, information collection, and information consumption specifically for AR. That hasn’t happened in a meaningful way yet. Our tone here is tough, but only because we think the AR space has been taking a pass at answering this hard existential question in favor of experimentation with hopes that customers figure it out for them. We remain bullish on the future of AR and think the answer to our core question here might have something to do with the relative “nearness” of information it creates. To elaborate, we’ve evolved from a limited keyboard-style interface to a touch interface to a mixed reality interface that might incorporate gestures, thoughts, voice, etc. Interacting with information is becoming much closer to how we interact with the real world. This answer isn’t perfect, but we think it’s in the right direction. Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Simplicity Series: Augmented Reality

We think customer feedback is a critical (but too often overlooked) component of understanding where technology stands today and where it’s headed in the future. Our Feedback Loup series provides real customer feedback on the technologies shaping our future. Snap’s IPO is a perfect opportunity to step back and gather comments from Snapchat users on their habits and practices from frequency to filters.  Snap’s public offering is great for the tech industry and is a huge accomplishment for the company. We summarized our thoughts in an open letter to the company, touching on managing expectations while chasing a bold long-term vision. We’re big fans of the direction they are heading with their core AR capabilities and budding hardware lineup. We recently argued that Snap is an augmented reality powerhouse because Snap combines market-leading AR technology with dedicated cameras, like Spectacles, to deliver an unmatched user experience. But we wanted to bring the Snap story to life, gather some real user feedback and, for novices, show you why people love using Snapchat. So we asked 32 college students – a small “buzz” survey within a core demographic – about how they use Snapchat. Here’s some of what we heard: https://youtu.be/azYMWk6FEoY Key Data Points from our Buzz Survey of College Students:  66% snap more today than they did 6 months ago The average user snaps 37.8 times per day 69% send more than 5 snaps per day 41% could recall a specific ad they saw on Snapchat  We know Snapchat’s global user base is growing rapidly. Our data suggests that college Snapchat users are also using the service more often. 66% of the students we spoke with said they snap more now than they did 6 months ago, 28% snap less frequently today, and 6% snap roughly the same amount.  Among the 32 students in our sample, the average user snaps 37.8 per day. 69% send more than 5 snaps per day and 19% send more than 75 snaps per day. One user told us that she sends about 200 snaps per day. Interestingly, the median number of snaps per day was 17.5, so it’s easy to see the 80/20 rule in effect.  Based on our results, 80% of the snaps in our buzz survey were sent by 30% of the users we surveyed.  We also asked each user to pick a favorite Snapchat filter. The most popular option is to send a snap without a filter; 25% of users prefer no filter. The most popular filter is the dog filter (13%) followed by the face swap filter (9%).  Snap weaves sponsored content, filters, and ads into the Snapchat experience in an engaging way that sometimes goes unnoticed by users. It’s hard to use Snapchat without exposure to content that generates revenue for the company. While the seamless integration of sponsored content is clearly an objective for Snap, ad recall rates are also important for brands. Our survey found that 41% of users could recall a specific ad they say on Snapchat.  Notably, about two-thirds of those who could not recall a specific ad remember seeing ads more generally. But that implies that about 20% of all users in our sample do not even realize that Snapchat serves ads to its users. Snapchat has the ability to generate advertising revenue by charging brands to post stories to its “Discover” page, and also by selling advertisements in three forms: Sponsored Ads, Geofilters, and Lenses.  Sponsored Ads are full screen advertisements that users see in Snapchat. These ads can be seen in two places. First, the “Discover” stories that companies manage. On “Discover” stories, brands such as CNN, WSJ, Comedy Central, ESPN, National Geographic, or iHeartRadio can post pictures about their articles. Users can then swipe up to be directed to the article on the sponsor’s website. Companies on the “Discover” page can sell advertisements to other brands or allow Snapchat to sell advertisements to brands on their behalf. In both instances, Snapchat and the “Discover” brand will share the revenue. Second, sponsored ads can also be seen by a user in between their friends’ stories. Sponsored Geofilters are overlays that place an outline over a picture or video. These overlays allow brands to create a filter that users can add to the photos they share with their friends. Among our respondents that could recall a specific advertisement, 40% recalled a “Sponsored Geofilter” of an upcoming movie. Sponsored Lenses are similar to filters, but allow the manipulation of a photo or video before it is taken. Brands are able to create their own lenses that include their logo, with the intention that users will select their lens and send it out to their friends.  Now that Snap is publicly traded, there will be even more scrutiny on how its users are engaging with the platform, including user growth, time spent, and ad revenue.  Snapchat has established a unique ad experience within its platform as demonstrated by the 5x y/y growth rate in revenue in Q4 2016.  The company has established a deeply engaged user base generating a solid foundation in ad revenue with interesting optionality in camera hardware.  It will be fun to see how these assets converge even more in the future. Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

We think customer feedback is a critical (but too often overlooked) component of understanding where technology stands today and where it’s headed in the future. Our Feedback Loup series provides real customer feedback on the technologies shaping our future. Snap’s IPO is a perfect opportunity to step back and gather comments from Snapchat users on their habits and practices from frequency to filters. Snap’s public offering is great for the tech industry and is a huge accomplishment for the company. We summarized our thoughts in an <a href="http://loupventures.wpengine.com/an-open-letter-to-snap-ahead-of-its-ipo/" rel="nofollow" target="_blank">open letter to the company</a>, touching on managing expectations while chasing a bold long-term vision. We’re big fans of the direction they are heading with their core AR capabilities and budding hardware lineup. We recently argued that <a href="http://loupventures.wpengine.com/is-snapchat-the-real-augmented-reality-powerhouse/" rel="nofollow" target="_blank">Snap is an augmented reality powerhouse</a> because Snap combines market-leading AR technology with dedicated cameras, like Spectacles, to deliver an unmatched user experience. But we wanted to bring the Snap story to life, gather some real user feedback and, for novices, show you why people love using Snapchat. So we asked 32 college students – a small “buzz” survey within a core demographic – about how they use Snapchat. Here’s some of what we heard: <a href="https://youtu.be/azYMWk6FEoY" rel="nofollow" target="_blank">https://youtu.be/azYMWk6FEoY</a> Key Data Points from our Buzz Survey of College Students: <ul> <li>66% snap more today than they did 6 months ago</li> <li>The average user snaps 37.8 times per day</li> <li>69% send more than 5 snaps per day</li> <li>41% could recall a specific ad they saw on Snapchat</li> </ul> We know Snapchat’s global user base is growing rapidly. Our data suggests that college Snapchat users are also using the service more often. 66% of the students we spoke with said they snap more now than they did 6 months ago, 28% snap less frequently today, and 6% snap roughly the same amount. Among the 32 students in our sample, the average user snaps 37.8 per day. 69% send more than 5 snaps per day and 19% send more than 75 snaps per day. One user told us that she sends about 200 snaps per day. Interestingly, the median number of snaps per day was 17.5, so it’s easy to see the 80/20 rule in effect.  Based on our results, 80% of the snaps in our buzz survey were sent by 30% of the users we surveyed. We also asked each user to pick a favorite Snapchat filter. The most popular option is to send a snap without a filter; 25% of users prefer no filter. The most popular filter is the dog filter (13%) followed by the face swap filter (9%). Snap weaves sponsored content, filters, and ads into the Snapchat experience in an engaging way that sometimes goes unnoticed by users. It’s hard to use Snapchat without exposure to content that generates revenue for the company. While the seamless integration of sponsored content is clearly an objective for Snap, ad recall rates are also important for brands. Our survey found that 41% of users could recall a specific ad they say on Snapchat. Notably, about two-thirds of those who could not recall a specific ad remember seeing ads more generally. But that implies that about 20% of all users in our sample do not even realize that Snapchat serves ads to its users. Snapchat has the ability to generate advertising revenue by charging brands to post stories to its “Discover” page, and also by selling advertisements in three forms: Sponsored Ads, Geofilters, and Lenses. <ol> <li>Sponsored Ads are full screen advertisements that users see in Snapchat. These ads can be seen in two places. First, the “Discover” stories that companies manage. On “Discover” stories, brands such as CNN, WSJ, Comedy Central, ESPN, National Geographic, or iHeartRadio can post pictures about their articles. Users can then swipe up to be directed to the article on the sponsor’s website. Companies on the “Discover” page can sell advertisements to other brands or allow Snapchat to sell advertisements to brands on their behalf. In both instances, Snapchat and the “Discover” brand will share the revenue. Second, sponsored ads can also be seen by a user in between their friends’ stories.</li> <li>Sponsored Geofilters are overlays that place an outline over a picture or video. These overlays allow brands to create a filter that users can add to the photos they share with their friends. Among our respondents that could recall a specific advertisement, 40% recalled a “Sponsored Geofilter” of an upcoming movie.</li> <li>Sponsored Lenses are similar to filters, but allow the manipulation of a photo or video before it is taken. Brands are able to create their own lenses that include their logo, with the intention that users will select their lens and send it out to their friends.</li> </ol> Now that Snap is publicly traded, there will be even more scrutiny on how its users are engaging with the platform, including user growth, time spent, and ad revenue.  Snapchat has established a unique ad experience within its platform as demonstrated by the 5x y/y growth rate in revenue in Q4 2016.  The company has established a deeply engaged user base generating a solid foundation in ad revenue with interesting optionality in camera hardware.  It will be fun to see how these assets converge even more in the future. Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Feedback Loup: Snapchat

Snap priced its IPO at $17 per share, implying a $23.6 billion market cap.  To put the valuation in perspective, we think Snap could grow revenues by 100% to ~$800 million in 2017 and believe some buy side investors think the number will be closer to $1 billion.  Therefore, Snap is trading at about 29.5x our CY17 revenue expectation and 23.6x the early bullish whisper.  For comparison, Facebook trades at about 10x the Street’s CY17 revenue estimate of $37.8 billion.  There is a vast difference in forward growth that helps justify the difference in multiples: 100%+ y/y growth for Snap this year vs 36% for Facebook.  Snap is obviously at a much different stage in its lifecycle as a company vs Facebook and is actually attacking social networking from a different angle – the camera.  We believe investors will have questions over the next year as to what being a “camera company” means.  Philosophically, we think of it as Snap trying to own the tech stack one step above social.  The camera has already established itself as the future of communication.  Snapchat, Snap’s flagship product, relies on smartphone cameras to enable its service.  Without connected cameras, Snapchat doesn’t exist.  By trying to own, or at least influence, the camera layer itself, Snap evolves beyond a social media app into an enabler of communications.  In that sense, Snap’s focus on the camera is not all that dissimilar from Facebook with its experiments with VR and AR.  The difference is Snap appears to be all in. Trying to own the camera layer may come through multiple products.  Most obvious is software that uses and enhances current cameras.  Snap already does this with products like Lenses.  We expect the company to continue to develop software that utilizes the camera both in core Snapchat and perhaps outside of it as well.  The second camera product is Spectacles, which we view as the most useable AR glasses on the market today.  There is next to no learning curve because the glasses focus on one simple task: recording video through a camera.  Spectacles aren’t the future of AR, but they are a baby step toward the next phase that will add a little more functionality.   Beyond Spectacles, we believe the company is experimenting with other hardware, which may be other consumer wearables or may be products they look to partner with existing hardware manufacturers. We don’t know how the stock will react tomorrow or over the next year.  What we do know is that the camera is at the centerpiece of communication already, and if Snap can find a way to own the camera they will be rewarded handsomely. Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Snap priced its IPO at $17 per share, implying a $23.6 billion market cap.  To put the valuation in perspective, we think Snap could grow revenues by 100% to ~$800 million in 2017 and believe some buy side investors think the number will be closer to $1 billion.  Therefore, Snap is trading at about 29.5x our CY17 revenue expectation and 23.6x the early bullish whisper.  For comparison, Facebook trades at about 10x the Street’s CY17 revenue estimate of $37.8 billion.  There is a vast difference in forward growth that helps justify the difference in multiples: 100%+ y/y growth for Snap this year vs 36% for Facebook.  Snap is obviously at a much different stage in its lifecycle as a company vs Facebook and is actually attacking social networking from a different angle – the camera. We believe investors will have questions over the next year as to what being a “camera company” means.  Philosophically, we think of it as Snap trying to own the tech stack one step above social.  The camera has already established itself as the future of communication.  Snapchat, Snap’s flagship product, relies on smartphone cameras to enable its service.  Without connected cameras, Snapchat doesn’t exist.  By trying to own, or at least influence, the camera layer itself, Snap evolves beyond a social media app into an enabler of communications.  In that sense, Snap’s focus on the camera is not all that dissimilar from Facebook with its experiments with VR and AR.  The difference is Snap appears to be all in. Trying to own the camera layer may come through multiple products.  Most obvious is software that uses and enhances current cameras.  Snap already does this with products like Lenses.  We expect the company to continue to develop software that utilizes the camera both in core Snapchat and perhaps outside of it as well.  The second camera product is Spectacles, which we view as the most useable AR glasses on the market today.  There is next to no learning curve because the glasses focus on one simple task: recording video through a camera.  Spectacles aren’t the future of AR, but they are a baby step toward the next phase that will add a little more functionality.   Beyond Spectacles, we believe the company is experimenting with other hardware, which may be other consumer wearables or may be products they look to partner with existing hardware manufacturers. We don’t know how the stock will react tomorrow or over the next year.  What we do know is that the camera is at the centerpiece of communication already, and if Snap can find a way to own the camera they will be rewarded handsomely. Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Snap’s IPO And The Road Ahead

I always wanted to cover Tesla, but as an internet analyst, the stock fell outside of my coverage space. Despite this, I continued to study the company and ultimately invested because I believe that Tesla is not a car company, but a consumer electronics company that thinks like an internet company. With a bedrock in AI and robotics, Tesla is one of the best positioned companies to transform our lives over the next 20 years.  We think Tesla is on par with Amazon when it comes to a reckless pursuit to shape the future, which we believe will reward investors over the long run.  The Street Is Understandably Focused On The Wrong Metric Tesla reports December quarter results on Wednesday (Feb. 22). Given the 48% rise in TSLA shares over the past 3 months, now trading near an all-time high, it’s understandable why investors are nervous going into the print. After all, good news is priced in as information of the earlier-than-expected Fremont production retooling has stoked Model 3 production expectations. As of our last check, buy side investors expect 17k to 25k Model 3 shipments in 2017.  That’s a big number when you consider that in 2016 Tesla delivered 76k vehicles (all models) to customers. Investors will be zeroed in on Elon Musk’s comments on the earnings call about production of the Model 3 in 2017.  His comments may cause volatility in the stock short term, but they are irrelevant in the long run. It’s Not About How Many Model 3’s Tesla Sell In 2017 As venture capitalists, we have the luxury of thinking about themes over a very long horizon. With that perspective, Wednesday’s Tesla earnings report is a non-event.  What’s more important is that Tesla makes the best car in the world, amplified by AI and robotics. That focus will keep competitors in check, allowing the company to reach scale and ride the next tech mega wave as our lives are quickly transformed (over the next 20 years) into an electric, automated existence. Artificial Intelligence Tesla’s obvious AI play is autopilot for autonomous vehicles, with a less well known AI push in manufacturing. We know that the company is pushing boundaries to gain data to improve its driving AI with a goal of being first to market with an L4 compatible vehicle (the automated system can control the vehicle in all but a few environments).  The first to market will have a measurable advantage because road data equates to smarter AI and safer cars.  Google’s Waymo has driven over 2 million autonomous miles, but comparisons with other automotive companies are difficult given some companies include simulation miles.  Last October, Elon Musk reported Tesla had driven 222 million cumulative autopilot miles, but those miles are not comparable to the fully autonomous number that Waymo reports.  It’s unlikely that Waymo will have a commercially available vehicle in 2019, but likely that Tesla models solid in 2019 will be L4 compatible. Traditional automotive is even further behind, with BMW, Audi, Mercedes, Ford and GM likely shipping L3 autos in 2019. Note that L5 is the highest level of autonomy, for vehicles capable of all aspects of the dynamic driving under all roadway and environmental conditions that can be managed by a human driver, followed by L4, L3 and so on.  This begs the question, why would anyone interested in an autonomous car buy an L3 compatible vehicle if it was priced similar to an L4 vehicle? We don’t know how Tesla’s autopilot AI stacks up against the market, but based on comments from our industry contacts, Tesla sees AI as one of its two core competencies and is structuring its future around it. Traditional Auto Is Behind; Needs To Get Right With Electric Before Tackling Autonomy To underscore how far behind traditional auto makers are in building the future of transportation, keep in mind those companies are still bracing for a post ICE (internal combustion engine) world.  Spare parts and supply chain represent two profitable segments that traditional auto must give up. As for spare parts, an electric world lacks this gravy train. For example a Tesla Model S has 17 moving drivetrain parts, compared to a typical ICE vehicle with about 1,500 parts. Fewer moving parts means fewer repairs.  The automotive supply chain is similar to the military spending complex, littered with special interests that will resist change.  While big auto is easing into electric, Tesla was built for a post-ICE world and has already shifted its focus to AI (and as a result, autonomy) allowing the company to more aggressively pursue a self-driving world. The core issue is innovation.  Automotive companies are not tech companies; with autonomy on the horizon, they face the wrath of the innovators dilemma. Ford acquiring Argo is a step in the right direction, but will only be successful if Argo triggers a wholesale change in the pace with which Ford embraces EV and autonomy. We believe that it’s unlikely children born in the US in 2020 will ever regularly drive a car. The race is on and the clock is ticking for these auto makers. Robotics Robotics plays into the Tesla story in two ways: First, an L4 compatible car is a robot. Second, robotics in manufacturing is a core competency for Tesla. Tesla’s expertise in robotic manufacturing is under-appreciated by investors for good reason; Tesla has long had a production problem – they can’t make cars fast enough.  As a result, profitability lags, cash burns, and we don’t know the true underlying demand. but we do know demand is greater than supply. And with the release of the Model 3, with an average sticker price of $45k compared to the Model S and Model X at about $90k, we believe demand will continue to outpace supply. We’re comforted knowing that Tesla sees smart robotics as the solution to increase output. Compare that to traditional automotive companies, which, even if they prioritized automated manufacturing, would lag behind Tesla due to the lag in transitioning their labor force. Politically, it will be difficult for traditional auto to retool fast enough to capture the wave. On top of that, President Trump’s focus on manufacturing jobs will likely put the industry in a catch-22 as tax credits will postpone the required retooling and give Tesla more time to reach scale. Once Tesla reaches scale, their advantage may be insurmountable; just ask those who have competed with Google in search, Amazon in retail, Apple in smartphones, and Facebook in social. The Bear Case The bear case on Tesla has three primary assumptions. We think the first two are off base, but the third poses a true risk.  Every car company fails; therefore, Tesla must fail. This begs the question, what are the essential elements of a car company? We define a car company as providing transportation in an industry overseen by EPA, DOT, and organized labor. Only one of these three (DOT) applies to Tesla. The company does not need to navigate the EPA or organized labor. Again, we see Tesla as a consumer electronics company. Tesla will run out of cash. There’s concern that Tesla’s production problems persist over the next several years and competing manufacturers rush to market and gain share, resulting in the company running out of cash.  While there is risk that a tech company like Google, Baidu or Uber will compete more aggressively with Tesla (see below), we expect Tesla’s order book of $20B would help the company secure financing in a time of need. Investors will increasing appreciate the upcoming sea change in transportation and will be willing to see through the risk and underwrite the company’s future. Competition is coming. This is the strongest bear case with Ford, BMW, Uber and Baidu (Yun Xiao, or “Cloud Ride”) each expecting to sell a fully autonomous car in 2021. With think Tesla should be most concerned with Google’s Waymo, Baidu and Uber, other tech companies pursuing self driving without the baggage that traditional automakers carry. Our belief is that Tesla will reach scale faster than these other players, making it difficult to compete on price.  Valuation Tesla’s $43B market cap is over valued if you think of it as a car manufacturer. Ford’s market cap is $49B and GM’s is $56B.  In 2016 GM sold 10m vehicles, Ford 6.7m, and Tesla 0.076m. However, one way to get comfortable with valuation is to look at the long term potential.  Our best guess, and stress the word guess, is that in 2025 Tesla will sell somewhere between 1.5 and 2m vehicles which implies a 16-22% CAGR from 2019-2025. This valuation method is risky given the number of variables. What we can say is that Tesla today feels like Amazon in the spring of 2009. At that time, Amazon’s stock had doubled to $80 in six months. The story was thought to be fully valued as investors struggled to justify the surge in value.  After all, Amazon was unprofitable.  Today, Amazon still struggles to make money, but shares have risen 10x over the past 8 years and are near an all time high.  Amazon had the roadmap for the future of commerce and web services, similar to Tesla’s roadmap to pursue the future of auto and solar, based on their core competencies in AI and robotics. Tesla may not an internet company, but they think like one, which will continue to serve them well. Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

I always wanted to cover Tesla, but as an internet analyst, the stock fell outside of my coverage space. Despite this, I continued to study the company and ultimately invested because I believe that Tesla is not a car company, but a consumer electronics company that thinks like an internet company. With a bedrock in AI and robotics, Tesla is one of the best positioned companies to transform our lives over the next 20 years.  We think Tesla is on par with Amazon when it comes to a reckless pursuit to shape the future, which we believe will reward investors over the long run. The Street Is Understandably Focused On The Wrong Metric Tesla reports December quarter results on Wednesday (Feb. 22). Given the 48% rise in TSLA shares over the past 3 months, now trading near an all-time high, it’s understandable why investors are nervous going into the print. After all, good news is priced in as information of the earlier-than-expected Fremont production retooling has stoked Model 3 production expectations. As of our last check, buy side investors expect 17k to 25k Model 3 shipments in 2017.  That’s a big number when you consider that in 2016 Tesla delivered 76k vehicles (all models) to customers. Investors will be zeroed in on Elon Musk’s comments on the earnings call about production of the Model 3 in 2017.  His comments may cause volatility in the stock short term, but they are irrelevant in the long run. It’s Not About How Many Model 3’s Tesla Sell In 2017 As venture capitalists, we have the luxury of thinking about themes over a very long horizon. With that perspective, Wednesday’s Tesla earnings report is a non-event.  What’s more important is that Tesla makes the best car in the world, amplified by AI and robotics. That focus will keep competitors in check, allowing the company to reach scale and ride the next tech mega wave as our lives are quickly transformed (over the next 20 years) into an electric, automated existence. Artificial Intelligence Tesla’s obvious AI play is autopilot for autonomous vehicles, with a less well known AI push in manufacturing. We know that the company is pushing boundaries to gain data to improve its driving AI with a goal of being first to market with an L4 compatible vehicle (the automated system can control the vehicle in all but a few environments). The first to market will have a measurable advantage because road data equates to smarter AI and safer cars.  Google’s Waymo has driven over 2 million autonomous miles, but comparisons with other automotive companies are difficult given some companies include simulation miles.  Last October, Elon Musk reported Tesla had driven 222 million cumulative autopilot miles, but those miles are not comparable to the fully autonomous number that Waymo reports.  It’s unlikely that Waymo will have a commercially available vehicle in 2019, but likely that Tesla models solid in 2019 will be L4 compatible. Traditional automotive is even further behind, with BMW, Audi, Mercedes, Ford and GM likely shipping L3 autos in 2019. Note that L5 is the highest level of autonomy, for vehicles capable of all aspects of the dynamic driving under all roadway and environmental conditions that can be managed by a human driver, followed by L4, L3 and so on.  This begs the question, why would anyone interested in an autonomous car buy an L3 compatible vehicle if it was priced similar to an L4 vehicle? We don’t know how Tesla’s autopilot AI stacks up against the market, but based on comments from our industry contacts, Tesla sees AI as one of its two core competencies and is structuring its future around it. Traditional Auto Is Behind; Needs To Get Right With Electric Before Tackling Autonomy To underscore how far behind traditional auto makers are in building the future of transportation, keep in mind those companies are still bracing for a post ICE (internal combustion engine) world.  Spare parts and supply chain represent two profitable segments that traditional auto must give up. As for spare parts, an electric world lacks this gravy train. For example a Tesla Model S has 17 moving drivetrain parts, compared to a typical ICE vehicle with about 1,500 parts. Fewer moving parts means fewer repairs.  The automotive supply chain is similar to the military spending complex, littered with special interests that will resist change.  While big auto is easing into electric, Tesla was built for a post-ICE world and has already shifted its focus to AI (and as a result, autonomy) allowing the company to more aggressively pursue a self-driving world. The core issue is innovation.  Automotive companies are not tech companies; with autonomy on the horizon, they face the wrath of the innovators dilemma. Ford acquiring Argo is a step in the right direction, but will only be successful if Argo triggers a wholesale change in the pace with which Ford embraces EV and autonomy. We believe that it’s unlikely children born in the US in 2020 will ever regularly drive a car. The race is on and the clock is ticking for these auto makers. Robotics Robotics plays into the Tesla story in two ways: First, an L4 compatible car is a robot. Second, robotics in manufacturing is a core competency for Tesla. Tesla’s expertise in robotic manufacturing is under-appreciated by investors for good reason; Tesla has long had a production problem – they can’t make cars fast enough. As a result, profitability lags, cash burns, and we don’t know the true underlying demand. but we do know demand is greater than supply. And with the release of the Model 3, with an average sticker price of $45k compared to the Model S and Model X at about $90k, we believe demand will continue to outpace supply. We’re comforted knowing that Tesla sees smart robotics as the solution to increase output. Compare that to traditional automotive companies, which, even if they prioritized automated manufacturing, would lag behind Tesla due to the lag in transitioning their labor force. Politically, it will be difficult for traditional auto to retool fast enough to capture the wave. On top of that, President Trump’s focus on manufacturing jobs will likely put the industry in a catch-22 as tax credits will postpone the required retooling and give Tesla more time to reach scale. Once Tesla reaches scale, their advantage may be insurmountable; just ask those who have competed with Google in search, Amazon in retail, Apple in smartphones, and Facebook in social. The Bear Case The bear case on Tesla has three primary assumptions. We think the first two are off base, but the third poses a true risk. <ul> <li>Every car company fails; therefore, Tesla must fail. This begs the question, what are the essential elements of a car company? We define a car company as providing transportation in an industry overseen by EPA, DOT, and organized labor. Only one of these three (DOT) applies to Tesla. The company does not need to navigate the EPA or organized labor. Again, we see Tesla as a consumer electronics company.</li> <li>Tesla will run out of cash. There’s concern that Tesla’s production problems persist over the next several years and competing manufacturers rush to market and gain share, resulting in the company running out of cash.  While there is risk that a tech company like Google, Baidu or Uber will compete more aggressively with Tesla (see below), we expect Tesla’s order book of $20B would help the company secure financing in a time of need. Investors will increasing appreciate the upcoming sea change in transportation and will be willing to see through the risk and underwrite the company’s future.</li> <li>Competition is coming. This is the strongest bear case with Ford, BMW, Uber and Baidu (Yun Xiao, or “Cloud Ride”) each expecting to sell a fully autonomous car in 2021. With think Tesla should be most concerned with Google’s Waymo, Baidu and Uber, other tech companies pursuing self driving without the baggage that traditional automakers carry. Our belief is that Tesla will reach scale faster than these other players, making it difficult to compete on price.</li> </ul> Valuation Tesla’s $43B market cap is over valued if you think of it as a car manufacturer. Ford’s market cap is $49B and GM’s is $56B.  In 2016 GM sold 10m vehicles, Ford 6.7m, and Tesla 0.076m. However, one way to get comfortable with valuation is to look at the long term potential.  Our best guess, and stress the word guess, is that in 2025 Tesla will sell somewhere between 1.5 and 2m vehicles which implies a 16-22% CAGR from 2019-2025. This valuation method is risky given the number of variables. What we can say is that Tesla today feels like Amazon in the spring of 2009. At that time, Amazon’s stock had doubled to $80 in six months. The story was thought to be fully valued as investors struggled to justify the surge in value.  After all, Amazon was unprofitable.  Today, Amazon still struggles to make money, but shares have risen 10x over the past 8 years and are near an all time high.  Amazon had the roadmap for the future of commerce and web services, similar to Tesla’s roadmap to pursue the future of auto and solar, based on their core competencies in AI and robotics. Tesla may not an internet company, but they think like one, which will continue to serve them well. Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Tesla’s Bedrock In AI & Robotics Will Transform The Industry & Our Lives

While it’s still early, we think that VR gamers are already spending a significant amount on software. Based on an analysis of the top 100 VR-only Vive games on Steam, we estimate that about $35 million in software has been sold for the HTC Vive to date. We believe that HTC has sold over 300k Vives since the device launched in April 2016, which means that Vive owners have spent an average of about $119 on software over the past 10 months. Given an average sale price of ~$15.50 for the top VR games on Steam, this means Vive users are buying about 7 or 8 games on average. We looked at VR-only software for our analysis, which requires a VR device for its use, and excluded software that is PC based with additional VR content. In our view, VR-only software sales is the best indicator of what people are truly spending on VR. We also excluded Oculus Rift software sold on Steam in this analysis.  The vast majority of paid software available for the Vive is gaming related, thus we believe gaming is the best way to contextualize Vive ARPU. Note that these comparative ARPU numbers are for a full 12 months vs our Vive estimate over 10 months. In 2016, we estimate that total gaming software revenue for PCs and consoles (excluding mobile games) was about $33 billion. We believe there are about 170 million PC/console gamers worldwide, so gaming software ARPU is about $194 per year. For comparison, we believe that the mobile apps market, including gaming and non-gaming software, was worth $50 billion in 2016. With 2.1 billion smartphone users, mobile app ARPU is $23 per year. Finally, we note that mobile games made up the vast majority of mobile app sales, representing $42 billion in sales in 2016.  Since today’s high-end VR users are very early adopters, they are likely spending more than mainstream users would, despite limited software titles on the market. There are just over 1,000 VR-only titles on Steam vs over 27,000 titles on the store in total. Longer term, both the number of high-end VR users and ARPU will grow, driven by better, cheaper hardware and better titles respectively. We expect that VR ARPU will ultimately exceed that of traditional gaming, given richer games and other content experiences. As VR evolves beyond a purely digital solution, we believe that entire industries could be transformed, like travel and vice. That is why we think VR has the long-term potential to be more transformative to the human experience than AR. Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

While it’s still early, we think that VR gamers are already spending a significant amount on software. Based on an analysis of the top 100 VR-only Vive games on Steam, we estimate that about $35 million in software has been sold for the HTC Vive to date. We believe that HTC has sold over 300k Vives since the device launched in April 2016, which means that Vive owners have spent an average of about $119 on software over the past 10 months. Given an average sale price of ~$15.50 for the top VR games on Steam, this means Vive users are buying about 7 or 8 games on average. We looked at VR-only software for our analysis, which requires a VR device for its use, and excluded software that is PC based with additional VR content. In our view, VR-only software sales is the best indicator of what people are truly spending on VR. We also excluded Oculus Rift software sold on Steam in this analysis. The vast majority of paid software available for the Vive is gaming related, thus we believe gaming is the best way to contextualize Vive ARPU. Note that these comparative ARPU numbers are for a full 12 months vs our Vive estimate over 10 months. In 2016, we estimate that total gaming software revenue for PCs and consoles (excluding mobile games) was about $33 billion. We believe there are about 170 million PC/console gamers worldwide, so gaming software ARPU is about $194 per year. For comparison, we believe that the mobile apps market, including gaming and non-gaming software, was worth $50 billion in 2016. With 2.1 billion smartphone users, mobile app ARPU is $23 per year. Finally, we note that mobile games made up the vast majority of mobile app sales, representing $42 billion in sales in 2016. Since today’s high-end VR users are very early adopters, they are likely spending more than mainstream users would, despite limited software titles on the market. There are just over 1,000 VR-only titles on Steam vs over 27,000 titles on the store in total. Longer term, both the number of high-end VR users and ARPU will grow, driven by better, cheaper hardware and better titles respectively. We expect that VR ARPU will ultimately exceed that of traditional gaming, given richer games and other content experiences. As VR evolves beyond a purely digital solution, we believe that entire industries could be transformed, like travel and vice. That is why we think VR has the long-term potential to be more transformative to the human experience than AR. Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

The Current State Of VR ARPU

Loup Ventures and Tim Cook share at least one thing in common. We both agree that AR will transform how humans interact with each other, removing the clumsy touchscreen, replacing the smartphone, and most importantly, expanding the utility of computing. An AR wearable from Apple is a long ways off.  Over the next five years, we see the iPhone as Apple’s play in AR, which will be a driver for their all-important Services business.   We’re closely watching Apple’s moves in AR and Tim Cook’s recent interview with The Independent caught our attention.  Not because Cook said something new about AR, but because the frequency with which he’s talking about a future product category is unprecedented in the 14 years we have been covering Apple. If you’re interested, Cook told The Independent: “The smartphone is for everyone… I think AR is that big. It’s huge. I get excited because of the things that could be done that could improve a lot of lives. And be entertaining.” “The smartphone is for everyone… I think AR is that big. It’s huge. I get excited because of the things that could be done that could improve a lot of lives. And be entertaining.” – Tim Cook Cook’s talking about AR because innovation is the persistent question at Apple, and his comments support our belief that the next five years of Apple’s innovation will focus primarily on augmented reality. The smartphone is the world’s window into augmented reality today. While this will change driven by augmented reality hardware in the future, we would expect the next five years of AR innovation will happen mainly through the device in our pockets. It’s A Big Deal When Apple Talks About Future Products, Because It’s Rare.  Apple doesn’t talk much about future products. The best example is going back to July 19th, 2006, six months before the iPhone was announced.  During the earnings call, a question was asked regarding music-enabled phones putting increased pressure on MP3 players and the iPod in particular. Apple’s then CFO Peter Oppenheimer responded, “As regards to cell phones, we don’t think that the phones that are available today make the best music players. We think the iPod is. But over time, that is likely to change. And we’re not sitting around doing nothing.”  Oppenheimer’s comments were significant because it was a rare tip of Apple’s hand about a future product. Under Cook Apple has strived to remain secretive around future products, but that’s more difficult given Apple’s revenue has grown to $218B in 2016, 10x larger than the $21B the company generated in 2006. So, What Has Cook Said About AR So Far?  On July 26th, 2016, Cook made his first comments on AR during an earnings call in response to a question about Pokémon Go, commenting, “We are high on AR for the long run. We think there are great things for customers and a great commercial opportunity. And so we’re investing, and the number one thing is to make sure our products work well with other developers’ products, like Pokémon.” Below is a list of what we could find related to Cook’s public AR comments.  Notably, on the last two Apple earnings calls analysts have not asked about AR, most likely because everyone knows it coming.  “AR can be really great. And we have been and continue to invest a lot in this.” Apple earnings call, July 2016 “I think AR is extremely interesting and sort of a core technology. So, yes, it’s something we’re doing a lot of things on behind that curtain that we talked about.” Washington Post, August 2016 “[AR] gives the capability for both of us to sit and be very present talking to each other, but also have other things visually for both of us to see.” ABC News, September 2016 “I do think that a significant portion of the population of developed countries, and eventually all countries, will have AR experiences every day, almost like eating three meals a day, it will become that much a part of you.” Utah Tech Tour, October 2016 “Augmented reality will take some time to get right, but I do think that it’s profound.” BuzzFeed, October 2016 No mention of AR on the Apple earnings call, October 2016 No mention of AR on the Apple earnings call, January 2017 “I get excited [about AR] because of the things that could be done that could improve a lot of lives and be entertaining.” The Independent, February 2017  Three big questions remain: How quickly will Apple jump into AR? What form(s) will it take? And what does it mean for their business? Moving Forward With Baby Steps. Apple takes baby steps towards new products (we wrote about these baby steps here). We don’t expect Apple to release an AR wearable anytime soon.  Our guess is 2020 at the earliest.  That said, we expect Apple to continue moving slowly but powerfully into AR this fall with the launch of iPhone X (more on this here).  Our industry contacts have told us that Apple will add improved 3D imaging technology that will position the next iPhone as an AR device. Apple will ease us into AR by building phones with powerful computer vision and mapping, which will enable developers to create a new category of AR apps. While the baby steps approach with the iPhone might not seem as exciting as launching iGlasses, we believe it will lay the groundwork for the next dominant computing platform. What Does AR Mean For Apple Over The Next 2-5 Years? Protecting Market Share and Services Revenue.  We believe Apple’s tight integration of hardware and software will enable iPhones to be viewed as the best implementation of AR over the next 2-5 years. iPhone AR won’t be the first to market, given Google’s Tango platform, which launched in 2014 to third parties. However, Tango has not driven meaningful sales or adoption. Apple has many opportunities in AR including additional sensors to incorporate depth, cameras and software to enable computer vision, and even external peripherals connected to the phone, possibly some sort of wearable. While these features might not accelerate hardware sales in the near-term, they will protect Apple’s ~17% global smartphone market share as iPhone users will be able to do more with their phones.  More importantly, we think Apple will accelerate Services revenue by enabling new experiences previously unavailable through a smartphone.  This is an important driver of Apple’s growth over the next few years. We expect Services will increase revenue from about $30B in 2017 to $50B in 2020, which we expect to account for 50-60% of Apple’s revenue growth and 60-70% of earnings growth during that period. Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Loup Ventures and Tim Cook share at least one thing in common. We both agree that AR will transform how humans interact with each other, removing the clumsy touchscreen, replacing the smartphone, and most importantly, expanding the utility of computing. An AR wearable from Apple is a long ways off.  Over the next five years, we see the iPhone as Apple’s play in AR, which will be a driver for their all-important Services business. We’re closely watching Apple’s moves in AR and Tim Cook’s recent interview with The Independent caught our attention.  Not because Cook said something new about AR, but because the frequency with which he’s talking about a future product category is unprecedented in the 14 years we have been covering Apple. If you’re interested, Cook told The Independent: “The smartphone is for everyone… I think AR is that big. It’s huge. I get excited because of the things that could be done that could improve a lot of lives. And be entertaining.” <blockquote>“The smartphone is for everyone… I think AR is that big. It’s huge. I get excited because of the things that could be done that could improve a lot of lives. And be entertaining.” – Tim Cook</blockquote> Cook’s talking about AR because innovation is the persistent question at Apple, and his comments support our belief that the next five years of Apple’s innovation will focus primarily on augmented reality. The smartphone is the world’s window into augmented reality today. While this will change driven by augmented reality hardware in the future, we would expect the next five years of AR innovation will happen mainly through the device in our pockets. It’s A Big Deal When Apple Talks About Future Products, Because It’s Rare.  Apple doesn’t talk much about future products. The best example is going back to July 19th, 2006, six months before the iPhone was announced.  During the earnings call, a question was asked regarding music-enabled phones putting increased pressure on MP3 players and the iPod in particular. Apple’s then CFO Peter Oppenheimer responded, “As regards to cell phones, we don’t think that the phones that are available today make the best music players. We think the iPod is. But over time, that is likely to change. And we’re not sitting around doing nothing.”  Oppenheimer’s comments were significant because it was a rare tip of Apple’s hand about a future product. Under Cook Apple has strived to remain secretive around future products, but that’s more difficult given Apple’s revenue has grown to $218B in 2016, 10x larger than the $21B the company generated in 2006. So, What Has Cook Said About AR So Far?  On July 26th, 2016, Cook made his first comments on AR during an earnings call in response to a question about Pokémon Go, commenting, “We are high on AR for the long run. We think there are great things for customers and a great commercial opportunity. And so we’re investing, and the number one thing is to make sure our products work well with other developers’ products, like Pokémon.” Below is a list of what we could find related to Cook’s public AR comments.  Notably, on the last two Apple earnings calls analysts have not asked about AR, most likely because everyone knows it coming. <ul> <li>“AR can be really great. And we have been and continue to invest a lot in this.” Apple earnings call, July 2016</li> <li>“I think AR is extremely interesting and sort of a core technology. So, yes, it’s something we’re doing a lot of things on behind that curtain that we talked about.” Washington Post, August 2016</li> <li>“[AR] gives the capability for both of us to sit and be very present talking to each other, but also have other things visually for both of us to see.” ABC News, September 2016</li> <li>“I do think that a significant portion of the population of developed countries, and eventually all countries, will have AR experiences every day, almost like eating three meals a day, it will become that much a part of you.” Utah Tech Tour, October 2016</li> <li>“Augmented reality will take some time to get right, but I do think that it’s profound.” BuzzFeed, October 2016</li> <li>No mention of AR on the Apple earnings call, October 2016</li> <li>No mention of AR on the Apple earnings call, January 2017</li> <li>“I get excited [about AR] because of the things that could be done that could improve a lot of lives and be entertaining.” The Independent, February 2017</li> </ul> Three big questions remain: How quickly will Apple jump into AR? What form(s) will it take? And what does it mean for their business? Moving Forward With Baby Steps. Apple takes baby steps towards new products (we wrote about these baby steps <a href="http://loupventures.wpengine.com/innovate-like-apple-with-baby-steps/" rel="nofollow" target="_blank">here</a>). We don’t expect Apple to release an AR wearable anytime soon.  Our guess is 2020 at the earliest.  That said, we expect Apple to continue moving slowly but powerfully into AR this fall with the launch of iPhone X (more on this <a href="http://loupventures.wpengine.com/our-expectations-for-iphone-x/" rel="nofollow" target="_blank">here</a>).  Our industry contacts have told us that Apple will add improved 3D imaging technology that will position the next iPhone as an AR device. Apple will ease us into AR by building phones with powerful computer vision and mapping, which will enable developers to create a new category of AR apps. While the baby steps approach with the iPhone might not seem as exciting as launching iGlasses, we believe it will lay the groundwork for the next dominant computing platform. What Does AR Mean For Apple Over The Next 2-5 Years? Protecting Market Share and Services Revenue.  We believe Apple’s tight integration of hardware and software will enable iPhones to be viewed as the best implementation of AR over the next 2-5 years. iPhone AR won’t be the first to market, given Google’s Tango platform, which launched in 2014 to third parties. However, Tango has not driven meaningful sales or adoption. Apple has many opportunities in AR including additional sensors to incorporate depth, cameras and software to enable computer vision, and even external peripherals connected to the phone, possibly some sort of wearable. While these features might not accelerate hardware sales in the near-term, they will protect Apple’s ~17% global smartphone market share as iPhone users will be able to do more with their phones.  More importantly, we think Apple will accelerate Services revenue by enabling new experiences previously unavailable through a smartphone.  This is an important driver of Apple’s growth over the next few years. We expect Services will increase revenue from about $30B in 2017 to $50B in 2020, which we expect to account for 50-60% of Apple’s revenue growth and 60-70% of earnings growth during that period. Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Apple’s Thundering Baby Steps Into AR

Education is shaping up to be one of the biggest under-the-radar opportunities in VR. We talked about consumer education related to VR in our VR Excitement Index. Education ranked second in terms of consumer interest in VR content in our 500 person survey, ahead of gaming and exceeded only by entertainment.  VR skeptics point out a valid current pitfall in other VR content: the nature of the experience separates you from the people around you. If you watch a sporting event or movie in VR, you remove yourself from the environment around you and make it a solitary experience, but that isn’t how we experience these events today, live or otherwise. We usually enjoy these events with others. That is a key part of the the sporting or movie experience – sharing it with the person next to you whether you’re in a stadium, a theater, or on your couch. Education doesn’t have that problem. It can be solitary. Questions and collaboration from others can amplify the environment, but it doesn’t matter if that participation comes from someone actually sitting right next to you or a virtual representation of that person. Another advantage of education is that it can be effective with basic forms of VR. Many educational tools won’t need the same level of tracking capability as an intensive gaming experience. The images may not need to be as sharp as a cinema experience. Educational VR may also not need sensory output to anything other than sight and hearing to be compelling. For example, educational VR can take the obvious form of a classroom type setting where the user interacts with basic digital input, like voice or even a keyboard. Many NFL teams already use StriVR for this and there are applications well beyond sports including corporate training and medicine. We would consider VR exposure therapy — exposing yourself to your fears, which is a common psychological treatment — a form of educational VR. You’re teaching yourself to not be afraid. While low-immersion VR is still very basic, it’s capable of at least offering these types of education in small does. As low-immersion VR improves with Daydream and Gear VR over the next couple of years, the educational experiences can grow with them. Considering our longer-term view of VR as a fully immersive sense experience, we believe there is a chance that humans have the ability to use advanced VR to live a “lifetime” in the span of just a few moments in real reality. We call this a compressed temporal sense experience (CTSE). More on this theory soon, but in short, it could mean that education in the future is living a life as a pianist, then living as a soldier, then an artist, then a doctor and rolling those skills into your real life. Education could ultimately be about a firsthand experience rather than secondhand information. There’s a popular rule that it requires 10,000 hours of practice to master something. That may or may not be an accurate estimate, but we can all agree that practice makes you better, no matter your sport or profession. VR is the perfect practice tool for education, and educational content may turn out to be the killer app that drives VR to mass adoption. Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.  

Education is shaping up to be one of the biggest under-the-radar opportunities in VR. We talked about consumer education related to VR in our <a href="http://loupventures.wpengine.com/vr-excitement-index-10-2/" rel="nofollow" target="_blank">VR Excitement Index</a>. Education ranked second in terms of consumer interest in VR content in our 500 person survey, ahead of gaming and exceeded only by entertainment. VR skeptics point out a valid current pitfall in other VR content: the nature of the experience separates you from the people around you. If you watch a sporting event or movie in VR, you remove yourself from the environment around you and make it a solitary experience, but that isn’t how we experience these events today, live or otherwise. We usually enjoy these events with others. That is a key part of the the sporting or movie experience – sharing it with the person next to you whether you’re in a stadium, a theater, or on your couch. Education doesn’t have that problem. It can be solitary. Questions and collaboration from others can amplify the environment, but it doesn’t matter if that participation comes from someone actually sitting right next to you or a virtual representation of that person. Another advantage of education is that it can be effective with basic forms of VR. Many educational tools won’t need the same level of tracking capability as an intensive gaming experience. The images may not need to be as sharp as a cinema experience. Educational VR may also not need sensory output to anything other than sight and hearing to be compelling. For example, educational VR can take the obvious form of a classroom type setting where the user interacts with basic digital input, like voice or even a keyboard. Many NFL teams already use StriVR for this and there are applications well beyond sports including corporate training and medicine. We would consider VR exposure therapy — exposing yourself to your fears, which is a common psychological treatment — a form of educational VR. You’re teaching yourself to not be afraid. While low-immersion VR is still very basic, it’s capable of at least offering these types of education in small does. As low-immersion VR improves with Daydream and Gear VR over the next couple of years, the educational experiences can grow with them. Considering our longer-term view of VR as a fully immersive sense experience, we believe there is a chance that humans have the ability to use advanced VR to live a “lifetime” in the span of just a few moments in real reality. We call this a compressed temporal sense experience (CTSE). More on this theory soon, but in short, it could mean that education in the future is living a life as a pianist, then living as a soldier, then an artist, then a doctor and rolling those skills into your real life. Education could ultimately be about a firsthand experience rather than secondhand information. There’s a popular rule that it requires 10,000 hours of practice to master something. <a href="http://www.businessinsider.com/new-study-destroys-malcolm-gladwells-10000-rule-2014-7" rel="nofollow" target="_blank">That may or may not be an accurate estimate</a>, but we can all agree that practice makes you better, no matter your sport or profession. VR is the perfect practice tool for education, and educational content may turn out to be the killer app that drives VR to mass adoption. Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Education Could Drive Mass VR Adoption

Like many in the tech space, we believe robotics is changing the nature of work; however, public perception of robots is still a question mark. We developed our Robot Fear Index to measure and track the average consumer’s perception of robots. We asked over 500 US consumers about topics ranging from their use of robots at home to their comfort level with self-driving cars. Then we distilled the data down to an index value that we will publish regularly. An index value of 100 suggests widespread and extreme fear of robots; an index value of 0 suggests minimal fear of robots.   Consumer adoption of Artificial Intelligence and robotics is already quite broad. Consider how often you see someone dictating a text message to Siri or using the self-checkout lane at the grocery store. Our data shows that 68% of US consumers have used a digital assistant and 68% have used some sort of robotic technology in the last three months. And yet, fear of robots is also pervasive. We fear that they’ll replace our jobs or somehow overthrow us; and to be blunt, those fears are valid. To quantify, 14% of consumers say that robots make them nervous and 46% suggest that they simply aren’t interested in robots. Our Robot Fear Index value of 31.5 suggests that, on balance, we’re cautiously comfortable with robots. Let’s look at what’s driving this perception. We see digital assistants as an onramp to AI and robotics for many consumers. While we put digital assistants in the AI category (the brains behind machine capability), AI is oftentimes an integral part of robotics (the braun behind machine capability). And we believe that comfort with AI will drive comfort with robotics. Again, the data shows that 68% of consumers have used a digital assistant. Among them, roughly one-third use a digital assistant once a day or more.  Use of robotics is also widespread. Granted, our definition is broad, including: self-checkout lanes and digital assistants. But these are important uses cases, because we believe that fear of robots will decrease as basic consumer usage increases, and our Robot Fear Index will track these changes. Somewhat surprisingly, 16% of consumers have tried robotic tech, like a vacuum, for household cleaning and 15% have used a robotic toy (check out our experience with Anki’s Cozmo here).  But the Robot Fear Index could very well rise. For example, we would expect the index value to increase following a fatal crash involving a self-driving car or a faulty surgical procedure performed with robotic assistance. At this point, 14% of consumers say that robots make them nervous and 46% say they’re not interested in using robots. We also look forward to tracking these values as the field of robotics advances and consumer adoption marches on.  There are two sides of the coin driving consumer perception of robotics: adoption of the more accessible and convenient technologies leveraging AI and robotics on one side, and uncertainty of what may be in store as AI and robotics replaces an increasing set of human work.  We think our index value of 31.5 quantifies this cautious comfort with robots and we’re looking forward to updating the Robot Fear Index regularly as we track the progress of the robotics theme. Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Like many in the tech space, we believe robotics is changing the nature of work; however, public perception of robots is still a question mark. We developed our Robot Fear Index to measure and track the average consumer’s perception of robots. We asked over 500 US consumers about topics ranging from their use of robots at home to their comfort level with self-driving cars. Then we distilled the data down to an index value that we will publish regularly. An index value of 100 suggests widespread and extreme fear of robots; an index value of 0 suggests minimal fear of robots. Consumer adoption of Artificial Intelligence and robotics is already quite broad. Consider how often you see someone dictating a text message to Siri or using the self-checkout lane at the grocery store. Our data shows that 68% of US consumers have used a digital assistant and 68% have used some sort of robotic technology in the last three months. And yet, fear of robots is also pervasive. We fear that they’ll replace our jobs or somehow overthrow us; and to be blunt, those fears are valid. To quantify, 14% of consumers say that robots make them nervous and 46% suggest that they simply aren’t interested in robots. Our Robot Fear Index value of 31.5 suggests that, on balance, we’re cautiously comfortable with robots. Let’s look at what’s driving this perception. We see digital assistants as an onramp to AI and robotics for many consumers. While we put digital assistants in the AI category (the brains behind machine capability), AI is oftentimes an integral part of robotics (the braun behind machine capability). And we believe that comfort with AI will drive comfort with robotics. Again, the data shows that 68% of consumers have used a digital assistant. Among them, roughly one-third use a digital assistant once a day or more. Use of robotics is also widespread. Granted, our definition is broad, including: self-checkout lanes and digital assistants. But these are important uses cases, because we believe that fear of robots will decrease as basic consumer usage increases, and our Robot Fear Index will track these changes. Somewhat surprisingly, 16% of consumers have tried robotic tech, like a vacuum, for household cleaning and 15% have used a robotic toy (check out our experience with Anki’s Cozmo <a href="http://loupventures.wpengine.com/feedback-loup-cozmo-by-anki/" rel="nofollow" target="_blank">here</a>). But the Robot Fear Index could very well rise. For example, we would expect the index value to increase following a fatal crash involving a self-driving car or a faulty surgical procedure performed with robotic assistance. At this point, 14% of consumers say that robots make them nervous and 46% say they’re not interested in using robots. We also look forward to tracking these values as the field of robotics advances and consumer adoption marches on. There are two sides of the coin driving consumer perception of robotics: adoption of the more accessible and convenient technologies leveraging AI and robotics on one side, and uncertainty of what may be in store as AI and robotics replaces an increasing set of human work.  We think our index value of 31.5 quantifies this cautious comfort with robots and we’re looking forward to updating the Robot Fear Index regularly as we track the progress of the robotics theme. Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Robot Fear Index: 31.5

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