Alvin's Newsletter: No. 19
Weekly newsletter on what I saw interesting in tech, venture capital and business.
📰 News
Epic’s case against Apple falling apart: The judge hearing Epic’s case didn’t take too kindly towards some of that tactics used by Epic. One of Epic’s line of arguments is that the App Store and the Apple payments model is ‘illegal bundling’ and should be treated as separate products.
For some context, the App Store model is an incredible mechanism for Apple. By giving it away, basically for free - it allows it to reap the benefits that it brings with it - namely, getting developers across the world to build apps/content for its hardware product - the iPhone, for free. Whilst it captures some of the value through iPhone sales, another part of the value capture is via its in-app payments mechanism - the 30% on any payments and subscriptions made inside the apps and App Store. Thereby partly subsidising giving away the App Store for free.
Classic bundling. Whether the two can or should be treated separately legally is another matter. Link
"Walled gardens have existed for decades," she said. "Nintendo has had a walled garden. Sony has had a walled garden. Microsoft has had a walled garden. What Apple's doing is not much different... It's hard to ignore the economics of the industry, which is what you're asking me to do."
Bundling and unbundling: There has been an acceleration in ‘bundling’ activity this year. Apple and Microsoft being the two big co’s announcing new bundling products. Bundling however is not a simple topic and it is worthwhile understanding what makes them work and what doesn’t. Ben goes into how to think about bundles. Note - great podcast on the topic below that goes deep on the topic. Link
What is interesting is that the same forces that broke up the old distribution-based bundles and reduced content to a differentiator for physical goods and experiences, have also made content directly monetizable through business models like subscriptions. This, in turn, has made content-only bundles that much more difficult to create: the higher the bar there is for any individual content creator to join a bundle, the more necessary it is to have an orthogonal business model that justifies clearing that bar.
Political fall-out from Wirecard beginning: Continuing my coverage on Wirecard - we are beginning to see some political collateral damage - all the way to the top - Angela Merkel. [Paywall] Link
Ms Merkel has defended her lobbying for Wirecard. “It’s common practice, not only in Germany, to bring up the concerns of companies on foreign trips,” she said in August. Wirecard was, after all, a “Dax 30 company”, and at the time of the China trip she had “no knowledge” of irregularities at the payments provider.
JPMorgan trading desk a racketeering operation: A story of ‘spoofing’ and ‘layering’ in the precious metals market by JP Morgan and how they got caught. Interesting here is the use of the RICO statute to take down financial crime. The RICO Act was brought in by the US Govt. in the 70’s to take on drug and mafia cartels. Link
The orders, made in rapid succession after the genuine order, would be canceled as soon as the genuine order was filled. Think of it like trying to sell a hamburger. You conjure a mob in front of your burger joint, creating the perception of demand. Once a real customer steps up and buys the burger, you make the mob vanish.
📚 Reading
What happens when the airline industry falls out of the sky. This is the story of how airline industry meltdown played out earlier this year and is still playing out for KLM. Link
It is an axiom in aviation that air travel correlates to GDP. When people have more money, they fly more. But in the midst of this historic downturn, no one was buying plane tickets. In the past, airlines have only been stung by one or the other of these factors. During Sars, travel was unsafe, but the global economy didn’t flatline. During the 2008 financial crash, money was tight, but flying was not a health risk. In the 110 years since the dawn of commercial flight, these blows had never been dealt in tandem, until this year.
Snowflake smashed its IPO just a few weeks ago (or failed depending on where you sit). A look into some of the numbers and why people think Snowflake is so valuable. Link
At first glance, the valuation of $60 billion seems absurd. Not only is Snowflake not profitable, having a net loss of $349 million in 2019, but their revenue is also small relative to their valuation. Their revenue over the last 12 months was $403 million. Based on that, their market cap is around 150x their revenue. So why exactly is their market cap so high? Besides revenue and profitability, there are a number of other metrics that investors look at.
The AFR did a great 3-part series into the story of Toll. Toll, a company basically made up of other companies it had bought, about to run out of cash, gets bought out by Japan Post in the nick of time. No one can control the seperate businesses/fiefdoms of Toll, including Toll themselves, let alone the Japanese. [Paywall] Link
🦖 Entertaining & Interesting things
Apple opened a floating store in Singapore. And it looks incredible. Link
Inspired by the Pantheon in Rome, an oculus located at the apex of the dome provides a flooding ray of light that travels through the space. The interior of the glass is lined with custom baffles, each uniquely shaped to counter sun angles and provide a nighttime lighting effect. With trees lining the interior of the dome, the green garden city of Singapore flows into the store, providing additional shading and soft shadows through the foliage.
If you ever need to do an interview at Google - here they are, deconstructed. Link
The inside going ons at Tron (China based crypto) and the company, BitTorrent (San Fran based) and their owner, crypto millionaire, Justin Sun. Doesn’t sound pretty. Link
🎧 Podcasts
The best podcast episodes last week according to Bosco Tan:
Perspectives on Trump with COVID (All-In Podcast) - 67 mins: Four rich and famous poker mates talk about the implications of Trump having COVID. The trusted circle includes high profile entrepreneur / investors Chamath Palihapitiya, Jason Calacanis, David Sacks and David Friedberg. They also cover the first presidential debate, Coinbase and Slack. A must subscribe pod. Link
What caused the 1918 flu? (Science Vs) - 34 mins: In a walk through the history books, this episode looks at how science solved the mystery of what caused the 1918 pandemic. Fact is, no one knew what it was at the time and it took until 2005 (87 years) to fully sequence the virus. Makes the speed of progress we’re making on COVID remarkable. Link
What makes a great bundle? (Exponent) - 49 mins: Every tech company is rebundling - thinking through the creation of subscription products which stretch out once-off purchases into long-term revenue. Here, the guy that originated much of the thinking on the “great unbundling”, Ben Thompson of Stratechery weighs in on what type of bundles are most successful. He critiques Apple and Microsoft’s approaches and fixates on the importance of understanding the customer. Link
The history of the NBA (Acquired) - 164 mins: The NBA is one of the most profitable sports leagues in the world. This was never a foregone conclusion when basketball was created in the late 19th century. Through much luck and a series of strategic decisions, the sport and its peak league has risen to become the financial and cultural juggernaut today. This episode profiles this colourful history in full, complete with an economic and business model breakdown, on the eve of the NBA finals. Link
📹 TikToks
How China builds a city. Link
The new GE9X aircraft engine. Beast. Link
What Falcon9 looks like coming in to land. Link
Pro’s doing the Fortnite dances. Link