On the birth of Apple’s iPhone (just 10 years ago)…


(Nokia e90 Communicator/May 2007 vs Blackberry Q/ April 2007 vs iPhone/ June 2007)

Apple’s iPhone was born on 29 June 2007, just a decade ago. Today, we all know that Apple’s iPhone was a true game changer, selling more than 1bn to date and making Apple the most valuable company in the process. No-one expected this. I still remember how surprised we all were when Apple launched its first iPhone. Why did Apple as a computer company think that they could compete in the tough mobile phone market dominated by Nokia (and a few other barely profitable handset producers)?

Apple succeeded because they had the vision for a handset being much more than a mobile phone. In fact, what we call a “smartphone” today is a worse mobile phone than most phones back in 2007 (just think of voice quality or battery life), but it has changed practically every aspect of the way we live: how we communicate; access and share information; work and experience life; take & use photos or videos; share our experiences, ideas & moods; listen to music, watch movies or play games; book our holidays; buy or sell anything (… you get the idea).

The visionary behind all of this was Steve Jobs, of course, and I came across this excellent excerpt of a book on the launch of the iPhone (aptly called “The One Device”) published to mark the event: https://www.theverge.com/2017/6/13/15782200/one-device-secret-history-iphone-brian-merchant-book-excerpt.

Enjoy!

Why I should have held Amazon shares…

Amazon has been one of the most customer centric businesses from Day 1, and I should have held my shares in the company on that simple argument alone. After holding Amazon shares for many years, I sold them when I got dizzy on their lofty valuation about three years back, simply because I could not see how Amazon as an eCommerce business would be able to sustain its revenue growth and justify its valuation. At the time, Amazon had been marginally profitable for many years, and its push into AWS made sense but added little to the bottom line. I was obviously wrong in selling, as the share more than tripled in value since (don’t worry, I did alright anyway…). I could just not see how well positioned Amazon was beyond its original eCommerce services, and it has spread its strategic wings significantly since, as the excellent update on Amazon’s hiring and strategic priorities by CB Insights shows (see link below). Still, it remains to be seen whether Amazon will be able to compete successfully in such diverse areas as consumer tech (Echo, Alexa and more), media & entertainment (Amazon Video and beyond), next generation logistics (robotics, drones etc.) or the wider area of AI. Amazon will also face increasing competition in its core eCommerce and AWS services, so their valuation today (market cap of about US$ 430bn or P/E of about 180) remains very high. On that basis, I cannot convince myself to buy again but I would love to hold some shares. After all, this is still Jeff Bezo’s Amazon of Day 1.

See here CB Insights’ update on Amazon’s strategy: https://www.cbinsights.com/blog/amazon-strategy-teardown/

What Augmented Reality (AR) can deliver with just your smartphone camera today…

Facebook’s Mark Zuckerberg delivered a keynote speech at their F8 Developer Conference dedicated completely to AR. Zuckerberg’s speech sums up well what AR can deliver today (or in the near future), relying on just your smartphone’s camera and a SW platform, supplementing reality with information, complex digital objects or enhancements.

Worth watching: https://youtu.be/CchpWBIA_S4

See also this NYTimes article on the same subject: https://nyti.ms/2pyij1l

AI: US$ 15bn and more than 2,250 deals later…

Ventures in Artificial Intelligence (AI) have attracted about US$ 15bn in more than 2,250 deals since 2012 (US$ 5bn in just under 700 deals in 2016 alone), according to reported issued on the state of AI by CB Insights recently.

AI is certainly hyped these days, with its media presence still accelerating and outpacing “big data” significantly now (see the chart above). This is no wonder, as AI loosely defined has got the potential of driving innovation and radical change in so many different ways:

  • Deep learning at the core (think IBM’s Watson or DeepMind, anything with massive computational power)
  • Enhanced analytics, e.g. in business intelligence, predictive data analytics and forecasting
  • Complex visual solutions, e.g. in autonomous driving, robotics, healthcare
  • Language processing & human interface, e.g. in smart home devices (Alexa, Siri) or chatbots

See CB Insights’ report for more detail: https://www.cbinsights.com/reports/CB-Insights_State-of-AI.pdf

And the failure rate of tech startups is…

… about 7 out of 10, based on an analysis of CB Insights looking at 1,098 tech companies that received seed funding between 2008 and 2010. Note that “failure” means those businesses that did not receive additional or new funding after a seed round, implying that those companies usually fail.

CB Insights’ analysis makes for interesting reading beyond this headline:

  • Just 32 ventures exited at a valuation above US$ 50m since then (or less than 3%);
  • 10 ventures have made it to unicorn status (valuation in excess of US$ 1bn), with five (0.5%) achieving a successful exit above US$ 1bn.

The “failure rate” should not come as a surprise to anyone. However, that “unicorn conversion” actually looks strong to me, especially as a ratio of the 32 ventures making it above US$ 50m and considering that the venture pool is just 7 to 9 years old.

See the CB Insights report for more detail: https://www.cbinsights.com/blog/venture-capital-funnel-2/

Value-driven review of legacy assets key to better strategic choices on digital innovation

Getting strategic choices wrong over innovative business ideas can destroy excellent companies, as may recent examples have shown (take just Nokia, Blackberry or Kodak). Successful businesses in particular tend to over-emphasise the risk of innovative business ideas when making strategic choices, where they should at the same time assess the value of continuing to operate legacy assets or organisations going forward.

In this decision bias, innovative – often asset light (or pay as you go) – business ideas get marked down for their lack of predictable (sticky) cash flows whereas historically expensive, complex legacy assets get valued for what they have delivered to the business to date. Such thinking is dangerous, as it may shortcut a decision on go / no-go for an innovative idea without looking at the true cost of continuing to operate the company’s legacy assets going forward. A value driven approach must compare both options for their value going forward fairly. It must pitch a detailed assessment of the cost of continuing to operate and maintain existing assets (in applications, infrastructure, or architecture and organisation) against the new digital business idea.

Accenture just put out a good framework to assess this situation, looking at the “technology debt” of legacy assets and organisations (see https://www.accenture.com/t20170224T035713__w__/us-en/_acnmedia/PDF-43/Accenture-Strategy-Technology-Debt-PoV.pdf). They argue that a more rigorous review of such “technology debt” would lead to more situations where new, innovative technology would be brought in, sometimes in parallel or supplementary to existing legacy infrastructure. Hence, such an approach should lead to better strategic choices on innovation and avoid that the business is pushed out of the market for embracing disruptive innovation too late.

(Cartoon from www.dilbert.com; published originally 17 Feb 2004)

Wie sieht Arbeit in der digitalen Zukunft aus („Arbeitsmarkt 4.0“)? | What will work look like in the digital economy?

[Scroll down for the English version]

37% der Arbeitnehmer in Deutschland sehen der digitalen Transformation mit Verunsicherung entgegen, laut einer jüngst veröffentlichten Untersuchung von Etventure (gegenüber nur 6% in den USA). Unsicherheit entsteht immer da, wo wir nicht einschätzen können, was auf uns zukommt: Nur 42% der deutschen Unternehmen denken lt. Etventure, dass ihre Belegschaft auf die Herausforderungen der Digitalisierung vorbereitet ist (USA: 90%).

Es gibt mittlerweile unzählige Beispiele dafür, wie Digitalisierung bestehende Markte und Arbeitsplätze radikal verändern wird, z.B.:

  • Autos und LKW werden schon heute teilweise autonom betrieben (im Testbetrieb). Es ist nur eine Frage der Zeit, wann LKW-Fahrer oder Taxifahrer durch autonome Fahrzeuge weitgehend abgelöst werden.
  • Amazon, DHL, Metro und viele andere testen derzeit den Betrieb von Dronen oder Lieferrobotern in der Zustellung von Paketen.
  • Amazon und andere bereiten Testmärkte vor, die schon in naher Zukunft fast ohne Mitarbeiter im Laden auskommen werden.
  • Komplexe Versicherungsverträge werden künftig automatisiert durch Systeme geprüft und beurteilt werden, eine Tätigkeit, die aktuell noch von Rechtsanwälten durchgeführt wird.
  • Prozess- oder Entscheidungsroutine in der Verwaltung oder im Management werden automatisiert. Im Finanzbereich wird das dazu führen, dass fast alle Basistätigkeiten im Rechnungswesen, der Finanzbuchhaltung und dem Controlling (bis in das Reporting, Forecasting und die Planung hinein) durch Roboter oder künstliche Intelligenz ersetzt werden.

Diese Liste könnte nahezu unendlich fortgeführt werden, abhängig von der Phantasie über noch junge Technologien oder den Zeithorizont der Betrachtung. In den Medien wird dann auch darüber spekuliert, ob 25%, 50% oder gar 80% der Jobs von Digitalisierung betroffen sein werden, oder schlichtweg wegfallen werden.

Das IAB (das Forschungsinstitut der Bundesanstalt für Arbeit) und ein gemeinsames Projekt von Bertelsmann Stiftung / stiftung neue verantwortung haben genau dazu jüngst umfangreiche, spannende Studien veröffentlicht.

Die Bertelsmann Stiftung hat die Auswirkungen auf dem Arbeitsmarkt 2030 in qualitativen Szenarien abgeschätzt und zog die folgenden Schlüsse:

  1. Flexiblere Arbeitsmärkte: In vier von sechs Szenarien wird erwartet, dass Unternehmen zukünftig ihren Personalbedarf deutlich stärker über flexible Formen der Beschäftigung abdecken werden, über Verträge mit Selbständigen in Projekten.
  2. Weniger Beschäftigte: Es wird weniger Nachfrage nach Arbeitskräften (Beschäftigung) geben, in fünf von sechs Szenarien.
  3. Weiterqualifizierung als Schlüssel zum beruflichen Erfolg: Die digitale Wirtschaft wird in jedem Szenario eine ständige Weiterentwicklung der Fähigkeiten der Arbeitskraft voraussetzen. Die Verantwortung für dieses lebenslange Lernen wird in den meisten Szenarien beim Arbeitnehmer liegen; Unternehmen werden hier begrenzt aktiv sein.

Das IAB hat in seiner ebenfalls 2016 veröffentlichten Studie abgeschätzt, dass der Arbeitsmarkt in Deutschland bei einer vollständigen Digitalisierung bis 2025 nur etwa 30.000 weniger Arbeitsplätze haben wird (von insgesamt 43,4 Mio. Beschäftigten). Allerdings wird erwartet, dass dabei etwa 1,5 Mio. Arbeitsplätze wegfallen, vor allem im produzierenden Gewerbe, der Landwirtschaft und in fachlichen Tätigkeiten im Büroumfeld (Routinen). Zusätzlicher Bedarf an Arbeitskräften wird in den Bereichen Information und Kommunikation erwartet, oder genereller bei komplexen bis hochkomplexen Tätigkeiten. Lebenslanges Lernen wird mit zunehmender Digitalisierung immer wichtiger: „Bei sich ändernden und erhöhenden Anforderungen wird nach der Erstausbildung die Weiterbildung entscheidend werden, um Kompetenzen laufend weiterzuentwickeln (…).“

— English version —

37% of employees in Germany worry about the impact that digital transformation may have on their job, based on a recent study published by Etventure (vs. just 6% in the USA). Uncertainty, or better anxiety, is usually driven by the fear of the unknown: Just 42% of German businesses believe that their employees are ready for the digital transformation, according to Etventure (USA: 90%).

The list of examples for digital disruption of existing markets and jobs is long by now, e.g.:

  • Cars and trucks are already today driven autonomously (at least in trials), and it is just a matter of time until drivers in a traditional sense will no longer be required.
  • Amazon, DHL, Metro and many more are testing drones or robots in the delivery of parcels today.
  • Amazon and others are preparing physical stores that could operate nearly fully automated in the near future.
  • Complex (insurance) contracts will be reviewed and processed through automated systems, a task that today requires fully qualified lawyers.
  • Basic processes and decision routines in offices and management will be automated. In Finance, this will lead to all operating routines in accounting, treasury or financial controlling (including reporting, forecasting or planning) moving from staff to a combination of robots and artificial intelligence.

This list could be extended almost indefinitely, if you just apply enough imagination on upcoming technologies or extend the horizon of your projection. It is then no surprise that the media are speculating whether digital transformation will affect or simply put away with 25%, 50% or 80% of today’s jobs.

The IAB (the German Ministry for Employment’s research arm) and a project by Bertelsmann Stiftung / stiftung neue verantwortung have just recently published studies to shed light on this issue.

Bertelsmann Stiftung assessed the impact on the German employment market 2030 through a number of qualitative scenarios, with the following conclusions:

  1. Flexible employment markets: In four of six scenarios, companies will in the future rely much more on flexible forms of employment in meeting their employment needs, through independent contractors or projects.
  2. Fewer employees: Demand for employees is expected to decline (vs. today) in five of six scenarios.
  3. Continuous qualification as key to success: Businesses will expect that employees continue to develop and adapt their skillsets. Businesses will be less involved that today in providing such training or continuous development.

The IAB estimated in its study that the German employment market may decrease by just 30,000 employees by 2025 in a scenario of „full digitalisation“ (versus a total market of 43.4 mil employees then). However, the IAB also expects that about 1.5 mil jobs will fall away in this scenario, mostly in routine tasks in manufacturing, agriculture or professional and administrative office roles. Much of this loss in jobs will then be replaced by new jobs in areas such as information and communication, or more abstractly complex to high complex tasks. Life-long learning will become much more important with progressing digitalization: „Changing and increasing demands on the job will require that the employee continuously develops his competencies after having gone through some initial training (…).“

Hier die Links zu den o.g. Quellen | here links to the sources mentioned above (in German only):

Etventure: http://www.etventure.de/innovationsstudien/

Bertelsmann Stiftung / stiftung neue verantwortung: https://www.bertelsmann-stiftung.de/de/publikationen/publikation/did/auf-dem-weg-zum-arbeitsmarkt-40/

IAB 2016: http://doku.iab.de/forschungsbericht/2016/fb1316.pdf

Technological change, the performance gap and the future of HR in a digital age…

 

 

Deloitte just published a brilliant report on technological change in the digital age, delivering a convincing argument for the gap between possible and real productivity.

More importantly, Deloitte outlines 10 new trends (rules) for HR in a digital age in response, backed by a comprehensive worldwide survey: https://dupress.deloitte.com/dup-us-en/focus/human-capital-trends/2017/introduction.html.

(You can download an excellent, comprehensive report on all 10 HR trends from that website as well.)

Uber & the ride-sharing market: Overcrowded & overvalued?

There was a time when every new venture pitch that I saw claimed to be the next “Uber of [you name it]”, linking the pitch to both Uber’s high valuation and exorbitant ambition already embedded in the company’s name. I would be very careful making that link these days, because I believe that the financial argument for Uber’s valuation at the current level is flawed, irrespective of all the negative press that Uber gets these days (this will just add downside pressure).

The valuation of Uber or any of its key competitors today either relies on the companies making some massive profits from ride-sharing services in the future (which I doubt – see my point below) or the businesses successfully pivoting into some other yet unproven market or technology. Take Uber on the second point: Uber is in the market of facilitating taxi-like services today, but it has recently justified its valuation with entering the market for autonomous vehicles (not just cars, but also drones and trucks). No joke. Businesses usually pivot when their core strategy did not work. If I was an investor in Uber, I would be very worried on that statement alone.

Back to some basics on Uber’s financials, which are reflective of the position of its big rivals (Didi Chuxing, Lyft, Olacabs or Grab). Uber has raised about US$ 12.5bn since it was launched in 2009, valuing this company alone at US$ 69bn (similar to the market cap of a BMW, Daimler or Volkswagen). Uber raised US$ 5.65bn over the last year alone, including a debt note of US$ 1.15bn through Morgan Stanley. More importantly, Uber will need to continue to raise significant funding in the near term, either diluting existing shareholders or coming up with good arguments for an even higher valuation. Uber has been able to increase revenue to reportedly about US$ 5.5bn in 2016 (from about US$ 2bn in 2015), but the company incurred a net loss of US$ 3bn at the same time. This loss is equivalent to more than 50% of its revenue, with no improvement in unit economics, suggesting that further growth alone will not take it to break even.

This is where my more fundamental concern kicks in: Uber is pursuing a very aggressive strategy of squeezing competitors out of every local market, combining a very user-friendly piece of technology with undercutting competitors’ pricing. However, this strategy will unlikely get Uber into the dominant (monopolising) market position that would allow it to increase prices to get to sustained profitability. Entry barriers for competitors are very low, which does not only explain why the space is so crowded already; it also means that competitors will come back into the market as soon as prices go up. Not a good perspective.

Investors and the key players (Uber, Didi Chuxing, Lyft) appear to have realised how overcrowded and risky the ride-sharing market has become, which in itself undermines the valuation rationale for key competitors:

  • Investors have increasingly started to hedge their bets by investing in rivals (e.g. Tiger Global Management is invested in the top four competitors).
  • Then, Uber, Didi Chuxing and Lyft are directly and indirectly linked through investments, which led to the curious situation that Didi Chuxing itself is invested in all its key competitors.
  • Finally, all key players are investing aggressively in other start ups, which strongly suggests that they are yet unclear about their path to profitability (see CB Insights’ chart embedded in the article referenced below).

These are all clear indicators that the ride-sharing market is both overvalued and overcrowded. If I had to put money on the market, I would bet on very significant down rounds or failure of a key player as soon as funding conditions tighten.

See this excellent CB Insights’ article on the ride-sharing space: https://www.cbinsights.com/blog/most-well-funded-tnc-ride-hailing-investor-graph