🌏 Dark Stores, Geopolichips, and a World Without Google
This week we dive into the geopolitics of the chip industry, Google's threat to pull out of Australia, and a look at our latest podcast that dives into Big Tech and antitrust.
Hey there -- I’m Jake and welcome to the 25th edition of Techonomics. We now have 4,134 subscribers who get tech analysis delivered to their inboxes weekly.
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🎧 Tech and Antitrust
I you missed it this week, Arun and I released the third episode of the Techonomics podcast – Tech and Antitrust.
Take a listen, and if you like what you hear, follow and rate the podcast with 5 stars to kick us off! We'd really appreciate it.
📍 Is Silicon Valley a place?
Many folks hold up Silicon Valley as a place where new, fresh ideas can flourish as they are backed by venture capital, strong networks, and a culture of an abundance mindset. We like to think of it as a birthplace of the internet and the central hub to all things tech. With the advancement of technology and the COVID-19 shove into remote work, being located together physically turned from a need to a nice-to-have for many companies.
While I firmly believe through my experience in tech that working closely with a team provides a leg-up through quicker iteration cycles, less communication overhead, and better team building, it’s hard to argue that some companies shouldn’t trade that off for lower capital expenditure on a physical office, especially when they are starting out. If you can make it happen, then the benefits of the Bay are still hard to beat, but I imagine we will land somewhere in the middle -- a physical office for some of the employees, some being distributed globally within timezone constraints, and a flexible work from home model that gives the benefits of colocation with the flexibility of distributed work.
Over time, that model will evolve for what's best for each company and may lead more companies into various tech hubs around the globe, though I still suspect San Francisco to tech will be what New York is to finance. So, is Silicon Valley a place? Yes, for now. (link)
Analysis and in-depth reads
The chip industry has been a fun one to follow in the past 5 years. In that time, we see two main trends discussed in 📲 Everyone’s a Chip Designer: design is becoming the differentiator and fabrication is becoming the commodity. From that article:
So what we have now is:
1) Commoditized chip design across hardware and cloud
2) Stronger incumbent chip fabricators
3) A valuable instruction set not owned by Intel and AMD
This leads to innovation in chipsets and better, more efficient experiences using personal computing hardware like the Apple Macbooks using M1 and cloud services like AWS Gravitron. Each of those examples is using the Arm instruction set, which not everyone agreed would happen, especially in the cloud, but it’s happening. This is the pattern that will continue as the flywheel of instruction set licensing, in-house design, and outsourced fabrication gets stronger and stronger.
Most, including myself, would argue that the spread of chip design into different firms is better for competition and technical efficiency that will breed the next generation of hardware. On the other hand, last week The Economist put out a great piece focused on the geopolitics of chip fabrication and the consolidation of the supply side of the industry. They rightly point out that with the ongoing fall of Intel, TSMC and Samsung are now the only chip fabricators that are operating at scale and with capital expenditures to follow increased demand and technological innovation pushing for better chips.
TSMC is based in Taiwan and Samsung is based in South Korea, and even though each of them is going to build out plants in the United States, the non-US control over the supply side of chip fabrication is causing concern, and rightfully so. The only way I see the US becoming self-sufficient in chip fabrication is by deep incentives and government monetary support to companies like Global Foundries and Intel in the same way we see China investing in their own technical self-reliance. This would be easier if Intel splits out their fabrication business to contract manufacturing for the plethora of US chip designers like NVIDIA and AMD. While that’s unlikely to happen organically, investment from the US government may help sweeten the deal. (link)
🦾 Custom robot chips
A reason to have fabrication contracted to foundries like TSMC and Samsung is that firms can focus on the design of chips and squeeze out any efficiency gains they can by designing for specific purposes. Like how only Apple knows the best way to design a chip for the iPhone, now MIT wants to use its understanding of robotics to design chips that improve the ability for robots to process information quickly. Right now, there is a gap between how quickly robots can process information and how fast their hardware can respond, or rather, how fast they can move. In the same way that a GPU is used for graphics and repetitive tasks, any efficiency gain by using chips designed for specific purposes and parts will allow robotics manufacturers to better control the acceleration on those chips, which would mean faster response times. Think how fast your neurons are firing and creating movement in your body – this time in robots. Neat. (link)
🇦🇺 A world without Google?
Google announced it may pull its search engine out of Australia due to the ACCC’s proposed bill that gives bargaining power to publishers against platforms like Google who would now need to pay not just for showing entire news articles in its Google News product, but also showing the title and snippets in its search results. That new law would fundamentally break the concept of a search engine and reduce the distribution mechanisms that publishers benefit from.
In September we took a look at why the proposal didn’t make sense. From 🇦🇺 Australia vs the Aggregators:
...the definition of content is important. Facebook and Google, and the rest of the internet for that matter, all leverage links with metadata attached to them to create a web where one link leads to another. This is how the internet works. Metadata isn’t the content. It describes the content. Facebook and Google, for the most part, show metadata only, before driving their users to the website of the media outlet for free.
It’s that free part that doesn't quite make sense for search, specifically. Why? There is a supply side problem if Google pulls out from Australia. From that same article:
If Facebook and Google simply block sharing news and shut down their aggregator products, media outlets lose free distribution and have to start paying for top-of-funnel traffic to get users to convert to paying subscribers. They need to build their subscriber base and now have a user supply problem. That means that instead of paying media outlets, Facebook and Google will increase ad revenue from increased media outlet ad spend.
Lastly, while it doesn’t make sense for Australia to put this law in place, Google is still a business and can choose where and when to support products. At over 90% of the search volume in Australia, it would be a great experiment to see what happens to other browser market share without Google. If not Google, it’s another search engine that has to negotiate pricing with publishers, and my guess is we are on a slippery slope to having some very weird subscription dynamics for consumers to use a search engine. (link)
🏬 Dark stores
The global pandemic put many trends into hyperdrive. One is on-demand grocery delivery. Within that trend, there are various business models being tried and tested. You have Instacart relying on shoppers who will go into a store and purchase the items for you before delivering them. You also have companies like Amazon and Whole Foods delivering direct using Amazon’s last mile delivery logistics with the brick and mortar stores acting as a warehouse. Similarly to that warehouse model, you also have food delivery services like DoorDash, Postmates, GoPuff, and now Glovo who are buying up properties in urban settings to build ‘dark stores’, or as we like to call them, 🛍 CFCs and urban warehouses.
Why central fulfillment centers, urban warehouses, and now dark stores? These provide a fast and reliable delivery network hub that greatly simplifies logistics, cuts out the middleman, and reduces the overhead of a storefront while getting customers their orders in under an hour.
From that article:
Again, it’s this vertical model and the close proximity to customers that’s going to continue to win as long as the choices hit their needs. These companies are solving a hard problem that’s become more important during the COVID-19 pandemic. As these companies continue to compete for delivery convenience prowess, vertically integrated CFCs will become the norm… alongside the robots ($).
Glovo is a major delivery player in Spain, and the Spanish startup is an example of the movement into rapid delivery in urban settings using fulfillment centers without storefronts. With a €100 million investment, it’s very possible that the in-person retail experience we know (and love?) will forever be shaped around delivery, no matter where you call home. (link)
⚡️ It’s electric
Rivian raised $2.65 billion in its latest funding round as it readies for production of its electric pickup truck and SUV, bringing their total raised since 2019 to $8 billion. This seems like a massive number, but starting a car company is hard and requires up-front capital to build out a factory. Over $1 billion has been spent on the Illinois factory already. That large capital expenditure reminds me of the semiconductor industry which has high up-front costs for fabrication plants on the order of tens of billions of dollars.
At the same time, we also saw Volta, an ad-supported EV charging network, get $125 million in funding to power the vehicles pumped out by Rivian, Tesla, and the many other car companies. The charges are free for the drivers and paid for by the advertisers. Remind anyone else of the pre-subscription times of the ad-supported internet?
Overall, I am excited about the EV market and the innovation that’s happening in the space. With the amount of capital flowing into the electric vehicle market, we are now seeing new car companies like Rivian and Volta grab investments that would have seemed ludicrous until Tesla and Nio paved the way, no pun intended. (link, link)
Bites to make you smarter
💉 Vaccine supply chain: In-depth exploration of the Pfizer and Moderna vaccines (link)
🐓 Warm the coup: I don’t condone the energy usage, but at least people are using the heat from mining bitcoin for something. (link)
🐦 Usage patterns: Twitter’s stock is down since the removal of Donald Trump’s account. (link)
👴 Aging and cognition: Scientists can now reverse age-related cognitive decline. (link)
🏛 Whitehouse tech investment: Fun easter egg on Whitehouse.gov. (link)
🎈<Insert balloon pun here>: The story of Google’s Loon experiment. (link)
Check out essays from previous weeks and head to techonomics.news to subscribe.
- 🇪🇺 The Brussels Effect: Thoughts on the Digital Services Act and Digital Markets Act
- 📲 Everyone’s a Chip Designer
- 💬 Slackforce
- 📈 Ubiquity and Bitcoin's Return
- 💳 Visa & Plaid: The DOJ Applying Learning from Tech
- 🍿 Thoughts on Quibi and Consumer Product
- 🏭 What's in a chip? Breaking down the Semiconductor Industry
- 👩⚖️ Section 230, the Senate, and Understanding the Internet
- 🍪 Upending the Internet’s Free Business Model
- 💸 Productization & Platforms
See you next week!