In July, Tim Cook met Donald Trump in the Oval Office to deliver a simple message. “Our view on tariffs is that they show up as a tax on the consumer and end up resulting in lower economic growth,” the executive told the President. ”And sometimes can bring about significant risk of unintended consequences.”
Cook ultimately got his way, with Trump giving some of the company’s products a last minute tariff reprieve. Even so, when time came for the company’s latest earnings report, Cook placed much of the company’s relatively weak showing on two-way tariffs and the looming trade war they represent.
The impact of tariffs has been been profoundly wide ranging, impacting everything from solar panels to soy beans. Harley Davidson famously projected costs in excess of $40 million last year. Yesterday, The New York Times noted tumbling sales and stock prices in the washing machine industry, thanks in part to tariffs starting at 20 percent on imported products.
Consumer electronics, which are so often the product of components from wide ranging sources, have been hit with an outsized impact.
“The cost of the current tariffs remains an issue, and the uncertainty of potentially more tariffs combined with export controls is a real threat to our global leadership 5G, artificial intelligence and robotics,” CTA President and CEO Gary Shapiro told TechCrunch. “The tech industry – responsible for 10 percent of U.S. GDP and more than 15 million American jobs – has already been dealt an enormous blow by tariffs this year. Our industry can’t continue to pay $1 billion dollars extra in tariffs every month — tariffs are taxes.”
Over the past several months, manufacturers have been faced with the choice of raising prices or absorbing costs — neither a particularly great option in a volatile economy. This has left Massachusetts-based iRobot, which has been a key driver in consumer robotics, in a difficult position.
CEO Colin Angle told TechCrunch that, while the company has less price sensitivity with its premium priced Roomba devices, the company is still feeling a major crunch.
“The tariffs suck,” said Angle. “In Q4, we absorbed the cost of the tariffs. We did not adjust pricing, and I think we estimated the impact to our profitability for the year at $5 million. In 2019, we, like all of the other manufacturers of robots and most of the manufacturers of consumer goods, have raised the price, because our business model doesn’t allow us to take that hit. What that means is the growth rate of the industry is going to be negatively impacted.”
On the more industrial side, the robotics industry has been hit hard by the rising price of steel imports. “With the tariffs that have recently been placed on a lot of the steel in particular that’s getting imported from China, it puts a lot of pressure not just on Eckhart, but a lot of the companies that we compete against in addition to our customers,” Andrew Storm, the CEO of collaborative robotics maker Eckhart said in a recent interview with Fox Business.
Things have been less pronounced for China-based drone giant, DJI. “We’ve seen some impacts from tariffs on components and miscellaneous gear, but not on our drone business,” a spokesperson told TechCrunch. “We always have to take into account tariffs, currency fluctuations and other factors like that in setting prices for countries around the world, so I don’t want to overstate the impact here. We are monitoring the situation closely, and since we can’t directly affect these trade issues, we’re staying focused on trying to make the best drones people can buy.”
For now, at least, it seems that even a looming trade war with China can’t stop the inevitable rise of robotics and automation — it could, however, serve to hamper its growth.
“The tariffs that we are seeing are having an impact on the manufacturing industries, such as automotive manufacturing, which are the traditional buyers of industrial robotics and automation technology,” IDC’s Research Director covering commercial service robotics John Santagate said in a statement offered to TechCrunch. “There was a bit of a slip in 2018 in terms of orders of robots to automotive manufacturing, but we also saw a significant increase in orders of robots in other industries. The growth of robotics in other industries is showing strong growth, that will likely continue regardless.”
Last April, Spotify surprised Wall Street bankers by choosing to go public through a direct listing process rather than through a traditional IPO. Instead of issuing new shares, the company simply sold existing shares held by insiders, employees and investors directly to the market – bypassing the roadshow process and avoiding at least some of Wall Street’s fees. That pattens is set to continue in 2019 as Silicon Valley darlings Slack and Airbnb take the direct listing approach.
Have we reached a new normal where tech companies choose to test their own fate and disrupt the traditional capital markets process? This week, we asked a panel of six experts on IPOs and direct listings: “What are the implications of direct listing tech IPOs for financial services, regulation, venture capital, and capital markets activity?”
This week’s participants include: IPO researcher Jay R. Ritter (University of Florida’s Warrington College of Business), Spotify’s CFO Barry McCarthy, fintech venture capitalist Josh Kuzon (Reciprocal Ventures), IPO attorney Eric Jensen (Cooley LLP), research analyst Barbara Gray, CFA (Brady Capital Research), and capital markets advisor Graham A. Powis (Brookline Capital Markets).
TechCrunch is experimenting with new content forms. Consider this a recurring venue for debate, where leading experts – with a diverse range of vantage points and opinions – provide us with thoughts on some of the biggest issues currently in tech, startups and venture. If you have any feedback, please reach out: Arman.Tabatabai@techcrunch.com.
Thoughts & Responses:
Jay R. Ritter
Jay Ritter is the Cordell Eminent Scholar at the University of Florida’s Warrington College of Business. He is the world’s most-cited academic expert on IPOs. His analysis of the Google IPO is available here.
In April last year, Spotify stock started to trade without a formal IPO, in what is known as a direct listing. The direct listing provided liquidity for shareholders, but unlike most traditional IPOs, did not raise any money for the company. [According to recent reports], Slack [is considering] a direct listing, and it is rumored that some of the other prominent unicorns are considering doing the same.
Although no equity capital is raised by the company in a direct listing, after trading is established the company could do a follow-on offering to raise money. The big advantage of a direct listing is that it reduces the two big costs of an IPO—the direct cost of the fees paid to investment bankers, which are typically 7% of the proceeds for IPOs raising less than $150 million, and the indirect cost of selling shares at an offer price less than what the stocks subsequently trades at, which adds on another 18%, on average. For a unicorn in which the company and existing shareholders sell $1 billion in a traditional IPO using bookbuilding, the strategy of a direct listing and subsequent follow-on offering could net the company and selling shareholders an extra $200 million.
Direct listings are not the only way to reduce the direct and indirect costs of going public. Starting twenty years ago, when Ravenswood Winery went public in 1999, some companies have gone public using an auction rather than bookbuilding. Prominent companies that have used an auction include Google, Morningstar, and Interactive Brokers Group. Auctions, however, have not taken off, in spite of lower fees and less underpricing. The last few years no U.S. IPO has used one.
Traditional investment banks view direct listings and auction IPOs as a threat. Not only are the fees that they receive lower, but the investment bankers can no longer promise underpriced shares to their hedge fund clients. Issuing firms and their shareholders are the beneficiaries when direct listings are used.
If auctions and direct listings are so great, why haven’t more issuers used them? One important reason is that investment banks typically bundle analyst coverage with other business. If a small company hires a top investment bank such as Credit Suisse to take them public with a traditional IPO, Credit Suisse is almost certainly going to have its analyst that covers the industry follow the stock, at least for a while. Many companies have discovered, however, that if the company doesn’t live up to expectations, the major investment banks are only too happy to drop coverage a few years later. In contrast, an analyst at a second-tier investment bank, such as William Blair, Raymond James, Jefferies, Stephens, or Stifel, is much more likely to continue to follow the company for many years if the investment bank had been hired for the IPO. In my opinion, the pursuit of coverage from analysts at the top investment banks has discouraged many companies from bucking the system. The prominent unicorns, however, will get analyst coverage no matter what method they use or which investment banks they hire.
Barry McCarthy is the Chief Financial Officer of Spotify. Prior to joining Spotify, Mr. McCarthy was a private investor and served as a board member for several major public and private companies, including Spotify, Pandora and Chegg. McCarthy also serves as an Executive Adviser to Technology Crossover Ventures and previously served as the Chief Financial Officer and Principal Accounting Officer of Netflix.
If we take a leap of faith and imagine that direct listings become an established alternative to the traditional IPO process, then we can expect:
Financing costs to come down – The overall “cost” of the traditional IPO process will come down, in order to compete with the lower cost alternative (lower underwriting fees and no IPO discount) of a direct listing.
The regulatory framework to remain unchanged – No change was / is required in federal securities laws, which already enable the direct listing process. With the SEC’s guidance and regulatory oversight, Spotify repurposed an existing process for direct listings – we didn’t invent a new one.
A level playing field for exits – Spotify listed without the traditional 180 day lock-up. In order to compete with direct listings, traditional IPOs may eliminate the lock-up (and the short selling hedge funds do into the lock-up expiry).
Financing frequency; right church, wrong pew – Regardless of what people tell you, an IPO is just another financing event. But you don’t need to complete a traditional IPO anymore if you want to sell equity. Conventional wisdom says you do, but I think conventional wisdom is evolving with the realities of the marketplace. Here’s how we’d do it at Spotify if we needed to raise additional equity capital. We’d execute a secondary or follow-on transaction, pay a 1% transaction fee and price our shares at about a 4% discount to the closing price on the day we priced our secondary offering. This is much less expensive “financing” than a traditional IPO with underwriter fees ranging from 3-7% (larger deals mean smaller fees) and the underwriter’s discount of ~36% to the full conviction price for the offering. You simply uncouple the going public event from the money raising event.
Josh Kuzon is a Partner at Reciprocal Ventures, an early stage venture capital firm based in NYC focused on FinTech and blockchain. An expert in payments and banking systems, Josh is focused on backing the next generation of FinTech companies across payments, credit, financial infrastructure, and financial management software.
I think the implications of direct listing tech IPOs are positive for venture capitalists, as it creates a channel for efficient exits. However, the threat of low liquidity from a direct listing is significant and may ultimately outweigh the benefits for the listing company.
Direct listing tech IPOs offers a compelling model for company employees and existing investors in pursuit of a liquidity event. The model features a non-dilutive, no lock-up period, and underwriting fee-less transaction, which is a short-term benefit of the strategy. Additionally, as a publicly traded company, there are longer-term benefits in being able to access public markets for financing, using company stock to pay for acquisitions, and potentially broaden global awareness of an organization. However, these benefits come with tradeoffs that should not be overlooked.
One concern is the circular problem of liquidity. Without a defined supply of stock, it can be difficult to generate meaningful buyside demand. A floating price and indeterminate quantity will dampen institutional interest, no matter how great the listing company may be. Institutions require size and certainty; not only do they desire to build large positions, but they need to know they can exit them if needed. Without consistent institutional bids, sellers are less motivated to unwind their stakes, for fear of volatility and soft prices.
I believe institutional investors and their brokers are crucial ingredients for a properly functioning public equities market structure. They help make markets more liquid and efficient and serve as a check on companies to drive better business outcomes for their shareholders. A lack of institutional investors could be a very expensive long-term tradeoff for a short-term gain.
For companies that have significant brand awareness, don’t need to raise additional capital, or already have a diverse institutional investor base, the direct listing model may work out well for them. Few companies, however, fit this profile. Many more will likely have to work a lot harder to persuade the capital markets to participate in a direct listing and even if successful, may ultimately come back to bite them as they evolve and require additional capital markets cooperation.
Eric Jensen is a partner at Cooley LLP. He advises leading technology entrepreneurs, venture funds and investment banks in formation, financing, capital market and M&A transactions, and in in the past seven years was involved in over 55 offerings, raising over $21 billion, for companies such as Appian, Atlassian, Alteryx, Avalara, DocuSign, FireEye, Forty Seven, LinkedIn, MongoDB, NVIDIA, Redfin, SendGrid, ServiceNow, Tenable, Zendesk, Zulilly and Zynga.
It is challenging to draw market lessons from a single completed “direct listing.” The degree of interest I am seeing, often without folks knowing what it means, shows that the IPO model has issues. So first I describe to a client what it means – an IPO without the “I” and the “O”, meaning you are not selling any stock and therefore you don’t have a set initial stock price. These factors mean that a direct listing is relevant only for a small subset of private companies – those that:
Sold stock to a number of institutional buyers that are likely to hold or increase their interest once trading begins;
Are large enough (and didn’t restrict transfers) such that an active trading market developed as a private company, to be used as a proxy for the public trading price;
Don’t need to raise primary capital, and
Want to make their mark by doing something different, at the expense of placing IPO stock in the hands of new investors they have selected.
There is no evidence to indicate that it accelerates public market access, any company that can do a direct listing could do an IPO. The SEC doesn’t go away, and compared to the highly tuned IPO process, SEC scrutiny is actually higher. As least based on Spotify, it doesn’t put investment bankers out of a job, nor does it dramatically reduce total transactions costs. Spotify had no lock-up agreement, so the VCs I know love this feature, but it is not inherent in a direct listing, and IPOs don’t require lock-ups.
In my book, too soon to tell if it is the reverse Dutch Auction of its day.
Barbara Gray, CFA is a former top-ranked sell-side Equity Analyst and the Founder of Brady Capital Research Inc., a leading-edge investment research firm focused on structural disruption. She is also the author of the books Secrets of the Amazon 2.0, Secrets of the Amazon and Ubernomics.
Although Spotify successfully broke free of its reins last April and entered the public arena unescorted, I expect most unicorns will still choose to pay the fat underwriting fees to be paraded around by investment bankers.
Realistically, the direct listing route is most suitable for companies meeting the following three criteria: 1) consumer-facing with strong brand equity; 2) easy-to-understand business model; and 3) no need to raise capital. Even if a company meets this criteria, the “escorted” IPO route could provide a positive return on investment as the IPO roadshow is designed to provide a valuation uptick through building awareness and preference versus competitive offerings by enabling a company to: a) reach and engage a larger investment pool; b) optimally position its story; and c) showcase its skilled management team.
Although the concept of democratizing capital markets by providing equal access to all investors is appealing, if a large institution isn’t able to get an IPO allocation, they may be less willing to build up a meaningful position in the aftermarket. The direct listings option also introduces a higher level of pricing risk and volatility as the opening price and vulnerable early trading days of the stock are left to the whims of the market. Unlike with an IPO, with benefits of stabilizing bids and 90 to 180 days lock-up agreements prohibiting existing investors from selling their shares, a flood of sellers could hit the market.
Graham A. Powis is Senior Capital Markets Advisor at Brookline Capital Markets, a division of CIM Securities, LLC. Brookline is a boutique investment bank that provides a comprehensive suite of capital markets and advisory services to the healthcare industry. Mr. Powis previously held senior investment banking positions at BTIG, Lazard and Cowen.
While Spotify’s direct listing in 2018 and recent reports that Slack is considering a direct listing in 2019 have heightened curiosity around this approach to “going public,” we expect that most issuers in the near-to medium-term will continue to pursue a traditional IPO path. Potential benefits of a direct listing include the avoidance of further dilution to existing holders and underwriter fees. However, large, high-profile and well-financed corporations, most often in the technology and consumer sectors, are the companies typically best-suited to pursue these direct listings. By contrast, smaller companies seeking to raise capital alongside an exchange listing, and with an eye on overcoming challenges in attracting interest from the investing public, will continue to follow a well-established IPO process.
A case in point is the healthcare segment of the US IPO market, which has accounted for one-third of all US IPO activity over the last five years. The healthcare vertical tilts toward small unprofitable companies with significant capital needs and, as a result, direct listings aren’t likely to become a popular choice in that industry. Since 2014, unprofitable companies have accounted for more than 90% of all healthcare IPOs completed. Furthermore, the biotechnology subsector has been by far the most active corner of the healthcare IPO market, and biotechnology companies are voracious consumers of capital. Finally, healthcare IPOs tend to be relatively small: since 2014, healthcare IPO issuers have raised, on average, only 47% of the amount raised by non-healthcare issuers, and more than half have already returned to the market at least once for additional capital.
It’s not surprising that Apple has a massive active install base of iPhones across the globe, but we now finally have an exact number to put behind it. During its Q1 earnings call, CFO Luca Maestri shared the install base for the first time.
“Our global active install base of iPhone continues to grow and has reached an all-time high at the end of December,” Maestri said. “We are disclosing that number now for the first time; it has surpassed 900 million devices.”
Apple has previously detailed the total active install base of its products. They updated the number today to 1.4 billion devices worldwide at the end of December 2018, up from 1.3 billion at the end of January 2018. It’s interesting that Apple has decided to break out iPhone device numbers even as it shies away from releasing unit sales in its earning calls from this point moving forward.
Maestri detailed that Apple would continue to offer updates on the iPhone install base and total install base on a “periodic basis.”
Apple seems to be seeking bright spots wherever they can find them; the Q1 2019 earnings didn’t deliver great news for the company despite beating already reduced market expectations. iPhone revenues were down 15 percent.
Apple posts Q1 revenue decline with iPhone sales down 15 percent
The European Union’s executive body, the EC, has taken a first pass at drawing up a strategy to respond to the myriad socio-economic challenges around artificial intelligence technology — including setting out steps intended to boost investment, support education and training, and draw up an ethical and legal framework for steering AI developments by the end of the year.
It says it’s hoping to be able to announce a “coordinated plan on AI” by the end of 2018, working with the bloc’s 28 Member States to get there.
“The main aim is to maximise the impact of investment at the EU and national levels, encourage cooperation across the EU, exchange best practices, and define the way forward together, so as to ensure the EU’s global competitiveness in this sector,” writes the Commission, noting it will also continue to invest in initiatives it views as “key” for AI (specifically name-checking the development of components, systems and chipsets designed to run AI operations; high-performance computers; projects related to quantum technologies; and ongoing work to map the human brain).
Commenting on the strategy in a statement, the EC VP for the Digital Single Market AndrusAnsip said: “Without data, we will not make the most of artificial intelligence, high-performance computing and other technological advances. These technologies can help us to improve healthcare and education, transport networks and make energy savings: this is what the smart use of data is all about.
“Our proposal will free up more public sector data for re-use, including for commercial purposes, driving down the cost of access to data and helping us to create a common data space in the EU that will stimulate our growth.”
Below is a breakdown of what the Commission is proposing in the various areas it’s focusing on.
Regional industry bodies’ response statements to the plan include the usual mix of welcoming platitudes combined with calls for “a cautious approach to regulation” to “allow AI to have the space to grow”, as tech advocacy association, the CCIA, puts it.
While consumer advocacy group, BEUC, criticizes the Commission for postponing what it dubs “hard decisions to later” — calling for it to make a clear commitment to update the bloc’s product safety and liability rules to ensure they are fit for the risks of the AI age.
Target of €20BN+ into AI research by end of 2020
On the investment front the Commission says its target is to increase investments in “AI research and innovation” in the bloc by at least €20BN between now and the end of 2020 — across both public and private sectors.
To support that it says it will increase its investment to €1.5BN for the period 2018-2020 under the Horizon 2020 research and innovation program — and is expecting this to trigger an additional €2.5BN of funding from existing public-private partnerships, such as on big data and robotics.
“[This] will support the development of AI in key sectors, from transport to health; it will connect and strengthen AI research centres across Europe, and encourage testing and experimentation,” it writes.
The EC also says it will support the development of an “AI-on-demand platform” to “provide access to relevant AI resources in the EU for all users”.
And it says it intends to use the European Fund for Strategic Investments to provide companies and start-ups with “additional support” to invest in AI — aiming to, as it puts it, “mobilise more than €500M in total investments by 2020 across a range of key sectors”.
Push to open up public sector data-sets
The Commission is also eyeing a range of ways to open up access to data — as a strategy to stimulate AI developments.
On this it’s proposing legislation to open up more data for re-use, including public sector data — proposing a review of the rules that govern this (aka the PSI Directive) — along with a package of other measures geared towards making data sharing easier; including a new set of recommendations for sharing scientific data; and guidance for the private sector on data sharing collaborations with the private sector; and for business-to-business data sharing (it says it will come out guidance to help companies on this front, and also says it will call for proposals to set up a support center this year, funded via the Connecting Europe Facility).
In a Communication entitled ‘Towards a common European data space’, the Commission writes that its intention is to build on the foundation provided by the incoming GDPR data protection framework — and move towards what it couches as “a seamless digital area with the scale that will enable the development of new products and services based on data”. So full marks for buzzwords.
The changes it’s proposing to the PSI Directive are intended to reduce market entry barriers (especially for SMEs) by lowering charges for the re-use of public sector info; increase the availability of data by bringing new types of public and publicly funded data into the scope of the Directive (specifically the utilities and transport sectors, and research data).
It also says it wants to “minimize the risk of excessive first-mover advantage” — arguing this benefits large companies — by “requiring a more transparent process for the establishment of public-private arrangements”.
Encouraging the publication of “dynamic data” and APIs is another intention — and another strategy to ramp up business opportunities around data.
It has a factsheet on these plans here, where it also writes: “Data is of utmost importance to the European economy” — citing a study which predicts the total direct economic value of public sector information to increase from €52BN in 2018 (across all Member States) to €194BN in 2030.
Support for eHealth research and cross-border services
Yet another Communication published by the Commission today deals with health data specifically.
On this type of data the EC says it has three priorities:
Citizens’ secure access to their health data, also across borders –– enabling citizens to access their health data across the EU;
Personalised medicine through shared European data infrastructure — allowing researchers and other professionals to pool resources (data, expertise, computing processing and storage capacities) across the EU;
Citizen empowerment with digital tools for user feedback and person-centred care — using digital tools to empower people to look after their health, stimulate prevention and enable feedback and interaction between users and healthcare providers.
In its eHealth communication the Commission enthuses about the potential for digital solutions to transform healthcare before lamenting: “Market fragmentation and lack of interoperability across health systems stand in the way of an integrated approach to disease prevention, care and cure better geared to people’s needs” — i.e. as a result of Member States retaining control over their own national healthcare systems.
Hence it’s focusing efforts here on encouraging Member States to “improve the complementarity of their health services cross-border”; putting money into “research and innovation in digital health and care solutions” (via the Horizon 2020 program); and “assist[ing] Member States in pursuing the reforms of their health and care systems”.
Ethical guidelines for AI development coming this year
On the legal and ethical framework front, the Commission says it intends to publish ethical guidelines on AI development by the end of the year — which it says will be based on the EU’s Charter of Fundamental Rights, “taking into account principles such as data protection and transparency, and building on the work of the European Group on Ethics in Science and New Technologies“.
In the UK the upper house of parliament recently published its own report into the economic, ethical and social implications of artificial intelligence — which urged action to avoid biases being baked into algorithms and recommended a cross-sector AI Code to try to steer AI developments in a positive, societally beneficial direction.
To draw up EU-wide guidelines, the EC says it will “bring together all relevant stakeholders in a European AI Alliance“.
“As with any transformative technology, artificial intelligence may raise new ethical and legal questions, related to liability or potentially biased decision-making. New technologies should not mean new values,” it also writes.
But it’s waiting until mid-2019 before issuing AI-related guidance on the interpretation of the EU’s Product Liability Directive — leaving consumers without legal clarity in the case of defective products for at least another year.
Training schemes and business-education partnerships
In terms of socio-economic prep for AI-fueled transformations coming to the job market the Commission says it’s encouraging Member States to “modernise their education and training systems and support labour market transitions, building on the European Pillar of Social Rights“.
More specifically it says it will support business-education partnerships to attract and keep more AI talent in Europe; set up dedicated training schemes with financial support from the European Social Fund; and support digital skills, competencies in STEM, entrepreneurship and creativity.
“Proposals under the EU’s next multiannual financial framework (2021-2027) will include strengthened support for training in advanced digital skills, including AI-specific expertise,” the Commission also adds.
So nothing very revolutionary on this front as yet, with the opportunity to expand available finance support for skills being put on ice until the bloc’s next major financing framework.
In another factsheet on its proposals the Commission flags some existing skills initiatives, such as the Digital Opportunity traineeship — saying this will provide cross-border traineeships for “up to 6,000 students and recent graduates as of summer 2018”. Although this is more broadly aimed at digital skills gaps.
The AI strategy comes in the same week as a group of EU-based scientists have warned in an open letter that the region is falling behind North American and China on AI research — proposed establishing a European AI research institute, linked to industry, to attract and retain AI talent, also arguing that “the distinction between academic research and industrial labs is vanishing”.
Albeit several of the academics who signed the letter also hold positions with tech giants — including Uber’s chief scientist, Zoubin Ghahramani; Google’s head of machine learning research, Olivier Bousquet; and Amazon’s director of machine learning, Ralf Herbrich.
Facebook wants you to look and move like you in VR, even if you’ve got a headset strapped to your face in the real world. That’s why it’s building a new technology that uses a photo to map someone’s face into VR, and sensors to detect facial expressions and movements to animate that avatar so it looks like you without an Oculus on your head.
CTO Mike Schroepfer previewed the technology during his day 2 keynote at Facebook’s F8 conference. Eventually, this technology could let you bring your real-world identity into VR so you’re recognizable by friends. That’s critical to VR’s potential to let us eradicate the barriers of distance and spend time in the same “room” with someone on the other side of the world. These social VR experiences will fall flat without emotion that’s obscured by headsets or left out of static avatars. But if Facebook can port your facial expressions alongside your mug, VR could elicit similar emotions to being with someone in person.
Facebook has been making steady progress on the avatar front over the years. What began as a generic blue face eventually got personalized features, skin tones and life-like features, and became a polished and evocative digital representation of a real person. Still, they’re not quite photo-realistic.
Facebook is inching closer, though, by using hand-labeled characteristics on portraits of people’s faces to train its artificial intelligence how to turn a photo into an accurate avatar.
Meanwhile, Facebook has tried to come up with new ways to translate emotion into avatars. Back in late 2016, Facebook showed off its “VR emoji gestures,” which let users shake their fists to turn their avatar’s face mad, or shrug their shoulders to adopt a confused expression.
Still, the biggest problem with Facebook’s avatars is that they’re trapped in its worlds of Oculus and social VR. In October, I called on Facebook to build a competitor to Snapchat’s wildly popular Bitmoji avatars, and we’re still waiting.
Facebook seriously needs its own Bitmoji
VR headsets haven’t seen the explosive user adoption some expected, in large part because they lack enough compelling experiences inside. There are zombie shooters and puzzle rooms and shipwrecks to explore, but most tire of them quickly. Games and media lose their novelty in a way social networking doesn’t. Imagine what you were playing or watching 14 years ago, yet we’re still using Facebook.
That’s why the company needs to nail emotion within VR. It’s the key to making the medium impactful and addictive.
Smart speakers that let you control services and other connected devices in your home will continue to be a popular gift choice during the holiday season and into next year, when usage is set to rise by 15 percent, to 74.2 million people in the U.S., working out to 26.8 percent of the U.S. population, according to estimates from eMarketer.
But while Amazon’s Echo helped to define and still dominates the market, consumers’ love affair with Alexa may be cooling, just a little, as the Echo is finally starting to feel the heat from competitors like Home from Google, Apple’s HomePod and the Sonos One.
A new report estimates that the Echo will have accounted for nearly 67 percent of all smart speaker sales in the U.S. in 2018, with Google taking 29.5 percent and others at 8.3 percent. But by next year, Amazon will drop to 63 percent, Google will bump up to 31 percent and a plethora of smaller OEMs will collectively take 12 percent. Three percent decline doesn’t sound like a lot, but it will be the first time ever that Amazon will have dropped below two-thirds of sales. (And for the record, eMarketer research from the U.K. found similar numbers and declines.)
eMarketer believes this could be the beginning of a gradual decline for the e-commerce giant that will continue through 2020 as the next wave of adopters increasingly explore other brands.
“Consumers in the market for a smart speaker have more options than ever, and Amazon will lose some of its majority share as a result,” said eMarketer forecasting analyst Jaimie Chung, in a statement. “Google has the Home Mini and Home Hub to compete with Amazon’s Echo Dot and Echo Show, and both the Apple HomePod and Facebook Portal will experience their first holiday season this year. Amazon has remained relevant by plugging Alexa into premium speakers like the Sonos, but even Sonos plans to bring Google Assistant to its devices next year, keeping the two companies neck and neck in the voice assistant race.”
There is a valid question to be asked about what people use their speakers for once they do have them. The main takeaway it seems is that while some device makers may turn speakers into a tidy business, it might be some time before the apps and software built around them monetises as lucratively.
For now, the main purpose seems to be listening to audio, where smart speakers provide a handy way to call up music and hear it — which 79.8 percent of speaker owners say they have done — one reason perhaps that the Sonos and Apple’s HomePod are making some inroads since both companies have put music at the core of their experience.
Second most common usage? Inquiries at 73 percent, which is an area where search giant Google is particularly strong.
Amazon has also made Alexa, in her own way, also a fairly amusing, and sometimes helpful, assistant on various topics, helped significantly by all the skills integrations that have been built. However, one key Alexa/Echo use case for the company has always been voice commerce, providing a new interface for people to be able to shop, to fit scenarios where a screen and keyboard are not as convenient.
For now, however, eMarketer says that this a less popular usage for these devices, and that overall voice commerce will remain a very niche slice of the e-commerce market, accounting for just 0.4 percent of sales, or $2 billion. Some 27 percent of speaker owners will experiment with buying something via voice commerce next year — a number that eMarketer revised down from an earlier estimate of 31 percent, while 37.1 percent will “shop” using their smart speakers — that is, ask questions about products, if not actually buy them.
Bad news for all the companies thinking that smart speakers will usher in a new era of smart home device usage: smart home integrations are used by just 34.5 percent of smart speaker users.
One of 3D printing’s biggest selling points has always been the ability to create objects that would otherwise be difficult or impossible to build with more traditional methods. A new collaboration between Google and industrial 3D printer manufacturer Stratasys, however, finds the companies working to re-create the familiar.
The latest addition to the Open Heritage Project finds Google Arts and Culture leveraging Stratsys’ multi-color prototyping machine, the J750 3D, to create models of ancient objects and landmarks. The project is designed to give museum-goers and researchers access to rare or one-off creations and to help preserve structures from the ravages of time.
“The project was to explore physically making these artifacts in an effort to get people hooked and excited about seeing pieces in a museum or research context,” Google Design Technologist Bryan Allen said in a statement tied to the announcement. “That’s when we turned to 3D Printing. With the new wave of 3D Printed materials now available, we’re able to deliver better colors, higher finish, and more robust mechanical properties – getting much closer to realistic prototypes and final products right off the machines.”
The teams use 3D scanners to create a CAD design of objects and architecture from heritage sites. Those can then be accessed as a file or printed on one of these machines.
A cell atlas. AI that reads science papers. Personalized learning software. Mark Zuckerberg and Priscilla Chan’s $45 billion philanthropy organization wants to build technology that can do good at scale rather than just trying to drown problems in cash. Now 2.5 years after its launch, CZI has finally filled out its tech leadership team.
Today CZI announced the hire of Jonathan Goldman as its head of Data. He was formerly the director of Data Science and Analytics at Intuit after selling it his startup Level Up Analytics. Before that he picked up a PhD in Physics at Stanford, and he’s on the Khan Academy board. Phil Smoot has been named CZI’s head of engineering. He was the VP of engineering for Microsoft OneDrive and SharePoint, and previously worked on Hotmail and Outlook.
CZI’s tech leadership team with its founders (from left): Sandra Liu Huang, Phil Smoot, Jonathan Goldman, Priscilla Chan, Mark Zuckerberg
Together with CZI’s head of Product, Sandra Liu Huang, who’d been acting as its interim head of technology, they’ll be tackling massive technology products that could improve medicine, research and education. Critics have asked whether the Zuckerberg family philanthropy has brought its money to issues that might be more complex than just needing funding. But tech is what Zuckerberg does, and Chan’s experience as a doctor and teacher could focus their impact where it’s most critical.
When asked about the challenges Goldman and Smoot would tackle, a CZI spokesperson told me, “Figuring out how to create a strong technical culture within philanthropy, which hasn’t really been done before. Also keeping ourselves rigorous in how we approach the work even though there aren’t conventional market indicators.”
For example, its data coordination platform for the Human Cell Atlas could help doctors map out our biology in a new level of detail that could help fight disease. The Meta tool uses AI to analyze and prioritize research papers so scientists don’t miss out on important new findings. CZI is also supporting the Summit Learning Platform, a tool for teachers to personalize their instruction for students with different learning styles, from those that excel from solo reading to those who prefer group projects.
“We’re putting engineers, data scientists and product managers side by side with bench scientists, educators and policy advocates. Translating these different languages can be challenging at times, but we all know the breakthroughs that come out of these efforts will be well worth it,” a spokesperson concluded.
Tesla has had a brisk merch business for years now, thanks to its fervent owner base and fans, who are enthusiastic supporters of the company and its CEO Elon Musk.
But until now, those Tesla-branded items — everything from water bottles and hats to jackets, chargers and once a surfboard — have been sold through the automaker’s own website.
Tesla has now expanded it merch ambitions and opened a store on Amazon. (A reader tipped off TechCrunch to the store; however, the story was first reported by Electrek). Tesla confirmed the store opened earlier this week. Update: The site is now down.
It should be noted that, for now, the store on Amazon isn’t as robust as the one on Tesla’s website. However, there are at least two items that can only be found on the Amazon page: an iPhone 8+ case and a Tesla iPhone X folio case. No prices are listed for the items and they’re currently “unavailable.”
In fact, every item on the store is “unavailable.”
It’s not clear when these items will be back in stock or why they aren’t available now. Did the company sell out already? Has it simply failed to make the items available? So many questions.
Tesla merchandise, especially specialty items, do tend to sell out quickly. For instance, the Tesla branded surfboard priced at $1,500 sold out in a day. However, the mini die-cast Tesla models sold on the Amazon store appear to be in stock over at Tesla’s website. We’ll update the story when the mystery is solved.
The Kata Containers project, the first non-OpenStack project hosted by the OpenStack Foundation, today launched version 1.0 of its system for running isolated container workloads. The idea behind Kata Containers, which is the result of the merger of two similar projects previously run by Intel and Hyper, is to offer developers a container-like experience with the same security and isolation features of a more traditional virtual machine.
To do this, Kata Containers implements a very lightweight virtual machine (VM) for every container. That means every container gets the same kind of hardware isolation that you would expect from a VM, but without the large overhead. But even though Kata Containers don’t fit the standard definition of a software container, they are still compatible with the Open Container Initiative specs and the container runtime interface of Kubernetes. While it’s hosted by the OpenStack Foundation, Kata Containers is meant to be platform- and architecture-agnostic.
Intel, Canonical and Red Hat have announced they are putting some financial support behind the project, and a large number of cloud vendors have announced additional support, too, including 99cloud, Google, Huawei, Mirantis, NetApp and SUSE.
With this version 1.0 release, the Kata community is signaling that the merger of the Intel and Hyper technology is complete and that the software is ready for production use.
After twelve years spent investing in impact-oriented financial services startups around the globe, the Omidyar Network, which serves as the family investment office for eBay founder Pierre Omidyar, is spinning off its financial inclusion investment arm as Flourish Ventures.
Equipped with up to $300 million in capital for operations and investments, the new Flourish will continue to invest around the Network’s core mission of backing companies with a dual focus on making a social impact and achieving quality financial returns.
Already, the new firm is one of the most active financial services investors globally, according to a report from FT Partners.
This double-bottom line approach has already yielded results for the company.
“After ten or twelve years with people becoming more broadly interested in the impact investment space, and we had an opportunity to reinvent ourselves,” says Tilman Ehrback, a managing partner at the newly independent Flourish.
Flourish is actually the third spinout from Omidyar Network’s investment and philanthropic arms. two years ago, Omidyar spun out its U.S. emerging technology initiative as Spero and then last year launched a governance and citizen engagement-focused group called Luminate.
Now the organization, financed by Pam and Pierre Omidyar will launch Flourish as the latest independent entity.
“We feel that we are the right team at the right place at the right time,” says Ehrbeck.
Flourish, he says, is launching into a financial services environment that looks far different than it did when the Omidyar Network first identified financial services and inclusion as a focus area for its operations.
In the wake of the global financial crisis, financial services organizations indicated that they could not, or would not, deliver necessary access to consumers and small businesses. There was an erosion of trust, says Ehrbeck, and against a backdrop of stagnating wages and the changing nature of work, low and middle income consumers and would-be entrepreneurs in emerging and established financial markets need all the help they can get.
Indeed, an entire generation of entrepreneur is leveraging a slew of technologies from blockchain, to the platforms that Omidyar’s network has helped create through its earliest investments in the market.
That includes companies like Lenddo, an online lender using alternative sources of social media data to determine the creditworthiness of applicants raised its first institutional capital in 2012 with capital from investors including the Omidyar Network. That investment and the company’s subsequent merger with another Omidyar Network company, EFL, is indicative of the formative role that Omidyar — and now Flourish — can play in the growth of a business.
“We knew each other for three years. As we were looking to identify and scale we started to look at where there synergistic opportunities between smaller companies and could we put something together that would allow us to grow,” says Lenddo chief executive Richard Eldridge.
That scaling has paid off in Lenddo’s expansion into more markets and a more robust product offering.
Stories like those repeat across the Flourish portfolio of companies and speak to the kind of value that the company provides to portfolio companies, said Eldridge.
Indeed, Flourish’s global portfolio holds at least 40 fintech companies helping low- and middle-income households and small businesses. From challenger banks like Chime, Aspiration, Neon, Albo, and Tez; to insurance technology companies like MicroEnsure and Kin; and asset optimization tools, including United Income and Scripbox.
Given the explosion of interest in financial services offerings across challenger banks and through insurance technology offerings, Ehrbeck said it was a no-brainer for the company to spin-out, focus, and potentially expand.
With the spinoff, Flourish is taking the existent $200 million portfolio that the team had built at Omidyar and expanding that with the additional capital commitment from the Omidyar Group.
The firm is also starting to realize its first exits. The firm realized a 3x return on its investment in Asian Networks and has had another exit in the sale of Ruma to Go Jek.
“It’s a carve out of a successful team that has momentum and that Pierre wants to double down on,” Ehrbeck says. “What’s carved out is the existing portfolio and a commitment to fund the next wave. The reason the number has a flexibility. Pierre gives us the capital we think we can deploy against opportunity.”
Flourish will do more than commit capital to financial services startups. It also has the opportunity to provide grants and encourage research around financial inclusion.
Some recent work from the firm included the financing of a study of 240 households called the U.S. Financial Diaries, which provided hard data around the illness that pervades a large swath of the U.S. population.
Investments from Flourish will fall into similar buckets as the firm’s previous operations under the umbrella of the Omidyar Network. Including alternative credit, challenger banks, insurance technologies, and low cost digital infrastructures that can level the playing field for financial services providers.
“We find a gap in the system and try to fill it and improve it,” says Arjuna Costa, another partner on the new Flourish team coming over from Omidyar’s financial services group.
“We have the impact of companies scaling and reaching and serving people and led to replicators and competitors and widespread adoption,” Costa says.
Lenddo and its credit-scoring business is a perfect example of the trend, according to Costa.
“We started investing behind a number of companies that were coming up with using nontraditional data sets to try and score people,” he said. “We picked different data sets… we invested in the pioneering company using mobile payment data, the pioneering company using social media data, and the pioneering company using psychometric data.”
As those companies gained traction and new customers, proving the market demand, Omidyar’s investments could scale to higher value offerings around financial services.
“Initially talking about those deals other people in the industry looked at us and said that you’re nuts. And now it’s become the table stakes if you’re getting into lending,” Costa says. “After building this digital infrastructure to enable credit… Now there’s version two and version three of the infrastructure that’s coming up.”
Those higher value services are things like the agricultural lending business Rose Goslinga has launched for farmers in Africa.
“We bootstrapped our business for the first two years. They were the largest investor in our seed round,” Goslinga says of the Flourish commitment to her company, Pula Advisors.
“Omidyar is extremely well known in the financial inclusion space. They had the first investment in micro-insurance ten or fifteen years ago. They are really seen as the blue chip of financial or insurtech investors,” Goslinga said.
With their investment, it validated Goslinga’s attempt to provide credit and working capital loans to small farmers.
“We had quite a number of clients at that point but we didnt’ have any kind of institutional or financial investors at that point,” Goslinga says. “It was a stamp of approval for a lot of people later in.”
In mature markets like the U.S. Flourish’s approach is bit more nuanced, to serve a market with significant inefficiencies and baseline inequality, but one where the disparities manifest in different ways.
That’s why Flourish has gravitated toward businesses like Aspiration, which helps people bank more ethically — promoting sustainable investment portfolios and offering pay-your-own-fee for services; and Propel, which helps American consumers manage their public assistance benefits.
“At the highest level we look at the same criteria, we care about financial health and technology to promote financial health,” says Emmalyn Shaw, a founding managing partner in charge of the firm’s U.S. portfolio. “The U.S. as a more mature market tends to be a lot more competitive.”
Oura Health, a sleep-tracking and sleep-improvement platform, just raised $20 million in a funding round led by MSD Capital with participation from YouTube co-founder Steve Chen, Twitch co-founder Kevin Lin, Sunrise founder Dave Morin, JUMP founder Ryan Rzepecki and others. This round comes a couple of years after the Finnish company raised €5 million from MIT Media Lab Director Joi Ito and others.
Oura is a smart ring that tracks your sleep habits to help you achieve better sleep. It does this by measuring the blood volume pulse from your finger’s palmar arteries, detecting the direction and intensity of your body’s movements using a 3D accelerometer and gyroscope to detect direction and by measuring your temperature through three NTC temperature sensors.
“I believe Oura has identified a challenge that faces us all, namely getting enough high-quality sleep,” Michael Dell of MSD Capital said in a statement. “Oura’s design and technology show tremendous craftsmanship, and now more consumers around the world will be able to get their own Oura ring.”
The star-studded funding group also includes Shaquille O’Neil, Lance Armstrong and Will Smith.
“We are thrilled to have such a talented group of builders, champions, and creators join us as investors,” Oura Health CEO Harpreet Rai said in a statement. “It’s amazing to see how such a diverse group of investors all recognize the universal importance of sleep.”
To be clear, sleep tracking and improvement is an area many startups and large companies have tried. You may remember Basis Health, which eventually sold to Intel. And then there’s Fitbit, smart ring Motiv and other wearables that track your sleep.
We have yet to try this out, but we’ll report back if we do. Oura Health is currently shipping to more than 100 countries and retails from $299-$999, depending on the material you select. Meanwhile, Motiv retails for $199.