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3D printing has the potential to improve many niche industries, create new ones, and fundamentally change the supply chain model.
Comparisons to the PC industry are accurate – it begins with early adopters and hobbyist, shifts to high value users with real business applications, and finally transitions to productivity and job/life enhancement of the masses and speeds the process of innovation.
Thus far we’ve already seen 3D printing in spare parts, rapid prototyping, prostheics, implants, toys and hobbies.
Think bigger – fabrication of unibody parts, body tissue and organs, on site manufacturing, distributed IP…
This is why 3D printing is potentially such a big deal.. sure it sounds like a lot of pie in the sky… but then again so did the idea of globalization 100 years ago…or a phone that you carry in your pocket and can call phone nearly anywhere.
This is not just about bobble heads or model building, its about real applications in automotive, electronic, industrial, and other consumers supply chains. The real potential here is less about building something “cool” and unique and more about turning the existing model of design, procure, build and ship model on its head. The link is to the WikiHouse project which is a fantastic idea by itself – but he vision of 3D and the idea of distributed manufacturing and design discussed by Alastain Parvin is as well.
“We’re not there yet, but imagining how the widespread adoption of capable 3D printers could change the world doesn’t just stop with industrial designers or hobbyists. One day you might print out your flatware, your trash cans or even your next computer. If you think this is nuts, just ponder the line from the minicomputer to your smartphone.”
RIMM – Reports better than expected results, but still a sequential slowdown with no new products until Q1 2013.
Revenues, EPS, units, cash flow, and subscribers all better than expected (or feared) this quarter. This have caused a major after hours spike in the shares as short are forced to cover and opportunistic buyers and value buyers reach for shares. We have three questions:
1) Was there a material change in the companies trajectory? No, sequentially unit sales still fell, US continues to decline – which puts enterprise ever more at risk. FCF was still negative, and no new products until Q1 2013. While we somewhat agree with the need to focus on development of a better phone, all their action is at the mid to low end. Developing a high end phone with schedule mid and lower tier phones by next fall seems amazingly strange and likely not to work.
2) Were there any updates regarding new products or revenue opportunities? Not really, one small one relating to licencing. CEO mentioned positive meetings with other CEOs who said meetings are “very productive” and that RIMM needs to remain a “relevant player in the mobile computing world.” Fair enough, EVERYONE wants a third player, but that is just lip service at this point.
3) Is there value in the sum-of-the-parts analysis? subjective based on valuation for service business and IP value, but likely higher than $4b in a takeout – assuming an actual takeout, of course.
Bottom line, we continue to see RIMM as a damaged brand and one that is pushing too hard, too late. They are still fighting the last war – surviving by the scraps left over by Nokia. Lower cost Android and Chinese made phones will hurt their share in Q4 and 2013. The shares may certainly rise on short covering and momentum buying – we recommend avoiding the temptation.
This is just a quick update on where we think the next logical surprise is going to come from regrading Facebook shares…(hint… its mobile and its positive)
Yes, there are lock up issues, yes there are valuation issues… and yes, Barron’s just ran a cover story basically summarizing every bearish bullet point since the IPO roadshow. Shares are down over 9% yesterday and down again today. If there was any materially new information on FB I would not be stepping in with an opinion since it is a dynamic story whose long term outcome is far from a sure thing. However, when you have a 9% move stemming from an article that regurgitates old information – and in fact faces off vs. positive rumors we hear about possibilities in ecommerce, search, and improved ad platforms then you have to look at this as an opportunity…to buy.
The Facebook IPO was a mess, so what. Yes, there was money gained and lost by different folks, but at the end of the day investors need to do their own homework. The sell-off was warranted. There are issues on mobile and desktop and valuation and its status as an ecosystem etc. But as sentiment gradually turned negative during the road show, it is now near 100% negative as shares have fallen over 40% since the opening of trading (Faceplant). That said, sentiment is now overlooking any and all of the revenue opportunities they may have…which are plenty – its just that none are developed yet.
I do see lots of issues with the FB model – the most prevalent of which is the very genesis of the site is for social interaction and information, not products or service related – which prompts the question how do you monetize a 900m person cocktail party? Not as straightforward as a keyword search for iPhones. That said, the FB model does offer unprecedented scale, data, and optionality on ways to monetize that data and scale that no other company has the opportunity to do. Therefore, when the shares broke under $20, it gets interesting.
The next surprise out of FB is likely to be a positive one. Growth in the core market is known. New subscriber rates slowing, ad click through rates terrible, and mobile is an albatross. However, FB finally launched a mobile ad platform, which means we go from zero to some positive number in mobile. Also, FB is actively trying new desktop ad methods. Lastly, they are moving towards an ad network, more targeted ads, ROI studies, and possible search and ecommerce revenue streams. The negatives are known – its the positives that may surprise. Use today as an opportunity to take a long position for at least a trade into a positive announcement.
We are always on the look out for real change and disruption. What do we mean by real? There are very few times we have witnessed real change in the economic world, perhaps once each generation. The majority of concepts we identify as change are really just extension of the real change or evolution on top of it. Examples: mobile networks, the internet, the PC, television, the automobile, telephone, steam engine and railroads… you get the idea. These are BIG changes. Things like social networking, outsourcing, interstate highways, ecommerce are all extension of the big change or are enabled by it.
So, as we look out over the next few years at potential for change, we see a couple of things the strike our fancy – one being 3D printing. This is just what it sounds like. You can print something, nearly anything, in three dimensional form using materials like plastic and eventually metals and others. It works in a layering process, depositing each thin layer at a time and building vertically. The is virtually no limit to the types of items you can make – save for size and material – both of which technology will solve. So what? I can print a chess piece or model building? You could. And you could also print an antique car part, or customized case, or a machine part, or a prosthetic limb (already happening)….
What?
Yes, THAT is the type of reason this is exciting, that applications are only growing with awareness – just like other big changes who’s original audience and application was far more limited vs. its final mark.
Keep an eye on this space.
CSCO – VMware buys emerging competitor Nicira for $1.26b
Last night VMware announced it is buying Nicira for $1.05b cash plus $210m earnout. This is an a significant move for VMware/EMC and the networking space (and for Cisco and Juniper). Nicira developed the Open flow protocol for software defined networking (SDN) which at its root is server virtualization for networking gear. SDN seeks to separate the networking software from the physical hardware. Much like server virtualization allows more than one server instance to exist on one server – SDN allows for multiple servers on a single network node or to move the servers and networking “location” using software without reprogramming the networking gear each time. This is an emerging space with several new startups like Nicira and Big Switch as well as investments by Cisco (they invested $105m in Insieme in April*). The payoff in SDN resides not as much in hardware savings, though there are some, but in the flexibility and speed to deployment. Nicira has top tier early trial customers in eBay, AT&T, Rackspace and NTT, as has had positive feedback.
The impact for Cisco is twofold: 1) SDN seeks to isolate the intelligence of the network, something Cisco has embedded in the switches and routers it sells at premium prices; 2) VMW and EMC are partners with Cisco in selling data center solutions.
Cisco is already facing several headwinds including weakness on the macro front in Europe, continued lack of public spending, stronger Fx, and ongoing restructurings (additional 1,300 layoffs yesterday). In addition, the overall market looks to be rolling over. The sharp sell off in Cisco is mostly related to a fear of competitive pressures that will hurt its core franchise – switches and routers. The near term impact will be negligible and longer term networking gear will still be required and upgrades… but the risk is Cisco’s premium pricing and margins, as well as partners. Cisco has proven over time it can adapt, but this bears watching closely both for risks to Cisco, and also overreaction to the news (as may be seen yesterday by the larger downside move in Cisco) – shares should recover.
CSCO 4/20/2012
*has spun off and provided $105M in funding for Insieme, a project to create switches based on software-defined networking (SDN). In an employee memo, Cisco says it retains the right to buy Insieme for up to $750M, and outlines its SDN strategy. Cisco faces a tricky balancing act: it needs to compete with the SDN solutions of upstarts, but has to avoid cannibalizing sales of its high-margin, proprietary gear.
The bottom line is that Yelp’s service is incomplete and has suspect reviews and ratings, and even questionable stats. However, they are the best of a bad bunch of local information and recommendation engines. At this point, when you buy Yelp! you are buying the scarcity of their platform. They are doing a great job of pushing their mobile app and partnering with folks like Apple – and they extract a premium from local advertisers with few options. Consumers use it mostly because there are no alternatives. So while we are not likely to buy the shares, and don’t think their system is all that great, we are reminded of many tech companies that came before them that either went much higher before coming down to reality, or never came down at all due to first mover advantage. We don’t like Yelp! but have to respect the price action.
Angie’s list is another great alternative – though the pay for model is a turn off to many who end up hooked on a service like Yelp after just looking for something immediate and free and then returning.
True, it is only a matter of time before the players with huge networks, algorithms and data make a dent in this market – but the end game of how best to show results, keep data fresh, and who and what type of reviews people want is so unknown at this point I don’t think the end game is known until 2014
We want to discuss Apple’s recent product history and what those products meant to those end markets and to consumers and then continue into a discussion on the TV market and what an iTV might be and mean.
iPod
What did Apple really do for the music and computer industries considering the conversion of music to MP3 and the acquisition of music both legally and more importantly illegally was already well underway?
Apple did 4 things: 1) made it legal and priced attractive 2) pushed the emotion of endlessly portable music (already a feature but advertised it); 3) connected hardware and software automatically (huge for mass market); 4) made an elegant, differentiated device that was “cool.”
Was the ipod itself transformative? No, the device was distinctly better, but nothing revolutionary. Was selling MP3s big? Not really, selling them securely was. The big volumes came when iTunes was launched for Windows. The transformative aspect was the seamless marriage of iTunes + iPod – digital ferrymen for the masses.
iPhone
Was the iPhone a revolution? Yes, it changed the smartphone. It added full touch screen capabilities and a web browser experience was similar to desktop. The biggest changes to the iPhone vs other smartphones were 1) the design and GUI; 2) web browsing; 3) apps. So the combination of apps and browsing took something that was “cool” and made it necessary.
iPad
Was the iPad transformative? Yes, tablets were not new, but tablets the way we use iPad was new. A different more visceral and intuitive experience combined with Apples app and iTunes markets. It altered our perception about what is computing vs consumption. What do I want / need in my device. It replaced or supplemented other content mediums.
The iPad, in addition to its role to replace traditional mouse and keyboard type operations for web surfing, light messaging etc. also opened up and entirely new, more visceral experience for gaming and multi media apps. Lastly, form and function can be applied in the enterprise where countless custom apps are being designed to allow sales people, pilots, warehouses to utilize the mobile devices.
What will the Apple TV be?
Lets start with what TV is…
Traditionally it is an entertainment medium for TV shows, movies and news transmitted in a broadcast fashion utilizing specified time schedules for content. The method or setting for consumption is traditionally the family room, bedroom or other location in the home. TV is a selected passive medium. You are almost always seated or reclining with a method of selecting the specific broadcast (or “surfing” from one to the next), but there is zero engagement after selection.
Modern features like the DVR and VOD have altered certain behaviors. The most important aspect is time-shifting. Consumers are no-longer required to consume on a schedule, the DVR allows selective recording with playback at anytime, while the VoD service allows you to search a catalog of content (catalog currently limited in size, but expanding). The consumption still takes place in the home or living room, but is “improved” by the increased customization options. Live TV, like sports and certain voting shows still command audiences.
Most recently, mobile and tablet devices are being used (much more than laptops ever were) for consuming both in the home and on the go. The service to enable this is fair, but needs improvement. Thus, TV now resembles a hybrid of models. We are still reliant on the broadcast for live TV and for the distribution of content for the DVR service. VoD catalogs are improving but still exist within the overall broadcast service and thus have limits. Typical consumption packages are bundles of TV + Internet (or TV + Internet + Phone). Additional services like DVR and special VOD are extra. Channel selection is wonderful for tail content and discovery, but is largely wasted on the masses. Future interactivity in terms of social and potentially commercial is in the works but not yet deployed to the masses.
In addition, the conditioning of consumer by the DVR and VOD to control viewing is sparking an emphasis on cord cutting (eliminating the broadcast bundle, opting for a la carte web video). Over-the-top (OTT) video which is online viewing like Netflix and Hulu Plu are leading the charge, and in some cases developing their own proprietary content. These services are great and enhance the consumers expereince – but the fundamental fact is they still need the high speed data connection which is predominantly supplied by cable and telephone companies. So by hook or by crook you still need them. In addition, the content companies are accutely aware of this and will not give up the store like the music industry did.
What does the consumer want?
Any show or movie ever created, anytime, and we want to watch it on any device. For new shows, we (today) want them the next day after they broadcast on any device… and soon we want to stream it live. For current movies we want to stream it to our houses, or not negotiate the various different services for which movies are where and during which window. Just because consumers are getting more adept at shuffling between services doesn’t mean we want to. We also want to be able to view our own content on our TV or mobile device at anytime – and not have to connect any wires or worry if I’m on the right network or OS.
What can Apple deliver?
Apple helped reinvent the computing and media ecosystems – can they extend this to TV? Yes, but not without cooperation from the content providers and a major improvement in the current economics of television and movie content over the web. Sure, Apple could extend its ecosystem and smooth OS to the television (and largely has already with Apple TV) – but a true innovation for consumers only comes with the right content and pricing scheme. This about how big the 99c individual song was at the time. We envision apps along with voice navigation, seamless sharing and push/pull between Apple devices, multi-screen and split screen viewing…and an a la carte content menu. ESPN for $6.99 per month. Major networks bundle $19.99. TNT and TBS for $5.99 – etc…
Does Apple need hardware to do it? Not necessarily, but they traditionally make money on hardware, and the TV is a significant furnishing feature of the living room. The retina display for smaller screens is amazing, but the technology to scale up to 40+ inches is not there yet. Assuming it does improve, what price premium can Apple fetch? Will high speed internet providers subsidize TVs? The TV industry is one of the worst for CE companies. I do think Apple is very interested in this market – as well as all extended content markets.
An Apple TV would likely look and operate a little differently but the key for consumers is how different the content experience would be. And that is the issue. Read into the supply chain all you want. Without the content, Apple will not do it, and the existing content players and high production costs make it very difficult to negotiate new deals.
With that said, I don’t expect an “iTV” until late 2013 at the earliest. Apple likely has enough on its plate with a 4G iPhone and new iPads (mini?). The existing Apple TV product allows them to test content layouts, menus etc at a low risk.
What could change this outlook significantly? Economics of producing and distributing content and or the development of a secondary revenue stream on the TV platform like the App Store.
JPM Decides to Drop Out
JP Morgan made comments today that they will no longer be participating in the student loan market. They will continue to service existing loans but will not make new ones. This is likely due to one or both of the following reasons: 1) Feds are crowding out private lenders; 2) risk profile of the loans getting too high. Obviously it is the second reason that is cause for a concern given the sheer size of the student loan market. This is a subtle but meaningful change in the outlook for student loans. Many have pointed to the growing balance, but this may mark a turning point in that discussion.
A few other things to note. First, the fact that the largest bank with the strongest balance sheet and “plenty” of reserves doesn’t want to make new loans is alarming. Second, the transition from student to household formation is stunted. The weak job market and uncertain housing dynamic, compounded by excess student debt may be complicating and hindering chances at a housing recovery. Lastly, student loans, since that are not taken against assets, are locked against the individual, there is not getting out of it…then again, it is a Federal loan in most cases…could make for a very interesting chess piece.
Facebook pays $1.25b to help protect its Achilles heel
Once we get over the initial shock value of the Instagram purchase by Facebook, it is much more interesting to look at the why as opposed to HOW MUCH? Yes, Instagram was worth $20m only 14 months ago, $500m last WEEK, and now $1.25b (cash and FB stock w/ valuation $74b). Their user growth and activity levels are growing rapidly, they just added the app to the Android platform, they are a leading photo sharing site, AND they have users interacting OUTSIDE of the Facebook network. And that leads us to the why…
From a fundamental perspective there are four truths to consider: 1) photos are the leading activity on FB; 2) viral activity leveraging Facebook, Twitter, the mobile web and other social outlets has never been so pervasive or explosive; 3) mobile web activity will overtake desktop and laptops soon; 4) FB activity on mobile is fundamentally different and lower than on the desktop.
On the desktop FB is a platform, on mobile… just another app. There is a HUGE difference. On the desktop a users entire web activity and most of their time is through the FB platform. On mobile, they are just another one of the many apps consumers use to manage their mobile lives. In addition, the FB mobile app is cumbersome compared to others. Instagram is fast and elegant, Twitter simple, Foursquare simple. Yes, FB has more information and flexibility, but in a mobile world the whole point of the app is simplify. FB is aware of their limitations on mobile and is actively pursuing a mobile phone platform strategy and in the meantime is willing to buy competitors.
Is There Pain in Payments?
Is There Pain in Payment? Yes, but not where you think…The pain in payments is really more about pain in the shopping experience. Saving me the “pain” of a few seconds and a paper receipt at checkout is really just focusing on the last part of a deteriorating experience. As most stores look for ways to trim costs and boost add-on sales they have steadily eroded the shopping experience. Instead of more personal help, service and speed, they try to pull more dollars from your wallet with less effort. A few companies understand the new model and you know it because their stores or establishments are simple, well staffed, and while there may be a line due to the popularity of the product, the line “moves” since the store model is fluid. Those companies also tend to understand the attachment of a brand to a consumer and the emotional journey involved, almost less so than the product itself – think Apple, Chipotle, Trader Joes, Starbucks etc. But back to the initial statement… is there pain in the current payments system (aside from the excessive fees – which is going to be disrupted as well)? Is using your credit card really that difficult? Do you NEED to use your phone to pay for a soda or your new shirt? Let’s take a quick look at different payments, why I think your phone as a simple payment mechanism is vastly overrated and why the real issue is customer service and the shopping experience.
Cash vs. Credit/Debit
Ok, this is not really a competition any more. While cash is still the preferred method for some individuals, and certainly has its perks for certain transactions, it is by and large the dinosaur of transaction methods. Credit/Debit has taken over for obvious reasons when we view it through the lens of change. Plastic cards eliminate the potential pain of running out of money, of change, of receipt aggregation and they help in the consumer satisfaction realm as card companies can withhold payment or ease the return exchange. In addition, many card companies run loyalty programs. Cash does get discounts now given the fee structure for cards – but I look at this more as an opportunity to disrupt the credit card space then for cash to increase relevance. There is already pressure building on the fee and network structure of credit cards.
Plastic vs. Phones
Now it gets interesting, the long discussed potential for conversion of payments from your credit card to your phone. I am going to try and walk through this one step at a time as I feel its very important to draw distinctions here on what is currently being offered vs. what is possible in the future. Today, my credit card swipe takes ~10 seconds. Wallet out, swipe (victory ring), press credit, then yes, and no signature for most transactions less than ~$30. Upon leaving, I receive a printed receipt to accompany my electronic credit card statement. I have the option to submit an email at checkout for electronic receipts but this is currently too irregular to deal with. There is also the “tap and go” method for cards eliminating the need for swipe and press, saving a few seconds. The initial idea of phone or mobile payments is to turn you phone into a tap and go device using near field communication (NFC) technology. It will likely require some form of app or authentication, but will also provide a detailed electronic receipt (vs credit card totals). This could also be bolstered by ads for coupons etc, but really the current idea boils down to just paying with a phone instead of a card, which may end up being a slower process. As it stands now, there is virtually no “pain” in the credit card transaction save for the printed receipt and security concerns… only one of which is “solved” by NFC. The real pain and opportunity in retail is much bigger and rests in the broken shopping experience.
The Return of Customer Service and Loyalty…
Consider the sci-fi idea of facial recognition at a store front – or some other form of contactless authentication – payments, coupons, recommendations, size and color preferences, location of friends, recent purchases or likes by friends, etc can all be delivered to you during your visit. On the back end, consider the concept of simply bagging merchandise and exiting, your complete receipt sent to your phone, no scanning or waiting. At this point we may be crossing lines of personal comfort and data… but we are also changing the model in a definitive way. Having me use my rewards card and cash, or credit or even my phone are all very similar mechanisms and actions amd achieve little in the way of engendering true loyalty. Having the store recognize me on entry to make my experience DURING my stay better and actually simplifying and speeding up the checkout process, that’s interesting…the pain of adoption while not high for normal shopping days, would be quite high in weekends and holidays, morning routines or frequently visited chains – the return of customer service and loyalty.
Winners: Apple, eBay (PayPal), Master Card, Visa, and American Express all could make changes
Losers: NCR and other point of sale devices; VeriFone and other parts of the payment network; Visa, Mastercard and Amex need to be careful
Disrupters: Square, Dowalla, TransferWise, Level Up
The Change Investor 