Apple Wearables Drafting on Tech’s Push into Healthcare

Healthcare is in the midst of a dramatic transformation. This may seem obvious, but the culmination of this week’s news – CVS buying Aetna to create a new healthcare platform and Apple partnering with Stanford to carry out a medical study on AFib using the Apple Watch – brought the pace of change into perspective. Healthcare is transforming before our eyes, and new players are moving into the space that accounts for 18% of U.S. GDP.

Taking a step back, healthcare 100 years ago was fundamentally the same as it is today. We go to the doctor for two reasons – we’re sick, or it’s time for an annual checkup. The effectiveness of this approach is dreadful, illustrated by the fact that about half of all Americans have one or more chronic condition, diabetes and heart disease are on the rise, almost 40% of us are obese, and 7 out of 10 deaths are attributed to chronic diseases. All the tech advancements we’ve made have not kept Humpty Dumpty together. The reason for this is that healthcare is generalized, impersonal, and reactive in nature. The individual must fight the day to day battle of preventative care, not the provider who the average American sees only 4 times per year.

Today, we see a shift toward two themes – personalization and prevention – and the future of healthcare will be grounded in the frequency of health monitoring. CVS and Aetna are coming together to create what CVS CEO calls the country’s “front door to healthcare,” because more doors means more frequent access to care. Apple and Stanford aim to collect data on more people more frequently. The concept of increasing health monitoring frequency holds the greatest promise of actually making people healthier and the easiest approach to increasing frequency is through wearables.

Today wearables are seen as a luxury gadget for geeks and health nuts. In the future (7-10 years from now), we will be inseparable from our wearables, similar to our current obsession with smartphones. Today, the smartwatch is the wearable of choice. Soon, however, that could include things like hearables (think AirPods), contact lenses, and connected fabrics.

Driving with your eyes closed. Healthcare monitoring today is comical. Nootrobox CEO Geoffrey Woo on an a16z podcast put it into perspective by saying “imagine that we’re driving cars and we only let ourselves open our eyes every minute. That’s essentially the snapshot of information we get when we go to the doctor.” We go in for a checkup, make a course correction, then drift back into our old habits until the next time we see the doctor. Continuous health measurement is the most effective approach to stay our course corrections. We now have biometric sensors in common devices and the computing power to make sense of that volume of data. The benefit of continuous health measurement is twofold – it allows for large-scale data collection from which AI algorithms can derive insights, and it keeps your health top of mind. And it appears to be working, studies show that 70% of Apple Watch users track their heart health, even weeks after purchasing the device.

Apple’s got a tiger by the tail. Investor opinions on the Apple Watch range from “it’s a rounding error” (4% of overall revenue), to “it’s a dud.” The reason is investors had been spoiled by Apple’s vertical growth in new product categories with the iPod, iPhone, and iPad. Apple Watch simply didn’t live up to its predecessors. While it has been a slow start for Apple Watch, we believe the Watch and future (7-10 years) wearables (notably hearables) will account for a material part of future Apple revenue. As the health advantages of wearables begin to resonate, we foresee Apple selling as many them (Apple Watch and hearables in the future) as they do iPhones. At a wearable ASP of $300 (below current Apple Watch ASP assumption of $450) and 250M units a year, that would equate to $75B in annual revenue (not in our model today).

Apple has been engaged with the concept of healthcare since it introduced the Apple Watch in 2015, releasing ResearchKit that year and CareKit in 2016. While their new Heart Study is technically their first true medical study, the Watch has been used in the past for similar crowdsourcing of biometric data (along with Fitbit and others). So this begs the question, why is Apple interested in healthcare? Their core competencies are well-aligned to benefit from the shift toward personalized and preventative care. They also have a platform in their device user base and software frameworks, the data and AI power to carry out large-scale operations, and the design expertise to integrate sensors into devices that consumers want to use.

A word on hearables. Apple has tipped their hand. Earlier this year, the company filed patents suggesting AirPods may have a future as in biometrics. The patents outlined the addition of a photoplethysmogram, or PPG sensor, that can measure heart rate, VO2, galvanic skin, EKG, impedance cardiography, and temperature. We don’t have enough details to guess when these features might be integrated into a product, but do see a future when these hearables are continuously worn, giving users volume control of the world, as well as next-level, real-time health monitoring.

What about other tech companies. Don’t forget about Google and Amazon. One of Google’s other bets, Verily Life Sciences, is focused squarely on making healthcare more preventative and data-driven. Verily argues, “a new car has up to 400 different sensors. You know the oil pressure and how much air is in your tires, but we don’t do that with people.” They have undertaken an array of different projects from glucose monitors in contact lenses to eradicating vector-borne diseases by engineering and releasing fertile mosquitos. Verily’s efforts are largely complementary to Apple’s health ambitions, and their engagement in the space is confirmation that big tech companies have a place in healthcare. The opportunity here is substantial enough to accommodate more than a few entrants. While it is unlikely that Amazon will be a player in data or wearables, the company has the DNA to reinvent the logistics around how care is delivered.

It will take time to win over the “I don’t want to be monitored” segment. It’s going to take years for widespread adoption of health monitoring wearables, as defined by more than a billion daily users. As a point of reference, we’re at 40-50m today, with about 25-30m of those being Apple Watches. Some people resist continuous monitoring on the grounds of privacy, inconvenience, and anxiety around knowing their true health. That said, the resistance group will shrink over time (some due to poor health).

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Alexa First to Business but Google AI Close Behind

Bottom Line. Alexa has 70-80% smart speaker market share and is pedal to the metal in expanding the market beyond the consumer today, being the first company to target the business opportunity. While we expect Alexa will continue to be the market share leader, we believe Google will close the gap in the next 3-5 years as AI becomes foundational to the future of smart speakers.

News. Amazon announced Alexa for Business today. The basic idea is Amazon is building skills around everyday business activities like conference calls, scheduling meetings, keeping track of tasks and ordering supplies. This includes integrations with Salesforce, Concur, SuccessFactors, Polycom and Crestron to name a few. They are also selling a hardware starter bundle which includes 3 Echo’s, 2 Dots and 2 Echo Show’s.

Bravo Alexa. Today’s Alexa for Business announcement is further evidence Alexa is leading the smart speaker market. Alexa is the market share leader for good reason. First, Alexa is smart, and now has over 25k skills compared to 12k that we counted in April (Google does not have skills rather actions).  Second, Alexa 3rd party hardware integration is expanding and earlier this year we estimated there were about 100 manufactures with integrated Alexa IP.

AI, the elephant in the smart speaker room. While it may look like Alexa is running away with the smart speaker market, Google is gaining ground. In October at the Google Hardware Event, Google explained how hardware products will facilitate AI first computing. In 2017 CEO Sundar Pichai has opened each of his public remarks stating Google’s goal of becoming an AI first company. This has obvious implications for Google’s advertising, Maps, YouTube, cloud business and now hardware.

Google likely to gain smart speaker share in 3-5 years, but Alexa will still be a share leader. Google’s efforts in the next few years could yield a measurable increase in market share. As mentioned, today we estimate various forms of Alexa account for roughly 70-80% smart speaker share and we envision Google’s share increasing from about 25% today to greater than 35% in the next 3-5 years.

Why Google’s in a good position. While Google is lightyears behind Alexa’s install base, we believe Google has the best AI (see our comparison here), and their more robust product line could catch up quickly. Google is going toe-to-toe with Alexa in terms of hardware pricing (Echo Dot and Google Home Mini starting at $29). More importantly, we expect Google will weave their AI Assistant into the fabric of the device ecosystem. This is important because integrating an array of devices (i.e. the handoff between the home and the road) is what will push users toward the next generation of our interaction with machines.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

2017 Loup Ventures Holiday Gift Guide

Here are a few gift recommendations for the 2017 holiday season:

And here’s a look ahead to 2018 with some of the products we’re hoping for:

  • Apple HomePod | Apple’s foray into the smart speaker market.
  • Apple iPhone X Plus | We’d love a larger screen for our iPhone Xs.
  • Oculus Go | Oculus’ $199 standalone VR headset.
  • Magic Leap | Augmented Reality glasses.
  • Tesla Model 3 | Already on the market, we’re hoping to see shorter reservation times.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Nvidia Foundational Player In Future of Tech; Introducing 5-Yr Model

Today we’re rolling out our 5-year model for Nvidia, joining Loup Ventures’ Apple, Tesla, and iRobot model coverage. It’s important we write on Nvidia given its products are an integral part of the future of technology, based on their use in datacenters, autonomous vehicles, virtual and augmented reality platforms, cryptocurrency mining and eSports. We’re believers in the long-term story of Nvidia. While shares of NVDA has performed exceptionally well this year, up 100% YTD (market cap of $129 billion), we think there is further upside given Nvidia’s foundational exposure to frontier technologies.

25+% CAGR Story Through 2023. We expect Nvidia’s core gaming business to continue to grow, but decrease as an overall percentage of revenue (57% today, to 41% by 2023). In addition, we see Nvidia’s datacenter and automotive segments taking second and third place, growing to 36% and 14% of revenues respectively.  We believe Nvidia will see 20+% annual revenue growth through 2023, driven primarily by four catalysts:

Catalyst #1 – Demand for core gaming business products remains strong.  Historically, Nvidia has been known for providing high-quality GPUs for gaming. Nvidia was well-known in the PC gaming space in the mid-t0-late 1990s, and even won the contract to provide graphics hardware for the original Microsoft Xbox. Nvidia has maintained its leadership in the space, and stands as the go-to GPU component for gamers. Despite competition from AMD, ASUS, and Intel, Nvidia has remained a leader. In addition there are two trends that add to the growth of Nvidia’s gaming business:

ESports continues to rise in popularity. Newzoo expects the ESports market to reach $1.5B by 2020, up from $696M in 2017. Not only are more users participating in ESports, but more advertisers are flocking to the industry as well.

Gaming is becoming more social. This is driving engagement and bringing more people on to various platform, including PC platforms where Nvidia’s products are often used. While this can partially explain the rise in ESports, the trend impacts users that opt out of participating in eSports in favor of playing with their friends. Most platforms are spending more time creating online communities where users can interact with each other. Separately, with more kids using tablets and mobile phones at an early age, the exposure and transition to gaming is greater than ever before. As parents continue to let devices act as virtual babysitters, the number of children that get into gaming grows.

Catalyst #2 – Companies are adopting artificial intelligence in order to remain competitive. Nvidia’s datacenter business (20% of revenue today, to 36% by 2023) has seen triple digit growth for the past six quarters. A big part of this growth is due to the expanding use of artificial intelligence by companies, specifically deep learning. Even more positive for Nvidia, we are only in the early innings of the game. Just as all companies evolved to be internet companies in the late 1990s and early 2000s, and mobile companies in the late 2000s, they will soon evolve to be AI companies. On Nvidia’s last earnings call, CEO Jensen Huang shared:

“…Artificial intelligence and its emergence and applications to solving problems that we historically thought were unsolvable. Solving the unsolvable problems is a real realization. I mean, this is happening across just about every industry we know, whether it’s Internet service providers, healthcare, manufacturing, transportation, logistics, you name it.” – Jensen Huang

We expect Nvivia’s datacenter segment to continue to see high growth as companies rely more on artificial intelligence. By 2023, we expect Nvidia’s datacenter business to account for over one-third of its revenues and be growing at 30% annually.

Catalyst #3 – The market for autonomous vehicles will be bigger than most people think. Nvidia’s opportunity in the automotive space (6% of revenue today, to 14% by 2023) is bigger than many anticipate. As stated in our Auto Outlook 2040, we expect 90% of vehicles on the road in 2040 to have level 4 or 5 automation, which would require a platform such as Nvidia’s DRIVE PX. Nvidia’s products are used in two different instances as it relates to autonomous vehicles. First, Nvidia’s DGX system is used to train neural networks at data centers. Second, Nvidia’s DRIVE PX platform provides cars with the necessary on-board computing strength for autonomous capabilities. Currently, Nvidia has partnered with Toyota, Mercedez-Benz, Audi, Volvo, and Tesla, among other. We see the ramp of autonomous vehicles beginning in late 2020 as autonomous taxis enter the field, and further expanding in 2021 as autonomous consumer vehicles enter the market. By 2023, we expect Nvidia’s automotive segment growth to accelerate from 16% in 2017 to 100% y/y in 2023. 2023 is only the beginning of autonomous vehicles, and Nvidia’s automotive segment will continue to accelerate past the 5-year window. Based on our auto outlook, we feel 2028 is the year where there will be an influx of demand for level 4 and level 5 autonomous vehicles. We expected Nvidia’s automotive segment growth will continue to accelerate until that time.

Catalyst #4 – Nvidia has planted seeds in other industries with bright futures. OEM & IP is 8% of revenue today, to 3% by 2023.

Virtual Reality. Nvidia’s GPUs are a core component for virtual reality solutions. Today, high-quality VR solutions require a headset tethered to a desktop or laptop computer, which are often running off of an Nvidia GPU. While we believe that VR content will move to standalone devices in the future, those devices will still require enough processing power to delivery high-quality experiences. Nvidia’s solution, the Tegra mobile processor line, is currently a leading option for manufacturers. Nvidia is well-positioned to benefit from the growth of virtual reality gaming, as its products are used in three (mobile, PC-based, standalone) of the four VR solutions, missing out on only console-based VR; for now.

Augmented Reality. We’ve written many times before about the future of augmented reality and the impact that it will have on how we interact with the world in the future. Similar to VR, AR requires sufficient computing capacity on any device. As the market for AR develops, Nvidia will benefit as either a manufacturer of specific solutions for customers, or tangentially through expanding cloud use for deep learning algorithms used by AR applications.

Cryptocurrencies. Lastly, Nvidia is poised the benefit from the continued growth of cryptocurrencies. Cryptocurrencies require individuals to dedicate computing power to the the blockchain, those that do are referred to as miners. Miners often turn to GPUs for the necessary processing power to complete blocks on the blockchain. Here is an explanation of how mining works, and why it is necessary.

If you read that article, your reaction might match James Franco’s above. Putting it another way, miners rely on GPUs to provide a cryptocurrency network with the necessary processing power to function. As a particular cryptocurrency is mined (with GPUs), customers will ask for specific ASICs to be built by companies such as Nvidia (positively impacting OEM and IP). As these custom ASIC components are deployed, the specific coin’s mining market becomes monopolized, and forces smaller miners to move a different currency in order to remain profitable. The smaller miners will turn back to GPU-based solutions (positively impacting Gaming) before the cycle repeats itself. Because of this ebb-and-flow and the volatile nature of cryptocurrencies, modeling the impact of cryptocurrency mining is difficult. While highly speculative and volatile, we feel that cryptocurrencies will be a part of the future. We are modeling OEM and IP business to grow by the low single digits in the future.

Bottom Line. Artificial intelligence, autonomous vehicles, virtual reality, and augmented reality are technologies that will have a profound impact on our lives. As these technologies take hold, companies supporting the development of the underlying components are sure to benefit. Betting on Nvidia is betting on frontier technologies, and Nvidia has planted seeds in numerous areas that we are optimistic about. Despite competition from Intel and AMD, Nvidia will continue to be the dominant component supplier in various spaces.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

HomePod Delay Suggests Siri Integration is Harder than Expected

Apple announced today that it will not release the HomePod in December as planned – delaying the launch until “early 2018” instead. We believe that Siri integration – and, more broadly, digital assistant hardware – is more challenging than our phones may lead us to believe.

In line with our previous comments on HomePod, we believe Apple has a grander vision for HomePod than simply delivering a better sounding Echo. We expect the HomePod that will hit the market early next year to have deeper Siri integration than Apple initially presented. As it stands, HomePod will only handle music-related queries on the device itself, routing all other requests for domains like Lists, Notes, and Messaging through an iOS device. But we expect HomePod to be capable of non-music domains that will drastically improve on the voice computing experience that other smart speakers promise, but seldom deliver. We shouldn’t be all that surprised by the delay, as Tim Cook foreshadowed it in a Bloomberg interview shortly after WWDC saying, “One of the advantages that we have is that there are a lot of things that Siri knows to do from the cloud. We’ll start with a patch of those … and then you can bet that there’s a nice follow-on activity as well.”

Apple’s statement. “We can’t wait for people to experience HomePod, Apple’s breakthrough wireless speaker for the home, but we need a little more time before it’s ready for our customers. We’ll start shipping in the US, UK and Australia in early 2018.”

Déjà vu. This isn’t the first time Apple has delayed a product release. Today’s announcement brings us back to April of 2007. Apple is working on the iPhone, set to launch in June, and planning on releasing Mac OS X 10.5 Leopard around the same time. On April 12 Apple released a statement saying, “iPhone contains the most sophisticated software ever shipped on a mobile device, and finishing it on time has not come without a price. We had to borrow some key software engineering and QA resources from our Mac OS X team. As a result, we will not be able to release Leopard at our Worldwide Developers Conference in early June as planned. We think it will be well worth the wait. Life often presents tradeoffs, and in this case, we’re sure we’ve made the right ones.”

“Life often presents tradeoffs, and in this case, we’re sure we’ve made the right ones.” – Apple, April 2007

Did Apple make the right tradeoffs with HomePod? We think so – the damage to the brand as a result of shipping a half-baked product is greater than the potential benefit of pushing it out in time to capture holiday sales. The level of connectivity in Apple’s device ecosystem leads us to believe that HomePod will deliver a superior experience, and loyal Apple consumers will be rewarded for waiting. And the loyal Apple user base would have made up the vast majority of 2017 HomePod sales anyway. In the same Bloomberg interview post-WWDC, Cook added, “For us, it’s not about being first, it’s about being the best.”

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.