Apple Acquires AI Company Lattice Data

Apple recently acquired Lattice Data, a dark data mining company. Lattice Data takes “dark data,” meaning unstructured text and images, and turns it into structured information that can be used by traditional data analytics tools. Lattice Data began as a Stanford research project called DeepDive, which was also an attempt to process dark data on the internet.

An estimated 70-80 percent of data on the internet is unstructured, dark data. Artificial Intelligence can be used to structure this data, making it more useful. While Apple has not made it clear how it will use Lattice Data’s technology, we expect the company to leverage Lattice technology to improve Siri. For example, by accessing this dark data that is currently unusable, Siri could become much more effective in our daily lives. Siri would be able to answer our obscure questions about odd historic events, have a better understanding of which movie theater we are talking about, or even find the exact hot dish recipe that we are looking for. Eventually, much of the user-generated content on the web could be accessible to digital assistants.

Lattice Data falls right in line with Apple’s acquisition playbook: Buy companies that have a kernel of something special that Apple can put its significant resources behind to build into something even more amazing. They did it with P.A. Semi to build better processors for the iPhone. They did it with Siri to build Siri. They did it with Authentec to build Touch ID. They used Beats, both the executive team and the technology, to build Apple Music. In these instances, Apple took new technology and incorporated it into its platform soon after. It was clear that Apple was making an investment in a core technology. And with Lattice Data it’s clear that Apple is making an investment in AI.

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.

Tesla is the Next Apple

This note was originally published on Business Insider.

Apple is the world’s largest company with a market cap of nearly $770 billion as of this writing. Tesla is one of the world’s largest automakers with a market cap of close to $55 billion, although we think the Tesla story is just getting started.

There are many parallels between Apple about a decade ago and Tesla today, market cap being one of them.  In Q4 2005, Apple’s market cap was close to where Tesla’s is today ($54 billion). A decade from now, we think we’ll look back at Tesla and realize it was the next Apple.

There are five major similarities to Tesla today and Apple in the mid-2000s:

  1. Brand
  2. Visionary leadership
  3. Integrated hardware and software
  4. Halo effect
  5. Reshaping a market

Brand

Tesla’s brand is to the car industry what Apple’s brand is to consumer electronics. Tesla owners love their Teslas.

According to a Consumer Reports survey, 91% of Tesla owners state they would “definitely” buy their cars again, the highest rating of any automaker. The next two closest automakers were Porsche at 84% and Audi at 77%. By comparison, Tim Cook stated on Apple’s Dec-16 earnings call that iPhone had a 97% satisfaction rate.

Beyond tangible customer satisfaction metrics, we believe there is a less tangible cool factor to the Tesla brand, much like Apple in the late 1990s and early 2000s. In many ways, Tesla has the same “think different” attitude that Apple popularized.

Tesla has built a brand around being a different kind of automaker. Not only because its vehicles are powered entirely by electric, but also because they don’t use model year numbers and treat software updates more similar to updating an iPhone app than a car. The company has done this all while squarely placing itself in the conversation with BMW as one of the best-engineered cars in the world. Tesla has established itself as an aspirational brand by taking a new approach to the car market.

Visionary Leader

Elon Musk and Steve Jobs share similarities in that they are visionary entrepreneurs that simultaneously operated multiple groundbreaking companies.  Musk with Tesla and SpaceX and Jobs with Apple and Pixar.  However, both seem to have different guiding lights.

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Apple Results Reinforce Importance of AR

Apple reported Mar-17 quarterly results below Wall Street – and Loup Ventures’ – expectations. Judging by the mild negative reaction of the stock in after-market trading, it appears that investors are focused on the coming iPhone X product cycle and beyond. We agree with the market that a bet on shares of AAPL is a bet on the company’s ability to transition from their existing iPhone platform to an augmented reality-driven platform in the future. Underlying this transition is the Services business, which was solid in Mar-17 ($7.0B vs. our estimate of $7.1B) despite lower-than-expected iPhone units (50.8m units vs. our estimate of 54.8m). This shows Services revenue has resilience in the face of relatively soft iPhone growth.

The Beginning of the Transition to AR-Driven Computing. Tim Cook attributed the “pause” in iPhone sales to earlier and more prevalent rumors of future iPhones, but we see something bigger going on. Every 10-15 years we’ve seen a shift in the dominant computing platform: from the PC in the 80s, to the internet in the 90s, to the smartphone in the mid-2000s. And we think we are in the early stages of the next big shift – to augmented reality-driven computing. In short, wearables and other AR-devices will eventually replace the smartphone. Apple’s Mar-17 iPhone growth rates (-1% y/y in Mar-17), and growth rates in the global smartphone market, are slowing; however, we note that channel-adjusted iPhone growth was +1% y/y in Mar-17. Regardless, slowing iPhone growth will compel Apple to accelerate its development of wearables and AR-driven devices to ensure it’s position as a leader in the next dominant computing platform.

Slowing iPhone growth will compel Apple to accelerate its development of wearables and AR-driven devices.

Supply issues aside, the success of AirPods represents an early win for Apple in its exploration of wearables. We expect the company to continue its development of hardware products (e.g., Apple Watch and AirPods) along with the core technologies that will facilitate the emergence of AR-driven computing. We’ve outlined our thesis on why Apple is well positioned to win the jump ball for the next dominant computing platform. And the recent trend in iPhone growth rates only serves to emphasize the importance of this transition for Apple.

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Apple Results & Guidance a Non-Event; Clear Sailing to iPhone X

Expect Slight Upside In Mar-17 From Easy Comps and Typical Conservative Guidance for Jun-17. Apple reports Mar-17 quarterly results tomorrow, May 2nd. Despite shares at an all time high, investor optimism for an iPhone X super cycle this fall remains high, which should continue to push AAPL’s multiple higher into the fall. There appears to be little risk from the Mar-17 results or Jun-17 guidance that would change iPhone X anticipation. Fast forwarding to the fall, shares are setting up to enter a range-bound period as investors playing the iPhone X trade will likely unwind positions.

If Apple guidance midpoint is 1-3% below our Jun-17 estimates, we will likely maintain our estimates.

Mar-17 & Jun-17 Expectations. We expect Apple’s Mar-17 quarter slightly ahead of Street consensus numbers given the 17pps easier comp, vs the Dec-16 quarter, and the Street is generally looking for similar iPhone growth from Dec-16 to Mar-17.  As for the June quarter guidance, we expect a typically conservative outlook. This is understandable given investors are expecting a step up in iPhone growth from around 7% in Mar-17 to 13-15% in Jun-17. Part of the step up in iPhone Jun-17 growth is due to the 5pps easier comp in the Jun-17 quarter.

On The Call. We will be paying close attention to the following topics:

  • Super Or Typical Cycle? Investors will be tuned into any unlikely commentary from Apple to help answer the question of whether we are entering a super cycle with the iPhone X (reason for accelerated upgrades) or just a modest step up in iPhone growth. We’re not expecting much color from Apple, but are encouraged by our estimates that this fall the 2-year old or older iPhone base should exceed 300m units, a strong base of potential customers to fuel investor expectations of the  unit sales between 235-245m phones in FY18 during the iPhone X cycle.
  • Services Potential.  Apple will continue to be heavy on the services growth message. We expect CEO Tim Cook to reiterate comments from the Dec-16 call that he expects the Services business to double in the next four years, implying annual growth of about 19%. We expect services to grow from 14% of revenue in FY17 to 20% in FY22.
  • AR & Auto Ambitions. Related to AR, Cook has made six public comments in the past 9 months and we expect him to continue to emphasize that Apple will be a winner in AR. It’s been widely reported that one version of the iPhone X will have 3D mapping capabilities.  We see the iPhone as the AR device for the next 5 years. As for automotive, recent news of Apple’s permit to test self-driving cars in California should not have come as much of a surprise given the poorly kept secret of Project Titan. The permit does beg the question of whether Apple is building a car or just building software for a car. Our take Apple is almost certainly exploring how it could build an entire car, but as we learned the hard way with Apple television, exploration does not mean a product comes to market.

What To Expect With The iPhone X. Read our thoughts on iPhone X and the features we expect to advance Apple’s lead in AR-enabled devices.

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.

Face Off: Siri vs. Google Assistant vs. Cortana

The importance of voice assistants in the screenless future is hard to overestimate. We see speech-driven user interfaces as a key component of the next computing paradigm, so it’s helpful to understand empirically where each platform stands today. In February, we compared Amazon Echo and Google Home to see which assistant was winning the race to become the centerpiece of the home. Google Home won that battle, but it was close. For our next digital assistant face off, we tested the three most prevalent digital assistants available for mobile devices: Siri, Google Assistant, and Cortana. This time, Google Assistant came out on top.

Methodology

We asked the same 800 queries to each assistant that we asked Amazon Echo and Google Home. We graded the queries on two metrics: First, did the assistant correctly understand the query? Second, did the assistant answer the query correctly?

The queries break down into five categories:

  • Local – Where is the nearest McDonald’s?
  • Commerce – Where can I buy more printer paper?
  • Navigation – How do I get to REI from here?
  • Information – What is Apple’s stock price?
  • Command – Remind me to call Mom at 2pm today.

Results

Google Assistant, the clear winner, understood 99.9% of the queries we asked and answered 74.8% of them correctly. Siri understood 94.4% of the queries we asked and answered 66.1% of them correctly. Finally, Cortana understood 97.3% of the queries we asked and answered 48.8% of them correctly.

By category, Google’s lead in navigation and information is demonstrable, but there’ more parity between Siri and Google Assistant in local, commerce and command related queries. Cortana lagged both Siri and Google Assistant in all categories, narrowly coming in second only in information.

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