Your Data Is Worth Less Than You Think

A few weeks ago, we started an analysis of what our Facebook data is really worth to debate the merits of a decentralized social platform where users got paid for their data. The general hypothesis was that our data isn’t as valuable as we think. Then Cambridge Analytica happened. So we asked 500 Facebook users how they think about their data and found that our data is, in fact, worth less than we think; at the same time, it’s priceless.

What’s Your Facebook Data Worth? In 2017, Facebook generated ~$19.5 billion in US ad revenue across average monthly active users of 237 million. This means that for every active user, Facebook generated $82.21 in ad revenue. That’s roughly what your data is “worth.”

(Note: Facebook would arguably make something on untargeted display ads even without your data, so the true number is something slightly less. We’ll ignore this point for simplicity’s sake). However, it costs Facebook money to make money from our data. Half of the revenue they generate goes to operating costs, then they have to pay taxes and some other costs. Net to Facebook, every US user generated about $29.60 in profit for the company. Let’s arbitrarily assume Facebook pays out 70% of that net profit. That would be $20.72 in value to each US user.

In our survey, we asked consumers what they thought their Facebook data was worth per year. Only 27% answered between $0-25, while 41% said something between $0-100 which would encompass the top line number of $82.21. Almost 44% thought their Facebook data was worth more than $500 per year. The majority of us have a significantly different perspective on what our data is worth compared to reality, but that highlights the fact that it really isn’t about money, it’s about the sanctity of our data and the violation we feel when it’s used against our implied wishes.

Will We Use Data Management Tools? We also asked users on a scale of 1-10 how likely they are to change how they use Facebook because of the data scandal, with 1 being no change to how I use Facebook and 10 being delete my Facebook account. The average score was a 4.9. While we don’t have a comparison to put that into perspective, the data point feels like a directional indicator that Facebook has serious work to do to regain user trust. It seems increasingly likely that Facebook may see some near-term challenges in user engagement.

We also asked users how much time they would spend using a tool from Facebook that gave them better control over their data, which they recently announced. 39% said they wouldn’t spend any time managing their data preferences, while 33% said they’d spend less than 10 minutes and only 10% said they’d spend over 20 minutes. Anecdotally, given the amount of controls in the privacy center now, I spent 5 minutes working on changing controls and didn’t even get through all the apps I had installed nonetheless changed any advertising controls. So despite our displeasure with how our data has been used, the majority of us aren’t interested in spending much more than a few minutes to fix it, if any time at all.

What’s the Solution? Giving us the ability to monetize our data isn’t a panacea because we wouldn’t be happy with what we got for it. Neither is giving us more control over it because most of us won’t do much about it. What users really want is to not have to think about managing their data in the first place. Users want to feel comfortable sharing everything and anything, as encouraged by Facebook, and they don’t want to have their privacy violated. This may seem like an illogical expectation given the desire to share everything, but the human psychology debate around data sharing is irrelevant. People want services that keep their best interests in mind and protect their data for them.

For a long time, Facebook’s most important asset was the network it built. Two billion plus monthly active users is difficult to replicate. Today, that’s no longer true. Facebook’s most important asset now is the trust of its users. The loss of user trust is the only true threat to the network. For Facebook to maintain user trust in the future, the company will likely have to consider changing how it does business. It might have to accept making even less off of our data than they do today.

Our data may not be worth as much as we think, but Facebook needs to protect it like it’s priceless.

Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. 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.

How To Think About Recent Volatility in Tech

Market decline does not change the mega growth opportunities. The heart rate of the market increased the past week because of fears of a trade war, Facebook data privacy, and broken market technicals, but the health of the market is unchanged and the health is good. Core underlying tech trends including artificial intelligence, robotics, big data, and autonomous transportation, will support continued growth.

Hold tech for the long-term. We believe that tech is essentially taking over the rest of the economy; therefore, investors should hold tech long term. Just as every company is now an internet company to some degree, we believe that eventually every company will be an AI company.

Market undervalued. From a valuation perspective, our view is undervalued. The market has rallied back to the old highs, but the S&P is up only 3% per year over the past 17 years, compared to the previous 17 years (1983-2000) when it was up 17% per year.

Putting the size of tech into perspective. The tech sector’s growing clout is not just a U.S. story. Tech stocks have become so dominant in emerging markets that for the first time since 2004, the industry last year overtook finance as the biggest sector in the MSCI Emerging Markets Index. Tech had a 28% weighting near the end of 2017, more than double its level six years ago, according to data provided by MSCI. Facebook, Amazon, Netflix Inc. and Alphabet together account for a 7.8% weighting in the S&P 500, more than double from five years ago.

Company Updates:

Tesla. We remain positive on TSLA. Shares are down 20% in the past month mostly due to fears of another miss in Model 3 production. The recent stock dive is due to a combination of a Model X accident that is being investigated, Waymo’s partnership with Jaguar, which legitimizes a key competitor (the I-Pace electric SUV), growing concern among all companies testing self-driving vehicles amid the Uber fatality, and news that Moody’s has downgraded Tesla’s bonds to B3 from B2, citing significant shortfall in the Model 3 production rate and a tight financial situation. We continue to believe the Tesla story has the best risk-reward among tech companies over the next 5 years.

  • Model 3 production. We’re expecting another miss in Model 3 production in the March quarter but that does not change the story. There is more demand than supply for the Model 3 (about 400k preorders which is unheard of in automotive). It might take a year, but eventually, Tesla will get the Model 3 production right, and ramp output.
  • Model X accident. We see the recent Model X accident the same as accidents with gas cars. It is unlikely that the battery or Tesla’s advanced cruise control “autopilot” were to blame. Tesla disclosed that the autopilot feature properly functions 200 times a day on the same stretch of road where the accident happened.

Facebook. Limited upside to FB. Given the privacy issues, for the first-time advertisers have to think about Facebook as a liability. Separately, it’s unclear about how the recent privacy changes will impact Facebook’s ability to make money.

Nvidia. We remain positive on NVDA. Shares of NVDA dropped 11% in the past week following the announcement that they temporarily stopped autonomous testing, and in part because of the broader market sell off. While the company did not comment on timing, we expect testing to resume in the next 3 months. The big picture is the company is well positioned to capitalize on four mega trends, AI, autonomous cars, gaming, and blockchain through their dominance of GPU processors.

Apple. We remain positive on AAPL. Concern is emerging that iPhone demand in June will fall below Street expectations. We think iPhone demand over the next two quarters is not important to the story. What’s important is the share buyback, services, and the next iPhone.

  • Share buyback. Apple can add 4% per year to the stock price (assuming they use $40B of the $55B they generate in cash each year to buy back stock). Apple will give an update on the share buyback when they report the March quarter, likely late in April.
  • Bigger screen iPhone this fall. We expect Apple will announce a 25% bigger phone in the fall. This will be a positive for unit demand and average selling price.
  • Services. Services account for about 15% of revenue and are growing at 15-20% year over year. We believe this segment will continue to grow at a 15% or better rate over the next five years. This is important because the earnings multiple on shares of AAPL will likely increase as investors view the predictability of services are more attractive.

Google. We remain positive on GOOG. We expect the next six months to be rough for shares of GOOG as questions emerge about how the company uses data. Despite that negative potential, Google is too tightly woven into the fabric of the internet. The company is one of the best ways to invest in AI, given the company has a stated their intention to move from a mobile-first company to an AI-first company over the next several years. Lastly, the company has a stake in Waymo, the leading autonomous car company. We expect years of positive news to come from Waymo.

Amazon. We remain positive on AMZN. The company is best positioned for the future of retail. We see that future as a combination of both online and offline retail. Online sales account for about 15% of global retail, and in the future, we believe it will eventually reach 55% of sales. We also expect Amazon to do more with physical retail locations and we continue to believe the company will eventually acquire Target (TGT). The company’s AWS web hosting business is only 15% of revenue, but it is growing at greater than 30% for the next several years.

Twitter. Limited upside to TWTR. About 14% of Twitters 2017 revenue came from selling data, growing at 18% y/y, compared to Twitter’s ad business that declined by 6%. Selling private data is a toxic label, and this could limit the upside to shares over the next year.

Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. 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. 

Apple and Amazon are a Privacy Safe Haven

Apple and Amazon are relative safe havens.

  • We expect over the next year investors will look favorably on Apple given the company’s privacy-first ethos in an age where privacy is becoming a more prevalent topic.
  • Amazon will also likely benefit from the Facebook blowback given Amazon relies less on data to run its business than ad-focused companies.
  • The biggest risk to Facebook is attrition and, to a lesser, extent regulation.

Attrition. People are upset that FB abused their trust, although it doesn’t seem that users are upset about social media in aggregate. The trend is #deletefacebook not #deletesocialmedia. The risk to Facebook is that user growth slows or even declines. At the end of Dec-17 quarter, the company had 1.4B DAUs, up 15% y/y. For 2018, the Street expects about 10% DAU growth. If Facebook misses those numbers, shares will likely be negatively impacted. While it’s still early to tell how serious this bout of outrage against Facebook will ultimately be, Twitter and Snap may have an opportunity to benefit if users do leave Facebook.

Regulation. The Cambridge Analytica news of the past week has extended the privacy topic beyond Facebook. Given the political nature of the scandal, it currently seems more likely than less likely that some sort of restrictions get placed on the use of online consumer data. Mark Zuckerberg’s comments yesterday on CNN suggested that Facebook will take additional steps to assure user privacy as well as being open to some level of government oversight. If the government does decide to regulate the use of online consumer data, it could negatively impact all companies that rely heavily on monetizing that data including Facebook, Google, Twitter, and Snap.

Apple’s privacy ethos.  Tim Cook has made privacy a religion at Apple. It impacts everything from secrecy around new products to Apple Pay‘s anonymous transaction framework. In fact, Apple has a section on its website that outlines all of the ways Apple protects user privacy across all of the ways one uses their devices. Some notable Apple privacy insights include:

  • Privacy is a fundamental human right
  • Apple doesn’t gather your personal information to sell to advertisers or other organizations
  • Every Apple product is designed from the ground up to protect personal information
  • If we use third-party vendors to store your information, we encrypt it and never give them the keys

Amazon is service-first. Amazon’s focus is on delighting the customer through the services they provide. While Amazon does sell targeted ad space on their website, the “Other” revenue segment, which mostly constitutes advertising revenue, was less than 3% of total revenue in the Dec-17 quarter ($1.7B out of $60.5B). Advertising has never been a focus of the company, and it’s inconceivable they would abandon their current core businesses to pivot to an ad-first model that leaves them exposed to the risks we’ve highlighted in this note. Amazon’s real use case for user data is on their own site, targeting users with product suggestions.

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.

Facebook Is Going to Muscle VR into the Mainstream

At yesterday’s Oculus Connect 4 conference, Zuckerberg outlined a goal to have 1 billion VR users. This goal is rooted in his belief that once platforms reach more than 1 billion monthly users in scale, they’re impossible to compete with. He should know, given the platforms under his control including Facebook (2B), WhatsApp (1.3B), Messenger (1.2B), and Instagram (800M). Like it or not, VR will be mainstream – and we love it.

Empowering global VR adoption. While the Oculus Go hardware announcement and Zuckerberg’s billion user VR target captured yesterday’s headlines, the bigger story is that Facebook can singlehandedly turn VR from a nascent user base today into a mainstream computing platform in the next 5 years. Facebook has the capital ($502 billion market cap and $43 billion in cash) and its founder is committed to empowering global VR adoption.  It’s important to note that VR has long been a passion of Zuckerberg, and it was reportedly love at first sight when he first used Oculus. Zuckerberg’s 1 billion VR user stake in the ground will be a motivator for start-ups, private companies, and investors. We no longer have to debate if VR will be real, now it’s a function of time.

How big is the VR Market? Earlier this year we published our VR headset market share model, which calls for monthly global VR users increasing from 100 million in 2018 to 1.2 billion by 2022 and 2.4 billion by 2025. While we’re leaving our estimates unchanged following Zuckerberg’s comments, our confidence in our VR user model has increased.

How much will Facebook spend on building out VR? We estimate Facebook will spend $36 billion on R&D over the next 3 years (2018-2020). If we assume 15% is going to VR that would imply over $5.5 billion in spending, which we see as more than adequate to accomplish it’s billion user target.

Facebook gets it, VR needs to be social. Social is not only important to Facebook’s mission, but to the future of VR. Mainstream adoption of VR will not take place with the current gaming landscape, since VR is currently seen as a luxury geek item. Instead, VR will need a social aspect before there will be mass adoption of the technology. Software features like screen-sharing, virtual lounges, project collaboration, and shared experiences like watching a movie or a sports game, allow people to connect in VR.

Oculus Go is more accessible. This headset is a step toward finding the sweet spot between mobile VR and computer-based VR. Mobile VR is easy to use but offers a diminished experience, while computer-based VR offers the highest quality experience, but is far more expensive and leaves users tied down with a cable. The Oculus Go is noteworthy not only because its $199 price point is 15% of the cost of an all-in Rift system (with a compatible computer), but because it’s easier to use, offering plug-and-play with no wires and no specific smartphone needed. While the quality will not be as rich as on the Rift, it will address the need for a middle of the road system that will undergo huge improvements with further investment as more users flood to VR.

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.