FAANG vs the World

In venture, our job is to swing for grand slams because venture returns follow a power law function where your biggest winner is going to provide the majority of your return. Base hits do not add up to a grand slam, even if they let you score a run.

Enough baseball.

In a way, the same observation applies to the public markets. We all know the power of the FAANG stocks (Facebook, Apple, Amazon, Netflix, and Google), but it’s even more apparent when we put it into context with numbers. As of June 6th, those five stocks totaled over $3.25 trillion in market cap. By comparison, the 610 other stocks in the Technology sector total $5.6 trillion in value (excluding any FAANG stock in the Technology sector).

And FAANG dwarfs the unicorn market too — the 65 known US-based unicorns as of the end of May total just about $340 billion in value, a tenth of FAANG. Certainly, some of these unicorns will continue to grow, but is there one we can justifiably argue will be big enough to insert itself into the FAANG conversation? Maybe Uber or Airbnb. Maybe Magic Leap if it delivers on its vision. Maybe some company that figures out artificial general intelligence.

Whatever the next FAANG-type company might be, it has to do something grand. Facebook and Google have transformed information consumption, Apple gives us products to interact with that information, and Amazon lets us have anything we want delivered to our door. They’ve meaningfully changed the world. Perhaps grand slam is too common to describe this occurrence. The FAANG companies are really quadruple doubles. Who plays baseball any more anyway?

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.

Feedback Loup: Oculus Go’s Baby Steps for VR

Source: cnet.com

  • Facebook announced the release of their Oculus Go standalone VR headset at the F8 developer conference on May 1st, and gave every attendee at the conference a free device.
  • The Go is an easy access point for getting into VR with its $199 price tag and built-in software eliminating the need for wires or other devices to power the device.
  • Though not a breakthrough, it is a step toward the mass adoption of VR. Still, we believe the much more important test comes with Oculus’s Santa Cruz project.

A proof-of-concept product. Facebook’s F8 giveaway reinforces the objective of the Oculus Go: to make VR more accessible and get the technology in the hands of more users. Unlike the Gear VR or Google Daydream, the headset doesn’t require a compatible smartphone to work, opening the door for other Android and iPhone users to get into VR at an accessible price point. The reason it must be “other Android and iPhone users” and not “anyone and everyone” is that a smartphone app is required to get the Go up and running. Fortunately, once the registration is done the app is unnecessary. The visuals and overall experience are pretty much the same as the Go’s smartphone-based cousins, but, while this means no new fancy bells and whistles, it also means that the quality of the experience is preserved in the leap from mobile to standalone VR. The controller, being one-handed with limited functionality, hinders the Go’s gaming capabilities, making video and other interactive experiences the most compelling apps available. As time goes on we believe developers will begin to get the hang of creating for this new platform and the experiences will improve. Nonetheless, the novelty of standalone VR is well-demonstrated with the Go – pull the headset over your eyes, and you’re in VR. No need to fumble with your smartphone or the outright daunting hardware of PC-based VR that makes the technology inaccessible. The Oculus Go is a great entry-point into virtual reality, and will hopefully expose many more people to the technology. Despite this fact, the Oculus Go comes up short in producing true ‘wow’ moments that can sway VR skeptics’ minds.

A promotional image for the Oculus Santa Cruz.

A promotional image for the Oculus Santa Cruz.

Santa Cruz in sight. Successfully replicating the Gear VR/Daydream experience on a standalone device bodes well for Oculus’s more ambitious standalone VR project, the Santa Cruz. Announced in 2016, the Santa Cruz is the standalone version of Oculus’s high-end Rift VR system, just as the Go is the standalone version of Gear VR (and Daydream). The Santa Cruz headset will have six-degrees-of-freedom through inside-out tracking and two full controllers for a much more robust experience. It is a logical progression to make the less intensive smartphone-quality VR content work on a standalone device before trying to replicate what high-end PCs are capable of. Providing a PC-quality (or better) VR experience anywhere will be far more effective than the Oculus Go in convincing people that VR is for real and here to stay. While this first generation of standalone headsets isn’t exactly a watershed moment, it is a positive and important step in VR innovation.

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.

F8: Community & Privacy Tools, Putting the Hammer Down on VR & AR

Conclusion. This week we’re attending F8, Facebook’s annual developer conference. We have been down on the Facebook story given the negative effects it has on society (i.e. most people don’t feel better after being on Facebook) have recently outweighed the positive effects (groups and social change). It’s not just us who believes this, Facebook openly acknowledges both the positives and negatives of the platform. It’s important to note we believe there are three things humans fundamentally do better than machines: creativity, empathy, and community. Mark Zuckerberg’s comments today were largely about improving privacy and, more importantly, announcing tools to embrace one-to-one and community building. We see these moves as a measurable first step in evolving the platform to make the world a better place. We’re a long way away, but today’s updates are a start.
  • Three areas Facebook wants to build more meaningful communities around are live video and events (i.e. Watch Party), dating/relationships, and Groups. These all facilitate building community.
  • The company announced new measures in privacy and fake news centered around elections, fact-checking, and greater user control of privacy settings. These advancements are largely a result of the election-meddling and Cambridge Analytica scandals.
  • The company is staying committed to its role in advancing VR and AR. They announced the $199 Oculus Go headset will ship today. AR camera effects are being added to Instagram and Messenger, which is bad news for Snap.
Updates to community. Facebook showcased Watch Party, where friends can get together to watch a video and share comments and reactions. The goal is to connect people through video and make it possible to watch with friends and family even if they’re on the other side of the world. The company also announced a new dating feature housed entirely within the app. It will be an opt-in service, and nothing will be posted or shared anywhere else on Facebook. Finally, Facebook showcased a renewed emphasis on groups with a ‘Groups’ tab in the app, making it easier to join and connect with people who share your interests.
Updates to privacy. In compliance with the EU’s GDPR requirements, Facebook is rolling out privacy controls for users making it easier for them to control what data is and is not tracked by Facebook as well as which apps you’ve given access to and what information they’re using. They’re working on a “clear history” feature where users can clear the data Facebook has collected, much like how the feature works in internet browsers. Mark Zuckerberg was again taking the company’s issues head-on and addressed them in his opening remarks, discussing all the various measures they’re taking to ensure privacy and safety (beyond user controls and clearing history) while still building things that connect people.
VR and AR. Both Instagram and Messenger will be getting the augmented reality camera effects currently available on Facebook. Instagram will also get a platform for content creators to create their own AR effects. Separately, Mark Zuckerberg announced that Oculus Go, their new standalone headset, will begin shipping today (and that everyone at F8 would get one for free). A milestone in VR’s evolution is the introduction of an untethered headset (i.e. no phone or computer necessary) that still offers a quality experience, and Oculus Go purports to be the first device that can provide that. The company also demonstrated how they’re using computer vision to recreate locations from photos as 3-dimensional, immersive spaces that users can walk through in VR. We are excited to see the content and experiences that start to emerge surrounding the Oculus Go.
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. 

Powering Through the Controversy

Source: oberver.com/Chip Somodevilla/Getty Images

  • Facebook reported Mar-18 results with revenue 4% and earnings 25% ahead of the Street.
  • Most notably, DAUs of 1.45B (up 13% y/y) were in-line with the Street despite relentless negative press, suggesting the Facebook brand is bulletproof.
  • The company indicated some advertisers paused spending a month ago, but have largely returned.
  • The only red flag was new user controls in Europe, due to GDPR, which could have a slight negative impact on engagement. This begs the question: will the upcoming global user control rollout hurt global engagement?
  • Facebook is a gold standard in terms of delivering results, but we continue to question the company’s long-term value to society.

What should we infer from European GDPR commentary? In order to comply with the EU’s new General Data Protection Regulation (GDPR), Facebook is rolling out new tools that allow users to control how much information Facebook and advertisers are able to access. On the earnings call, Facebook management commented that these controls could result in European MAUs and DAUs being flat or down. They also said that they would be extending the GDPR-compliant controls to other geographies beyond Europe. When asked why these controls would result in lower engagement in Europe, but not the other markets, COO Sheryl Sandberg responded that the controls will be “localized” and that’s where the difference will come from. Despite these comments, we expect moderating DAU growth 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.

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.