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.

Waymo Unleashes Autonomous Cars – Now Must Earn Public’s Trust

On November 7th, Waymo reached a new milestone by removing the safety net and testing fully autonomous vehicles on public roads without someone behind the wheel to take over in case of an emergency. Waymo has been testing in the Phoenix, AZ area for some time now, and other companies like Uber, Cruise, and NuTonomy have similar operations. But there has always been an employee in the driver’s seat. November 7th marked a new stage of testing self-driving cars. Along with last Tuesday’s test, which took place in Chandler, AZ, Waymo has recently made an exciting push to prepare the public for the cars that, as they just proved, are closer to full deployment than many people believe.

Largely considered the leader in autonomy, Waymo has driven a collective 3.5 million autonomous miles on public roads across 20 cities (that’s the equivalent of the average American driving for 291 years). They have also completed over 20,000 different scenario tests at their facility in California, and simulate 10 million miles per day. “In short: we’re building our vehicles to be the most experienced driver on the road,” they write in a blog post. Along with a growing crowd of other competitors, Waymo gets closer each day to deploying a fleet of self-driving cars available to summon at your convenience. Regardless of how advanced the tech may be, however, the reality remains that people simply aren’t ready to be driving down the road next to an empty car – perhaps the biggest hurdle facing autonomy is widespread acceptance of them.

Being realistic about autonomy. Waymo knows that in order for mass adoption to take place, the public must first trust autonomous vehicles. Successfully building a vehicle that can operate autonomously is a feat of engineering, but educating the public on its benefits is a different task entirely.

Realizing this fact, Waymo has recently made an impressive effort to prepare the public for what’s coming. They have partnered with organizations like the National Safety Council and Mothers Against Drunk Driving, trained law enforcement departments on how to deal with incidents involving self-driving vehicles, and attempted to be transparent by releasing a comprehensive Safety Report and inviting reporters to a test drive at their facility in Atwater, CA. According to a AAA survey this year, only 20% of Americans would trust an autonomous vehicle to drive itself with them in it. This leaves no doubt that we have a long way to go before this technology becomes mainstream. Waymo, more than any other player in the space, is attacking the problem head on, opening up a dialogue with the public and taking an inclusive approach to educating everyone on the risks and benefits of a new type of mobility.

Partnerships. By engaging the public and partnering with organizations outside of tech and auto, Waymo hopes not only to raise awareness and educate people on self-driving cars, but to demonstrate how they are, in fact, a much safer and smarter mode of transportation. Here are some of the groups that Waymo has teamed up with:

  • The National Safety Council – Focused on areas where the greatest number of preventable injuries or deaths occur, including workplace safety, prescription medicine abuse, teen driving, and cell phone use while driving. 40,000 Americans die on the road each year.
  • Foundation for Senior Living – Believes age shouldn’t slow anyone down. 80% of seniors live in vehicle-dependent suburbs, and there are 45M people in the U.S. over the age of 65.
  • Mothers Against Drunk Driving – Intoxicated driving is the number one cause of death on roadways.
  • The Foundation for Blind Children – Focused on empowering the blind with independence. There are 1.3 million legally blind individuals in the U.S., growing to over 2 million by 2050.
  • East Valley Partnership – Concerned with improving quality of business and life in the East Valley region. Americans spend 50 minutes on average commuting to and from work each day

Waymo’s Safety Report. “Fully self-driving vehicles will succeed in their promise and gain public acceptance only if they are safe.” This thesis, stated in the early pages of a recently released Safety Report, resonates throughout the next 43 pages, as Waymo lays everything on the table. The report details safety procedures, how vehicles respond to numerous situations, how the autonomous systems function, and several other elements that must be understood before feeling comfortable riding in a self-driving car. It quickly becomes clear that safety is at the core of Waymo’s pitch. As the first voluntary safety assessment of its kind, much of its contents will likely be mandated by regulatory bodies going forward.

Law Enforcement Training. Yes, there will still be accidents on the road when cars drive themselves. While we believe there will be radically fewer of them, law enforcement must still understand how to respond to an incident involving a driverless car. Waymo has designed their systems to interact with law enforcement and first responders with audio sensors to discern where sirens are coming from, and responses like safely yielding or pulling over to a complete stop. They have also briefed authorities in every city in which they test, and conducted on-site trainings to help police and emergency vehicles identify and access self-driving cars.

Test Drives. On October 31st, Waymo hosted a group of journalists at their usually secret testing compound in Atwater, CA. This act is not unprecedented; however, coupled with Waymo’s other recent actions, it represents a level of transparency unmatched by any of their competitors. The group was given a test drive in a mock town they have created, complete with an array of real-life scenarios like an unexpected cyclist cutting in front of the car, or a man standing beside a broken-down Hyundai. Find a detailed write-up of the test drive here or here.

The idea was to give riders a feel for what it’s like to use Waymo’s Chrysler Pacifica minivans as on-demand vehicles. It will function a lot like current ride-hailing platforms – a rider summons a car on a smartphone app, the car locates the rider, and navigates to their destination. Press a friendly, blue “Start Ride” button to embark, and passenger-facing screens show a rider-friendly version of what the car is seeing.

Trust building 101 – with transparency. As a cyclist rides by or a car passes, it appears on the monitor – it even shows trees, parked cars, and buildings in your surroundings. The level of detail that Waymo focuses on in terms of user experience leads one to believe they are months, not years, from deploying their much talked-about fleet. A video from Waymo exhibits how remarkably smooth the process is. Between a groundbreaking and successful test, and a new level of transparency focused on building trust and engaging the public, we believe Waymo has earned its pole position in the race for autonomy. Their next step will likely be the deployment of a small fleet to a limited group of participants in AZ – stay tuned.

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.

Google Earnings: Moving the Ball Forward on AI

A thought on the quarter. Google reported Sept-17 results tonight highlighted by 24% fxn revenue growth, comparable to 2016 growth and above 2015 which was 20%. It’s worth taking a step back to recall investors concern from 2 years ago that revenue growth was going to drift lower from the high teens to the high single digits by the end of 2017. September results show growth rates are running 2x higher than what investors had predicted back in 2015. The reason is Google has three properties that 1.5B+ people can’t live without, including Search, Maps, and Youtube. Going forward, we expect the company to add increasing ease of use, utility, and monetization efforts to these products that will result in 15-20% revenue growth for the foreseeable future.

Sundar leads off with AI for 4th consecutive quarter. It’s clear that Sundar is trying to get his point across: AI is the future of Google. We went back and looked at his opening comments over the last year and found he has lead his prepared remarks by asserting Google’s evolution from a mobile to an AI-first company on each of the past four earnings calls. below are his opening remarks over those four quarters.

  • Sept-17 – “Thank you, Ruth. We had another great quarter. (omitting 1 line) Even though we are in the early days of AI, we are already rethinking how to build products around machine learning. It’s a new paradigm compared to mobile first software, and I’m thrilled how Google is leading the way.”
  • Jun-17 – “Thanks, Ruth. We had a phenomenal quarter. Google continues to lead the shift to AI-driven computing.”
  • Mar-17 – “Thanks, Ruth. It’s been a terrific start to the year. (omitting 10 lines) Now turning first to machine learning and access to information. I’m really happy with how we are transitioning to an AI-first company.”
  • Dec-16 – “Thanks, Ruth. 2016 was a great year for Google and 2017 is shaping up to be even more exciting. (omitting 11 lines) First, machine learning and access to information. As I’ve shared before, computing is moving from a mobile­first to AI­-first with more universal, ambient and intelligent computing that you can interact with naturally, all made smarter by the progress we are making with machine learning.”

Buzzword Bingo. For the same four quarters, we tracked how many times presenters and analysts made comments artificial intelligence by tallying instances of AI jargon (AI, artificial intelligence, machine learning, deep learning, TensorFlow, natural language processing). We also noted mentions during prepared remarks vs. those during Q&A. This is evidence of the intensity level at which Google is pursuing 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.

Smart Money Says Lyft a Winner in Autonomy

Ridesharing, more specifically, the fate of Uber and Lyft, is at the top of the potentially disrupted list as autonomy approaches. Both of these companies will need to make the leap to autonomy whether it be organically, through acquisition, or by partnership. simply put these companies must adopt autonomy to survive. Recent news of CapitalG leading a $1B investment in Lyft is a key endorsement that Lyft will have a future in an autonomous world as the platform for on-demand self-driving vehicles. Uber’s fate, however, appears more in its own hands, given it is developing its own autonomous systems, and the partnerships that Uber has inked to date tend to be on the manufacturing side (Daimler, Volvo, Tata, and Toyota). While Uber is still in the running, our money is also on Lyft.

CapitalG, Alphabet’s late-stage venture fund, has not disclosed how much of the round they account for. Despite a CapitalG spokesman saying otherwise, this investment is about much more than making a profit for Alphabet. As Google navigates the impossibly complex landscape of companies vying for leadership in ridesharing and autonomy, they are making sure they have a strong presence in each possible outcome of the booming technology.

GV, another venture arm of Alphabet that invests in much younger companies, made a $258M investment in Uber in 2013 predating the Waymo IP theft allegations). On top investments in of both ride-sharing giants, Alphabet’s own Waymo is largely considered a leader in self-driving systems. We see this strategic investment as a strong confirmation of Google’s conviction in the future of self-driving cars, and the concept of fleet services. In our Auto Outlook, we detail the rise of both autonomous vehicles and fleet ownership, predicting fully autonomous cars to outnumber drivers and cars owned by fleet services to outnumber personally owned cars in 2036.

The investment brings Lyft’s valuation north of $11B, almost 50% higher than last round. While Lyft remains roughly 1/7th the size of Uber, a large influx of cash should strengthen their competitive efforts, allowing them to expand internationally, and to build out their platform for self-driving cars. While Lyft does not have any aspirations of developing their own autonomous systems, they have positioned themselves as the platform for on-demand autonomous cars in the near future. With Lyft’s open platform, automakers can plug self-driving cars into a network of drivers that make over 1 million rides per day (growing in excess of 100% per year), and smooth the transition to full autonomy with a Lyft “driver” behind the wheel. While Uber, who hopes to develop self-driving technology in-house, is embroiled in legal battles, Lyft has made countless partnerships with both automakers and self-driving tech companies. Their list now extends to Waymo, NuTonomy, Drive.ai., Ford, GM, and Jaguar. The next chapter in the race to autonomy will likely be a Lyft IPO. Stay tuned.

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.