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Apple Is in Long-Term Growth Mode

Apple Is in Long-Term Growth Mode

This week Apple announced plans to add an additional campus in Austin, TX along with strengthening satellite locations in Culver City, San Diego, and Seattle.

  • The initial reaction from tech followers has been centered on Apple adding offices in cities outside of the valley largely for recruiting purposes. While recruiting talent in AI and content creation is undoubtedly part of the motivation behind the expansion, it’s not the key takeaway.
  • Most important, Apple’s campus expansion is a clear indicator that the company is in long-term growth mode and needs to add headcount to continue to expand.
  • Today, Apple employs just over 6k people in Austin. The new campus will be Apple’s second largest and could accommodate 15k employees. The 9k additional employees would increase non-retail US headcount by about 15%.
  • In Austin, the new positions will focus on customer support, engineering, finance, sales, and operations. Other focuses will be: AI (Seattle), original video content (Culver City), and chip design (San Diego).
  • As for the near-term iPhone demand concerns, while there is risk to Dec-18 and Mar-19, this storm will pass.

Growth Outlook Contrasts iPhone Concerns

This growth outlook is in contrast to investor concerns that the company’s iPhone franchise is slowing. There is risk to Apple’s revenue and earnings estimates for Dec-18 due to slowing emerging markets and consumers boycotting Apple products in retaliation of Huawei’s CFO arrest. Additionally, investors should expect a guide down for Mar-19, but the near-term slowdown does not indicate a deterioration in the iPhone franchise. We believe the 1.3B total device base is intact. Apple is adding headcount to accommodate future growth, and that future growth will be powered by several themes. In the years to come, Apple will grow as iPhone sales rebound riding the rollout of 5G. Services growth will be buoyed by the addition of video content. Apple Watch will progressively become a must-have as a health and wellness device. Augmented reality will evolve from the phone to glasses powered by 5G. AI will open the autonomous car opportunity to Apple, likely through partnerships.

Disclaimer: We actively write about the themes in which we invest or may invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we may write about companies that are in our portfolio. As managers of the portfolio, we may earn carried interest, management fees or other compensation from such 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 any investment decisions and provided solely for informational purposes. We hold no obligation to update any of our projections and the content on this site should not be relied upon. We express no warranties about any estimates or opinions we make.

Apple
2 min. read Show less
The Bell Curve of Tech Addiction
Source: Mental Floss

The Bell Curve of Tech Addiction

Since we started writing about tech addiction as a potential market opportunity, we’re often asked, “What exactly are the opportunities?” We see opportunities across three broad categories:

  1. Health services
  2. Leveraging healthy addiction
  3. Augmentation

These opportunities can be visualized along a bell curve that describes how addicted someone is to technology. The more addicted someone is to technology, the more dysfunctional or non-functional they are, as represented by the left side of the curve. The more one gives up non-essential tech, the less they are addicted and the more superhuman they become.

Addressing health concerns

Most of the discussion about tech addiction focuses on its health impacts: distraction, anxiety, anger, depression, even suicide at the extreme. Whether tech addiction fits the clinical description of “addiction” isn’t relevant. Intuitively we know that spending excessive time with our devices isn’t healthy and causes mental and physical issues.

There are three ways the market can address the left-hand side of the curve:

  1. Governments may feel the need to step in and regulate the usage of technology. We already see examples of this in France, where smartphones are banned from school, and China, where the government has begun enforcing stricter policies on online games. Regulation is useful, but the trick is that people don’t want to be told what to do, even if governments are protecting people from themselves. Prohibition created a black market for alcohol. People will find ways to circumvent overly oppressive restrictions on technology, which would be required to broadly address the health issues created by tech addiction.
  2. Rehab programs already exist to help with extreme cases of technology addiction.
  3. Novel health solutions. There are several encouraging new approaches to treating anxiety and depression. These include digital therapy solutions and non-invasive devices that leverage emerging neurotechnology concepts.

Unfortunately, there aren’t likely to be many direct ways to invest from a venture perspective in tech addiction on the health concern side of the curve. We’re interested in novel health solutions around anxiety and depression, especially those that leverage neuroscience research; however, our interest there isn’t specific to treating tech addiction. Helping tech addicts would be a secondary benefit of these investments. In fact, if the purpose of those novel solutions were to solely treat tech addiction, it might be more difficult for us to be interested. There’s something unappealing about medically treating anxiety and depression resulting from tech addiction rather than just addressing the cause of the issue.

Creating healthier habits for the average

The majority of the tech-using population fits into the average of the curve, which we would describe as subject to some addictive behavior, but not to the extreme of causing serious health issues. This isn’t to say technology usage habits of the average are optimal – far from it. Normal tech users just aren’t meaningfully worse or better off than the majority.

There are three opportunities to create healthier habits for the average:

  1. Habit reduction. Habit adjustment businesses help average users reduce the amount of time they spend with technology. Apple’s Screen Time and Google’s digital well-being software are examples, as are a large number of third-party apps that track and limit screen time.
  2. Habit replacement. Habit replacement switches an average tech addict’s unhealthy habit for a healthier one that provides more net value to the user (defined below). An example of habit replacement could be replacing Facebook with healthier social media products. Remember, these opportunities are focused around the average tech addict, and we don’t expect the average to give up social media. Therefore, there may be opportunities to create social experiences that reduce some of the negative effects of social (envy, anger) and replace time spent on existing platforms. We think that animation-based products may be useful here.
  3. Habit formation. Habit formation is the active creation of a healthy habit by leveraging the average user’s addiction to their devices. An example might be building addicting mechanisms into health, fitness, or study applications.

In many ways, these three opportunities are closely related and could be broadly thought of as habit adjustment. The nuance to us is where each opportunity sits on the curve. Pure habit reduction feels most closely related to addressing health, habit replacement seems to be in the middle, and habit formation feels slightly augmentative. Out of all the tech addiction opportunities we’ve highlighted, the biggest from a venture outcome perspective will probably be in habit replacement and formation. We’d expect to see the most effective solutions to address tech addiction for the average user to come from those categories.

Augmentation

A minority of tech users will voluntarily limit device and software use for health and performance benefits. When we tested the Good Phone (a distraction-free iPhone), the power of minimal tech became very apparent to us: we were able to focus better, felt more creative and relaxed, and we got more important things done. We felt superhuman, which is an apt description relative to both the left and middle parts of the curve.

There are two core opportunities in the augmentation space:

  1. Again, reflecting on our experiments with the Good Phone, we don’t believe software alone can push tech users into the realm of augmentation. It can only improve them within the average section of the curve. Because addiction to tech is so powerful and the urge for stimulation in times of boredom will always exist, we need devices created with the purpose of severely limiting unhealthy and inefficient use cases. We define the health of a tech use case in terms of net value, which is the positive effect of the tech minus the negative effect. We’ll explore this more in a future post, but social media, entertainment apps (YouTube), news, and email are net negative apps that the four major categories we believe need to be eliminated if the goal is augmentation. The more of these a user eliminates, the closer they move toward being superhuman.
  2. Anytime a small group of people embraces a non-consensus or alternative view, it becomes like a religion or cult out of necessity. Believers have to have a strong sense that what they’re doing makes them somehow better than the herd or they wouldn’t associate themselves with that alternative view. We’d expect people who embrace the tech-light lifestyle to create a community that experiments with different ways to limit the use of tech, develops their own insider’s lexicon, and evangelizes the benefits of the movement. Crossfit is a good recent example.

Perhaps even more than the prior two sections, the opportunities in devices and movements around augmentation are tied together. Tech-light devices provide the tools, while the movement provides the religion. We think the tech-light device space could be an interesting market to address outliers that want to avoid technology addiction, particularly if a movement can be created around a product. Finding ways to eliminate tech use may be the most powerful sports supplement for the mind; however, it’s probably a smaller overall opportunity than habit replacement and formation given a much smaller user base.

As the conversation around tech addiction continues, interesting solutions across all segments of the market will emerge. Few are likely to be venture-investment worthy (we invest in a little over 1% of the companies we look at overall), but many are likely to be market worthy. We will continue to experiment and explore to help create healthier relationships with technology for everyone.

Disclaimer: We actively write about the themes in which we invest or may invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we may write about companies that are in our portfolio. As managers of the portfolio, we may earn carried interest, management fees or other compensation from such 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 any investment decisions and provided solely for informational purposes. We hold no obligation to update any of our projections and the content on this site should not be relied upon. We express no warranties about any estimates or opinions we make.

Philosophy, Tech Addiction, Technology
5 min. read Show less
Robot Fear Index: Increased Adoption May Be Fueling Concerns

Robot Fear Index: Increased Adoption May Be Fueling Concerns

Like many in the tech space, we believe robotics is changing the nature of work. However, public perception of robots is still a question mark. We developed our Robot Fear Index to measure and track the average consumer’s perception of robots. We asked over 400 US consumers about topics ranging from their use of robots at home to their comfort level with self-driving cars. Then we distilled the data down to an index value that we will publish regularly. An index value of 100 suggests widespread and extreme fear of robots; an index value of 0 suggests minimal fear of robots.

Consumer adoption of artificial intelligence and robotics is already quite broad, and yet, fear of robots is pervasive as well. We fear that they’ll replace our jobs or somehow overthrow us, and those fears are valid. Our 2018 survey tells us that the shift in consumer acceptance needed for widespread adoption may take longer than anticipated. In the tech echo chamber, it is easy to be convinced that once something is technologically feasible, it will be rapidly adopted. However, we are constantly served small reminders that broad shifts take longer than we expect.

Our most recent Robot Fear Index value of 31.8 (vs 30.9 in 2017 and 31.5 in 2016) suggests that public perception of robots is essentially unchanged over the last two years. Our survey suggests two countervailing factors:

  1. Increased adoption of automation technology
  2. Growing awareness of the potential risks of automation

When Siri or Google Assistant, for example, accurately predicts that you’re about to drive home, text a certain contact, or check a particular stock price, there’s a “fear” factor associated with that. The more we use these predictive products, the spookier they get. But, at the same time, they become more useful.

Survey Details

Of the 415 survey respondents, 53% were female and 47% were male. Our survey population was more or less equally weighted across all age groups excluding kids under the age of 18. It is worth noting that the largest group of survey respondents was over the age of 60 (also the case in 2017). This, understandably, can skew responses toward less comfort with and usage of robots.

Use of Digital Assistants Continues to Grow

We see the use of digital assistants as an onramp to further usage of AI and robotics for many consumers. This year’s survey shows that 70% of people have used a digital assistant, and 23% use one multiple times per day. Overall, frequent use of digital assistants is up, with 33% of respondents using one at least once a day. When asked about digital assistant ownership, 40% of respondents said they own at least one, and 9% own 3 or more.

Comfort with Robots Unchanged

Compared to last year, people are less comfortable with 4 of the 8 robot use cases we track, more comfortable with 3 of them, and 1 has remained unchanged. Compared to two years ago, all use cases have trended more comfortable or neutral, except in healthcare.

Little can be inferred from such small shifts. However, rather than looking at trends, three years of data gives us a good picture of which use cases people are comfortable with overall and which they continue to push away from. Shopping, digital assistants, and house cleaning continue to be the most acceptable activities, which we attribute to the fact that there are already tangible use cases on the market today. Meanwhile, healthcare (e.g., a surgical robot) and travel (e.g., self-driving cars) incite discomfort, which may be because they sound inherently dangerous to one’s personal safety.

What is Keeping Consumers from Using Robots?

When asked what has kept respondents from using robots, 42% said they were simply not interested (up from 41% a year ago), and 27% (down from 29%) said they were too expensive. It’s notable that these numbers remain essentially unchanged; in other words, where we may expect to see interest in robotics and automation rising, we are not.

When asked when will AI and robotics cause significant job loss, 28% said within 5 years, 29% inside 10 years, 20% inside 20 years, and 4% inside 40 years. The remaining 19% did not believe robots would ever cause significant job loss.

Bottom Line

Following our 2017 and 2016 Robot Fear Index surveys, consumer fear of robots appears to be essentially unchanged. We see two countervailing factors: increased adoption, and growing awareness. In fact, the first trend may even be fueling the second, resulting in a net-neutral viewpoint on robotics. We think our index value of 31.8 quantifies this cautious comfort with robots and we’re looking forward to updating the Robot Fear Index regularly as we track the progress of the robotics theme.

Disclaimer: We actively write about the themes in which we invest or may invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we may write about companies that are in our portfolio. As managers of the portfolio, we may earn carried interest, management fees or other compensation from such 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 any investment decisions and provided solely for informational purposes. We hold no obligation to update any of our projections and the content on this site should not be relied upon. We express no warranties about any estimates or opinions we make.

Artificial Intelligence, Robotics
3 min. read Show less