Forget Silicon Valley. Innovation is happening in China now

Those that follow technology closely have noticed a significant trend in the field, China. The more you read, the more you encounter increasing coverage on China's tech dealings.

In the last few weeks, we've seen Tencent's market capital surpass that of FacebookVenture Capital activity reach US VC levels; LinkedIn's Chinese rival MaiMai, outperform LinkedIn in the country and the amount of Chinese Women in Tech pass that of the US.

Source: Silicon Valley Bank analysis based on Pitchbook and Zero2IPO’s PE data.

According to the Forbes listout of the top 10 largest companies in the world, four are Chinese, five are American, and one is Japanese.

Forbes Global 2000 List (#1-#5)
Forbes Global 2000 List (#6-#10)

If you narrow the scope to tech-only companies, China has seven companies in the top 20. Two of them, Tencent and Alibaba, among the top six.

2017 Internet Trends — Kleiner Perkins Caufield Byers

The China that most people imagine has nothing to do with the current technology superpower that China is nowAndrew Ng, former Chief Scientist at Baidu, hits the nail when he states,

“China has a fairly deep awareness of what’s happening in the English-speaking world, but the opposite is not true.”

This asymmetry is helping China fly under the radar. Most organizations are so focused on the Silicon Valley dream that they're missing the elephant in the room

Education

Education is a critical aspect of any country. This is especially true when we're speaking of innovation. Historically, China's educational levels have been subpar with the rest of the world. This hasn't been the case for a while now. The truth is, China's university are already outperforming many of their international peers.

Source: Times Higher Education World Universities Rankings 2018

While institutions like Stanford still hold on to their perch of the global ranking, universities like Pekin's University, are closing in. Stanford outranks them in specific scores but lags in others like technology transfer.

THE World Universities Rankings scoring methodology 2018
Pekin University Score evolution (THE 2017)
Stanford University Score evolution (THE 2017)

In comparison, it's worth noting that there are precisely zero European universities among the top 30 (excluding the United Kingdom due to Brexit).

China's educational institutions still have a pending subject; attracting foreign talent. The country is trying to fix the lack of an international crowd applying a mixture of strategies with various degrees of success. 

Technology Innovation

But better universities aren't the only reason for China's ascent to the innovation Olympus. In 2006, the Chinese General Secretary of China Communist Party Hu Jintao, and Wen Jiabao, President of People's Republic of China declared their intention to transform China into an 'Innovation-oriented' nation.

These declarations brought forward the term 'Indigenous innovation.' It refers to the capacity to produce innovative products and services from within a national context. 

To achieve such a lofty goal, they knew they needed better local knowledge that the one they had. Improving their university system was strategic to making this, but it wasn't enough.

At the time, Chinese researchers and professors lacked knowledge in critical fields. To reduce the gap, they decided to bring foreign experts to the mainland through what's called the 1000 Talents Program.

The results of the program, though, were mixed. While the program is still active, the government decided to try a different approach.

“The way the government is putting money in is getting smarter and smarter,” says Ming Lei, one of the co-founders of Baidu and now co-director at Peking University’s AI Innovation Center.”
“Before they just gave money to research projects or big SOEs or universities. But now they are more likely to give it to a private company, to one that is more active and can produce the products and services.” 

Enter the Chinese startup scene.

China's startup talent

As with Chinese education, for years, Chinese startups have been looked down upon due to their lack of competitiveness. Local startups grew mostly as American copycats. Despite the negative connotations, these companies brought a wealth of knowledge to the entrepreneurs. It taught them how to build products, and how to do it fast.

“The velocity of work is much faster in China than in most of Silicon Valley,” says Ng. “When you spot a business opportunity in China, the window of time you have to respond usually very short—shorter in China than the United States.” – Ng

China might have started as the land of the copycats, but it quickly evolved and started developing their innovations. New Chinese startups emerged that, not only served the local market's need but did this at a scale never seen in the US.

"Chinese companies experience both much larger scale than anything seen before in the US and no holds barred domestic competition."

Such has been the evolution of the Chinese startup ecosystem that their products and services are starting to outperform their American peers.

“Weibo is a better product than Twitter, same for Taobao and eBay, WeChat and Facebook Messenger. Better features, more robust business model.” Today, Chinese companies are coming up with innovative products not seen in America such as customized news or distance learning using “underpaid American teachers” to teach English. We are now entering the age of copying from China, says Lee.

All this was happening, while Internet and Mobile penetration were increasing. In a way, China skipped an innovation step and went directly to mobile.

This leap has created some unique mobile behaviors that are giving a massive edge to Chinese companies.

"The data gap between the US and China is “dramatically larger” than the actual gap between the respective populations or the number of active mobile users. Chinese use their phones to pay for goods 50 times more often than Americans, he says, and orders for food delivery are ten times greater than in the US." 

China's Artificial Intelligence moment

At the heart of the rise of the Chinese startups lies the field of Artificial Intelligence. As I've written before, Artificial Intelligence (AI) is becoming the de-facto disruptive technology. Any company that wants to compete needs to be deploying AI systems.

China's innovation efforts have squarely targeted the development of AI and Deep Learning technologies. Nonetheless, attaining AI expertise isn't easy. Investing in AI demands spending on the three building blocks that make it possible; hardware, data, and talent.

Hardware infrastructure

People know China for their hardware production. Even so, their expertise on the design aspect of high-tech semiconductors has remained elusive. If China wanted to up their game, they needed to increase their knowledge in the space.

That's what they started doing via foreign investments. Such was the pace that the Committee on Foreign Investment (CFIUS) issued a warning to Congress about it and started blocking some of these operations

Source: CFIUS Anual Report to Congress, 2015
Source: CFIUS Anual Report to Congress, 2015

Data access

Access to massive amounts of data is paramount for AI. Yet, data is one thing China has in excess. With an Internet population of 731 million users (2,5x more than the US) and very lax privacy regulations, they're well equipped to train their systems with large swaths of information.

“When it comes to government data, the US doesn’t match what China collects on its citizens at all,” says James Lewis, senior fellow at the Center for Strategic and International Studies. “They have a big sandbox to play in and a lot of toys and good people.”

Talent

Data and hardware aren't enough. You need people to man the algorithms. The government started doubling down on AI research money to increase the number of skilled AI and Deep Learning researchers. In contrast, the Trump administration began slashing the 2017 National Science Foundation budget by 11.2%. The effect has been dramatic.

In October of 2016, the US National Science and Technology Council released a paper titled "The National Artificial Intelligence Research and Development Strategic Plan" (PDF). The document indicated that China had surpassed, for the first time, the US number of peer-reviewed publications mentioning Deep Learning. It also sets the first US Artificial Intelligence R&D strategic plan ever. 

US National Artificial Intelligence Research and Development Strategic Plan, Oct. 2016
US National Artificial Intelligence Research and Development Strategic Plan, Oct. 2016
US National Artificial Intelligence Research and Development Strategic Plan, Oct. 2016

The rise of Chinese AI researchers has been felt worldwide.

“When Rao [Subbarao Kambhampati, current president of the Association of the Advancement of Artificial Intelligence, AAAI] first started seeing Chinese researchers at international AI meetings, he recalls they were usually from Tsinghua and Peking University, considered the MIT and Harvard of China. Now, he sees papers from researchers all over the country, not just the most elite schools. Machine learning—which includes deep learning—has been an especially popular topic lately. “The number of people who got interested in applied machine learning has tremendously increased across China,” says Rao.

The trend not only hasn't reverted, but it's widening. According to a recent analysis by The Financial Times,

"In 2016 China increased its output of AI-related papers by almost 20 per cent compared with the previous year, while EU and US output dropped. […] However, the quality of fundamental research remains a problem. Although China leads the world in quantity of AI research, it lags behind the EU in terms of number of AI papers in the top 5 per cent of most cited research — but still overtook the US in this metric last year."

One of the unspoken advantages of many Chinese researchers is that they have access to the best of both worlds,

“Chinese researchers usually speak English, so they have the benefit of access to all the work disseminated in English. The English-speaking community, on the other hand, is much less likely to have access to work within the Chinese AI community.”

This increased research is starting to yield incredible results. Some of the current Chinese startups are becoming the AI reference in their fields. Such is the case of Face++, whom recently won the first place in the International Conference of Computing Vision 2017 (ICCV), ahead of teams from Facebook, Google or Microsoft. 

Artificial Intelligence is the new strategy

Artificial Intelligence and Deep Learning have become so critical to China that in July of 2017, they released a State Council Notice called "The Next Generation Artificial Intelligence Development Plan" (PDF). The plan is worth reading due to its prescient nature on several aspects.

"The plan includes formulation of laws, regulations, and ethical norms on AI, as well as mechanisms for safety and supervision. The plan seeks to mitigate likely negative externalities, such as job losses, associated with AI, while fully leveraging the opportunities."

The government recognizes, though, that local talent is still hard to come by. To offset this, they're deploying a dual strategy. On the one hand, they're investing heavily on AI-based startups, both locally (SensaTime Group's 410 million dollars in July 2017Megvii's Face++ 460 million dollars in October) and outside the mainland. While the US is investing in the field, the hunger for more money is patent. China is investing in companies that the US money is neglecting.

“We were told by the secretary of the Air Force, ‘Your tech is awesome, we should put it everywhere,’” he said. “No one followed up.” […] American military officials have “figured out a very good way to give $10 billion to Raytheon,” he said. “But to give a start-up $1 million to develop a proof of concept? That’s still very, very hard.”

China Investment in Silicon Valley Report, CBInsights, 2016
China Investment in Silicon Valley Report, CBInsights, 2016
China Investment in Silicon Valley Report, CBInsights, 2016
China Investment in Silicon Valley Report, CBInsights, 2016

On the other hand, China is trying to make it easier for foreign talent to come and work with them. To accomplish this, the big three of China, Baidu, Alibaba and Tencent (BAT) have been opening AI, and Deep Learning focused research centers on the West Coast.

Baidu already has two research centers in Sunnyvale, CA. Tencent has been operating a data center out of Silicon Valley and a new AI Research center in Seattle, WA. Alibaba recently announced they're opening seven new research labs worldwide, one of them in the Seattle area and another in San Mateo, CA. Uber Rival Didi Chuxing, is also another of the big Chinese startups that opened shop in Mountain View in March 2017.

Strategic ramifications

Underestimating China is easy. For many years it's been the land of the cheap mediocre copycats. Chinese culture is foreign to most Westerners. It's plagued with idiosyncrasies that cultured western institutions have defined as inferior or wrong. The fact that few outside of China speaks or read Chinese doesn't help. We disregard and downplay that that's different or unknown to us.

But the truth is, it's becoming increasingly hard to ignore the fact that China is on the verge of becoming the world's technological leader.

While Chinese universities still have a low rate of international participation, that will change fast. It's a matter of time before foreign students start flocking China, looking for the next Stanford.

Meanwhile, more and more companies are turning to China for funding and customers. The US and Europe are lagging behind in technological adoption. Robotics, AI-based systems, automated education, Quantum computing or smart mobility are all happening in China, not in the US. The market is in China, the funding is in China, and the regulation is in China.

The US is becoming progressively more hostile to startups. More and more entrepreneurs are fleeing America. Some are finding in China, the perfect market for their cutting-edge technology.

It's hard to see how the Trump administration can correct the innovation decline. Much worse is the situation in Europe where there seem to be no strategic plans around key technologies like AI and Deep LearningThe difference in research, investment and execution capacity between China and Europe is staggering.

Organizations worldwide should keep a close eye on Asia, both China's big four (BATJ, Baidu, Alibaba, Tencent, and JD) and conglomerates like Japan's Softbank.

China will, most probably, dictate the rules of the next technological revolution. Organizations need to invest in understanding the new landscape before they get obliterated in the crossfire. 

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Virtual Reality isn’t functional yet, here is why

Virtual Reality isn’t functional yet, here is why

Let me start this post by saying that I'm a real believer. Virtual Reality (VR) is a technology that will disrupt how we live our lives. The problem is, it's not there yet.

The short answer is that the usefulness of the content (benefits) vs. the accessibility of the technology (cost) isn't there yet. Let us walk through the VR value chain and analyze each part.

Content

There is some fantastic VR content out there, but it's not the norm. There are three main problems with VR content. The first one is common. When a new medium comes around, content transposition is usual.

Sound films that felt like Silent movies. 3D movies that felt like 2D. Blogs that felt like PDFs and now, VR content that looks 2D. The problem is, most of the VR content falls under this category. It's so prevalent Oculus announced not long ago that they'd start refunding users for bad content.

The second issue is the lack of VR developers. There are two sides to what we now call Virtual Reality. On the one hand, we have what's called 360º experiences. This would fall into movies with 360 degrees of freedom. The producers record the content with 360º dedicated cameras. The footage is then "stitched" together to create an immersive experience. On the other hand, you have CGI based material. Experiences created entirely with Unity, Unreal, Blender and the likes. Content that resembles the traditional game development process.

While development for VR might look similar, it's not the same. 360º experiences allow for multiple storylines. Content needs to be "stitched," directors require expensive hardware too. The same applies to CGI-based content. The possibilities of the medium make it different.

New tools are being developed to use VR space to design 3D content. I think that's the way to go, and so far, the learning curve is less steep than the traditional hardcore Unity developer. That said, there are still in their infancy.

The truth is, great VR developers are scarce, just like good AI experts. It's hard to teach someone, and the return on the investment is dubious. VR sales aren't there. Some studios are even cutting down on VR investments. So it's hard to predict if getting into VR is a good or bad investment, putting a break into getting more people in the field.

The third difficulty with VR content is what I called usefulness. For the industry to take off, there needs to be a clear set of benefits. Most of the people with CGI expertise come from the entertainment industry (Game studios + Moviemakers). This is one of the reasons why the content is heavily tilted towards the entertainment sector.

Source: Strategy Analytics Report

This bias towards entertainment already narrows and corners VR's usefulness. If you compare the benefits VR entertainment offers versus the ease of use, we can see, we're not there yet.

VR entertainment, let it be games or VR movies like Melita (Disclaimer: I know the makers), is mind-blowing. The question is, is the experience so good that it offsets the cost of having it? The price isn't just economical, but the cost of setting the system. The more devices/sensors, the more time it requires to setup, the more expensive it is for the user. Time is money.

The most cost-effective devices (smartphone powered headsets) aren't costly ($10 – $150), but they deliver a poor substitute for a movie or game in 2D.

The mid-range devices are way more expensive ($350 – $500), and they depend upon, not only the headset but also external controllers. On top of that, the experiences, while being better, aren't astounding. At least not enough to make people come in droves.

Top of the line gadgets can easily hit the $1000 mark, demand external controllers, external cameras, and a dedicated gaming PC device. The delivered experiences are astonishing, but it's a steep price and setting.

Skyrim VR PSVR Bundle

Sony's PlayStation VR is an excellent example of this last case. They had a fabulous opportunity to put VR in every home. They botched it. The PSVR requires so many pieces; it's cumbersome. While Sony boasted their 915.000 units sold in February, it seems once the initial fever washed away, they aren't selling at the expected speed.

Source:  International Data Corporation (IDC) Worldwide Quarterly Augmented and Virtual Reality Headset Tracker.

Beyond entertainment, few categories are mature enough to compete with regular apps. Microsoft might be one of the best positioned to expand into other niches. While Hololens isn't prominent due to its lofty price, they're pushing the technology beyond entertainment. Their new Mixed Reality Platform is quite promising.

Microsoft's Mixed Reality Portal experience

Distribution

On top of the problems with content, the distribution of content is a mess. The word that comes to mind is "confusing." Finding content isn't easy. Each hardware manufacturer uses a different platform, trying, in vain, to achieve a virtual integration.

The strategy makes sense when you own the hardware, and you're already terrific on that part of the value chain. The problem is, none of the current players are good at that. None has a distinct hardware advantage, which means, there is no reason to flock to their distribution platform.

If any, I would say that SteamVR is the significant winner. They not only carry the VR experiences for the HTC Vibe and Oculus but, Microsoft's Mixed Reality ones too.

The problem with Steam is that its primary focus is gaming. Most of the current SteamVR experiences are games. Time will say if they can manage to outgrow their gaming origins and become the de-facto VR content platform.

Hardware

The hardware fragmentation is also a problem right now. While there aren't that many headset options, namely, Oculus, HTC, and Samsung, the space is heating up. The recent entry of Microsoft in the VR race is increasing the number of hardware options too (Dell, Asus, Lenovo or Acer).

Brand fragmentation is on the way, but more critical than that, it's the fragmentation the technology itself is generating. VR headset capacities are changing every 4-5 months. A headset now will underperform in less than a year. This is problematic, not only for the users but because it creates a content legacy problem. A quick look at Google's DayDream store shows many VR apps with compatibility issues.

Last but not least, the hardware isn't there yet. We've gone from low frame rates and dizziness problems to better frame rates and enhanced tracking with external sensors.

Still, the experience has three significant obstacles. The first one is The Cord. The fact that you need to have the headset connected to something is a predicament. It gets in the way of mobility, just when everything is becoming mobile.

Luckily the cord is disappearing with the new standalone headsets by Oculus (Oculus Go) and HTC (HTC Vibe Focus, HTC Link).

The new Oculus Go

There second major block is the need for external sensors to track the user's movement. Oculus had a camera, HTC Vibe introduced external infrared sensors, and finally, the HTC Vibe Focus features onboard sensors. This is allowing for an authentic "standalone" experience with what's called 6DoF.

New HTC Vibe Focus

The last major hurdle, though, is still the computational requirements. HTC Focus allows for a standalone experience, but there is a catch, you can't run the most power-hungry VR experiences. For that, you still need to rig the device to a computer.

What's the ideal? We need devices capable of being mobile and capable of running the top VR experiences, where the real value is delivered. Anything below that threshold will make it hard for the mainstream to buy into it.

Final thoughts

Virtual Reality will change our world. I do not doubt it. I've been trying headsets for a while now. It always blows my mind. Still, there are some significant issues in several parts of the VR value chain that need to be resolved first.

The ecosystem is still very confusing. The focus now is on getting the technology to a mass-market-ready point. The technology works, but still requires a substantial investment regarding hardware, time and money. That needs to change.

Due to that focus, everything else suffers. Every single content platform suffers from a lack of clarity, confusing messages or bad UX. The iPhone took over the market, not only due to its superior hardware but due to its superior usability. The VR space needs a simplification of the messages, hardware, and platforms.

The VR industry still needs a little longer to mature. The problem though is that the investment is required now. Most of the companies investing in VR right now should be doing it for the foreseeable future. There are still two or three more years of desert until we start seeing enough adoption to recover some of the investments.

One more thing. In all this industry there is a prominent absent, which is Apple. So far they've been sitting on the sidelines, arguing the technology isn't there yet. After their recent iPhone X release, I have to wonder if they have something in stock, despite Cook's recent statements on the matter.

Is SoftBank ready for global domination?

Is SoftBank ready for global domination?

If you read technology news often, you've read about SoftBank. They've been all over the news during the past few months. In May they announced SoftBank Vision Fund (SVF). With an expected 100 billion dollar war chest, it's the largest technology-based fund we've ever seen.

What caught my attention, apart from the size, is the speed at which Softbank is deploying the funds. Since May, they've already invested 18.4 billion dollars.

But who is SoftBank anyway? I knew it was one of the largest corporations in Japan, but how did they manage to pull such a fund. Even more surprising, their last round of investments have been super strategic, critically so.

SoftBank Group Operating Results 2012-2016

It surprised me because it's extraordinary to see a corporate-backed fund being so prescient about technology. Most corporate venture arms aim to support their parent company in a mix of open innovation and acquisition strategy. Their goal is to scout compelling technology that will advance the parent's company agenda. Few venture arms are independent of the mothership.

SoftBank's Vision Fund is very different. The goal is to invest in the future of computation. And they're doing an impressive job at it, something that's all but random.

SoftBank isn't a bank, despite their name. Masayoshi Son founded SoftBank in 1981 as a wholesale of PC software (hence the name, Software Bank). Now it's one of the top corporations in Japan and Son the wealthiest man in Japan. This is no accident.

Son is an extraordinary visionary with an impressive long-term thinking strategy. When he was 23, this is how he approached starting SoftBank.

"For a year and a half, I did research and made business plans. While I prepared, I had no income. I spent money; I had a new baby. My wife was worried. All my friends, my father, my mother, everybody was worried. They asked me, what are you going to do? You spent years studying in the United States, and now you aren’t doing anything. I spent all my time just thinking and thinking, studying what to do. I went to the library and bookstores. I bought books; I read all kinds of materials to prepare for what I would do for the next 50 years."

In the 80s, the PC industry wasn't apparent. The PC was just starting, and many considered it a hobbyist toy, and not the ubiquitous device it is now.

"I thought about making software myself and starting a software business like I had done while I was at Berkeley. But, I thought, if I make good software, who would sell it? Making software and selling software are entirely different businesses. Even if I make good software, if there’s no one to sell it, I’d have to close the business. I looked around for someone who was selling software, and I couldn’t find anyone. So, I thought, if no one is going to do it, I should do it."

The way young Son thought in term of the value chain is impressive. His vision was holistic, not deterministic. He analyzed the whole system and decided to build his business around the integration point.

Masayoshi Son – Forbes.com

As the integration point of any value chain keeps moving with each innovation wave, it's essential to keep up with it. Masayoshi san was already working on the next stage. In 1992 he was already describing his next move.

"The PC and PC software has gone through three stages of growth. The first stage was a game software business. PCs were used mostly for games and for hobbies. The second growth stage was business applications like word processing and spreadsheets. The third growth stage is here now—the networked company."

Son's capacity to adapt, kill old businesses and move onto the next integration platform is remarkable.

He also realized, early on, that he couldn't do everything himself. So the moment he had capital, he started investing in supporting ventures.

One of his most prescient moves was to invest 20 million dollars in Alibaba in 2000. Those 20 million became 58 billion dollars when the company went public in 2014.

It shouldn't be surprising seeing his track-record. Retail was moving, with the advent of the Internet, from brick & mortar to the browser. It stands to reason that the same principle he used to start SoftBank, applied here. Control the distribution channel and monetize it.

He pulled a similar move when he invested 338 million dollars in Yahoo, just before they went public. By mid-1999, the investment was worth 10 billion dollars.

The same principle is at work. Invest and control the distribution of the new currency, in this case, knowledge.

"Inside the brain are wisdom and knowledge. Wisdom and knowledge are the most valuable things in the body. I want to be number one in the business of supplying wisdom and knowledge all over Japan.

Son's idea is to build a company that can survive the next 300 years. Everything he does, from investing, de-investing, rearranging organizations or even grooming his successor, h e maps to this vision.

He also takes massive risks. He lost 70 billion dollars at the high of the dot-com bubble, in one day, and nearly bankrupted SoftBank in the process. He admitted he lost 99% of his net worth by 2000.

He's human, and because he takes risks, he also gets it wrong. But that has never stopped him.

"After that, many people were laughing at me. They said that guy’s really dumb. He’s a nice guy but dumb. I said, OK, I’m dumb. But I’m going to keep at it, and someday, somebody will find out what I can do and what real software distribution means."

SoftBank's new Vision Fund isn't the first time Masayoshi san uses such a structure. He's been orchestrating similar joint-ventures for years.

In 1990 he created a joint venture to sell networking equipment with Novell.

"Novell owns 54%, NEC, Toshiba, Fujitsu, Canon, and Sony each own 4%, and we own 26%. […] It’s the first time in the industry that five competing hardware vendors have joined in one company—NEC, Toshiba, Fujitsu, Canon, and Sony all invested."

The new Vision Fund displays a very similar structure. The Public Investment Fund of the Kingdom of Saudi Arabia (“PIF”) invested 45 billion dollars, SoftBank 28 billion dollars, Abu Dhabi’s Mubadala Investment Company 15 billion dollars and Apple, Foxconn, Qualcomm, Sharp and Larry Ellison's Family Office, one billion dollars each.

Same structure, 27 years apart. If anything, Son is consistent. The participation of SoftBank is always significant but never controlling. He regularly tries to bring competing parties into a win-win situation. Softbank has been co-investing with Apple, Foxconn, and Qualcomm for the past ten years.

Another critical aspect of his willingness to partner is how he always looks for synergies within his holdings. He engineers some of his investments, so they work well with other parts of his portfolio. Sometimes that's for SoftBank; other times is among his portfolio companies.

Vision Fund strategy

The fund has been aggressively investing in strategic niches. All of them respond to Son's consistent vision. He's been pursuing to invest in the next generation of technologies that will enable human existence.

The fund (SVF) has less than a year but it's already producing results for SoftBank.

SoftBank Group Corp. Consolidated Financial Report For the six-month period ended September 30, 2017 (IFRS)

Four strategies underpin the overall direction of the fund. Artificial Intelligence is the one technology that glues everything together.

The scaffold

The fund is aggressive in pursuing investments on the actual infrastructure that will enable the rise of the Artificial Intelligence age.

From chipmakers like ARM or NVIDIA, to more subtle investments in bare metal cloud computing like Packet or operating systems to run deep learning cloud services.

Basic human needs

The fund is also investing in the future of our species, from genomics to pharma to agrotech solutions. The one common thread, they only invest if the service is supported by AI technology.

Plenty Vertical Farming. SoftBank investment July 2017.

A big theme here is also cybersecurity. The need to secure and protect all assets of the value chain through smart AI-powered cyber defenses. To achieve that, they hold several investments in leading cybersecurity solutions, both for cloud and IoT.

Human enablers

Two significant human enablers, transportation, and financial services are two key points. FinTech to support the investment and growth of innovations, and transportation as a way to change human society.

LIDAR generated point cloud for 3D mapping – Techcrunch

The fund is bullish on autonomous vehicle (AV) technology. They have several investments in the space that also cover the whole value chain. From mapping to sensing, AV Operating systems, IoT integration systems, satellite communication, to ride-sharing and car dealers.

Future user interaction

They aren't ignoring the next user interaction frontier, Augmented Reality and Virtual Reality. They have several investments both in hardware, software, and platform base.

Worlds Adrift screenshot – SpatialOS from Improbable, SoftBank investment May 2017

Expected investments

First of all, I would expect more fast-moving investments from the fund. That's an essential trait of Masayoshi san. One he's shown before at SoftBank Capital. After all, Son will be involved in the day to day operations of the fund:

“I am going to be personally involved in every investment decision,” he stated.

I expect the fund to invest in technologies around Autonomous Vehicles (AV). Expect them to finance, for example, Lidar technology (reminiscent of Son's investment in Kingston) or things like AV simulation platforms. Cybersecurity in AV will also become a theme for them soon.

I'm tempted to say they'll invest in Virtual Reality / Augmented Reality, but this space might not be mature enough for them to double down heavily. That said, the fund might make tentative seed investments in critical areas. I wouldn't be surprised to see them invest in the distribution aspect of VR/AR knowledge for example.

I wonder if they're brave enough to venture into Quantum technology. Quantum will become a key component of both Autonomous Vehicles and Deep Learning training.

Also surprising the lack of voice interfaces investments. I speculate it's because they haven't found the right company to invest it. The obvious choice would be Amazon, but that's obviously not going to happen. Taking into account their fight over the Indian market, I wouldn't discard some move to support an independent voice-enabled marketplace either.

Key lessons from SoftBank

There are several key lessons other funds can take from SoftBank. It's one of the brightest corporate stories I've seen in a while. Any investors both private or corporate should take a page from Masayoshi san's manual.

  • Plan for the long-term. Focusing on a 3-5 year horizon isn't enough. The strategy should be set for the next 10-20 years at least. (Tweet this)
  • Think in systems. Don't limit your strategy to one part of the value chain, but all pieces. Identify the point of integration, make it your business and invest in the supporting parts of the chain. (Tweet this)
  • Be prepared to pivot. The market moves fast. Don't get attached to legacy technology. Invest current profits into the next evolution and don't be shy about killing or selling prior investments. (Tweet this)
  • Take risks and know you'll fail. Son knows he's taking a massive risk. That has never been an issue for him. He'll make huge profits, but he'll also lose. Be ready to fail. (Tweet this)
  • Leverage your competition. Turn your competitors into allies. Don't compete with your partners and collaborators. Look for opportunities where everyone can win big. (Tweet this)
  • Look for synergies between your portfolio companies and invest accordingly. Son is always pursuing partnerships, not only with outsiders but between his portfolio companies. (Tweet this)
  • Look for future vision in your investments, not the current state of affairs. Son doesn't invest in the technology per se but on the ultimate vision of the companies. (Tweet this)

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How Amazon’s Alexa will rule the future

How Amazon’s Alexa will rule the future

During this past year, we've seen significant shifts on where and how people are consuming information. One of the most important ones is the rise of voice interfaces and voice platforms like Alexa.

Amazon's Alexa Skills growth

Thanks to Amazon's Alexa, voice controlled devices and voice-only applications are becoming more and more ubiquitous.

At first, these intelligent assistants only lived in our phones. It took a while to get people to use them but used they were.

Every single major technology company is developing their voice-enabled personal assistant. From Microsoft's Cortana, Googles's Google Assistant, Apple's Siri, Yandex's Alice to Baidu's Duer.

Going beyond the smartphone

But usage on the phone was still limited. Voice commands are useful under certain circumstances. As what happened with the infamous famous Google Glasses, voice interfaces make the most sense when your hands aren't free.

Top reasons why people use voice-enabled devices
2016 Internet Trends Report — Kleiner Perkins Caufield Byers

So, using the phone while trying to liberate your hands isn't the best case scenario. What if we could free your hands by having a dedicated microphone device that would take care of that? And what if we placed that device in an environment where we know you'll have your hands busy and need multitasking?

Say hello to Amazon's smart invention, the Echo. This opened the gates to the Google Home, Apple's HomePod and Baidu's Xiaoyu (Little Fish). All this in less than a year.

Not happy with putting a far-field microphone (7 to be precise) in our homes, Amazon just partnered up with Intel. They are offering an Alexa development kit for third-party devices. Say hello to the Alexafication of your home!

Where does voice interfaces make sense?

While voice interfaces seem trendy, keep in mind they won't fit every product. Some environments are better suited than others.

Home

Home automation is the perfect environment to deploy voice-commands. Many of the daily operations we do in our homes find us with something in our hands. Switching the lights, playing music, getting the news, you name it.

Our incessant need to multitask everything is driving much of this behavior. We want to be able to do more in less time. We want to be able to get the shower running while in bed. To listen to the news while we're showering. To get the coffee ready, while we're dressing up.

We're going to see an explosion of devices that will support one of the major voice platforms. Be ready for a voice-driven oven!

Lifestyle & sports

Sports or lifestyle activities like running or biking are another space that will benefit from voice-only apps. It's another situation where we're busy with our hands, and we might need an extra.

As much as I despised the original Apple Watch, Apple finally nailed it with the Series 3. Among other improvements, they managed to remove the dependency on the iPhone (kudos!) and made it a stand-alone device.

Apple Watch Series 3
Apple Watch Series 3

The implications of this might not be obvious, but no iPhone means no text-based input interface. It means that the Apple Watch will need to depend on voice commands and Siri. And Apple isn't alone. Samsung is already deploying their Voice Assistant, Bixby.

Transportation

Another obvious choice is transportation. Driving a car will soon (I hope), be a thing of the past. Meanwhile, we still need to keep our hands on the wheel. This fact makes voice-commands perfect for the new paradigm.

No wonder BMW, Ford, Nissan and even Garmin is deploying Alexa-powered devices.

Garmin Speak with Alexa

Others

We could generalize to other scenarios. We could substitute anything that right now a human is doing with their voice.

For example, we could remove waiters and have devices take your orders at a restaurant. The same can be said of any shop, like BestBuy.

Robotics is another field that's going to thrive thanks to this technology. Imagine we could train robots with our voice. Ask for advice, help, etc.

Customer service and support will also receive an upgrade. We'll finally be able to kill those inefficient dial-3-to-get-someone-that-knows-shit-in-this-company systems.

A field that is already using something similar is the healthcare industry, more precisely, surgeons in the operating rooms. Several interesting solutions employ Augmented Reality. What if we could add voice-control on top of that?

"Alexa cross-reference this photo I'm taking of the liver with similar infections in the database."

What's the next frontier?

One of the most exciting spaces for voice interfaces is going to be Virtual Reality (VR) / Augmented Reality (AR) spaces. (Or Mixed Reality if you work at Microsoft 😛).

Typing anything in VR/AR is painful. Either you need to use one of the available controllers, which isn't fun. Or you need to type it in with your hands and pray the depth sensor picks it up.

Oculus already deployed something called Oculus Voice. But, as expected, it lags behind what Alexa, Google or Siri can do. It's rather limited to a fixed set of commands (four so far).

I expect this field to expand and provide more powerful experiences for voice commands.

Business challenges

This space is growing, and growing fast. Still, there are significant challenges. For starters, consumer retention is a struggle.

"When a voice application acquires a user, there is only a 3% chance that user will be active in the second week. Outliers are yielding greater than 20% second-week retention."

Also, monetization isn't there, yet. Most applications are just using voice interfaces, as that, as another gateway to access their service. Purely voice-only apps aren't making money, and this is in part due to the lack of paying options within the current platforms.

Another major challenge is the design of voice interfaces. When it comes to a voice-only application, each word matters. Asking the right questions will help nail user's intention and avoid embarrassing ambiguities.

"Pay attention and design with your eyes closed."

Designers will need to rethink how to display things like search results. On a voice interface, you can't read all the results. This will force to deploy some neat dialog tree-driven interactions. This facet alone will open the doors to complete new experiences and a push towards more personalized results.

Security is another big concern. Voice platforms store your credentials to other applications. Enabling voice authentication isn't big on the usability scale of most makers. This means that right now, anyone within reach can trigger your system. You will detect some of these attempts, but others will be stealthier. Doing access control with voice-enabled apps and not securing the authentication is going to spell disaster. Watch and see.

Strategic implications

Getting the design of a voice-only application right isn't easy. We'll see the rise of the VX designers, and it will take time, analytics and expertise to nail the details.

The industry is currently virgin for anyone to take. This is especially true of specific categories, which aren't seeing much competition. If an application gets enough traction, it will become one of those "editor's choice" and aggregate traffic in the long term.

As a final thought, I would like to point out how everyone that's integrating voice-based interfaces is doing it with Alexa. Amazon's bet is panning out, and they're beating Apple and Google at their own game. Meanwhile, Microsoft is taking Cortana's ecosystem very seriously and it's also speeding up.

Building voice platforms like Alexa or Cortana is mighty hard. On the one hand, you need specific hardware (far-field microphones and specific chipsets). On top of that, you need an Automatic Speech Recognition systems (ASR). The corresponding Natural Language Processors and an ecosystem to build on.

The fact that Amazon, Baidu or Google are so far into the game should worry everyone.

Building one of these platforms requires Deep Learning expertise and plenty of voice data. Who has access to such data? The big Internet guys. The one exception could be Samsung, which owns the hardware through their smartphone division and the team from former-Siri-makers.

A good example is Oculus. The fact that Oculus Voice is so limited is because it's not a priority, mainly because they don't have extensive voice data. They can, and most probably will pull a "Facebook." Don't be a surprise if Facebook starts using their Whatsapp voice data, to feed into an intelligent assistant. This assistant can then be deployed across different Facebook properties like Oculus, Messenger or TBH.

Anyone else will have a hard time competing. Owning the voice input hardware (i.e., Echo, Smartphone, etc.) and developing your ASR + NLP system will be critical for other organizations that want to move into this space. The rest will have to play by the big guys' rules.

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