abarrera

Alex is the founder of The Aleph Report, co-founder at Tech.eu, founder at Press42, serial entrepreneur and strategic consultant for both startups and Fortune 500 companies.

Welcome to the Content Paywall Era

Welcome to the Content Paywall Era

Content has always been notoriously hard to monetize. It seems surprising, as most people would agree that good content is valuable. It brings insight, opinions, perspectives or pure entertainment. 

In the physical world, we still retain a certain tangible principle to content. You can touch it, squeeze it, burn it or throw it. You pay for the object, and you own it, herein lays the value. However, when we transpose content to the web, it suddenly loses all value. I can’t own it, and I can’t feel it. I can’t touch or weight it. 

The nascent Internet

The Internet changed many things. One of the most relevant ones was the scarcity of content. Replicating physical content was hard. The Internet, though, made replicating and distributing its digital counterpart a child’s play. 

Content that was unique before, lost its uniqueness as it became wildly distributed online. The old content gatekeepers struggled to keep up. The Internet’s capillarity wrestled their control away from them. As content became widespread, it became harder to concentrate large audiences under a single banner. Without eyeballs, it was hard to make advertisers pay what they did in the physical world. This decrease in advertising revenue, collapsed the most significant revenue stream publishers had. 

Logic dictated that, if advertisers wouldn’t pay, consumers should. However, brick and mortar logic rarely applies in the digital economy. They soon found out that it was excruciatingly hard to get anyone to pay for content; let it be video, text or images. 

If consumers wouldn’t pay for content, it was back to the advertiser model then. The problem though was how to make them pay more. Publishers realized they needed a bigger audience to offset the income drop. And increasing the audience was a problem because they had lost control over how their content got consumed.

The Internet had shattered the content distribution fiefdoms. Or more like, they had changed hands. Distribution was now the domain of search engines like Google. They owned search through their algorithms; something content producers couldn’t replicate.

If publishers wanted distribution for their content, they had to go through Google first and pay the Royal tax. 

And along came Facebook

As the web matured and became more accessible, the usage patterns changed too. The Internet went from a place of research to a place of social connection. Attention shifted from pure search to people connecting with others through shared content. 

This evolution opened a new avenue for distribution. Publishers didn’t need to pay tributes to Google anymore. They could hack the distribution loop by getting people to share their links among their contacts. The faster and more comfortable this sharing was, the larger the reach. The more significant reach, the more eyeballs and in consequence, bigger advertising revenues. 

But nothing comes for free. The new social distribution channel triggered new problems. As organic distribution grew, brand awareness got diluted. While before the brand was the atomic reading unit, the new constituent was the article. Producers had to promote each piece independently. The brand couldn’t be relayed on to drive traffic to the advertisers.

Source: Reuters Institute. Digital News Report 2018

A consequence of this fragmentation came in the form of link-baiting. As traffic became paramount, producers began subverting their content to increase “shareability. This editing of the truth started snowballing and brought us into the Fake News era

Source: Social Clicks: What and Who Gets Read on Twitter?

Meanwhile, the tectonic plates were shifting yet again. 

The News Feed Algorithm

In a move to protect users from a tsunami of content, the big social networks like Facebook or Twitter began tweaking what users saw. These changes marked the beginning of the end of organic audience growth.

Source: Reuters Institute. Digital News Report 2018

The impact was immediate. Reading audiences dropped liked stones. The advertising model, which was starting to gather steam, crashed. Again. 

“Mark [Zuckerberg] doesn’t care about publishers but is giving me a lot of leeway and concessions to make these changes,” 

[…]

“We are not interested in talking to you about your traffic and referrals anymore. That is the old world, and there is no going back.”

Campbell Brown, Facebook Global Head of News Partnerships. Nieman Lab, Aug 2018 (Editor’s note: Comments contested by Brown)

Meanwhile, some content producers started to think outside of the proverbial box. Their legacy advertising model didn’t work. Many recognized that a new medium required different revenue streams. Plenty agreed, very few tried. 

One of those first trials was direct content monetization via a paywall. This model had fans and detractors. Many believed that the content they produced was inherently valuable. But the market proved them wrong. 

The first experiments with gated content failed. One of the biggest lessons was that the readers didn’t want to pay for a content they could have elsewhere. But it was more profound than that. At the time, every piece of content was accessible for free. Users saw gated content as defacement of the Internet’s freedom of information credo

“Paywalls are not a new idea. The Atlantic previously had a different one for a while in the mid-’00s. The Adweek article announcing that this paywall was being pulled down is a fascinating time capsule. Paywalls, back then, were often seen as a way of protecting the existing print businesses.” 

Prepare for the New Paywall Era

Paywalls had many problems at the time, but one of them was rather ominous, the audience. For the system to work well, it required a large audience that had a taste of the content and then decided to pay for it. The bigger the haystack, the larger the needle. There was one issue though, during the mid-’00s the online population was still meager.

In late 2000, online users accounted for only 6,8% of the global population. By the end of 2017, that number was 54,4%. That’s eight times more. The lack of online audience meant that conversions for the paywall would be limited and scarce. 

A bigger question was why anyone should pay for content? Many legacy producers argued that their content was the most valuable there was. The truth was, it wasn’t. Most contents resembled one another. Even worse, in most cases, it wasn’t relevant to people in different geographies. 

The Internet enabled new distribution channels, but it also provided access to users with different cultural backgrounds. The content produced at the time lacked all three; uniqueness, originality and global relevance.

 The only reason why non-unique content had prevailed was that consumers didn’t have another option. The Internet killed that. 

And so, the word on the street was that people wouldn’t pay for content. Every Internet expert chiseled this into stone. At the time, it was a good piece of advice, but it required specific understanding.

Be Smart: It’s important to differentiate between current restrictions and the potential development of technology. Digital content could and would become valuable to consumers. Payments for virtual assets, ignored by many, would become a massive market. 

Netflix meets Fake News

While the social networks were hacking their News Feed algorithms, new trends were colliding and changing, once again, the landscape. 

Several new trends became instrumental in the emergence of successful business models around content. The first one was the rise of the “Netflix Model.” The model itself was well known. Traditional media companies had employed subscription-based-content for decades. Nonetheless, the model seemed only to work for offline media and entertainment

As successful as Netflix was with their DVD business, its customers paid a monthly subscription fee for a service. Content was part of the deal but wasn’t the only reason. In 2007, Netflix introduced Video On Demand (VOD) and began unwinding their DVD business. This marked an important milestone. Netflix had suddenly transitioned from a service to an Internet cable company where the value rested on the content itself. 

As Netflix kept growing, it signaled the way forward. Other content providers, like Spotify, started experimenting with the model. There is one thing that was unique to the model, which was the bundling of content that consumers had to pay for independently before. Pre-Netflix, the unit was the movie. Post-Netflix you paid to get access to any film in the catalog. Spotify did the same for music, from paying for an album to paying for the streaming. 

There was a fundamental difference with news content though. At the time it was hard to find movies or music online. Many took to piracy to get their daily fix of content, but it became increasingly harder to do that every day. When Netflix or Spotify came around, they hit the sweet spot between convenience and price sensitivity

News was different. It wasn’t hard to find that type of content. It was everywhere, with various degrees of quality, and it was free. It was hard to imagine you could put the Jinn back in the lamp and stump a price on it. 

But things started to take a turn at the beginning of the decade. More and more content providers began their paywalls experiments, including freemium approaches (metered paywalls). As the years went by, it became harder to find quality journalism for free anymore. The key word here is quality. At last long, some content providers started upping their game. Scoops, in-depth research and powerful op-eds became the drive of these digital subscriptions.

And so we reached November of 2016 and the US Presidential race. When Donald Trump won the elections many were flabbergasted. As the dust settled, the first hints that something had gone fishy during the race came out. Exaggerated news, misquoted people, fake photographs or tainted explanations became the bread and butter of the campaign.

A look at the content that users shared on social networks painted a grim picture. Trusted content was absent, and the News Feed algorithm was happily promoting fake sources to the users

While media manipulation has always existed, the scale, automation, amplification, and consequences that the 2016 election campaign achieved, set a new record. 

The outraged at being duped flared for months. One of the immediate consequences was a sharp increase in digital subscriptions for news. 

Source: Reuters Institute. Digital News Report 2018

The erosion of trust, or more precisely, who to trust, propelled the success of the paywall. The inertia of the system pushed content providers out of the social networks and onto their platforms.

Source: Reuters Institute. Digital News Report 2018
Source: Reuters Institute. Digital News Report 2018
Source: Reuters Institute. Digital News Report 2018

The bottom line: Many consumers are scrambling for reliable and trustworthy brands. Those that ensure it, produce high-quality, relevant content and drive engagement beyond it, will see an increase in their digital subscriptions.

The paywall platform

As monthly subscription models become common-place, people are getting used to paying for content. Currently, it’s hard not to find anyone that’s not subscribed to at least one or two of these services. 

The everyday nature of the model is easing the way for more and more content offered behind a subscription. A decision made easier by the constant erosion of trust produced by social networks. As top publications and providers keep accruing subscribers, the challenge now is how to turn a content catalog into a platform.

In the past, common lore highlighted the power of the social media walled gardens. This has been especially true of Facebook. Nonetheless, people’s attention, and more importantly, the consumer’s content behavior is moving away from these platforms. 

Instead, it’s starting to accrue around the content provider’s platforms. Spotify’s social layer, Twitch’s streaming service or The Atlantic’s Masthead’s meet-the-editors approach are all excellent examples of it.

Source: The Atlantic’s Masthead Splash landing

Why It Matters: The Internet has evolved from a scattered landscape of free content to a series of big powerful walled islands controlled by GAFA (Google-Apple-Facebook-Amazon). These gardens are now being splintered into myriad smaller islands of protected producer-owned content. This opens the door for a meta content subscription service that could aggregate these fragments again. Such a supra-aggregator would wrestle the customer relationship away from the content owners, yet again. However, that’s precisely what Apple is trying to achieve with their Texture approach

Current paywall challenges

Despite the growth of subscription-based models, most companies are still facing critical challenges. 

As I stated before, to make a paywall work, it’s essential to have a large enough audience in the first place. Not all content providers have such audiences. It’s easy to refer to top publishers like The New York Times or The Washington Post. But both companies had a vast audience even before putting a paywall in place. The question is, how can smaller publishers build a broad enough subscriber base.

 “The most common cause of poor digital subscription sales is not asking enough users to pay.”

 Digital Subscription Best Practices – The Lenfest Institute

According to The Lenfest Institute, the top aim is to increase, not just the audience, but engaged users.

While large publishers have a much bigger audience to draw conversions from, smaller publications can focus on their niche audience. Such users are much easier to engage as they tend to be more homogeneous and more straightforward to engage with.

The key for many content providers is to establish how much content is in the open and when to ask for a subscription. As reported by The Lenfest Institute, the ideal stop rate is something between 10% to 5%. The industry average hovers around 1.8%, so there seems to be significant room for improvement. 

Source: Digital Subscription Best Practices – The Lenfest Institute
Source: Digital Subscription Best Practices – The Lenfest Institute
Source: Digital Subscription Best Practices – The Lenfest Institute

Another big challenge is how to turn engaged users into paying customers. The industry standard is rather low, with a conversion rate of 0.54%. By comparison, top publications are achieving between 1% to 2% conversion rates.

Source: Digital Subscription Best Practices – The Lenfest Institute
Source: Digital Subscription Best Practices – The Lenfest Institute

In other words, it’s paramount to detect engaged users and ask them to pay, but it’s as essential to making it easy and clear, what are they paying for. The value perception is something that is still not very clear for most users. The higher the literacy of the users, the higher the probability the users will pay.

Source: Reuters Institute. Digital News Report 2018
Source: Reuters Institute. Digital News Report 2018
Source: Reuters Institute. Digital News Report 2018

Most consumers have no idea how much time is invested in crafting their favorite stories. The more they know, the higher the probability they’ll pay. And it seems that the cost of the subscription isn’t a problem once the consumers understand the need to pay for it.

Source: Digital Subscription Best Practices – The Lenfest Institute
Source: Digital Subscription Best Practices – The Lenfest Institute
Source: Digital Subscription Best Practices – The Lenfest Institute

Once subscribed, churn rate is becoming an issue. Successful content providers are turning their paywalls into platforms. Engagement inside these is, thus, becoming critical. 

Source: Digital Subscription Best Practices – The Lenfest Institute
Source: Digital Subscription Best Practices – The Lenfest Institute

Be Smart: While many content publishers are moving towards subscriber-based models, it’s important to assess how many engaged users do you have. Don’t be afraid to ask for money, as long as your fan base knows what they get and why they should pay. Once subscribed, make sure they keep coming back and promote features that empower your users. 

Beyond the paywall, new business models for content

Although subscription models are becoming the industry de facto, many publishers are complementing them with other revenue models. Most organizations are no longer leaning on advertising only. They’re leveraging their expertise to build adjoining businesses.

The Atlantic, for example, combines their subscription-based product (The Masthead) with live events (AtlanticLIVE) and their own consulting company (Atlantic57).

“Over the past decade, the company has worked to diversify its revenue sources. In 2006, 85 percent of The Atlantic’s revenue came from print advertising and circulation. This year, print will account for less than 20 percent of incoming revenue; the company’s digital, events, and consulting divisions make up the remaining 80 percent. In the past decade, the company’s annual revenue has quadrupled, to nearly $80 million.”

Emerson Collective Acquires Majority Stake in The Atlantic. Jul 2017.

They aren’t the only ones. The Washington Post is turning their content platform Arc into an absolute money maker. The Post turned their content expertise into a service with Arc. They went from being in content to becoming a service provider for the industry. 

“The Washington Post doesn’t disclose Arc Publishing’s revenue or whether it’s currently profitable. (The Post itself turned a profit in 2016.) It does say, however, that Arc’s revenue doubled year-over-year and the goal is to double it again in 2018. According to Post CIO Shailesh Prakash, the company sees the platform as something that could eventually become a $100 million business.” 

The Washington Post Is A Software Company Now
Source: Arc Publishing – The Washington Post

One of the most interesting concepts I’ve seen so far is Uzabase’s NewsPicks. I’m not surprised at all they recently bought Quartz. Both companies have very similar DNA regarding content product experimentation.

NewsPicks is Uzabase’s content curation content. But it’s also much more than that. They select handpicked stories, and they focus the engagement not on the stories itself, but on the comments from their users. On top of that, they’ve built a subscription service that gives access to original content. Their numbers in Japan are imposing. They yield four million users and 70.000 subscribers. That’s a 57% conversion rate, which at an average of 15 dollars per month brings in 12.6 million dollars each year

Source: Uzabase via Business Insider

While their subscription clearly works in Japan, I’m not sure it will convert as well in the US though. After days of playing with their app, the one thing I value is the thoughtful comments. Would I pay for original content? I wouldn’t. Would I pay to get access to insightful and strategic remarks around content? You bet. I believe they’ve stumbled upon a unique approach where content is relayed to a second plane, and unique perspectives take precedence. I like the notion of getting access to a curated selection of brains and not the news per se. 

Source: Uzabase via Business Insider

Either way, it’s clear that users are increasing their willingness to pay for quality, noise-filtered content. The collapse of trust around social media and the prevalence of subscription models are unlocking new business paradigms. 

The growth of the “Netflix Model” though carries its own problem, that of unequal access to information. In an age where inequality is at the root of most global issues, many people are concerned that locking information behind paywalls will only accelerate the trend. That’s why some publishers like The Guardian are opting for a donation-based revenue stream. 

Source: The Guardian Donation Splash page

“The rise of subscription has raised concerns about a two-tier system, where high-quality news is reserved for those who can afford it. This is why some news organizations prefer to keep access free but to ask for voluntary contributions. In the UK, the Guardian adopted the approach in 2016, and since then it has received 600,000 voluntary payments, raising tens of millions of pounds each year. It has also started to crowdfund around specific stories such as the recent US school shootings where it raised $125,000 to produce solutions-based reporting.”

 Reuters Institute. Digital News Report 2018

The big picture: As online content’s value increases for a broader audience, new business models will develop. Quality and truthfulness are becoming the hallmark of what users are looking for. Supporting deserving publishers is paramount. Nevertheless, it’s vital to keep relevant information accessible to all. Education is one of the keys to relieving inequality. The automation of work will bring hard times, and it’s essential that publishers help and inform the next generation, independently of their social background. 

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Do you really know Millennials?

Do you really know Millennials?

Everyone I know talks about Millennials. However, I’m under the impression most people don’t fully appreciate how different they are. I was born on the fringes of Generation X with Millennials. My parents are Baby Boomers. My brother is Millennial.

One of the things I’ve observed is how different Gen X are from Millennials. I look at my brother, and it’s hard to believe we had the same parents. I have more in common with my parents than my brother will ever have. The irony though is, when I look at Generation Z, I feel the gap isn’t as big as with Millennials.

And the truth is, the shift in product usability patterns is a clear example of how disparate they are compared to my generation.

The behavioral change is tremendous, and it’s becoming one of the hardest things to design for. The reason is, key decision makers aren’t from that generation. Companies bring in Millennials; they even give them management positions. But Senior Management has a hard time going all in with Millennial ways. The only companies I’m seeing do it right are those founded, run and staffed by Millennials.

This week though, an exciting move caught my attention. Fast Company wrote an interesting piece digging into a tool the Target Made by Design team is using to gather feedback. Its codename, Studio Connect.

“I’m looking at an app, and I could swear it’s Instagram. I see large square photos in an endless feed. Avatars appear in round circles. You can tap a heart to like something. Inside any post, there are dozens of comments.”

Target has a secret app for superfans, and it looks like Instagram

The generational gap isn’t just about Millennials. The consequences are rippling over everyone. The way this generation understands products is changing not only theirs, but everyone else’s too.

“Marketing to millennials may sound overplayed, but in the interior design world, there are only a few moments in someone’s life when they actually make a lot of major purchases: The move to college, the move into the first home, the onslaught of kids, and the pared-down, empty nester life.”

Made By Design is Target’s big bet on minimalism

Studio Connect Screenshot – Target

We’ve gone from a product-centric approach to a customer-centric one. The change has spurred differences on how companies pursue product development. The customer’s feedback is critical, and so, product cycles are keyed into them. Agile, Lean, Scrum, are familiar terms by now.

Still, not all processes have changed. Many parts of the overall product development cycle remain the same. Interviews, feedback gathering, observation techniques. And the core should stay the same, for the simple reason that, despite generations, we’re still human.

Nonetheless, as I stated before, most people don’t acknowledge how different Millennials are. So, while the human behavior is still typical to everyone, the way to measure and detect it is different.

This is why a product like Studio Connect caught my attention. While the design team is deep in Design Thinking territory, they realized they needed a new approach to engage with their audience.

“For any goods Target develops, it takes a firm design thinking approach. By spending time working with customers, the team identifies pain points, prototypes a solution, and then it iterates with wave after wave of consumer feedback.”
Made By Design is Target’s big bet on minimalism

Traditional focus groups or interviews aren’t cutting it anymore. Images and video do. Stories do. Why not use the same approach that powers the largest Millennial Social Network? Why not replicate what Instagram or Snap have achieved? Could it be used to drive the attention to problems we want to solve internally?

That’s precisely what Studio Connect has done. And it seems it’s been very successful with it. It’s a brilliant move. Bring what’s resonating with their behavior and focus it on our products.

While the article doesn’t grant much detail, I’m pretty sure the system enables powerful microtargeting and additional bells and whistles that help on the feedback gathering phase.

As childish as it might look, you can’t fight fire with the same tools of old. You also need to improve and update the internal approach to Design Thinking. I would argue that new feedback gathering tools are one field, but we’ll see others getting upgrades, like remote co-design tools.

Millennials are driving changes around product expectationsThey want cheap, high quality, well-designed products. And they want them now. There is a certain entitlement element that’s driving every single design trend. From Target’s Made by Design, to things like WeWork’s office spaces. Millennials know they can complain and that their following hordes will support them. Brands will kneel, and they’ll get what they want. For free.

I won’t discuss the morals of such entitlements. The fact remains that companies are designing their products to fit the bill. They require not only quicker product cycles (Agile), but more informed feedback (Lean/Design Thinking). On top of that, they need to find ways to keep the quality but lower their production costs. This is where disruptions like 3D Printing come into play. Last, they want their products, and they want them now. Last mile delivery and robust logistics are the final nails of the Millennial-Product-Design-Cycle (M-PDC).

Barkley, Boston Consulting Group and Service Management Group Report

Those companies that don’t invest in each of these steps will find themselves at a disadvantage and will be removed from the market. The game isn’t to advance in one, but to push all four aspects simultaneously.

Every company focuses on some new aspect, but sometimes we forget the most elemental aspect. Use consumer products dynamics to aid you in the design process. I expect more companies to take a page from Target’s manual and turn to products like TBH, Snap, Tinder, Wattpad, Twitch, Venmo or Uber, for inspiration. What would a product testing Twitch look like? Would something like Instagram Stories work for employees? Could we do an Uber for physical products?

It’s all about rethinking how we do what we do, in the most engaging way for our target audience. And the target audience has changed a lot. Not only is it different, but their new behaviors are spreading, and fast, to other segments.

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The Electrification Game

The Electrification Game

Our world is changing and changing fast. Some transformations are straightforward. Others are the consequence of the convergence of certain trends.

The electrification of transport and the rise of Electric Vehicles (EV) is one such evolution. EVs are, by no means new. They’ve been around for a time now. However, the confluence of three big mega-trends has accelerated its growth and deployment worldwide.

On one side, we have the continuous trend towards a more sustainable energy footprint. In this case, this means the rapid growth of renewable energies.

Source: IEA Renewables Report 2017

Despite Trump’s EPA perversion, most countries understand the need for a sustainable and clean environment. Renewable energies are becoming critical to achieving such goals. On top of that, clean energies are becoming of enormous importance in the geopolitical arena. Most countries want the break free from the tyrannic shackles of fossil fuels and the political games attached to them.

Another significant trend is one related to health. As major cities keep aggregating population and turn into megacities, traffic, pollution and air quality are becoming crucial for further growth. The need for smarter and cleaner transportation systems is one of the major challenges

Source: Air World In Data: Air Pollution

The last trend is the final piece of the puzzle, the rise of ride-sharing services and Autonomous Vehicles (AV). As ownership declines and car fleets increase, the need for sustainable fuels grows. In this case, it’s not just a health issue, but an economic one. If I need to maximize miles per day, I also need the cheapest (government incentivized) fuel for the vehicles. And surprise, surprise, those are Electric Vehicles.

As I said before, EVs existed before, but the intersection of these three global trends is supercharging its growth. The fastest adopters will be, as usually happens in innovation, developing countries. And the apparent poster boy is China

Source: IEA Global EV Outlook Report 2017

Despite the acceleration of the industry, massive adoption is still hindered by several aspects. The first one is the lack of a big offer of EV models. If you want something semi-usable, your choices are pretty limited so far to about ten models.

The second issue is known as range anxiety. The lack of a decent driving range without the need to recharge is still a limiting factor. I recently asked a friend, and he confessed he sold his EV after a year due to this and other complaints. 

Range restrictions are a byproduct of battery capacity and recharging stations infrastructure. The current infrastructure is still rather brittle, and it makes it tough to use an EV beyond your neighborhood

Fast changes ahead

The industry, though, is evolving fast. This year and the next will become significant in terms of new models. All the major automakers will push novel EV models into the market. This new wave will dramatically increase the offering. New versions will come with better batteries (longer driving ranges), and faster-charging capabilities (from 1h charging to 15 minutes).

Battery costs are falling rapidly, and that’s allowing bigger and more densely packed batteries for every maker, not just Tesla. That’s pushing the millage of most models into a decent range, so expect significant gains next two years. 

Source: IEA Global EV Outlook Report 2017

The market is already feeling these improvements and sales are growing exponentially. One of the major drives for many is the existence of car sharing EV fleets operating in their cities. The fact that you’re used to driving an EV every day is a great incentive to remove the fear of owning one. The other push is coming from China, who is making EVs a national priority

Source: IEA Global EV Outlook Report 2017

Charging stations and general EV infrastructure is significantly improving too. The last 18 months have shown a rapid expansion of most charging networks. Not only they’re growing in terms of locations, but also regarding charging speed and available charging stands per station. These rapid improvements are the underpinnings of the quick growth the industry is experiencing. 

Source: IEA Global EV Outlook Report 2017

Despite the good news, some demographic segments are still underrepresented. While EVs are becoming nice conveniences, especially in cities, they still make it hard for families. There are no present or future plans to support the needs of family transportation. That is a big chunk of long-range driving. A segment that requires, not only capable EVs, but a supporting infrastructure for kids and not lonely chargers in the middle of a deserted plain. 

Infrastructure challenges

But not everything is there yet. Yes, it’s growing, but there are still big roadblocks for significant adoption.

Location

The locations of most chargers for EVs is still a problem. The necessary infrastructure requires three different settings. Home chargers, which are, well, the plug you have at home. These chargers tend to be slow, which is ok if you have all night for charging.

When on the road most EVs need destination chargers. These are charging points you can use at your final destination. Think of your office, a mall, the airport, a hotel, etc. These are a mix. Most are still slow chargers, which depending on the case, might be ok or not. The time we spend in a mall is not the same as the time at the office.

The last location is what I call on-the-road chargers. These would be the equivalent of gas stations in major highways. To be able to extend the EVs range and take them out of the city, we need to have charging stations on the way to long-distance destinations. These, in particular, require fast chargers to avoid long waits and stops.

So far, big cities are more or less well covered with a mix of home and destination chargers. Many of these city charging points, though, have somewhat tricky access. Either they’re private, in hard to reach points or behind closed doors. The accessibility of charging stations should be total if the industry wants to keep growing.

When on the road, the location of intermediate charging stations is also a problem. Most chargers are located haphazardly. The reason is ownership fragmentation. The cost of some charging stations is so cheap and the barrier of entry so low, that any business can set up one. As it’s “unplanned” and there is no follow through, these stations tend to be poorly located, nonvisible and very unreliable. 

ChargeMap of Spain

Slow charging stations are excellent for home or long-term waits. But when on the road, there is a need for fast charging stations. These are expensive. They can cost north of 50.000 euros a piece. The steep price and the lack of market traction have been one of the reasons why they’re scarce. Until recently, the only reliable fast-charging network was Teslas. 

Autonomy increase per 20 minute recharge depending on the speed (in kW) of the charger station.

Fast charging though isn’t unique to long distance drives. The nascent ride-sharing industry is one of the largest customers. The need to put the shared EVs back into operation as fast as possible is a big operational must. Fast charging is, therefore, a much-needed feature for fleet operators. 

Source: IEA Global EV Outlook Report 2017

On top of the random locations and lack of capillarity, most stations have far few chargers. The average station holds two chargers. This is insufficient to serve the growing EV market. Tesla understood this from the onset. They’ve been upgrading their stations and fitting them with 10+ chargers per station. The exciting thing is, they’ve done it ahead of the market growth, not after. 

Tesla Supercharging Global Network

Last but not least, most charging stations are emplaced in locations that don’t have much amenities. The fastest charge we can get now is roughly a 20 minutes one. Even if this was the norm, with no services around, it could get frustrating. Stations need to foster a service ecosystem around them, and this part will take time.

Energy problems

While Electric Vehicles consume electricity from the grid, their consumption is small compared to other energy-hungry appliances.

Source: IEA Global EV Outlook Report 2017

However, as the number of ride-sharing companies increases and the markets get flooded with EVs, things will change. One of the current worries is the overload of the low voltage grid.

Most of the home chargers connect to the low voltage grid. This network wasn’t designed to support such a load. If a rapid number of EVs start cropping in the market and pulling from the low voltage grid, they might take it down. 

Overview of Swiss transmission & distribution grid

Fast chargers are typically connected to the medium voltage network. This gives them much more power, reduces unreliability and allows for multiple chargers without a loss of power. Nonetheless, this kind of grid connection isn’t always available. It might require permits, or it simply might not exist in certain places.

EV fast chargers might push for a need of a dedicated electrical grid just to support them. Japan’s TEPCO had to create such a dedicated network to support the growing rise of their CHAdeMO fast chargers.

One of the proposed solutions to accelerate the expansion of such fast charging networks is the use of solar energy. As stated before, EVs are not power hungry, but they draw enough to place some strain on the grid. What if we could create an off-grid energy independent unit? It wouldn’t need a connection to the electrical network. It would generate enough electricity to power all fast chargers and store the extra in stationary batteries for its use when the sun is gone.

Source: Fastned

Economics of charging stations

For many years, Electrical Vehicles and renewable energy had the economics against them. As with any disruptive technology, the initial investment is massive. As prices of components go down and efficiency goes up, the overall investment decreases and allows a reasonable return.

We are at that point. Electricity prices, EV’s rising market share and the push and drive of the underlying trends are making this industry profitable.

As with any brick and mortar business, the initial investment is still significant. For a decent fast charging stop with four charging stations, we could be looking at an initial investment of 360.000 euros. Assuming the current average electricity price (in Spain) and a 50% usage of the station, we would break even in roughly two years. 

Source: OhmHome – EV Charging Station Cost

There are many If’s in such an equation, but it’s not an outrageous investment. Now, taking into account the upfront cost, it’s understandable that there aren’t that many fast charging networks out there. 

Fastned Key Figures – Annual Report 2017

There is still a remaining question. Should we charge drivers for the electricity they recharge? Tesla’s network is free for most of their users, but as many point out, that’s not sustainable. In a way, it resembles companies like Uber which subsidizes an artificial offer of drivers. Tesla has been doing the same with their stations. The question is always until how long. My prediction is that it won’t be much longer for Tesla to start charging every single user. The market is hitting the tipping point, and it’s at a place were, despite charging drivers, the cost is still half of what gas is. 

Fastned Revenues – Annual Report 2017
Fastned Key Indicators – Annual Report 2017

Meanwhile, some startups like IMPACTs Spark Horizon is trying a different business model. Why apply the old pay per use model? Why can’t we displace the cost to interested advertisers? That’s Spark’s proposal, one that’s being received with open arms so far. It does make sense. I have the drivers attention for at least 20 minutes. Why not engage with him somehow and create a lasting impression? Not only that, as EVs are digital, it’s easy to tie a user to their online persona and create targeted experiences tuned for them.

I don’t think it will work everywhere, but I can’t shake the notion that in the future we’ll see hybrid business models operating in the space. 

Spark Horizon EV Charging Stations

The rise of the competitors

As I mentioned before, Tesla isn’t the only player anymore. For all the criticism Tesla gets, they’ve done outstanding work. Not only were they pioneers in the space. They’ve set many of the behavioral standards.

One of their smartest moves was to deploy a free-for-all fast-charging network. While some debate the long-term sustainability of the system, I would refer back to what I wrote about the difference between finances and impact. Tesla might crash financially, but they’ve set up the norm. And it’s not going away. It’s their moat and lock-in strategy, and they’re winning at it.

Not only do they have the most extensive network, but they also have the fastest chargers, the best locations, and the most pleasurable designs. The whole Tesla experience is orders of magnitude ahead of anyone else.

That said, the war is on. New entrants are picking up ground, and the unsexy market turned into a new format war. The competitors are coming up with new charging standards, all different from Teslas. This standard fragmentation is turning the problem into an even bigger one.

Right now there are, at least, three different standards: Tesla, CHAdeMO (Japan) and the CSS standard.

“The CHAdeMO Association made available the specifications for charging up to 200 kW but – at least in Europe – no vehicles have been announced that support CHAdeMO charging at more than 50 kW. It remains to be seen how CHAdeMO will develop in Europe since the CCS standard is increasing its market share very quickly.”

Everything you’ve always wanted to know about fast charging  – Fastned blog

It reminds me of the VHS vs. Betamax wars or if you’re a little younger, the HD DVD vs. Blue-Ray conundrum.

On top of these standards, the latecomers are building their charging networks to try to compete with Tesla. Companies like BMW with their ChargeNow networkE.ON-Clever’s association, Fastned Netherlands network, IONITY Consortium or the independent Porsche’s Mission E network for North America. Some are doing better than others, but what’s clear is that there’s a need for a unified established system across vast geographies.

The truth is, Tesla is still three to four years ahead of everyone else. It’s not only their superior charging network. It’s their holistic vision. Not only they have superior chargers, better driving range, and better design. They have better navigation systems, Autopilot, home stationary batteries and vertical energy integration systems through SolarCity. And this is what we know off.

But maybe, the essential asset for Tesla isn’t their technology, but their brand. A quick look at all the EV online publications shows the big truth. Tesla occupies 3/4 of all the news around EVs. That, despite all their innovation, is their biggest strength. One that’s hard to match; one that few are contending. 

Smart Grid

Electrical Vehicles aren’t just for driving, though. They are sophisticated digital machines with powerful batteries. This combination might be useful, not only for driving but for energy regulation.

An increasing number of regions are fast forwarding their renewable energy strategies. Oil and Gas dependency is becoming a costly and dangerous drag.

These states are pushing new mandates that mark sharp thresholds for future years. Such is the case in the state of California or the European Region.

One of the problems with Renewable Energies though is their generating intermittence. This inconsistency creates several problems including overgeneration, under generation and very pronounced up-ramp and down-ramp effects.

“Given the intermittent generating profiles of renewables such as wind and solar, unique challenges arise from increasing renewables generation to maintain grid balancing (the matching of supply and demand), which is critical for maintaining the reliability of the electricity grid.”

Clean vehicles as an enabler for a clean electricity grid. Environmental Research Letters. May 2018
Source: Clean vehicles as an enabler for a clean electricity grid. Environmental Research Letters. May 2018

To avoid such effects, there is an increasing need for stationary batteries that can hold the energy during overproduction and release it during underproduction phases.

These need for better control of offer and demand is giving rise to what many are calling the Smart Grid; an electrical network that can self-regulate itself and optimize the energy generation sources. 

Smart Grid is a whole world on its own, but Electrical Vehicles might have a predominant place in it. Would it be possible to employ EVs as smart batteries? This is a concept known as Controllable Load. If instead of charging EVs in a dumb fashion (one-way), we could turn them into a two-way street (Vehicle To Grid or V2G), then we could turn them into a Smart Grid appliance.

These V2G operations could, in theory, enable us to regulate the problems arising from peaks and ramps due to Renewable Energy usage. 

Source: Clean vehicles as an enabler for a clean electricity grid. Environmental Research Letters. May 2018

This space is only picking up now, but I wouldn’t be surprised if different states start incentivizing the use of Smart Grid devices. Up until now, the incentives were mostly cosmetic. Let’s save the environment. As we increase our sustainable energy footprint though, the motive becomes more of an operational one.

I expect a new wave of startups sprouting in this space with new ideas for smart grid washing machines, dishwashers, Roombas, etc. In this regard, some startups are already working in the area, including some exciting use of Smart Contracts and Blockchain technology. Keep an eye on it, because I expect many more coming up during the next two years. 

The Ride-Sharing Tide

One of the most exciting convergence with the whole electrification effort is the rise of ride-sharing companies. The advent of this new consumption model is changing the way we understand transportation. We’re moving away from an ownership model and into a pay-per-use one. The optimizations are rather apparent, but the change has a broad impact on many industries. 

The obvious one is the incentive to retrofit ride sharing fleets with EVs. It’s not only the reduction of fuel costs, but also the car-part simplification that EVs provide. Let’s remember that ride-sharing fleets are exposed to much higher use than a regular car. This means that the fewer parts the vehicle has, the lower is the cost of maintenance. So, ride-sharing companies have a big incentive to, not only become the largest owners of EVs but the most prominent evangelists. 

The growth of such fleets casts doubts about the personal EV ownership model. While early adopters are buying EVs, I’m not sure the public at large will. Why would you want to own a car when the city is already blanketed with ride-sharing EVs? Even more pressing, is the fact that when using a ride-sharing platform I don’t care about charging issues. The fleet managers take care of recharging the EVs.

The change of model shifts the interest from Owners to Fleet Managers. So, there isn’t much need for home chargers but fast dedicated chargers for the fleet. 

Renewable Energy Geopolitics

Another more significant question is how are these countries, cities, states, take care of the new power demands. As I stated before, while the current energy footprint of EVs is rather small, future expansion will be significant.

The need for cleaner energies, and more importantly, the breaking of fossil fuel dependency is high up on most government’s agendas.

The search for new sustainable alternatives is unleashing a significant shift within the geopolitical arena. In the same way, fossil fuel deposits are geographically bounded, so are the capacities for renewable energies

Source: IEA Renewables Report 2017

Despite the need, not every country can generate the same amount of energy, and this will increase during the next few years. A good example is Japan. Despite how advanced they’re regarding sustainable energy generation, their room for improvement is small.

“Japanese telecom firm SoftBank partnered with Russian, Chinese and South Korean utility firms Korea Electric Power Company, State Grid Corporation of China and PSJC to develop a Global Energy Interconnection (GEI) system.”

Analysis: Japan’s rapidly growing EV market
Source: IEA Renewables Report 2017

Once again, China isn’t only competing for global innovation dominion, but it’s pairing it up with global renewable energy supremacy.

Source: IEA Renewables Report 2017

Opportunities

The EV ecosystem is growing, but there are still major challenges. And where there are challenges, there are also opportunities. The general feeling I’m getting is that more and more entrepreneurs are finally jumping into the field. I expect some innovative approaches to many of the challenges coming up soon enough.

An obvious starting point is the software aspect. From smart navigation to traffic predictions for EVs. I already see some startups competing with Tesla’s navigation system. Intelligent tools for EV drivers like IMPACTs ChargeTrip is an excellent example of this. One, which by the way, is a perfect acquisition target for some of the new entrants.

Another space I mentioned before is Off-Grid energy generation. Over the years I’ve seen several projects in this space. Most of them were aimed at developing regions like Africa. Nonetheless, the creation of alternative grids to support EVs, Autonomous Vehicles (AVs) or drones, is a space that might drive this vertical.

Smart Grid devices, as mentioned before, is another potential vertical. The convergence of IoT and Smart Grid software will start to make sense pretty soon. The space will mature, and the solutions will turn more Plug & Play.

EV ecosystem services is a space that isn’t being worked yet. Yes, until now there hasn’t been much traction, but that will change and fast. Creating services like food delivery, content & entertainment, or family-friendly attractions could become very lucrative.

One last idea that might be worth exploring is smart renewable energy prospecting. In the same way, oil conglomerates or mining rigs have their specialized prospection teams, why not the same for renewables? Where to place an EV charging station that maximizes solar energy production? Where do we set a stationary battery park to supply energy for peak demand? And wind? And geothermal? When? Where? How? Can we take advantage of a region and then sell the electricity to a power-hungry neighbor?

As far as I know, many of these decisions are still made manually. There are plenty of AI-based optimizations that can generate better yields and accelerate the expansion of EVs and renewable energy sources.

The electrification game is real, and it’s moving fast. The tipping point is fast approaching, and we’re about to see drastic changes in our transportation behaviors. Like I stated at the beginning, Electric Vehicles don’t happen in a vacuum. The convergence of other significant trends is the driving force for the change. Don’t look at the EV market in isolation but as a needed tool to deploy other substantial and holistic strategies.

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Startups Aren’t Solving The Right Challenges

Startups Aren’t Solving The Right Challenges

Never before there’s been so many startups cropping worldwide. Some of them will undoubtedly disrupt their markets. They’ll take innovative technologies and use them to push disruption forward. And that’s good. We need change. We need things to keep improving.

However, despite their numbers, very few will deliver solutions to humanity’s most significant challenges. One of these challenges, that of sustaining our environment, is the topic of Rachel Carson’s extraordinary Silent Spring book. Published in 1962, it brought up the dangers of pesticides to the White House.

While I was reading it, I became curious about the current state of affairs. I wondered how much we had improved since the 60s. The answer was staggering, not muchVirulent, toxic pesticides are widespread. Water, crops, forests, and animals are widely polluted. The most shocking discovery wasn’t to learn how toxic these compounds are, but that, even though we now know about them, they’re still broadly used.

“The fact that chemicals may play a role similar to radiation has scarcely dawned on the public mind, nor on the minds of most medical or scientific workers.

[…]

Although chemical manufacturers are required by law to test their materials for toxicity, they are not required to make the tests that would reliably demonstrate genetic effect, and they do not do so.”

Carson, Rachel. Silent Spring (1962)

One would think we’ve become better, and while we’ve banned many of these highly toxic compounds, similar ones are extensively used in developing countries like China, India or Africa. Let me remind everyone that most of our food, clothes or products come from developing countries.

“[…] Pesticides are responsible for an estimated 200,000 acute poisoning deaths each year, 99 per cent of which occur in developing countries,3 where health, safety, and environmental regulations are weaker and less strictly applied. While records on global pesticide use are incomplete, it is generally agreed that application rates have increased dramatically over the past few decades.”

Report of the Special Rapporteur on the right to food. United Nations Human Rights Council. January 2017.

There is an increasing body of work that links the pollution of our environment with deadly diseases. Cancer, dementia, autism, and infertility are some of the conditions related to pesticides.

The irony is, there are plenty of biotech companies developing biomarker detectors for cancer, dementia and whole startups devoted to improve your fertility. Nonetheless, there are very very few companies trying to tackle the root of the problem, toxic chemicals in our environment. And it is shocking and sad and discouraging.

While we keep on chatting away on our smartphones, our interactions with nature, water, food, and air, keep becoming deadlier. Toxicity of our own design.

Water Challenges

One of the most significant challenges for humanity is connected with the substrate of all life, water. Water (H2O) is essential to the whole natural ecosystem. The planet can’t sustain life without it. And even if we’re ignorant of the system at large, we should be selfish enough to care about your safety.

And safety is something we don’t have. In 2017, 63 million Americans were exposed to unsafe drinking water. Let me repeat that, 63 million people, in the so-called, most developed nation, are drinking poisonous water.

Troubled Water Documentary by News21

Do you know the Coachella music festival? Last year they had to postpone camping due to a toxic cloud emanating from the Salton Sea, one of the most contaminated bodies of water in the US. The poisonous lake is just 15 miles away from the camp.

“Government officials acknowledge the daunting challenges ahead for water utilities. In the final months of the Obama administration, the EPA’s Office of Water published a report highlighting aging infrastructure, unregulated contaminants and financial support for small and poor communities as top concerns for drinking water quality going forward.”

63 million Americans exposed to unsafe drinking water (USA Today via News21)
Salton Sea by Katherine Belarmino

In Europe matters are slightly better, but not much more. In 2000, Europe approved their most ambitious environmental regulation, the Water Framework Directive. The WFD goals for 2015 failed by a landslide.

“However, fifteen years after the WFD was introduced, achieving its objectives remains a challenge, with 47% of EU surface waters not reaching the good ecological status in 2015–a central objective of EU water legislation (European Commission, 2012a). During the first WFD cycle, which operated from 2009 to 2015, the number of surface water bodies in “good” state only increased by 10% (van Rijswick and Backes, 2015).”

The EU Water Framework Directive: From great expectations to problems with implementation

Where are the startups?

When you look at state of the art in this space, the feeling is of dismay. For all the talk around IoT and Industry 4.0., there are very few high-tech early warning and detection systems for water assets. On top of that, there seem to be very few startups working on fast, cheap, and portable water pollutant detection devices.

There is plenty of research around this area. Many scientists are developing new ways of detecting harmful compounds in bodies of water. However, most of these, either stay in the lab or are hardly commercialized.

It’s not hard to understand the reason. Two significant factors are dragging the field. The need for research and a lack of consumer markets. It’s easier to develop a new market-place for pets than bring to market five years of research, within an acceptable price range.

For all the talk around startups, there seems to be an unwillingness to drive research into the market. I understand the allure of fast and quick flips. People do startups for the fun and glory. They want to be portraited as the next Facebook. Nevertheless, few want to get their hands dirty and do challenging things.

And that’s the key, technology’s democratization is enabling a more extensive range of actors. Still, risk-takers, pioneers, visionaries, remain in low supply. As the pond gets wider, challengers get diluted within the mass.

There is one country though, that is consistently challenging itself. And that country is, no surprise here, Israel. Their capacity to bring research into the market is unparalleled, and it’s paying off.

Out of all the water-related startups I reviewed, only one, Israel-based Lishtot, resembles anything like a consumer product. It’s not surprising they won the Techcrunch Best Gadget award at CES 2018. But maybe, the most astonishing part of it, is that we feel it’s groundbreaking. And it is, don’t get me wrong, but it should be the norm, not the exception.

Lishtot’s TestDrop in South India – YouTube

Food Challenges

When it comes to food, it’s even worse. In Europe, if you live in a city, chances are, your local water agency treats and monitors the status of your tap water. Sometimes it tastes better than others, but you know you have a low chance of getting sick.

Food is a different story altogether. Testing food for pesticides, herbicides or insecticides is hard, slow and expensive. It’s impossible to check every ingredient that gets produced with current detection methods, much less test it for all the thousands of contaminants it can get exposed too. In addition to this, add the fact that it takes years for food agencies to include new compounds on those forbidden lists. Meanwhile, you, your family, your kids, are eating slow poison. So quiet, that it might take decades to turn mortal. But kill it will.

“Most malignancies develop so slowly that they may require a considerable segment of the victim’s life to reach the stage of showing clinical symptoms.”

Carson, Rachel. Silent Spring. (1962)
Identification of pesticide varieties by testing microalgae using Visible/Near Infrared Hyperspectral Imaging technology. Nature Apr. 2016

There are two big fronts in the space. On the one side, you want to attack the problem at its root. You want to produce food that’s free of toxic chemicals and grown in clean soils. Here is where the big picture is essential. It’s not only about not using toxic pesticides. It’s about making sure the surroundings are free of those pollutants too. This last part is the hardest to achieve. Streams, rain, soil, underground water reservoirs, are all polluted. Growing anything removed from it is hard.

These challenges have pushed the growth of organic food production markets. Nonetheless, producing organic crops is expensive, time-consuming and very wasteful of terms of water and land use.

This is one point Agrotech startups are trying to tackle. We’re watching an increase of investments around sustainable and organic food producing vertical farming startups. We’re going to need many more. And soon.

Vertical Farms

The other side though is still a problem. At current consumption rates, it’s impossible to feed organic food to everyone. So far, inequality is striking the food chain again. Only people from a certain socio-economical level have access to fresh organic and expensive ingredients.

“Despite lower yields, organic agriculture is more profitable (by 22–35%) for farmers because consumers are willing to pay more.”

Can we feed 10 billion people on organic farming alone? – The Guardian, 2016.

Beyond the ethical aspects, most farms are producing ecological food because it has a premium in the market. The motivation is, for many, still economical. The question is, could we put pressure on the producers and manufacturers from the consumer side?

That’s where food contaminant detectors come into play. If we could test our food at home, we could protect not only our health but also put a massive amount of pressure on the industry. A strain so vocal that can, hopefully, turn the tide.

There are, once again, few startups working on bringing early detection technologies to market. The reason is similar than on the water front. It’s expensive and hard to bring new detection methods like biosensors or Near Infrared Spectrography (NIS) systems to market. But beyond the difficulty of the task, remains an absolute naiveness of what matters.

The European Commission, though, is pushing hard on both water and food fronts. They recently ran a food detection competition and have an open call for water monitoring systems

The winner and finalists of the first food detection competition are impressive. On one side there is Spectral Engines, a Helsinki-based startup focused on commercializing their modular NIS system. The runner-ups were Consumer Physics SCiOScanner and Tellspec. SCiO is surprise, surprise, an Israeli startup with money, surprise, from Khosla Ventures, one of the top impact investors in the world. Their pocket size spectrometer for smartphones is impressive.

SCiO – The World’s First Pocket Molecular Sensor – YouTube

Other companies are working in the field like the Israeli’s Inspecto  or the Taiwanese ITRI HS3D device. The first one isn’t still available; the former one is still quite limiting.

CES 2018 Innovation Awards Honoree: Handheld Pesticide Residue Detector – YouTube

As I said, developing these devices is very hard, but the field would advance rapidly if more startups focused their aim on it.

Are startup seeders focusing on the right challenges?

One of the striking patterns is the difference in the selection processes of some startup seeders. Startups don’t grow out of anywhere. In most cases, they’re incubated, accelerated and invested by the ecosystem. As Silicon Valley loses their grip on the startup ecosystem monopoly, new areas are rising.

But while there are new centers for innovation worldwide, not all display the same quality. I found two accelerator programs related to food tech (there are several others too). One is Startupbootcamp Food out of Rome. The other one is the Israel-based The Kitchen Hub by Strauss, the largest food corporation in Israel.

I have no data to determine which is the better accelerator. There are many factors you could measure them against. But there is something that stood out to me, the difference in the problems startups are tackling

An intelligent coffee brewer vs. a pesticides detector. Hydroponic urban farms vs. in-vitro clean meat growing. Smart stock management system for restaurants vs. enzymes for healthier fruit juices.

Inspecto.co pesticide detector

It’s hard not to see a pattern. I feel Israelisare much more grounded in research and tackling human challenges than elsewhere. I’m not against an intelligent coffee brewer, but it’s, if you wish, a nice to have, not a life-threatening problem like pesticides.

This is a global trend. Many organizations encouraging entrepreneurship aren’t targeting worthy challenges or merging research with product development correctly.

Increasing our challenge perception

I am not surprised about the lack of focus or risk-taking. There is s a global shortage of imagination that correlates closely with echo chambers. People don’t travel. People don’t read. People don’t explore. People don’t research.

We live in a frugal society where every minute, matters. Anything that takes more than two days to achieve is skipped over. On top of that, and despite the constant warnings, people keep driving a narrow view of the world.

It’s hard to connect themes, trends or challenges if your model of the world is reduced to your elite brotherhood. It’s tough to see beyond the trees when you refuse to unfocus. Heads down and constant execution is the technology mantra. And it’s excellent advice. But, as I mentioned in other articles, maximum optimization is a bad strategy. It makes you laser focused but at the cost of other valuable assets, as well as unseen connections.

The key is to be able to switch gears. Focus and execute, but also act with a systemic view of both the problem and the solution we’re tackling. Breaking out of our comfort area, hear different voices, travel distant cultures, live other lives.

One of the worst aspects of this technology myopia is the insensitivity towards other human beings. If we lose our capacity to understand what matters, what’s essential and what’s irrelevant, then we’ll never focus on the right challenges. This moral balance is lost to many.

Can corporations take advantage?

Like other chapters in human history, the saviors might come from the most unexpected places, corporations.

Corporate employees have a compelling mix. They accumulate years of education and research, with a deep understanding of their markets. Because they aren’t driven by the latest fad, or the need to be acknowledged, they have a much-balanced view of the world.

The one thing they lack is the capacity to shackle off the corporate business model rhetoric. There is an increasing number of corporate employees that, if given a chance, would jump ship and start their own company. Many have years of research under their belts, and they’re looking for a haven to put it into play. They do need guidance though. They do require startup discipline. This is why fiery entrepreneurs teaming corporate counterparts can build game-changing companies.

Another asset corporations can provide for is long-term financing. The lack of important challenges isn’t unique to entrepreneurs. It extends to many professional investors too. And there is a lot to be said about corporations behaving like VCs.

The corporation’s biggest asset is their long-term sustainability. This allows them to trigger long-term investments packed with research and significant challenges. The blend between this and startup product development approaches can deliver extraordinary results. Results that matter.

Corporate innovation is a bitch. It’s hard, for many reasons, but it is also a window into solving real challenges. While incumbents should approach startups, I feel we should be creating better connections between hungry entrepreneurs and local intrapreneurs.

The rise of Deep Technology

Deep Technology is the term being thrown around to define groundbreaking solutions to some of the most substantial challenges. It’s not a new theme. Critical voices have been claiming for this for years. Vinod Khosla started Khosla Ventures 14 years ago and currently manages over one billion dollars in assets. He was one of the most vocal voices in the innovation investment sphere. Since then, more and more funds have been focusing on impact investment. And more will join.

Some of humanity’s challenges aren’t optional anymore. It’s either finding meaningful solutions or crippling society. It’s still not clear if we’ll be able to avoid planetary collapse, but let’s hope more people start tackling impactful problems, and not makes-my-elite-life-better-please-more-Ubers kind of issues.

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Startups Don’t Need to Make Financial Sense

Startups Don’t Need to Make Financial Sense

I’m sure some investors will be rolling their eyes just about now. And with good cause. Yes, companies are supposed to make financial sense, and there is an apparent reason for that.

Entrepreneurs start companies with the goal of generating value for society. The larger the value, the more their customers are ready to pay for it. The more painful the problem the company solves, the more money they’ll be able to charge. The more universal is the issue, the bigger their market is.

That’s the theory at least.

Money isn’t only a ‘reward’ for bringing about value. That payoff allows the company to sustain their operations. In other words, it makes the value generation sustainable.

If we look at System Theory, it’s what we call a reinforcing feedback loop. The more value a company generates, the more money it gets to do more. If the company stops reinvesting, the money it makes will eventually decline. 

Tools for Systems Thinkers

However, on some occasions, the entrepreneurs can’t deliver value without initial capital. This initial capital or seed is what in System Theory we call Stocks. Investors are usually the ones providing the starting stock (money) of the system.

Basic Reinforcing loop. The Aleph Report (thealeph.com)

Their goal is to provide the kindle to start the system going. Once it’s grown, investors can take a big cut on the enlarged money stock earned by the company if everything went well. And that’s a big If. And that’s why it’s called Venture Capital investment and not safe-and-easy-as-bonds.

Basic startup investment (VC) system model. The Aleph Report (thealeph.com)

The thing about feedback loops is that they’re rarely immediate. It takes time for a company to create value. This is what System Theory dubs feedback loop Delay. In the case of companies, this delay can range from near-immediate to decades.

There is an increasing movement in the industry called Deep Technology. One of the main characteristics of Deep Technology is their long delays of this feedback loop.

The longer the delay, the more money the company will require to survive before depleting their capital, also known as going bankrupt or system collapse.

Finance vs. Innovation

Most investors want this delay to be as small as possible. The quicker the company can show they can generate value, the higher their worth is. VCs measure this “valuation” both as the amount of current profit the company perceives from the market, and the potential profit of the next iteration (future potential).

To maximize this valuation, they pour their money to accelerate the iteration. On the one hand, investors want to increase the speed at which the company can deliver value (reducing the delay of the loop). On the other, they want to sustain the company as long as possible until the market starts reacting.

Here is the catch though. While companies can increase their value and the speed they deliver it, the delay of the returning loop is beyond their control. The market will react at their own time.

Feedback loop delay in the model. The Aleph Report (thealeph.com)

What’s obvious is that if the market takes a long time to react, the company will run out of capital and die, plunging their investors with them.

The question though is if that’s bad for the system or just for some of the actors. From a financial perspective, primarily, from the company’s investors, it’s terrible. They’ll lose their money.

But is it bad for the system at large?

One of the aspects that make System Thinking so compelling is the fact that all systems are connected. So while, on one side the system at large exposes a particular behavior, on another subsystem you might bear testimony to something completely different (i.e., Chaos theory).

Let’s forget financial sustainability for a second (a subsystem). If we focus on the impact of certain startups on the broader system, then a new picture emerges.

Startups, spurred by their investors, push the boundaries of innovation and try to provide ever-increasing value to the market. The effects of such innovations affect the end consumers and their latent behaviors.

For most failed startups, this effect is trivial and negligible. But a few do capture the market’s imagination. And while the market’s reaction, from an economic perspective, might be timid, they do react in other ways. One of these ways is by reinforcing an emerging behavior. A behavior that will stay in place independently of the startup that reinforced it. 

New loop gets established for increase need of the product. The Aleph Report (thealeph.com)

Disruption at Work

An excellent example of this is WeWork. Many keep focusing on the risky and fragile financial position of the organization. And while they’re right to be wary of it, they’re missing the broader trend.

WeWork is tapping into a new emerging behavior. One, few are seeing, much less exploiting. And while it’s probable that WeWork crashes and burns, the subsequent crater will change the market landscape forever.

WeWork’s value is strengthening this new behavior. The demand for Co-Living, Co-Working, Co-Everything, will remain in place, independently of WeWork. And this is the real power of Disruption; it doesn’t go away.

Worst than that, all incumbents laughing at the predictable fall of WeWork, are not picking up the new trend. Most will fail to see it, even after WeWork’s potential disappearance and will implode as a result.

Another beautiful example is the recent drama with Vice Media. It’s easy to highlight the gross negligence of their lack of business model. Nonetheless, their continuous innovations in media formats are shaping and shifting the market. It’s irrelevant they aren’t the ones benefiting from them. Someone will and when that happens, they’ll disrupt the market. 

Closing words

Sometimes we mistake financial soundness for innovation. Both concepts are connected, but as I’ve shown, they work at different speeds. Delays in the feedback loops that govern the system will make them play, sometimes in tandem, sometimes independently.

Particular caution should be observed when the technology employed by such companies is disruptive. The mere nature of disruption prompts the system to run at different speeds and this will have an impact on the competition landscape subsystem too. Some incumbents will collapse, some entrants will thrive. 

Entrants competing against the incumbent competitors model. The Aleph Report (thealeph.com)
Need feedback look taken over by a new entrant model. The Aleph Report (thealeph.com)

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Do you remember 3D Printing?

Do you remember 3D Printing?

Do you remember the fever around 3D printing? Evangelists heralded a brave new world spearheaded by 3D printing technology. Makers, hobbyists, and strangled researchers took on to the innovation and started hacking it to suit their needs.

Everyone deemed the technology as disruptive. However, we rarely hear about it anymore. Has it disappeared? Do manufacturers use it? Was it a fad or the real deal?

3D printing technology is the perfect poster boy for disruption. Much praised by visionaries, much forgotten after the fact. But the technology is still around, and incumbents are already feeling its disruptive power.

It sets a great example of how to think about technology. 3D printing technology was first catered to an underserved market, hobbyists, and makers. The high-end market, equipped with power-tools, sniffed at the low quality and restrictions of the technology. Makers though, incapable of coughing 350.000 dollars for a casting machine, embraced the innovation. The hallmark of disruption is always similar. Underserved market and underperforming technology with plenty of potentials to improve.

While incumbent manufacturers discarded 3D printing as a playful tool, innovation in new materials and printing techniques was propelling the disruption.

The beginnings are always harsh, and while visionaries can imagine new scenarios, reality takes time to catch up. The first use of the technology was around rapid prototyping and consumer “toys.” Speed and quality were huge impediments.

But things have changed drastically. Sculpteo’s 2018 State of 3D printing report paints a very different picture.

3D Printing in 2018

There has been a significant change in the industry, the arrival of metal. For many industries, plastics didn’t cut it. With improved technology, metal 3D printers are becoming the de facto for many companies.

State of 3D Printing 2018 – Sculpteo

The quality of the printers and the new materials are increasing, not only the amount companies are spending on 3D printing, but the range of things they’re applying it to.

State of 3D Printing 2018 – Sculpteo
State of 3D Printing 2018 – Sculpteo

One of the most significant changes is that tools produced with 3D printers aren’t just prototypes. They’re increasingly integrated into production.

The use in live production is changing the rules because it’s enabling innovation of the final product. The thing about 3D printing isn’t that they’re cheap; It’s that they can achieve the production of complex parts that are hard or even impossible to obtain with traditional manufacturing methods.

State of 3D Printing 2018 – Sculpteo

Generative design

The new technologies are giving rise to a field called generative design. According to Autodesk:

“Generative design mimics nature’s evolutionary approach to design. Designers or engineers input design goals into generative design software, along with parameters such as materials, manufacturing methods, and cost constraints. Unlike topology optimization, the software explores all the possible permutations of a solution, quickly generating design alternatives. It tests and learns from each iteration what works and what doesn’t.”

This is a blend between the fields of Biomimicry and Genetic AlgorithmsDeep Learning models are capable of exploring novel and creative solutions to manufacturing problems. These algorithms have been known for a while. However, they’ve remained on a theoretical plane due to restrictions on manufacturing methods. 3D printing and new materials are changing this. We refuse to acknowledge the creativity of Artificial Intelligent systems, but we keep on using it to our benefit.

Autodesk Generative Design – YouTube

The exciting thing about this new field is its implications. We can now produce stronger, lighter and more efficient parts. Here is the catch though. Very few incumbents will be able to take advantage of this technology. Most will employ the novel approach to improve their current products. They’ll approach it as a sustained innovation.

Incumbents will have a hard time creating novel products from the ground up using these innovations. The new entrants, 3D Printing-first companies, will be the ones to take advantage of generative design technology. 

State of 3D Printing 2018 – Sculpteo

I’m very intrigued to see what they come up with. In contrast to incumbents, startups will use these innovations to deliver radically new products to the market.

Industries benefiting from 3D printing disruption

Which industries are benefiting the most from this? There are three big groups, but they won’t be the only ones.

Aerospace industry

The arrival of metal and ceramic 3D printers is transforming the aerospace industry. From lighter designs which save fuel and increase range, to cheaper production of critical components.

One of the most captivating uses of 3D printing has been SpaceX’s new rocket booster design. Not only it has cut production time, but it has allowed new functionalities impossible before at a fragment of the usual cost.

Photo by SpaceX on Unsplash

The speed and cost reduction of satellite parts is one of the driving forces behind the Low Orbit Micro-satellite constellation revolution. Production of micro-satellites at scale will enable us to create a genuine global communication’s system. Those that control the communication channels influence the world.

Health & Medical industry

Another obvious winner is the medical field. The development of several bio-inks is bringing incredible developments. I would argue that when it comes to biological applications, we’re still in a very early stage.

There are impressive advances, ranging from biological scaffolding for organ growth to full steam-cells printed corneas. Eventually, the field will allow for ad hoc organ printing but still requires more time to mature.

Nonetheless, some applications, like bacteria-based ink tattoos are jumping to the consumer side. Organic ink will allow us to print logic gates on our bodies. These tattoos act as live, real-time detectors of diseases, chemical changes or health problems.

3D Printing of Living Responsive Materials and Devices – YouTube

Another application that might have far-reaching consequences is the printing of tissue to experiment drugs on. Regulatory approval for drugs is a lengthy process. The printing of target tissue or a part of an organ will serve as a much more realistic testing ground for specific compounds. This still ignores interactions with other cells or chemicals but will be a big step towards a much more robust testing ground.

Automotive industry

The closest industry to benefit from 3D printing advances is the automotive one. Not only is AI already disrupting it, but such disruption has an immediate impact on most strata of society. We live in an auto-driven society, and as such, any change in the nature and quality of transportation will have dramatic consequences.

Three trends are colliding in the industry. On one side we have the rise of the environmental conscience and the need to move away from fossil fuels. This change is being led by the electrical vehicle (EV) and is irreversible. EVs require fewer parts than their combustion counterparts. New 3D Printing companies will begin to supply next-generation parts for EVs.

On the other side, the use of Artificial Intelligence to deliver true autonomous driving capabilities requires a whole new array of sensors, parts, and unique designs. The fact that there is no driver will remove the need for steering wheels, and the cockpit will be redesigned. 3D Printing will be essential for the new redesign of the car structure.

Waymo Firefly prototype

Finally, the use of autonomous vehicles will precipitate the massive adoption of ride-sharing instead of ride owning. The trend is already there, but AI systems will accelerate the dismissal of car ownership. Shared car fleets will be standard. Fleet managers though will encounter a new problem. Cars aren’t designed to sustain such continuous use of the resource. Car parts will erode at a quick pace, and car maintenance will become a significant cost for operators. New modular car architectures that reduce the cost of support are needed. These new architectures will require novel building approaches. 3D Printing technology will deliver on this, making such companies the new players of the automotive industry.

EDIT Self-Driving Car by Open Motors – YouTube

Future trends in 3D Printing

The 3D Printing technology is on the verge of showing its true disruptive potential. It’s gone from being a hobbyist tool to becoming indispensable to keep up with the competition and the innovation theatre at large.

State of 3D Printing 2018 – Sculpteo
State of 3D Printing 2018 – Sculpteo

The next stage for the industry is the advancement of autonomous 3D Printing manufacturing. Right now, many processes require of humans. There are some experiments, though, to push the limits and achieve autonomous manufacturing capabilities.

System can 3-D print an entire building – YouTube

Another big step yet to be achieved is the necessary autonomous assembly of 3D printed parts. There is an increasing number of printers that are capable of printing different materials and textures. Still, such all-in-one printers deliver subpar quality. If I had to guess, I would say that 3D System’s modular factory approach will be the future.

Automated, scalable metal additive factory solution – YouTube

The combination of specific modular printers with autonomous robots will deliver on the assembly part.

The last hurdle is the increase of speed in the production of parts. Several trends are being explored here. The first one is the use of generative design mentioned before. Such models allow for fewer elements as complex topologies can substitute several assembled parts. Another one is the improvement of the extruders and techniques used to print. One of the most impressive ones is the Rapid Liquid Printing developed by MIT. It’s still very experimental, but it will allow to break the additive layering hurdle and speed up the process orders of magnitude.

Steelcase MIT Rapid Liquid Printing in Furniture – YouTube

Final words

As I said at the beginning of this article, 3D Printing technology is a disruptive innovation. It will, not only change manufacturing but the kind of products we can create with it. It will unlock new design capabilities that will disrupt whole industries like the automotive one.

Most incumbents are either using 3D Printing to improve their time to market or ignoring it all together. As with other disruptive technologies like Blockchain, they’re missing the point. The real revolution isn’t about making your process more efficient. It’s about enabling new business models around entirely novel products that are only doable through 3D Printing cutting edge technology.

Incumbents will be late to realize this. They’ll insist in employing their traditional business model, upfront purchase. 3D Printing technology, though, enables massive customization and the move towards a pay per use or pay per impact business models.

Are you making something physical? You should be thinking of designing the whole process for 3D Printing.

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Your current AI approach is broken

Your current AI approach is broken

Some weeks ago a friend asked me how to automate and achieve scale for his mental health startup. It’s not been the first time someone has asked me this. Scale and automation are, under the technology creed, synonyms for Artificial Intelligence.

I was hesitant to answer. I told him that I am a believer on AI, but that you couldn’t apply AI as it stands today to mental health problems.

Most AI methods are based on function optimization. In layman’s terms, the algorithm looks for the best (optimal) solution to a given goal. The problem with this is that such goal rarely contains information about its moral worth.

“A system that is optimizing a function of n variables, where the objective depends on a subset of size k < n, will often set the remaining unconstrained variables to extreme values; if one of those unconstrained variables is actually something we care about, the solution found may be highly undesirable.”

Stuart J. Russell. Of Myths and moonshine. The Myth of AI. Edge. 2014

In other words,

“Building an agent to do something which (in humans) correlates with the desired behavior does not necessarily result in a system that acts like a human.”

Nate Soares. The Value Learning Problem. Machine Intelligence Research Institute. 2016

And this is the key to the disturbing stage of technological evolution we are experiencing. As I’ve pointed out before, I believe we’re living a major moral crisis. One of the consequences is that we’re blindly applying mathematical formulas that don’t factor in human moral values. The goal is to automate a problem and do it fast an efficiently. The issue is that the human mind can’t be reduced to a set of equations (yet).

Human psychology is incredibly complex. We’re governed by dynamic systems that defy most rational explanations. During the last few decades, we’ve witnessed the failure of the Keynesian doctrine in economics. Heralded by behavioral scientists like Dan Ariely, more voices are demanding better models. Models that account for human irrationality.

However, we’re, once more, making the same mistake. We’re applying sophisticated algorithms that overly simplify the reality they deal with. One could argue that most AI systems are employed to non-human, repetitive, tedious tasks. And they’re right. Still, many of those AI systems are making decisions that do affect humans and their mental models.

An excellent example of this is Filter Bubbles and Echo Chambers produced by algorithmic news feeds. As much as it pains us, Deep Learning techniques obviate any moral judgment of the outcome. The surprising thing is that this effect, nicknamed the “Sorcerer’s Apprentice” problem by Norman Wiener, has been known since 1960. Systems that follow instructions but misinterpret the developer’s intent.

But maybe the most striking thing about the current AI wave is the lack of awareness of the problem. The recent demo of Google Duplex is a perfect example of this. Natasha Lomas wrote a brilliant piece on the issue.

“Yet despite all the thoughtful ethical guidance and research that’s already been produced, and is out there for the reading, here we are again being shown the same tired tech industry playbook applauding engineering capabilities in a shiny bubble, stripped of human context and societal consideration, and dangled in front of an uncritical audience to see how loud they’ll cheer.”

Natasha Lomas – Duplex shows Google failing at ethical and creative AI design

It’s discouraging to watch history repeated. In 1962, Rachel L. Carson published one of the most impactful books in science, Silent Spring. In it she criticised the indiscriminate use of chemicals (DTTs) and the poisonous effects of these in the ecosystem, humans included.

“Technology, she feared, was moving on a faster trajectory than mankind’s sense of moral responsibility.”

Linda Lear’s introduction to Silent Spring by Rachel L. Carson. 2002

At the time, the US Chemistry industry, one of the largest beneficiaries of the Cold War, operated at large. Science and chemists were considered the top of the food chain. No one questioned their knowledge. No one questioned their products. What Carson uncovered, documented and publicised was the other truth; lethal ignorance, greed, and Capitalism.

“Carson questioned the moral right of government to leave its citizens unprotected from substances they could neither physically avoid nor publicly question.”

Linda Lear’s introduction to Silent Spring by Rachel L. Carson. 2002

I can’t but draw parallels with our current situation. I question the moral right of Google or Facebook to leave their users unprotected. But this isn’t a problem with the prominent technology corporations, but with most AI-powered solutions. Not even with such solutions, but with the lack of awareness of the developers and designers.

All this said I’m bullish on AI. I’ve been a defendant and ardent believer of the field. This is why I’m so vocal about the current misdirection.

Yes, we need autonomous agents. We need to apply AI, but we need to incorporate moral values into the equation. This in itself is a considerable challenge. It’s becoming one of the newest research lines in AI, but most advances are, so far, theoretical. New companies deploying new systems should be aware of the problems. They should try to apply new AI models and build moral safeguards.

“The systems will need some method for learning and adopting prosocial preferences, in light of the fact that we cannot expect arbitrary rational actors to exhibit prosocial behavior in the face of large power disparities.”

Nate Soares. The Value Learning Problem. Machine Intelligence Research Institute

As I told my friend, yes, you need to scale your mental health approach. But you can’t do what everyone else is doing. Stakes are too high to play moral depravity with our minds.

“Man has lost the capacity to foresee and to forestall. He will end by destroying the earth.”

Albert Schweitzer

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Are Podcasts the next ad frontier?

Are Podcasts the next ad frontier?

Last week, Pocket Casts got acquired by a collective group that includes NPR, WNYC Studios (makers of RadioLab), WBEZ Chicago (makers of Serial), and This American Life. It’s yet another move in a space that’s been heating up for a while now

Podcasting has been around for ages, but it hasn’t been until recently that it’s making a comeback. For years, it was hard, not only to find good content but to subscribe to it. On top of that, the only place you could listen to podcasts was on your computer.

Apple, smartphones and bandwidth improvements changed that. The simplicity of subscribing to a show on iTunes and listen to it on the Apple Podcast app made it a breeze. It opens the gates for mainstream adoption of podcasts.

The Podcast Consumer 2018 Report by Edison Research

Two significant milestones propelled the awareness of podcasts. The first one was the addition of official support for podcasts on iTunes in June 2005. The second milestone was the release of the iPhone on June 2007.

Nonetheless, awareness remained constant during a decade. In late 2014, Sarah Koenig and Julie Snyder released an experimental podcast called ‘Serial‘. The podcast went viral, smashed all podcasting records and went on to win the 2015 Peabody Award. As of June of 2017, it had become the most downloaded podcast ever with 175 million downloads. By mid-2015 David Carr named ‘Serial’ the First Breakout Hit.

Source: Google Trends

Despite Serial’s success, podcast consumption remained low compared to other siblings like video or social media. Audio remains a much-loved but not-mainstream medium. 

Source: The Podcast Consumer 2018 Report by Edison Research – Elaborated TheAleph.com
Source: The Podcast Consumer 2018 Report by Edison Research – Elaborated by TheAleph.com

One of the major problems around podcasting has always been monetization. One the one hand, audiences have been small compared to other content sources. On the other, there’s always been a difficulty with measuring the exact engagement of the audience. You can measure how many downloads but not the precise behavior of listeners. And that’s a problem for attracting money.

Some podcasters turned to their fans for monetization. They joined Patreon and transformed their audience into patrons that kept the lights running. However, not every podcast could pull that feat. Some creators believed brands should sponsor the content, instead of fans. Still, having no metrics was a significant stop-block.

All this changed in 2017. In June Apple announced in-depth analytics for podcast creators. Podcast creators finally had a way to learn what performed and what didn’t on Apple platform’s (roughly 60% of the market). Even better, they could share these metrics with advertisers to help monetize it.

Since then, the space is undergoing drastic changes. Data is already showing what many podcast creators have been claiming for years, that their audiences are hyper-engaged. They might not command Facebook-size audiences, but they sure have very targetted and bespoken listeners.

“On average, according to Midroll’s data, podcast listeners are making it through about 90 percent of a given episode, and relatively few are skipping through ads.”
[…]
“Those numbers tend to be steady regardless of the length of the show—and according to Panoply, the few listeners who do skip ads continue to remain engaged with the episode, rather than dropping off at the first sign of an interruption.”

Podcast Listeners Really are The Holy Grail Advertisers Hoped they’d be.

As the Wired article mentions, this is the advertising Holy Grail. This has become even more important with Facebook’s recent problems. Not only ads are becoming politically charge on those platforms, but companies that advertise there are also feeling the heat. Also, many advertisers are looking for ways to break out of the advertising duopoly held by Google and Facebook.

It’s not surprising though that brands are looking at podcasts as a new frontier for their advertising dollars. One not controlled by Google or Facebook, but new players. Podcast advertising grew a 228% between 2015 and 2016. That’s not even taking into account 2017 which, as I mentioned, was a stellar year for the industry.

IAB Podcast Ad Revenue Study 2017
IAB Podcast Ad Revenue Study 2017

The impact of voice interfaces

Looming at a distance, voice interfaces like Amazon Alexa or Google’s Home Now, are heralding the audio renaissance. Many expect the increasingly ubiquitous smart speakers to change the dynamics.

The Podcast Consumer 2018 Report by Edison Research

As I’ve written before, I believe conversational interfaces will change how we consume many things. I’ve felt the change happening at home. How voice interfaces are pushing me to seek more integrated appliances. That said, I also reckon it still needs more time. It’s not surprising then how few users listen to podcasts with their smart speakers.

The Podcast Consumer 2018 Report by Edison Research
The Podcast Consumer 2018 Report by Edison Research

“David Markowitz from ListenUp thinks Interactive audio is still very much in the experimental phase. “I don’t think we’ll see broad adoption until we get more comfortable having lengthy interactions with smart speakers. That is going to happen – we are just not there yet.”

Global Audiobook Trends and Statistics for 2018

I have to agree with Markowitz. I’ve tried several podcast skills in Alexa, and it’s still not there. Some experiments are exciting and we’ll see more engagement but still needs more time.

Audiobooks to the rescue

I have no doubts that smart speakers will drive podcast consumption even higher. I would expect the newer generations to be used to consume audio as naturally as our parents did radio.

Another trend that will accelerate both smart speakers and podcasts, in general, are audiobooks. Audible (and Amazon’s) success in these past years is opening an entirely new media segment.

People that would never read a book are, surprisingly, willing to listen to one. There is no correlation between the quality of the book and its audio counterpart.

“One of the things that’s most interesting to me here is the fact that it used to be that the success of an audiobook was correlated with the success of the print book. That is no longer true. The number of audiobooks that perform well independent of its print and eBook circulation is increasing. The format itself is creating new ways of discovering content that is becoming increasingly independent of the underlying print and eBook success.”

Global Audiobook Trends and Statistics for 2018

It’s remarkable how some writers are even willing to create audio narratives to accompany their writings. In a way, it reminds of a comeback to ‘Serial’. Podcasts and audiobooks will begin to fuse and mingle. Some podcasts will remain radio shows, others will become new narrative portals and will drive audio consumption.

”Margaret Atwood, author of The Handmaid’s Tale, recently worked with Audible to write and record a spoken-word coda to the novel, and comedian David Spade is developing an audio-only memoir. “We’re really trying to break the boundaries,” Blum says, “and go to writers and creators and artists to think outside the traditional boundaries of what is a book.”

Amazon Turbocharged Audible’s Domination of Audiobooks

Aggregators on the horizon?

It’s not surprising that NPR et al. bought Pocket Casts. There is an impending need to create the ultimate podcast platform. The key here is the word platform, or more specifically, aggregator. As Ben Thompson argued recently, when the market is already modularized, it’s ripe for the rise of an aggregator.

I wonder who will that be. Apple still holds a massive grip on the podcast industry, but they’re slowly losing it. Both regarding client market share and on the follower side. New podcast distribution networks like Midroll, Art19 or Megaphone (Panoply) are carving a space not touched by Apple. 

Elaborated by TheAleph.com

At the same time, Amazon and Google are pushing hard on the audiobook and smart speakers front. Will they control the space by owning the relationship with the end user like Apple had with the iPhone? They have an advantage, one they aren’t exploiting so far.

It’s a fascinating time to dwell in this space. I expect more content producers and creative people to adventure into the audio world during the next few years. 

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Get ready to share the walkway with robots

Get ready to share the walkway with robots

I am a big fan of logistics. Moving things from here to there is the dream of any engineer. We can track my enthusiasm to my time spent playing SimCity and The Incredible Machine games. I will throw in some Lemmings in the mix too.

Despite my keen interest in the field, we must confess it’s perceived as a dull industry. And no wonder. Run by old school boys driving trucks and loading freights. Grease, dirt, heavy cargo and men in flannel shirts come to mind.

Lemmings by DMA Design

However, the logistic dream from the 60s has nothing to do with logistics in 2018. The convergence of e-commerce, mobile and artificial intelligence is sending shockwaves across the industry.

While international logistics are essential, their complexity pales to the challenges of last-mile delivery. And to be honest, the current last-mile companies suck big time. I’m tired of getting my food cold. I’ve tried them in many different cities and countries, and it’s a hit and miss. I mention food delivery, but the same goes for package delivery.

Many companies, stirred by the looming Amazon empire, are pushing into the field. To do last-mile right, you need massive capillarity and low response times. On top of building predictive systems for improved routing, which is worth noting, not everyone is doing; there is the simple need of adding more couriers. Here is the kickback, they have to be cheap. All hail to the sharing economy.

Overworked and underpaid riders roam the world cities delivering your overpriced pizza. And local governments aren’t liking it. There are now several instances where judges are slamming the breaks on last-mile companies on employee exploitation charges.

The rise of the robots

Not only last-mile delivery requires speed and capillarity, but low marginal costs. The problem is that humans are slow, expensive and above all, they despise this kind of work. People aren’t cogs, but we insist on using them as machinery.

Enter the robot utopia. What if we could substitute these tasks with robots, or more precisely, autonomous delivery vehicles. Devices that can travel by air or ground, without human intervention, delivering contents virtually anywhere within record time.

That’s the dream a set of companies has been pursuing during these past five years. The problem? The over-sold robotic promise of better-than-humans. The result is a backslash of under-performing companies with lame devices that produce mix-bag results.

To avoid undesired flashy PR, many of these companies have been in stealth mode for a while and have only unearthed their products recently.

To walk or to fly?

There are two big approaches in the field, air delivery with drones or ground distribution with small autonomous delivery rover-like vehicles. Which is better is up for debate.

Autonomous Air Delivery Vehicles

What better way to do last-mile delivery than via high-precision air delivery? It’s fast, allowing straightforward delivery routes and road traffic avoidance.

Within this group, we find companies like Flirtey, Matternet, Zipline or the omnipresent Amazon. These systems work, and they’re impressive to watch.

The Matternet Station – YouTube

Despite how remarkable they are, the aerial approach is riddled with problems. While it’s faster than ground approximations, technical specifications are complicated, both in-flight and on delivery. The major hurdle though isn’t technical but regulatory. Not only flight regulations are strict, but craft safety and air traffic control are critical.

The problem is so big that there are several startups like AirMap or Google’s Project Wing working on Drone Traffic Control products.

Swiss U-space demonstrator run-through powered by AirMap

Drone delivery has a place and use, that said, I don’t believe it will be massive. The reason is simple, e-commerce package traffic (or food for that matter) is too big for last-mile air delivery. The scale needed to support an even small percentage of that traffic would collapse any city’s airspace.

“But tools have not yet been developed to predict how weather will affect small drones flying around obstacles such as buildings or hills at such low altitude, Gitlin said.”

Air traffic control for drones is coming. Here’s how it could work

Taking Amazon Prime as an example, we’re talking about five billion packages shipped in a year; 416 million a month. If you factor in the seasonality of shipping, you have north of 900+ million deliveries at any given December. That’s only Amazon. Factor in new players like Walmart and the impending growth of urban areas. Air delivery requirements (collision avoidance, weather patterns, and safety space to name a few) will make it very hard to scale beyond a certain threshold.

Source: WorldPopulationHistory
Source: United Nations Population 2005 report

As I mentioned before, Drone Delivery is instrumental but the cornerstone industries won’t be ecommerce or food delivery per se. Companies will continue to pursue it, but it won’t amount to much at first. The real disruption will come from shippings where speed is critical as in life-threatening, for example, medical deliveries. From blood samples to vaccines to organs.

Drones will gain traction outside mega cities too. Agrotech is already making use of drones, and I’m sure they’ll expand their usage of delivery services too. Industrial operations will also employ air delivery for spare parts, maintenance operations and even safe product transportation (i.e., Diamond delivery through hostile territories).

Autonomous Ground Delivery Vehicles

The other big group is ground-delivery autonomous vehicles. Within this side, we have startups like Starship, Marble, Teleretail, Dispatch or Robbie.

Ground robots sacrifice speed for easier regulation and less technical complexity. These devices look like small Mars rovers and are designed to roam the walkways at human speeds. They are fully autonomous, even though they do have human backup operators in case of emergency. They range from small carts to small burrito-like stands with wheels.

Marble’s delivery robot rolls through SF – YouTube

Approval for this kind of vehicles has been straightforward. There are already five US states that allow them on their walkways as well as 40 European cities with small-scale pilots.

These robots are simpler to deploy, and that’s the reason why they’re already operational in some locations. As with drones, the concern is around how to scale their number. For now, regulation limits their speed (6 km/h) and weight (18kg – 36kg unloaded) to human standards to prevent dangerous collisions. These restrictions severely cap their performance. Some of these vehicles can reach speeds of up to 50km/h and achieve bigger sizes. Faster and bigger rovers would enable a much more prominent payload in less time, improving the last-mile performance goal.

Many in the industry think these are initial conditions and as humans become used to the vehicles, they’ll gradually tolerate higher limits.

While accidents will occur, it’s not fair to compare bikes or motorbikes with autonomous delivery vehicles. If done right, LIDAR technology should provide better sensors than anything human. This should enable brake and slowdown of the rovers in the presence of humans, making it safe to operate at higher speeds without incidents.

Starship Campus Delivery Service with Robots – YouTube

Another concern is walkway traffic. If last-mile companies start deploying these vehicles en masse, it could cause severe problems for pedestrians.

“If there really were hundreds of little robots,” Ehrenfeucht said, “they would stop functioning as sidewalks and start functioning more as bike lanes. They would stop being spaces that are available for playing games or sitting down.”

Ehrenfeucht pointed out that 130 years ago, streets were not yet divided into lanes for traffic, parked cars, pedestrians and bikes, and that the introduction of robots to the streetscape might require a reimagining of the available space, possibly with a designated lane for robots.

Renia Ehrenfeucht, University of New Mexico professor. Co-author of Sidewalks: Conflict and Negotiation over Public Space

I have to agree with Ehrenfeucht’s vision. I think that the advent of autonomous vehicles will reduce private car ownership and traffic. Hence we will be able to devote new lanes to autonomous ground vehicles. It will take years though. In the meanwhile, we’ll probably share the walkway with these little rovers.

It’s worth mentioning some other approaches like Nuro’s one. Cofounded by two former Googlers, they’re taking a radical approach. They’ve created an autonomous delivery vehicle, like Waymo’s, from the ground up. Jiajun “JZ” Zhu was one of the first employees at Waymo, so no surprise here. They’ve raised a monstrous 92 million dollar round for the company to put these babies on the road soon.

Nuro Vehicle at Proving Grounds – YouTube

While I think the approach has merits, especially the heightened specialization of autonomous vehicles, they have a long way to go. Being a specialized vehicle, they’ll probably have less regulatory hurdles than Waymo, but they need to prove that a street-parked approach works better than a walkway one. That said, I’m sure they’ll inspire a new crop of vehicles designed for one use and one use only. It’s the modularization of the point of integration. The problem is, they might be too early for the modularization phase. Right now, vertical integration will win the game.

Disruptive effects of autonomous delivery vehicles

One of the most interesting effects is the clear disruptive nature of these vehicles. Most companies are aiming for e-commerce or food and grocery deliveries. That’s, in my opinion, the wrong disruptive approach.

There is entrenched competition in that space. There are myriad logistic companies that are pushing incremental innovations in last-mile deliveries. For autonomous delivery to survive, they need to focus on underserved or non-existent market footholds.

Starship Technologies is a fascinating case. They’ve gone from regular package delivery trials to focus on university and corporate campus deliveries. The move is genius. They’re serving a non-existent market, which welcomes the capacity to deliver goods (let it be food or packages) between buildings. Because there are no competitors, the users have no expectations. This works for Starship, who can develop their technology without performance comparisons. In such scenario, limiting regulations won’t matter much, as having rovers is already a welcome addition.

Intuit Marine Way Building by WRNS Studio and Clive Wilkinson Architects

The critical part here is that autonomous delivery vehicle technology is a disruptive one. The pace of innovation is dramatic. Improvements in sensors, batteries, space allocation and route prediction will make to the market in no time.

“Mr. Blown’s trial showed consumers were open to this new service, but it also revealed some limitations of the robots: they were confined to a three-mile area that the machines had to map out beforehand.
[…]
“At the moment one of our couriers can deliver 50 parcels in one go. With one robot delivering a package in about half an hour, you would need a lot of robots.”

Delivery robots hit the streets, but some cities opt out

The Hermes case is a beautiful example of why this technology will disrupt the logistics industry. So far, limitations on autonomy, mapping and data necessity, speed and cargo caps, will make them underperform. Assuming that this will be the case in a couple of years is a mistake. One that will wipe many couriers. Disruptive technology advances will make it progress way faster than many can predict. Once these technologies make it out of their niches (upscale march), they’ll start competing with traditional couriers, and they’ll win.

Market opportunities

The space is wide open for a plethora of supporting services. 3D Sensing mapping companies will become increasingly important. New delivery companies don’t want to re-map an area but leverage preexistent LIDAR-generated 3D maps. There are several startups already working this approach, most only for roads, but the competition is still wide open for walkways and aerial maps.

Aerial LIDAR capture

Another space that will need some services are geofencing services for municipalities. Cities need a way to register autonomous delivery vehicles, to track them and to create no-fly-no-drive exclusion areas. The most advanced company in this space is AirMap, which does this for the drone industry. Nothing like it exists for ground delivery fleets. That piece will be pivotal to the mainstream adoption of autonomous delivery rovers.

AirMap Capture

Due to the autonomous nature of this vehicles, they’ll need to achieve a certain number of autonomous driven miles before they’re allowed to operate. Simulation software, like the one employed by Waymo, will be critical. Scenarios are different from autonomous cars. Walkways are very heterogeneous and pedestrians too. There will be a need to engineer synthetic scenarios permutations. These alternative scenarios will allow for better testing of the autonomous brain.

Many of these companies though, need to rethink their customers. Going for the sexy e-commerce pie might be a big mistake at this stage. New delivery methods allow them to serve inexistent demand. Becoming adept in these areas will allow them to expand horizontally and attack incumbents from a much more robust position.

It is an exciting new space, whose time is coming faster than many might think. Regulations are in place. Testing pilots are maturing, and scale is being achieved. I wouldn’t be surprised to see some of these vehicles roaming our streets in two to three years. It’s a brave new world, one where humans might be pushed aside if we aren’t careful.

Run, run, the robots are here!

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Is WeWork the real deal?

Is WeWork the real deal?

The way our generation is living is changing. It stands to reason that our needs as individuals are also shifting. However, we resist acknowledging that change is affecting more than just our news consumption habits.

One of those spaces that we refuse to recognize is the transformation of work. The most significant testimony of this shift is the rise of coworking spaces. And within that movement, one brand outshines the rest, WeWork. With a 4.5 billion dollars war chest and a 20 billion dollar valuation, it’s becoming hard to ignore.

Number of coworking spaces worldwide from 2005 to 2018 – Statista

For many, though, WeWork remains a mistake, or a fluke and coworking is just another millennial fad. Detractors are quick to point out that WeWork is an over-glorified Regus. A reseller of office space catered to the hipster echelons of tech society. This speed of judgment is preventing us from understanding why WeWork matters.

The company started as a coworking space but limiting its scope to that is myopic. Many journalists and professionals, though, are quick to dismiss WeWork’s innovative approach.

“WeWork’s coworking spaces give entrepreneurs space to work, and come equipped with amenities like free beer, stocked fridges, and Foosball tables.”

How WeWork became the most valuable startup in New York City

Let’s start with the obvious. WeWork isn’t only about space. If it were, then it wouldn’t have become one of the fastest growing coworking spaces in the world. The devil lies in the details.

Yes, the organization sells space, but not just any space. It acts as a broker between landlords that need to fill their space and companies that are looking for affordable office rents.

Most coworking companies pick any affordable space that allows them to offer cheap rent. This isn’t the case with WeWork. There is a careful study around where and what to rent. This alignment with the space providers allows them to negotiate what others can’t. 

Restricting WeWork’s value to real estate though is still too narrow. The company has been focusing on building community since day one. It’s not about the office; it’s about the sense of belonging. The attention to their tenant’s culture is one of the linchpins of WeWork’s success.

For all the talk about the importance of corporate culture, few organizations achieve healthy ones. In true cargo cult fashion, most companies try to mimic the fancy designs they see elsewhere. Plastering the office with motivational quotes, dropping bean bags or adding ping pong tables won’t do the trick.

WeWork’s attention to community and the fostering of an outstanding culture is unique. As sound designers, they’ve taken a human-centric approach and built their offerings around them.

An excellent example of this is their floor design and architecture. Every corner, every room, every desk is accounted for. They analyze from foot traffic to room occupancy. Nothing is random. They know that building a comfortable environment is critical for culture.

They get things wrong too. This isn’t an ode to the wonders of WeWork either. Growth, especially the one WeWork is undergoing, tends to derail specific details in favor of scale. But overall, their global footprint, design, and attention to certain important aspects of the decentralized office are winning the day.

Maybe one of the most undervalued aspects of the company is this affinity with the rise of the decentralized office. They listen, analyze and react to the new needs emerging from it. They understand the way work is changing, and they’re offering their own Amazon Web Services for the new workers.

It’s tempting to talk about entrepreneurs and startup employees as the new workers. It’s was equally attractive to think that only young people would use and want an iPhone. RIM learned their lesson. Many realtors, coworking owners, and companies are learning their lesson too.

New workers are everywhere. They’re not circumscribed to entrepreneurs. Remote, decentralized professionals are cropping everywhere. Technology is making “working at the local office” a thing of the past. Global competition is forcing companies to slim down their core employees and relay on vertical independent workers. These professionals work globally, require mobility and non-binding contracts. WeWork understands this better than anyone and is happy to oblige.

Owning the value chain

But the most impressive aspect of the company isn’t the coworking; it’s culture, or it’s their understanding of the future of work. The most remarkable point is the vertical integration of their value chain. WeWork isn’t a coworking company; it’s a data startup.

The Aleph Report

The company deploys an extensive IoT network in its buildings. Not only they track foot traffic or room occupancy, but they also analyze how people use their workspaces when they come and go, etc.

Construction Tech

Their data team then crunches these numbers to inform the lower end of their value chain. They’re capable of scouting and vetting their locations semi-automatically. Not only that, they are capable of locking it in and put it into production at tremendous speeds.

“Notably, the company can add space so quickly due to its construction chops and operational efficiency. After a location has been scouted and vetted, and a lease or co-management agreement is in place, the company can accept tenants in as few as 4 months, and on average does so within 9 months.”

WeWork’s $20 Billion Dream

The same information is pushed to their office design process, so they know exactly what to build and how. The construction is greatly enhanced by the use of data, 3D scanning of the space and the use of Building Information Models (BIM). The organization has invested heavily in this space, acquiring two startups to speed up the automation of this first phases.

While apparently this might not be important, their operational improvements regarding speed, stock, and redesigns, allows them to lower their cost of operation and increase their competitiveness beyond many other players. Its end-to-end data approach is unique and rarely seen in the Real Estate industry. They’re applying a startup mentality to the space, not a Real Estate one, hence their valuation.

Upstream integration

But their value chain integration doesn’t only apply to the lower part of the chain, but the upper too. The company is pushing hard beyond the coworking space. One of their early moves was to set up their service platform, WeWork Store. It’s their App Store version for the WeWork family. More locations, more customers. The more substantial their customer base, the better deals and offerings they can give at their store. The better deals they offer, the more customers they attract. Thus building a powerful virtuous cycle that speaks of their aggregation power.

The store was the first natural step. Let’s equip our residents with better tools to do their job. What else does someone need to be happy at work? Easy, personal growth. WeWork is investing heavily in education for their members. They recently bought FlatIron School, a world-class coding academy, and partnered up with 2U, an online education platform. Want to change careers? The company will give you the tools to do it from your office space. Are you under a crushing debt from school? Don’t worry, WeWork has your back with their partnership with SoFi.

The message is clear. Come to WeWork, work with us, and we can help you grow and develop your career path. Aligned with that is their offering of startup accelerator-like services under WeLabs.

There are four things someone needs to be happy at work. A great space (check), access to useful tools (check), education (check) and inspiration from others (check).

The company is doubling down on their vision of what work should look like. They’re providing all the elements that Millennials value from their job.

Amazon Web Service style horizontal integration

WeWork though operates with plenty of risks. Their business model isn’t disruptive, as it’s the same play as Regus. They make money on the arbitrage between what they pay the landlords and what they charge their tenants (2x).

The company has been hard at work to mitigate their risk. One of their best plays has been what they call ‘Power By We.’ It’s their real-estate as a service offering for corporates. Now that they’ve automated most of the value chain, they can offer these same benefits to other landlords. Corporations save on rents thanks to the operational excellence and know-how from WeWork. The company makes money but diminishes their risk as they don’t own or operate these white-labeled spaces.

In other words, they’ve built a horizontal integration mimicking Amazon Web Services (AWS). They can know leverage their initial investment and scale infinitely, keeping their costs down while diminishing their risk.

WeWork isn’t a coworking; they are the data service company for the Real Estate at large.

Future integrations

However, their vision is to provide the ultimate experience for Millennials. I opened this article stating that the way our generation lives is changing dramatically. Work is but one aspect of this shift. A much larger one is that that encompasses our living. We don’t buy houses, we rent. We don’t stay in the same location, we move. We don’t have local friends; we have international ones.

One of the consequences of this transformation is that typical rentals don’t fit the Millennial mindset anymore.

Enter the co-living movement. What if we applied the same culture, community and space designs to living quarters instead of office space? That’s what WeWork has been trying to do with their co-living brand WeLive.

They aren’t the first ones by any stretch. They weren’t the first ones to do coworking either. Nonetheless, their know-how of this ‘co-generation’ might give them an edge on this next wave.

So far they haven’t been doing well with WeLive. Time will say if they end up owning this space too. What’s clear is that they’re experimenting in many ways around the concept.

“The companies’ new joint building in Brooklyn, Dock 72, is a 675,000 square foot Class-A building. WeWork will occupy 222,000 sq ft, while 35,000 sq ft of the building will be devoted to amenities designed by WeWork, including a 13,000 sq ft food hall, a 15,000 sq ft wellness center, lounges, conference rooms, and a rooftop conference center and event facility, among other amenities.”
[…]
“The building also will have its own app to assist in building security, conference center booking, food deliveries, and transportation updates.”

WeWork’s $20 Billion Dream

Last words

It’s easy to dismiss WeWork as the coworking company. But as we’ve seen, the company is pursuing an aggressive and ambitious strategy. They’re taking many risks, but they’re also pioneering some strategic end-to-end advantages that can give them the edge.

The most impressive aspect of WeWork is their bet on the future of the Millennial generation. They might be too early for co-living, but I do not doubt that we will see an explosion of it in the next few years.

Everyone should start watching this space up close as it will redefine many of the things we take for granted. Workspaces are one of them. Logistics is another. But residential space, transportation, ownership, dating or education are others. Radiating from a communal gathering space, myriad altered behaviors will develop and with them, new opportunities for new companies with different business models.

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