Digital sensors – Heart of the matter.

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Apple is creeping up on the medical devices industry. 

  • Apple has taken wearables a step closer to replacing medical devices, but the user experience is still so limited that the immediate term for the medical, devices industry still looks secure.
  • KardiaBand (AliveCor) is a strap for the Apple Watch which incorporates in it a sensor that is capable of producing a full electro cardiogram (ECG).
  • Critically this accessory has been approved by the FDA meaning that it is good enough to be a medical device producing medical data that can be relied on by a doctor.
  • The Apple Watch app that comes with KardiaBand can use the heart rate sensor on the Apple Watch to detect abnormalities and recommend to the user that he records his ECG.
  • Atrial fibrillation is a leading cause of stroke and it is thought that 66% of strokes could be prevented with early detection.
  • It is the signs of this that the KardiaBand app is looking for via the Apple Watch sensor which can then be confirmed through the recording of an ECG.
  • This does not come cheap at $199 for the band and $99 per year for the monitoring service, but if it works as advertised, I think it is a tiny price to pay for avoiding a stroke.
  • However, the use case is not ideal requiring a large metal plate to be present in the device’s strap and it does not offer always on monitoring.
  • This combined with its price means that it will only really appeal to users who are known to be at risk from stroke and it does not enable the replacement of an existing medical device.
  • I see the combination of Apple Watch and KardiaBand as a halfway house as it does not really offer real time monitoring to a medical grade, but it is a step in the right direction.
  • Sensors are becoming the eyes and ears of AI (see here), but almost all sensors are not nearly good enough to produce data that can be used in critical applications.
  • Nowhere is this more true than in eHealth where inaccurate data is useless at best and deadly at worst.
  • This is why there is still a big market for extremely expensive medical monitoring equipment, but I see signs everywhere that this will eventually come to an end.
  • This also explains the problems that the likes of Fitbit, Xiaomi, Garmin and others are having as the data they generate is of such low quality that it can really only be used for recreational fitness.
  • eHealth is where the quest for accurate data begins but I see this quickly spreading to other industry verticals.
  • Accurate sensors are one way to attack this problem but the other is to use better software to clean up and improve less-than-perfect data sources.
  • Google is a good example of this as it can use software to produce better imaging effects in portrait mode with one camera than Apple can with two (see here).
  • Given the substantial rewards that are on offer, I think that investment in improving the quality and accuracy of sensors will only continue to increase in the coming years.
  • This is an area where I would want to be involved.
  • The issue, of course, is to separate the solutions that have real prospects from those that are merely riding the wave of hype and easy investment.

Amazon – Size 12s

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Amazon is stomping on Microsoft’s patch.  

  • With the launch of Alexa for Business, Amazon is stomping with its size 12s all over the territory of its supposed new best friend, Microsoft and its digital assistant, Cortana.
  • Alexa for Business is expected to be launched next week at the AWS reinvent conference and will allow businesses to build their own skills for the digital assistant that can be used in a work context.
  • It will also feature all of the normal functionality such as enquiries and smart office and is expected to feature partners like Concur and WeWork at launch.
  • This has the scope to both generate more skills and applications for the Alexa digital assistant but also to generate increasing loyalty to AWS.
  • Some of these skills are likely to include integration with Office functionality such as calendar management, meeting room scheduling and so on.
  • If this takes off, there is no reason why this should not spread to the desktop and deeper into Microsoft’s core asset Office.
  • The issue here is that Microsoft already has a digital assistant called Cortana, and with Microsoft’s increasingly dominant position in the enterprise, this would seem to be an obvious opportunity for Cortana.
  • However, Cortana is struggling because it was originally designed to run on Windows Phone meaning that many of the skills that it has been taught are not relevant with the assistant sitting on the desktop.
  • Furthermore, Amazon and Microsoft recently announced a partnership where users will be able to ask Alexa to ask Cortana to do something and vice-a-versa.
  • Given Microsoft’s focus on the enterprise, I have been under the impression that the future for Cortana would be in the enterprise where it can be deeply integrated into Microsoft’s market leading apps.
  • At the same time, I assumed that the partnership would offer Amazon a way to use Alexa on the PC and in the enterprise.
  • However, it seems that Amazon is short-cutting its partner by going for the enterprise completely independently of its partnership with Microsoft.
  • The one area where Microsoft has a more relevant product than Amazon is in AI, where RFM has estimated that Microsoft is ahead of Amazon.
  • Consequently, I can see an eventual collaboration where Microsoft’s AI is used to drive Alexa’s services in the enterprise.
  • The only problem here is that this could result in cross over between Microsoft and Amazon Web Services who are fierce competitors in the cloud.
  • Hence, a deepening of this collaboration looks increasingly unlikely as this move puts Amazon against Microsoft in a new area in addition to the cloud.
  • Although Amazon appears to be getting the better of Microsoft, I still cannot stomach the valuation leaving me with a strong preference for Microsoft’s shares.

Uber – Annus horriblis

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Even at $54bn, no shortage of sellers.

  • While attention is focused on SoftBank’s moves to take a 13-15% stake in Uber, the deterioration of Uber’s fundamentals is a warning that its dominant position may already be slipping.
  • Q3 17A revenues were $2.01bn up 21% compared to $1.66bn in Q2 17.
  • However, net losses grew faster with Q3 17A net losses at $1.46bn, up 38% from the $1.06bn it lost in Q2 17A.
  • This represents a deterioration in net margins to a loss of 73% from a loss of 64% in Q2 17A.
  • Given the year that Uber is having (see here) it is possible that the losses have been increased by non-operational items such as compensation payments and restructuring.
  • However, these headline figures come from an investor communication (via Bloomberg) which typically will exclude costs and benefits that come from non-operational sources.
  • Hence, I suspect that the 870bp decline in margins is operational in nature and represents a deterioration in the company’s underlying performance.
  • This should be of huge concern because if its home market is going to descend into a bloodbath of cutthroat competition, then Uber is going to be raising a lot more money and most likely at much lower valuations.
  • I am quite surprised to see such a deterioration as despite Lyft’s recent increases in share, Uber is still hugely dominant in its home market, USA.
  • So far in 2017 Uber’s lack of focus has led to Lyft being able to confidently expect to improve its market share to 33% from 20% at the beginning of the year.
  • This leaves Uber on 66% which based on my rule of thumb for network based businesses, is still enough to eventually win the market, but its margin for error has been substantially reduced.
  • This rule of thumb states that a company that relies on the network must have at least 60% market share or be at least double the size of its nearest rivals to begin really making profit (see here).
  • Coming into 2017, Uber had a 20% cushion before Lyft could really start causing it some problems, but this cushion has now been reduced to just 6%.
  • Uber’s figures are implying that Lyft is beginning to impact Uber’s ability to make money which I think is a real problem.
  • Google is now Lyft’s biggest backer as it represents the best way for it to get its self-driving technology (Waymo) to market.
  • As of Q3 17, Google has $100bn of cash on its balance sheet giving Lyft potentially much deeper pockets than Uber.
  • This combined with how much it has closed the gap on Uber over the last 9 months, means that Lyft is now a real threat.
  • To me, this is a much more important issue because if Lyft is able to impact Uber’s financials, it means that its hallowed status of market dominance has already been lost despite my rule of thumb.
  • This is critical because Uber’s $70bn valuation compared to Lyft on $11bn is based on its dominance of the market and the unassailability of its network effect.
  • Consequently, I feat that the real valuation of Uber may be far lower than even the $54bn that SoftBank is offering existing shareholders to purchase some of their stock.
  • These investors include Benchmark and Menlo Ventures who may have already have arrived at this view and concluded that $54bn is a great exit price.
  • Hence, I still expect there to be no shortage of sellers at this lower valuation.

Verizon / Yahoo – Digital desert.

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No last hurrah for Yahoo.

  • Despite its recent acquisition by Verizon, the decline of Yahoo’s assets seems to be accelerating, further underpinning my long-held position that Verizon substantially overpaid to acquire them.
  • At the same, it also reinforces my opinion that Marissa Mayer’s last actions at Yahoo were by far her best in terms of delivering value to shareholders (see here).
  • Two of Yahoo’s assets are showing accelerating signs of decline.
    • First, Tumblr: Shortly after Yahoo’s $1.1bn purchase in 2013, activity at Tumblr peaked and has been in decline ever since.
    • The change in ownership has made no difference that I have seen.
    • Once Tumblr’s founders and owners had been paid, they had no incentive to continue pushing the platform forward resulting in drift and decay.
    • At its peak in 2014, there were 106m new posts every day which has now collapsed to 35m from where it is still falling.
    • Blog posts (a subset of all posts) has also fallen substantially (45%) to 130,000 per day indicating that key content creators have gone elsewhere.
    • Furthermore, Yahoo has written off $712m of the investment it made, and Tumblr’s founder Alex Karp has announced that he will be leaving at the end of the year.
    • I very much doubt that Verizon has the management bench strength to turn this around leaving the outlook as very bleak.
    • Second, Yahoo Groups: This is a social networking system that is still quite popular with businesses, schools and so on due to its deep integration with email.
    • However, the system has been plagued with technical problems and downtime for over a week.
    • The issues began on November 17th and were not fully rectified until November 25th.
    • Digital Life services upon which users rely need to be as reliable as telecom networks meaning that even downtime of a few hours can have far reaching effects.
    • Taking 8 days to fix basic functionality is unheard of among Internet companies.
    • To me, this is a sign of how little what remains of Yahoo seems to care about retaining usage.
    • As a result, businesses moved their Black Friday promotions to Facebook and many other users are now seeking alternatives.
  • When this is combined with what was the biggest hack in history resulting in the probable compromise of every single account that Yahoo has, it is clear that there is very little point in living one’s life with any of Yahoo’s remaining Digital Life services.
  • Consequently, I expect the drift of users away from the platform, to better and more secure alternatives, to accelerate leaving Verizon with a series of deserted digital properties.
  • On top of Yahoo, Verizon already owns AOL and is trying to rebuild its Go90 mobile video service using the team and assets acquired from Vessel in 2016.
  • The problem I have with Verizon’s strategy is that it was very late to the game meaning that it has ending up acquiring all of the assets that no one else wanted.
  • Furthermore, Yahoo and AOL have both badly failed to generate any traction on mobile but somehow Verizon seems to think that putting all of these together will create a thriving ecosystem.
  • This is of course possible, but if Yahoo was unable to hold onto the talent capable of executing this dream, I think that Verizon has very little chance.
  • This view is supported by the fact that instead of flourishing, the Yahoo assets seem to be accelerating their demise under Verizon’s ownership.
  • The result is likely to be a hefty write down of the assets that it paid $4.5bn for and their eventual closure or distressed sale consigning Yahoo to the annals of history.

E-commerce – Look East.

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In mobile, China is more developed than USA.

  • Comparing China’s Singles Day against Brown Thursday, Black Friday and Cyber Monday in USA reveals just how much more advanced the development of the mobile online consumer economy is in China.
  • The first figures for Brown Thursday Black Friday are coming in with Adobe estimating that $7.90bn (Gross Merchandise Value, (GMV)) was spent online with another $6.6bn expected to come on Cyber Monday.
  • Of the $7.90bn, 37% of the revenue was produced by a mobile device of which 70% was transacted via a smartphone (26% total turnover).
  • While these figures are the best ever for the USA in terms of total turnover and smartphone share, they pale into insignificance when compared to Singles Day in China.
  • Between them, Alibaba and JD.com make up 87.2% of all B2C e-commerce in China and on Singles Day they racked up $44.7bn in GMV.
  • In just one day Chinese e-commerce turned over 5.7x in GMV than the two US days put together.
  • If one includes the expectations for Cyber Monday, then the total US holiday shopping period is dwarfed by a factor of 3 to 1.
  • Furthermore, 90% of all of Alibaba’s GMV was transacted on a mobile device and AliPay handled a total of 1.5bn transactions.
  • It is clear that a big discrepancy here is that Singles Day a recently created, online-only event whereas Black Friday has been going since 1952 and remains mostly an offline event that’s is slowly migrating to online
  • However, the scale of the difference between the two clearly demonstrates that when it comes to online transactions and mobile, China is far more developed than USA or other developed markets.
  • I have long believed that there are two main reasons for this:
    • First: the offline experience in China is very poor.
    • This is the case for many sectors but particularly in retail.
    • Chinese offline retail is a fragmented and frustrating experience where decent service and information with regards to inventory, product lines and so on is routinely not available.
    • When an online offering appears where this information is clear and one is able to easily purchase goods and know when they will be delivered, shoppers quickly adapt.
    • Hence, Chinese consumers have very quickly adapted to online shopping as the experience and ease of use is far superior to offline.
    • Second: China is a mobile first market.
    • Cellular connectivity in China has better penetration of broadband connections, higher throughput and lower latency than fixed Internet (see here).
    • Consequently, mobile is the first choice for Chinese users as it almost always offers a better user experience.
  • This is also why we have begun to see reversal of the direction of innovation in mobile services.
  • Historically, Chinese companies have copied ideas pioneered in Developed Markets, but this hs changed meaningfully.
  • For example, many of the innovations that are being put into instant messaging platforms by Facebook, Snapchat, Apple and so on are already available in WeChat, LINE, Kakao-Talk etc.
  • This is a trend I expect to continue going forward.
  • China remains dominated by the BATmen of whom I have preferred Tencent for the last 15 months.
  • However, given its rally and its apparent slowness to monetise its ecosystem fully, I am beginning about switching into Alibaba.

 

Uber vs. Lyft – Blood in the water

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This is Lyft’s best chance to catch Uber. 

  • With yet another skeleton emerging to hinder Uber, Lyft is increasing its recent fund raising by $500m as I think it has realised that now is its best chance to reel in Uber.
  • Lyft has increased its recent $1bn round that was led by Google and CapitalG by another $500m bringing the total post-money valuation to $11.5bn.
  • The extra money will be invested in passenger and driver products which I think basically means reducing the fares and increasing driver take-home in a bid to gain market share.
  • 2017 has been a great year for Lyft but only because Uber has pretty much had the worst year imaginable.
  • Constant turmoil, management turnover, bad press, unhappy drivers and a series of scandals has led to the company focusing on anything but its core business in 2017.
  • This has taken another downward lurch with the disclosure that it suffered a data breach on 57m users and failed to make the users aware that their data had been compromised.
  • This is exactly the kind of bad press that Lyft can capitalise on when it comes to tempting existing Uber users to consider trying Lyft.
  • So far in 2017 this has been very successful as Uber’s lack of focus has led to Lyft being able to confidently expect to improve its market share to 33% from 20% at the beginning of the year.
  • This leaves Uber on 66% which based on my rule of thumb for network based businesses, is still enough to eventually win the market, but its margin for error has been substantially reduced.
  • This rule of thumb states that a company that relies on the network must have at least 60% market share or be at least double the size of its nearest rivals to begin really making profit (see here).
  • Coming into 2017, Uber had a 20% cushion before Lyft could really start causing it some problems, but this cushion has now been reduced to just 6%.
  • Furthermore, with Google is now backing Lyft as the best way for it to get its self-driving technology (Waymo) to market, this gives Lyft much deeper pockets than it had previously.
  • This combined with how much it has closed the gap on Uber over the last 9 months, means that Lyft is now a real threat.
  • If Lyft can take another 6% or more of market share from Uber, Uber will have lost its hallowed status and as a result I would expect its financial performance to deteriorate materially.
  • All of this plays in Lyft’s favour as Uber’s reputation is now in such a bad state that it has to tread very delicately wherever it goes.
  • This means that the aggressive expansionism that gave Uber its dominant share is no longer possible handing all the initiative to Lyft.
  • I have been very negative on Lyft to date as its position looked hopeless but with Uber constantly shooting itself in the foot has given it a fighting chance.
  • There is no way I can justify a $70bn for Uber given this outlook, and if Softbank is offering this to shareholders to build its stake, I think this represents a great opportunity to exit.

Apple – No Nirvana

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Vrvana unlikely to accelerate Apple’s AR.

  • Apple’s acquisition of Vrvana is the best sign yet that it is intending to get involved in hardware for augmented and virtual reality, but Vrvana is extremely unlikely to be able to accelerate its time to market.
  • Vrvana is a start-up based in Canada that launched a headset called the Totem which received good reviews but never shipped.
  • I suspect that the device never shipped because the company could get its headset to a high-enough level of quality and reliability to make it in the marketplace.
  • Its Kickstarter campaign was pulled as the company realised that its product would never meet the funding goals.
  • Furthermore, the Totem headset itself looks like a lot like a DIY project and is nothing that I would ever expect Apple to ship.
  • Hence, I suspect that Apple’s interest in Vrvana is more about the technology that Vrvana has used to create the Totem which includes:
    • First: the Vrvana Totem is capable of both AR and VR in the same unit.
    • It is able to do this by superimposing the real word onto the virtual which is the opposite of how almost everyone else does it.
    • Instead of having transparent lenses through which the real world can be viewed, it uses cameras to record the real world and superimpose them onto the virtual.
    • There is one camera for each eye such that depth perception of the real world can be maintained through standard stereopsis techniques.
    • Second: because the real-world images are being digitised before being mixed in with virtual images, the virtual images can be completely opaque.
    • In every other AR system I have seen, the virtual images are always somewhat translucent which reduces their ability to appear real as one can always see the real world behind them.
    • Consequently, using this set-up there is scope to mix the virtual and the real world more realistically.
  • This is what I think has interested Apple as the hardware itself is clunky, cumbersome and unattractive to look at.
  • The issue with implementing AR this way around, is that the user is still completely closing himself off from the real world and the head unit used is likely to be far more obstructive than a simple pair of glasses.
  • Consequently, I see this acquisition as highly speculative on Apple’s part with a high probability that this technique for AR ends up being discarded.
  • Given the difficulties being faced by everyone in the AR field (see here), I do not see Apple being ahead of the field nor do I think that this acquisition will accelerate its time to market.
  • The net result is that while Apple is right to explore the possibilities of AR, I suspect that there is no concrete intention to launch a unit.
  • I see this activity much like the vehicle or the television which were experiments that failed to stand up to the scrutiny of market reality.
  • Consumer AR is likely to remain a prisoner on the smartphone for the foreseeable future where no one looks capable of effecting a prison break any time soon.

Sonos – Sounds of sameness pt. III.

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Sonos is now just another speaker maker.

  • Sonos has finally enabled Alexa voice control and Spotify support in its speaker systems thereby ensuring that it will now be competing purely on the quality of its hardware.
  • The Sonos One is Sonos’ first voice-activated speaker which has received rave reviews for its sound quality, but very little else.
  • This is because this device uses Amazon’s Alexa to control its functions and is adding support for streaming services like Spotify and Tidal with increasing regularity.
  • While this is exactly what is required to sell speakers in this day and age, it is confirmation to me that Sonos has completely lost its mojo.
  • Sonos was very early into digital music streaming around the house and developed a suite of software that made multiroom music possible.
  • While this was a novelty, Sonos achieved differentiation and was able to charge a premium price for its high-quality audio products with this functionality.
  • Unfortunately, Sonos has squandered the lead that it had and instead of using its lead to maintain its differentiation, it focused on trying to lock users into its products.
  • It tried to do this by only allowing users to access popular services such as Spotify, Amazon and so on via its own app.
  • The idea was to create a compelling user experience such that users would choose a Sonos even if something of equivalent quality was available at the same price point.
  • Unfortunately, this is where it has all come unstuck as Sonos’ ecosystem delivers a frustrating, buggy and substandard user experience that I think users would not use if they had a choice.
  • By enabling both Spotify Connect and Amazon Echo, Sonos has removed the requirement for users to use its software which I think is a sign that it is giving up on trying to create user preference around an ecosystem.
  • Because Amazon Echo and Spotify Connect are keen to work with any speaker on the market, Sonos’ differentiation now becomes: audio quality and design.
  • Multiroom functionality is now table stakes in the home speaker game.
  • Hence, I see Sonos’ only chance is to either
    • First: invest in cool new hardware features and stay ahead of its competition to maintain its price premium or
    • Second: to go for volume and gain scale advantages by significantly outselling its rivals.
  • Both of these will be extremely difficult to achieve as much bigger and stronger rivals are all investing in producing great audio quality in a small package and the market is rapidly fragmenting given the low barriers to entry.
  • Given Sonos’ current position, I think that both of these options would have required a bold strategic move from Sonos that would probably have had the most chance of success if it had appointed an outsider as CEO rather than its COO.
  • Hence, I think Sonos now has nothing to differentiate it from Apple HomePod, Google Home Max and so on meaning that its only weapon will become price.
  • I think that this is big problem because its larger and more powerful rivals are more than capable of subsidising these products in order to push their ecosystems deeper into the home.
  • The net result of this is likely to be a weakening of Sonos’ financial position to the point where one of the larger players is able to buy it at a discounted valuation.
  • I see Samsung, Apple, Sony, Tencent and Amazon as potential acquirers.

Google – The colour purple.

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Fuchsia could replace Android Auto and Android Wear.  

  • Google’s mysterious operating system Fuchsia is starting to take shape with the addition of a user interface as well as support for programming languages that are used to create both Android and iOS apps.
  • What was first noticed as a few lines of script is gradually reaching the point where it could be suitable to run a large range of digital devices leaving me wondering whether this is its answer to the endemic Android fragmentation problem.
  • Fuchsia was first noticed on GitHub in August 2016 and differs from Android in that it is not based on Linux but on a kernel called Magenta which looks more like a kernel that is typically used for embedded systems such as vehicle infotainment units, white goods and so on.
  • Fuchsia is also a real-time operating system (RTOS) which tend to be used for smaller systems which are typically embedded where response time is critical to the user experience.
  • Windows, Linux, Unix and so on are less time critical and are designed to run multiple tasks at the same time on much more powerful hardware.
  • This is the one thing that makes me question the suitability of Fuchsia to replace Android as other factors make it look a lot like an Android replacement:
    • First, user interface: the user interface (Armadillo) that has been added looks a lot like what one would expect from a smartphone with a touch-based input system and card-based user experience design.
    • Second, Swift support: Recent code contributions by Google indicate that it is working to include support for the Swift programming language which can be used to create apps for all of Apple’s operating systems.
    • This is a significant step as it implies that Google is working to make it as easy as possible for developers to have their apps running on Fuchsia.
    • Developers often develop for Apple before turning their attention to Android due to the better economics that exist for them on iOS.
    • This support could allow them to publish on Fuchsia at the same time with no incremental effort.
    • This kind of support has been promised many many times in the past but no one has really delivered it in practice.
    • Third, obsolescence: looking at the history of Symbian, it became unusable 12 years after its creation as the core upon which it was built become obsolete and impractical to upgrade.
    • Android will be 12 years old in 2019 raising the possibility that it, too, may become obsolete requiring a complete rewrite from scratch.
  • My take home from this analysis is that Fuchsia looks most suited to be used in embedded systems such as vehicles, white goods, machinery, wearables and so on.
  • Consequently, this could be a single replacement for Android Auto and Android Wear, both of which are not ideally suited (because they are Android forks) for the use cases for which they were designed.
  • Hence, I think that it is unlikely that Fuchsia will replace Android on smartphones and tablet, but the possibility is there should Android start to struggle with obsolescence.
  • Given, its current stage of development, I would expect Fuchsia to make a real appearance in 2019 rather than 2018.
  • In order to solve the Android fragmentation problem Fuchsia would need to be closed down by Google and used to replace Android on smartphones which at the moment looks like a big stretch.
  • Therefore, I still think that a complete closing down of Android to become a proprietary OS is how Google will solve the fragmentation and updating problems that are crippling the user experience on Android.

Alibaba – Offline grab.

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Alibaba is very different to Amazon.

  • I think Alibaba’s investment in Sun Art has nothing to do with Amazon’s strategy with Whole Foods, and everything to do with the woeful state of the offline transaction experience in China.
  • Alibaba intends to invest $2.9bn in Sun Art, a hypermarket operator which has 446 stores in 224 cities across China and turnover of around $16bn.
  • Alibaba will acquire a 36.2% stake in the company which to date has operated as a j.v. between French retailer Auchan and Taiwanese conglomerate Ruentex Group.
  • Offline retail in China is still massive at $4.5tn despite the rapid expansion of e-commerce and is a great example of why online and mobile have been so successful in the Chinese market.
  • Chinese offline retail is a fragmented and frustrating experience where decent service and information with regards to inventory, product lines and so on is routinely not available.
  • Consequently, when an online offering appears where this information is clear and one is able to easily purchase goods and know when they will be delivered, shoppers quickly adapt.
  • It is the terrible offline experience with regards to almost everything that has allowed so many other goods, services and activities in China to rapidly migrate from offline to mobile.
  • I think that Alibaba’s strategy with Sun Art is all about turning it into a high quality and efficient retailer using the technologies and logistics expertise that it has gained with the development of its e-commerce business.
  • This is very different to Amazon and Whole Foods as Whole Foods already provides a pretty good and reliable retail experience with good logistics.
  • I think that Amazon’s interest in Whole Foods is about ensuring that there will be enough volume in perishable items to give it the scale to push more and more groceries through its site.
  • In effect, Amazon has acquired a huge customer for that business to give it critical mass so it can economically expand groceries to its online customer base.
  • In contrast, I think Alibaba is doing something very different in making a play to take a big piece of the Chinese offline market.
  • If Alibaba can make Sun Art and its other partners like In Time and Lianhua Supermarket superior to then these stores should begin to gain market share over their rivals.
  • Given that Chinese retail is such a vast market, steady market share gains here has the scope to keep growth going at Alibaba (albeit at lower margins) once e-commerce begins to slow down.
  • It also offers Alibaba the opportunity to move other sectors of retail online once it has licked them into shape.
  • Hence, I think this move makes complete sense for Alibaba as there is a very clear opportunity for it in China which is completely different to that being followed by Amazon.
  • I am warming up to Alibaba as it is beginning to understand the importance and opportunity presented by the data its digitall assets generate.
  • While it is behind Tencent in Digital Life coverage, I am increasingly of the opinion that it is moving more quickly to understand the opportunity offered by the digital ecosystem.
  • Hence, when Tencent runs out of steam, I will be considering this one very carefully as a possible switch.