This week, I’ve tried to do something new at TechCrunch with this experimental column — getting obsessed about a topic broadly in tech and writing a continuous stream of thoughts and analysis about it.
With my research consultant and contributor Arman Tabatabai, we’ve covered two topics: Form Ds, the filing that startups usually submit to the SEC after a venture round closes (although increasingly do not), and SoftBank, which faces all kinds of strategic pressure due to its debt binging. If you missed the other episodes, here are links to the editions from Monday, Tuesday, Wednesday and Thursday.
We are experimenting with new content forms at TechCrunch. This is a rough draft of something new — provide your feedback directly to the authors: Danny at email@example.com or Arman at Arman.Tabatabai@techcrunch.com if you like or hate something here.
Today, one final round of thoughts on SoftBank and Rakuten (heavily written by Arman) and a lengthy list of articles for your weekend reading.
The Rakuten factor complicates SoftBank’s strategy
Understanding SoftBank’s competitive strategy requires a bit of a deep dive into Japanese e-commence giant Rakuten.
Rakuten has been struggling to compete with Amazon and others like SoftBank’s Yahoo! Japan. So at the end of 2017, Rakuten announced it would be entering the telco space, hoping that operating its own network could generate user growth through better incentives around mobile shopping, streaming and payments.
Today, Japan’s telco space is a relatively cozy oligopoly dominated by NTT DoCoMo, au-KDDI and SoftBank. A major reason why Rakuten feels it can succeed where others have failed to break in is because it has the government on its side.
Rakuten’s plan to offer prices at least 30 percent lower than incumbent rates has led to favorable treatment from Prime Minister Shinzo Abe’s government, which has been looking for ways to stimulate market competition to force lower the country’s high phone prices.
Though a new entrant hasn’t been approved to enter the telco market since eAccess in 2007, Rakuten has already gotten the thumbs-up to start operations in 2019. The government also instituted regulations that would make the new kid in town more competitive, such as banning telcos from limiting device portability.
Rakuten’s partnerships with key utilities and infrastructure players will also allow it to build out its network quickly, including one with Japan’s second largest mobile service provider, KDDI.
Just last week, Rakuten and KDDI announced an agreement where Rakuten will help KDDI utilize its payment and logistics infrastructure as KDDI turns its head toward e-commerce and payments, while KDDI will give Rakuten access to its network and nationwide roaming services, allowing Rakuten to provide nationwide service as its builds out its own infrastructure.
The agreement with KDDI is especially scary for SoftBank, the country’s third biggest telco and one of Rakuten’s e-commerce competitors, and whose customers seem most vulnerable to churn. The partnership also makes it seem even more likely that SoftBank’s competitors are looking to push it out of the market or turn into a dud its upcoming mobile segments IPO.
While Rakuten’s head-first dive into the market won’t ease investors into an IPO, it’s important we note that Rakuten is targeting a much smaller market share than the incumbents, targeting 10 million subscribers by 2028, a number lower than the company’s original 15 million subs goal and significantly lower than the 76 million, 52 million and 40 million subscribers NTT, KDDI and SoftBank (respectively) hold currently. And even with its agreements, Rakuten faces a serious and expensive uphill battle in building out its network infrastructure quickly enough to compete.
Ultimately, Rakuten’s telco initiative is a splash, but one that seems like it will merely make its competitors wet and not drown them. For SoftBank, it is an annoying distraction on its telco IPO roadshow, but a distraction that is easily explained to potential investors.
SoftBank growth over the past two decades
Changing gears from Rakuten, emails from readers this week asked us to look deeper into SoftBank’s performance over the last two decades. As we did so, it became clear that SoftBank has had a long history of price competitions and new entrants across its businesses, and it has proven its ability to operate and consistently grow earnings.
Since 2000, SoftBank has grown earnings at a ~30 percent CAGR and experienced revenue growth in all but one year. When eAccess did enter the telco market and picked up four million subscribers, SoftBank bought it and integrated it into its own system.
As we discussed earlier this week, despite having always held on to a clunky amount of debt, SoftBank has managed to deliver consistent growth by making sure its revenue and operating growth outpaced the upticks in its debt and interest expense.
A great example of this came after SoftBank’s acquisition of Vodafone in 2006, when it saw a huge spike in its interest expense, but also in its operating income.
Over the following five years, SoftBank managed to reduce its interest expense at an annual rate of 12 percent while growing its operating income at 16 percent. And regardless of its debt balances, SoftBank has always seemingly been able to secure funding one way or another, as shown by its ability to raise $90+ billion for the Vision Fund in less than a year from when plans for the fund were first reported.
The Vision Fund itself started as a way for SoftBank to continue to invest while its balance sheet was tight due to nearly back-to-back massive acquisitions of Sprint and Arm. Just look at how Rajeev Misra, who oversees the Vision Fund, discussed its creation in an interview with The Economic Times:
We had just bought ARM in June for $32 billion and Masa felt we are on the cusp of a technology revolution over the next 5-10 years with machine learning, AI, robotics and the impact of that in disrupting every industry – from healthcare to financial services to manufacturing.
We felt the world was going through a new industrial revolution. We were constrained financially given that we just did a $32-billion acquisition.
SoftBank, historically over the last 20 years, has invested from its own balance sheet. So, we had two options.
Either monetise some of the gains we made in Alibaba which we decided has a lot more upside… Alibaba has more than doubled in the last 12 months. So we decided to keep it which turned out to be good decision. The second option was to go out and raise money and co-invest with others. We prepared a presentation, went out, and by god’s grace we raised the fund.
Even before the Vision Fund, SoftBank has always had a strategy to make big bets in industries of the future. And while many have failed, the several that have paid off, like its $20 million investment in Alibaba, had massive cash outs that have driven consistent earnings growth for decades. SoftBank seems to be banking its future on the same strategy and, frankly, it’s unclear how much they even care about how competitive their telco is, as shown by this exchange in the same interview with Misra:
Question: What about sectors like telecom?
Misra: Let the dust settle.
Our obsession with SoftBank this week is probably going to subside, and we are in the market for our next deep dive topic in tech and finance. Have ideas? Drop us a line at firstname.lastname@example.org and email@example.com
Thoughts on articles (i.e. weekend reading)
The CIA’s communications suffered a catastrophic compromise. It started in Iran. This is a great follow-up from Yahoo News’ Zach Dorfman and Jenna McLaughlin on one of the most important espionage stories this past decade. The CIA, using an internet-based communications system to connect with spies and sources in the field, failed to keep the security of the system intact, leading to the dismantling of its Iranian, Chinese and potentially other espionage rings. This article advances the story as we know it from the New York Times’ original piece, and Foreign Policy’s excellent follow up also written by Zach Dorfman. Definitely worth a read from a security/technical audience. (3,200 words)
The $6 Trillion Barrier Holding Electric Cars Back. Don’t read — the answer is infrastructure. (1,000 words, but should be one)
The Rodney Brooks Rules for Predicting a Technology’s Commercial Success. A a good reminder that some technologies are much closer to reality than others, and that the key difference between them is our collective experience handling the technology. Rodney Brooks is the right person to cover this subject, although one can’t help but feel that every example is Musk-inspired. (2,800 words)
Uber’s economics team is its secret weapon by Alison Griswold & Soon there may be more economists at tech companies than in policy schools by Roberta Holland, both in Quartz . Griswold does a great job giving an overview of how Uber is using economists not just to improve its product for end users, but also to shape the discussion of public policy around the company. Clearly, Uber is not alone; as Holland notes in her piece, academic economists are very popular in Silicon Valley right now, with salaries that can match the top machine learning experts. (2,750 words and 1,200 words, respectively)
The future’s so bright, I gotta wear blinders. A short piece by Nicholas Carr fighting back against the notion that computing is still “at the beginning.” Many of our devices and pieces of software are already decades old — if they haven’t had an effect on human behavior or productivity, when are they going to? A useful antidote to some ideas we hear from the Valley every single day. (900 words)
The future of photography is code. Yes, yes, I am very late to this — blame Pocket disease. TechCrunch’s own Devin Coldewey writes a candid essay on the transition from improving photography through hardware like lenses to improving photos through computation. The future is looking very bright for beautiful photos, indeed. (2,400 words)
Freedom on the Net 2018 | Freedom House. And if you are looking for some depressing news, Freedom House’s report (which I am also a bit late to) is dreary. China is now increasingly the source of authoritarian internet control technology, and countries across the world are backtracking on internet freedom (including the U.S.). Sobering, but with so much riding on the openness of the internet, we all need to pay attention and build the kind of future for this technology that we want. (32 page PDF with exec summary)
What we are reading (or at least, trying to read)
Amazon assembles video streaming apps to fight with Netflix and Disney in India – TechCrunch
Amazon has launched Prime Video Channels in India, allowing its customers to subscribe to eight streaming services including Discovery+ and Mubi from one hub (Prime Video website or app), the latest in a series of efforts by the U.S. giant to win customers in the South Asian nation.
The new offering makes it easier for users to login and pay for additional streaming services, the company said. To make things more enticing, Amazon said the services are available at discounted prices for the first year. Discovery+ costs $4 per year, Mubi $27, Hoichoi ($8.2), DocuBay $6.8, ErosNow $4, Lionsgate Play $9.5, manoramaMax $9.5, and ShortsTV $4.
The company, which is currently at the centre of several controversies in India, did not share how much of the revenue it is taking from the streaming services and the duration of the partnerships. India is the 12th market where Amazon has launched Prime Video Channels.
Friday’s launch will likely be more beneficial to the third-party streaming services, all of which are struggling to make inroads in India, than Amazon itself. Discovery+ has amassed fewer than 4 monthly active users in India on mobile, Mubi has fewer than 100,000, DocuBay has fewer than 50,000, ErosNow has fewer than half a million, Lionsgate Play and manoramaMax each has fewer than 750,000, according to mobile insight firm App Annie (the data of which an industry executive shared with TechCrunch).
“With the launch of Prime Video Channels, we now take the next big step in our journey to entertain India by creating a video entertainment marketplace – first of its kind in India – which will not only delight our customers by giving them even more entertainment choices, but also benefit the OTT Channel partners who collaborate with us to leverage Prime Video’s distribution, reach and tech infrastructure,” said Gaurav Gandhi, Country Manager of Amazon Prime Video India, in a statement.
Amazon’s Prime Video, which has amassed over 55 million monthly active users in India, competes with Netflix, Disney’s Hotstar and Times Internet’s MX Player in the country. Both Hotstar and MX Player have established larger reach than Prime Video in India, and Netflix has courted most elite customers in the country.
The e-commerce group, on its part, has attempted to push for more reach by securing some rights to cricket matches — though the vast majority of those rights are still owned by Hotstar — and has also launched a free, ad-supported streaming service.
Livestream video shopping app NTWRK raises $50M from Goldman Sachs, Kering – TechCrunch
NTWRK, a video shopping app that has helped to popularize the idea of livestreamed commerce in the U.S., announced today it has closed on $50 million in new funding led by Goldman Sachs Asset Management and global luxury group Kering, owners of luxury brands Gucci, Yves Saint Laurent, Bottega Veneta and others. The company has been working to capitalize on the growing interest in live commerce and creator content, and shifted into live virtual events and festivals as COVID-19 ravaged the U.S. last year. Now it says it will invest in furthering its growth and working to establish a more global footprint.
Other participants in the new round include LionTree Partners and Tenere Capital. They join the company’s prior backers: Main Street Advisors (whose investors include Jimmy Iovine, Drake and LeBron James), Live Nation, Foot Locker and others. Allison Berardo, a vice president within the Growth Equity business within Goldman Sachs Asset Management, will join NTWRK’s board of directors.
Aimed at a younger crowd of Gen Z and millennial consumers, NTWRK offers tools that allow creators to interact with viewers and sell products in real time, in what’s been called a mix of QVC, Twitter and Twitch. The experience blends commerce with entertainment, as viewers watch and chat with other viewers and hosts in real time, as they shop for streetwear, shoes, collectibles and other items. The company has also created its own exclusive content where it has featured hosts like Billie Eilish, Juice WRLD, DJ Khaled, Odell Beckham Jr., Eddie Huang, Blake Griffin, Alexander Wang, FaZe Clan, Nadeshot, Jonah Hill, Gary Vee, A$AP Ferg, Wu-Tang Clan, Doja Cat and others. (It even invested into FaZe Clan last year, we should note.)
Its business model extends beyond just offering live video shopping that you can tune into at any time, as it also regularly features product drops that work to build up anticipation and excitement. This sort of feature is only now making its way to larger social media platforms, like Instagram, which introduced drops just this spring.
NTWRK has also embraced live events and virtual festivals as another way to engage audiences. Last year, for instance, it ran TRANSFER, which featured 30 brands and artists, panels, interviews, DJ sets and musical performances. It also ran BEYOND THE STREETS, a virtual art fair that attracted over 250,000 attendees. Earlier this year it ran a two-day designer toy and collectibles festival, Unboxed, as the first of a slate of digital events which have subsequently run throughout the year, including Surface Festival, a virtual food festival and a virtual home goods festival. It’s now gearing up for the return of its flagship event, TRANSFER.
This summer, NTWRK also embraced the world of digital goods with the launch of NTWRK NFT, its own curated shop for unique crypto art from creators like BADBOI, Imaginary Foundation, MILKMAN, Young & Sick, Fafi, KidEight, MGOGLKTKO and Eddie Gangland.
Livestream shopping is already a popular activity overseas, but is still gaining ground here in the U.S. The company, in announcing its news today, noted that livestream shopping in China reached $150 billion in 2020 and is expected to grow to $300 billion this year. But in the U.S. it’s expected to reach $11 billion by the end of 2021 and $25 billion by 2025, leaving much room for growth.
“Our vision is to become the biggest, most culturally relevant, livestream shopping marketplace for Gen-Z and Millennial audiences who are obsessed with pop culture,” said NTWRK CEO Aaron Levant, in a statement. “It’s exciting for NTWRK to have Goldman Sachs and Kering sign on for the future of livestream shopping.”
NTWRK had previously raised a $10 million Series A, according to Crunchbase data.
Google powers up assistive tech in Android with facial gesture-powered shortcuts and switches – TechCrunch
Making smartphones more accessible is always a good idea, and Google’s latest features bring quick actions and navigation to people whose expressions are their primary means of interacting with the world. Project Activate and Camera Switches let users perform tasks like speaking a custom phrase, or navigating using a switch interface, through facial gestures alone.
The new features rely on the smartphone’s front-facing camera, which can watch the user’s face in real time for one of six expressions: a smile, raised eyebrows, opened mouth, and looking left, right, or up. It relies entirely on local computing and no image data is saved, nor is it doing what is generally understood as “facial recognition” — this type of machine learning can focus specifically on, for example, identifying the eyebrows and sending a signal whenever they move past a certain, customizable threshold.
Each expression can be assigned a different role. Camera Switches integrates with Android’s existing switch compatibility, by which people who use assistive tech like a joystick or blow tube can navigate the phone’s OS. Now that can be done without any peripheral device at all, and users can pick various facial gestures for iterating through selections, confirming a choice, backing out, and so on.
Using Project Activate, expressions can be tied to self-contained actions like speaking a phrase. Many people with disabilities rely on caretakers for a variety of reasons, but one thing you can’t ask a caretaker to do is get your caretaker’s attention! So one useful application might be assigning (say) an extended eyebrow raise to have the device speak the phrase “hey!” or “I need help with something,” or “thanks!”
The gestures can also be used to play an audio file, or text or call a predetermined number. More expressions and more capabilities are on the way, as well as more languages — of course faces don’t have languages, but the app and support documentation do, so Project Activate will start with English-speaking countries and move out from there. Camera Switches, on the other hand, will be available in 80 languages from the start.
Note that these can’t both be used at once, since they both require access to the camera and expression recognition thing. So users should make sure they have a backup method for navigation. Both should run on pretty much any Android phone from the last five years or so.
Lastly, an update to Google’s Lookout app, which reads labels for people with visual impairments, adds the ability to scan and read out handwritten content the way it can with printed things. That’s useful for sticky notes, “gone fishing” type signs on the doors of stores, and things like greeting cards with notes from the sender. The app has seen big increases in usage over the last year so they’re building it out. (Support for identifying euro and Indian rupee banknotes should help fuel that growth too.)
All the new stuff should be available later this week free of charge.
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