(#82) Amazon goes after Temu and Shein; The AI’s $600B Question; The Deep Structure of Economic Growth
Sequoia Capital: The AI’s $600B Question
Today’s Insights:
Amazon goes after Temu and Shein
Bernard Arnault’s profile in Bloomberg
New products, new materials: from smartphones to rockets
Essay: “The Deep Structure of Economic Growth”, by Paul Room
Silicon anode batteries can break China’s monopoly on rare minerals used in batteries
Onto the update:
Strategy
Amazon goes after Temu & CO.
1/ Amazon, long known for its rapid delivery model and extensive warehouse network, is shifting its strategy to compete with Chinese e-commerce rivals Temu and Shein. Traditionally, Amazon revolutionized shopping by enabling quick delivery through a vast infrastructure of warehouses stocking a wide array of products (ie. “Everything store”). This system, though effective for speedy delivery, involves significant costs, including tariffs on bulk shipments from China and high warehouse expenses covered by fees from merchants and Amazon Prime subscriptions. However, Temu and Shein have introduced a different approach that bypasses these costs by shipping directly from Chinese factories to customers, resulting in lower prices but longer delivery times, as seen below.
2/ Recognizing the threat posed by these cost-effective competitors, Amazon plans to introduce a low-priced store for apparel and home goods shipped directly from China to U.S. shoppers. This move marks a departure from Amazon's focus on speed and reflects an understanding that U.S. consumers, especially younger ones, are willing to wait longer for deliveries if it means saving money. The model employed by Temu and Shein takes advantage of the "de minimis" loophole, allowing shipments under $800 to enter the U.S. tax-free, which further reduces costs. By adopting a similar strategy, Amazon aims to offer competitive prices and appeal to budget-conscious shoppers who prioritize cost over delivery speed.
3/ Amazon's decision to mimic Temu's model highlights its adaptability and willingness to learn from emerging market trends. Despite mixed results from past attempts to emulate competitors, such as the Inspire feature inspired by TikTok, Amazon's leadership sees potential in this new approach. By balancing its established strength in fast delivery with a focus on lower prices, Amazon hopes to capture a broader market segment. This strategic pivot demonstrates Amazon's responsiveness to consumer preferences and its commitment to maintaining its competitive edge in the ever-evolving e-commerce landscape. LINK
Bernard Arnault’s profile in Bloomberg
When you think about the Louis Vuitton group’s future you should know also this:
“There were more than 2,500 billionaires on Earth last year, versus 420 in 1995”.
That being said, I have 5 takes:
1/ Bernard Arnault, the CEO, and chairman of LVMH, has meticulously crafted the world’s largest luxury conglomerate by acquiring and refining iconic brands such as Christian Dior, Louis Vuitton, and Tiffany & Co. Over the past 40 years, Arnault has transformed LVMH into a global powerhouse, merging traditional European luxury with modern consumer demands and expanding its reach across the world. Arnault's relentless attention to detail and strategic vision have positioned LVMH at the pinnacle of the luxury industry, catering to the elite while also leveraging celebrity endorsements and high-profile events to maintain the brand's desirability and exclusivity.
2/ Arnault’s approach to building LVMH has involved a combination of strategic acquisitions, stringent quality control, and an eye for detail that borders on the obsessive. His frequent store visits and direct feedback to his team ensure that every aspect of the customer experience aligns with the brand’s image of opulence. By maintaining this high standard, Arnault has been able to grow the conglomerate’s portfolio to include 75 luxury houses spanning fashion, jewelry, handbags, and high-end spirits, each benefiting from the shared prestige and infrastructure of LVMH.
3/ A significant part of Arnault's success lies in his ability to recognize and harness the power of branding and cultural influence. He has adeptly used celebrity endorsements, from Beyoncé and Jay-Z to Pharrell Williams, to inject LVMH’s products into the cultural zeitgeist, creating an aspirational aura around the brands. Additionally, his investments in high-profile events, such as the sponsorship of the Paris Summer Olympics and the restoration of Notre-Dame Cathedral, have reinforced LVMH’s image as a patron of global culture and luxury.
4/ Real estate has also been a crucial element of Arnault's strategy. By acquiring prime retail locations and developing new luxury shopping districts, LVMH not only secures premium spaces for its brands but also creates an additional revenue stream through property appreciation and rental income. This aggressive expansion into real estate further solidifies LVMH’s dominance in the luxury market and puts pressure on competitors who struggle to keep up with the conglomerate’s extensive resources and strategic positioning.
5/ Finally, as Bernard Arnault looks to the future, he faces the dual challenge of maintaining LVMH’s market leadership and planning for succession within his family. With five of his children involved in the business, Arnault is keenly focused on ensuring a seamless transition that will preserve the company’s legacy and continued growth. Despite economic uncertainties and potential shifts in consumer attitudes towards luxury, Arnault’s vision and leadership have built a resilient empire poised to thrive for decades to come. Bloomberg, Quartr
New products, new materials: from smartphones to rockets
1/ We are entering a new era of materials science, poised to revolutionize industries ranging from consumer electronics to aerospace. Composites, which combine fibers like carbon fiber with plastics, offer unparalleled strength and lightness compared to traditional materials like metal, steel, and wood. Historically, the high cost and labor-intensive manufacturing processes limited their use to specialized applications such as aerospace. However, emerging techniques are now making it possible to produce composite parts quickly and affordably, promising significant advancements in various fields.
2/ Innovative startups like Arris Composites, 9T Labs, and Orbital Composites are at the forefront of this transformation. These companies have developed new methods to automate the production of composite materials, making them more accessible for everyday use. For instance, these techniques are being tested for applications in consumer products, such as lightweight running shoes and bicycle parts, and in aerospace for aircraft components. The ability to produce composite parts efficiently and at scale opens the door to a wide range of new possibilities, from more fuel-efficient vehicles to durable and lightweight electronic devices. Of course, for this, you need to have (some) manufacturing and chemical industries around….not in China.
3/ The potential impact of these advancements is profound. Composites are expected to replace many metal and plastic parts, leading to the creation of lighter and more durable products. This shift could enhance transportation technologies, improve the efficiency of renewable energy systems, and introduce new consumer goods that are both strong and lightweight. While there are challenges, such as ensuring the long-term durability of these materials, the continued innovation in composite manufacturing techniques signifies a major leap forward in materials science, promising a future where composites are integral to a wide array of industries. LINK
Essay: “The Deep Structure of Economic Growth”, by Paul Room
“Every generation has perceived the limits to growth that finite resources and undesirable side effects would pose if no new recipes or ideas were discovered. And every generation has underestimated the potential for finding new recipes and ideas. We consistently fail to grasp how many ideas remain to be discovered. The difficulty is the same one we have with compounding: possibilities do not merely add up; they multiply.
In a branch of physical chemistry known as exploratory synthesis, chemists try mixing selected elements together at different temperatures and pressures to see what comes out. We know that humans have been doing this ever since the Bronze Age, because this is how we discovered bronze, a mixture of tin and copper. Later, we found that mixing carbon with iron turned it into the much more useful metal, steel. The search continues. In the late 1980s, researchers found that one of the hundreds of compounds discovered this way—a mixture of copper, yttrium, barium, and oxygen—was a superconductor at temperatures far higher than anyone had previously thought possible. This discovery may ultimately have far-reaching implications for the storage and transmission of electrical energy.
To get some sense of how much scope there is for more such discoveries, we can calculate as follows. The periodic table contains about a hundred different types of atoms. If a recipe is simply an indication of whether an element is included or not, there will be 100 x 99 recipes like the one for bronze or steel that involve only two elements. For recipes that can have four elements, there are 100 x 99 x 98 x 97 recipes, which is more 94 million. With up to 5 elements, more than 9 billion. Mathematicians call this increase in the number of combinations “combinatorial explosion.”
Once you get to 10 elements, there are more recipes than seconds since the big bang created the universe. As you keep going, it becomes obvious that there have been two few people on earth and too little time since we showed up, for us to have tried more than a minuscule fraction of the all the possibilities.’ LINK
Artificial Intelligence
Sequoia Capital: The AI’s $600B Question
David Chan from Sequoia writes again about the AI frenzy
1/ He mentions that the AI industry is currently at a critical juncture, where the significant investments made in AI infrastructure, such as data centers and GPUs, are not yet yielding proportional revenue. The gap between expected and actual revenue has grown substantially, with an estimated $600 billion shortfall. This disparity raises concerns about the sustainability of the current AI boom. While companies like Nvidia have become immensely valuable, the broader AI ecosystem has not yet generated the necessary revenue to justify the extensive capital expenditures. Without significant revenue generation from AI applications and services, the industry risks facing a severe market correction.
2/ The potential for a market correction is exacerbated by several factors. Firstly, the rapid improvement and subsequent depreciation of AI hardware, such as Nvidia's upcoming B100 chip, could undermine the value of existing investments. Additionally, the commoditization of GPU computing reduces pricing power, making it difficult for companies to recoup their investments. Speculative investment frenzies often lead to capital loss, and while AI promises substantial long-term value, the immediate financial returns remain uncertain. If AI companies fail to deliver significant end-user value and generate substantial revenue, the current investment surge could result in financial instability, affecting both investors and the broader technology market.
Time will tell and that will happen pretty soon. LINK
Discovering new proteins with AI
1/ Former Meta developers have founded EvolutionaryScale, a startup focused on creating blueprints for new proteins using AI, diverging from traditional AI applications like text or image generation. Led by Alexander Rives, the ex-Meta team, leveraged their expertise to develop ESM3, an AI model trained on 2.8 billion proteins, making it the largest biology-focused dataset to date. The startup recently raised $142 million from investors including former GitHub CEO Nat Friedman, Amazon, and Nvidia’s NVentures.
2/ Proteins, essential for various bodily functions, can be engineered to address medical challenges like cancer and Alzheimer’s. EvolutionaryScale's breakthrough includes creating a new green fluorescent protein, demonstrating the potential of their technology. They join a competitive field with companies like Eli Lilly, OpenAI, and DeepMind also exploring AI in biotechnology. LINK
Things Happen
Financial Times: “France heads back to its postwar era of ungovernability”. LINK
Drone warfare is disrupting the defense industry. LINK
BYD agrees $1bn deal to build an electric vehicle plant in Turkey. LINK
Germany’s companies are so embedded in the Chinese supply chain, that starting any embargo is hard. LINK
Silicon anode batteries can break China’s monopoly on rare minerals used in batteries. LINK
Peter Zeihan on the collapse of globalization and shifts in global power dynamics. LINK
Data
S-E Asia is an economic powerhouse: Indonesia, Malaysia, The Philippines, Singapore, Thailand, and Vietnam. LINK
The US economy is strong. LINK
Top 5 E-Commerce Marketplaces in 2024. LINK
Outside Interest
Serbia is doing business with everyone: the USA, UE, China, and, of course, Russia. LINK
Japan declares victory in the effort to end government use of floppy disks. LINK
Damaged knives of the Japanese chefs are for sale on eBay. LINK
World's fastest drone vs. F1 car (ft. Max Verstappen). LINK
Rebooting the American Industrial Base: Software and the Future of Manufacturing. LINK
Academic fraud
In 2006, a groundbreaking paper on the cause of Alzheimer’s disease became the fourth most cited paper in the field. However, it was later discovered that the author had fabricated the data, leading to its retraction. This deceit led to years of wasted research and over $287 million in misallocated funding, as the scientific community pursued what ultimately proved to be a false lead. To prevent such detrimental impacts, there is a strong argument that scientific fraud should be criminalized, to ensure accountability and integrity in research. LINK
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