(#88) Turnarounds and innovation: Apple, Starbucks, Walmart.
Poland has a new big bet: a new airport.
On today’s menu:
1. Are we in an AI bubble?
2. Apple is working on a robot tablet
3. Walmart’s ad strategy
4. Starbucks has a new CEO Strategy
5. on the impact of work-from-home on innovation
AI bubble
There are more and more cases where people and companies say that there is an AI bubble. I’m not here to say “true” or “false”, but:
1/ The investments scheduled from the hyperscalers in AI will surpass more than $1 trillion in the following years
2/ The dot-com bubble in 2001 also meant the foundation of the infrastructure that helped the next wave of startups to take off (ie. starting with Facebook). AI Bubble, David Salomon, Sequoia Capital, Casey Newton
Apple is working on a robot tablet
I have three insights based on this:
1/ Apple's move into tabletop robotics isn't just about a new product category - it's a strategic play to aggregate user attention in the smart home space. By combining an iPad-like display with robotic functionality, Apple is creating a central hub for home automation, communication, and security. This positions them to capture more of the user's time and data, potentially leading to increased lock-in to the Apple ecosystem. It's a classic move of integrating hardware and software to create a superior user experience, which has been Apple's hallmark strategy for decades.
2/ The emphasis on Siri and Apple Intelligence controlling this new device signals a shift towards AI-first product development at Apple. This aligns with the broader industry trend, but with an Apple twist - they're leveraging AI not just in software, but as a core component of hardware interaction. This could be the first major Apple product where AI isn't just a feature, but the primary interface. It's a bold bet that could redefine how we interact with technology in our homes and potentially set a new standard for AI-integrated hardware.
3/ The internal debates surrounding this project highlight Apple's ongoing struggle with the Innovator's dilemma. On one hand, they need new revenue streams to maintain growth, especially after the cancellation of the car project. On the other, there's hesitation about the market potential and resource allocation for such a novel product. This tension between incremental improvements to existing product lines and potentially disruptive new categories is a classic challenge for mature tech companies. How Apple deals with this balance could determine its ability to maintain its position as an innovation leader in the coming years. LINK
on “Work from home”
Eric Schmidt, former Google’s CEO, said last week at Stanford the following:
“Google decided that work-life balance and going home early and working from home was more important than winning. [...] The reason startups work is because the people work like hell.[..]
If you all leave the university and go found a company, you’re not going to let people work from home and only come in one day a week if you want to compete against the other startups.”
He is right in all aspects, but I guess he was forced to say “Sorry, this is not what I meant”. Of course, he meant exactly that. Eric Schmidt, Apologies
Walmart’s ad strategy
Why is Walmart doing that? Well, at least three reasons:
1/ Data advantage
Walmart's transformation into an advertising powerhouse is a textbook example of strategy in action. By leveraging its massive customer base and transaction data, Walmart has positioned itself as an indispensable intermediary between brands and consumers. The key here is the closed-loop attribution: Walmart can track not just ad views, but actual purchases, both online and in-store. This creates a powerful flywheel effect - more customer data leads to better ad targeting, which attracts more advertisers, which in turn generates more revenue to improve the shopping experience and attract more customers. It's a virtuous cycle that Amazon pioneered in e-commerce, but Walmart is now replicating with the added dimension of brick-and-mortar retail.
2/ The multi-modal monetization strategy
Walmart's approach to retail media demonstrates a sophisticated understanding of multi-modal user engagement. By extending its advertising reach from digital platforms into physical stores, Walmart is creating a seamless, omnichannel experience for both shoppers and advertisers. This strategy allows Walmart to monetize customer attention at every touchpoint - from app to aisle. It's a prime example of how traditional retailers can leverage their physical assets to compete in the digital age. The planned acquisition of Vizio further extends this strategy into the living room, potentially giving Walmart a foothold in the lucrative connected TV advertising market. This multi-modal approach could prove to be a significant differentiator from purely digital players like Amazon.
3/ The double-edged sword of Retail Media
The rise of Walmart's advertising business introduces a new dynamic in the retailer-supplier relationship. While retail media offers brands unprecedented targeting capabilities, it also creates potential for conflict. The notion that buying ads from Walmart feels like giving 10% of your income to the church highlights the power imbalance at play. This situation is reminiscent of the early days of search engine optimization, where businesses felt compelled to buy ads to maintain visibility. For Walmart, this represents a classic platform power play - leveraging its position as a gatekeeper to extract additional value from suppliers. However, this strategy carries risks. If pushed too far, it could strain relationships with key suppliers or attract regulatory scrutiny. Finding the right balance will be a key challenge for Walmart moving forward. LINK
Starbucks has a new CEO
This new CEO has three challenges:
1/ The Execution Challenge (from digital to physical)
Brian Niccol's primary challenge at Starbucks will be translating his digital-first success at Chipotle to the more physical-centric coffee shop experience. At Chipotle, Niccol drove growth through mobile ordering and delivery partnerships, leveraging technology to streamline operations. However, Starbucks' value proposition is deeply rooted in the in-store experience - the "third place" between home and work. Niccol must find a way to improve operational efficiency and reduce wait times without sacrificing the personal touch that defines the Starbucks brand. This is a classic aggregator's dilemma: how to scale efficiently while maintaining the quality that attracted customers in the first place.
2/ The China Challenge
Starbucks' aggressive expansion in China, while strategically sound in principle, now poses a significant challenge for Niccol. The company has essentially been building out infrastructure for future demand, but that demand has been slow to materialize amid increased competition and economic headwinds. This is reminiscent of the classic "modularity vs. interdependence" framework - Starbucks has been operating on the assumption that its integrated model would give it an edge in China, but local competitors have proven more adaptable. Niccol will need to reassess this strategy, potentially slowing expansion to focus on store-level economics. The key question is whether Starbucks can maintain its premium positioning in a market that increasingly favors local brands and lower price points. Not to mention the eventual war China might start in the region which will translate for Starbucks with a write-off in their books.
3/ The Complexity Challenge
Niccol's third major challenge at Starbucks will be addressing the long waiting lines caused by increasingly complex drink orders. Starbucks' success has been built on offering customers unprecedented levels of customization, but this very strength has become an operational weakness. The company's "have it your way" ethos, which allows for millions of possible drink combinations, has created a bottleneck in the production process and long lines in the stores.
We will see how things will unfold in the next months. Financial Times, WSJ
Artificial Intelligence
How the Transformer works
“Transformer is a neural network architecture that has fundamentally changed the approach to Artificial Intelligence. [...]
Fundamentally, text-generative Transformer models operate on the principle of next-word prediction: given a text prompt from the user, what is the most probable next word that will follow this input? The core innovation and power of Transformers lie in their use of self-attention mechanism, which allows them to process entire sequences and capture long-range dependencies more effectively than previous architectures.” LINK
AI will disrupt the gaming creation.
That’s not ‘nothing’ when you think that launching a good game can cost a company between a few hundred million and billions of dollars. LINK
Gemini
Last week Google presented the new Pixel phones and other products that go hand in hand with this: the watch and ear pods. Now, the Gemini AI model, developed for Android, can do load of stuff: “Add Me” in photos and videos, image generation, ideas from screenshots, call notes, and many other options. LINK
But, again, who will make the switch from the iPhone to Google? Not that many, because:
1/ Consumer products are about pop culture and pop culture is hard
2/ Google is a services company; it will never be a product company. That’s the role of Silicon Valley (ie. Apple)
Things Happen
Poland has a new big bet: a new airport. LINK
Why does Ozempic is also effective against stroke, heart disease, kidney disease, Parkinson’s, Alzheimer’s, alcoholism, and drug addiction? LINK
How do central banks control inflation? LINK
WSJ report on Citadel’s Ken Griffin and his finger on the hedge-fund industry. LINK
UBS: 1 in every 15 Americans is a millionaire. LINK
Ben Evans’s essay on “Competing in search”. LINK
Financial Times and Schroders Business Book of the Year 2024 — the longlist. LINK
[Research] Is capitalism making you lonely? LINK
Working paper: The Trajectory of China’s Industrial Policies
Data
Global Chip Investment. LINK
European Commission makes slight adjustments to tariffs on EVs. LINK
Outside Interest
Nord Stream pipeline destruction story, from The Wall Street Journal. LINK
EVs might be too heavy for the US bridges. LINK
Everything you need to know about the new Champions League format. LINK
Lamborghini Temerario Hybrid replaces Huracán Supercar. LINK
Florida Python challenge. LINK
Interview with Dr. Bret Weinstein. LINK
Washing vegetables doesn’t actually remove pesticides; you need to peel them. LINK
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