(#98) A plan to make Germany's car industry great again; The Netflix moat
Lessons from Crocs: More ugliness. It is paying off
Today’s Insights:
Google’s earnings surprise
Layoffs at Volskwagen. A plan to make Germany’s car industry great again
Uber can be a super app without being a ‘super app’
From the PLUS version (paid):
The Netflix moat
McDonald’s ice cream is breaking. What’s the relationship between this and strategy?
Lessons from Crocs: More ugliness. It is paying off
On to the update:
Strategy
Google’s earnings
First, some date from Q3 FY24:
• Revenue +15% Y/Y to $88.3B.
• Operating margin 32% (+4pp YoY).
• EPS $2.12.
Google Cloud:
• Revenue +35% YoY to $11.4B.
• Operating margin 17% (+14pp YoY) - wow!
YouTube ads +12% to $8.9B.
More on the reporting:
1/ Google Cloud’s 35% revenue growth, primarily powered by AI-driven solutions and infrastructure, reflects a strategic focus on enterprise AI adoption. This growth indicates Google’s successful shift from consumer-facing products to business services, positioning it to compete directly with Amazon and Microsoft in cloud services. This pivot aligns with broader trends toward digital transformation and AI-driven enterprise solutions.
2/ By driving deeper product adoption within existing customers, Google improves operating margins, capitalizing on economies of scale in its high-fixed-cost cloud division. This tactic underscores a strategy that leverages infrastructure investment, focusing on high customer retention and increased service penetration as a pathway to profitability and competitive advantage.
3/ YouTube’s growing subscription revenue, now a substantial component of its $50 billion annual earnings, highlights a diversification from traditional ad revenue streams. By expanding paid services like YouTube Premium and YouTube TV, Google is solidifying a recurring revenue model, balancing its reliance on ad revenues.
4/ Google’s use of AI to personalize ads and recommendations on platforms like Google Lens and YouTube drives higher engagement and commercial opportunities. This AI-powered advertising enhances Google’s positioning by increasing ad relevance and effectiveness, aligning with the trend toward personalized, data-driven marketing solutions.
In conclusion, Google is doing better than I expected. Now, my impression is that: (1) the total addressable market has increased, (2) Youtube and Cloud are the real assets, (3) the traditional search will disappear much harder. LINK
Layoffs at Volskwagen. A plan to make Germany great again
From the Financial Times:
“In its 87-year history, Volkswagen has never closed a factory in its German heartland. It is now considering shutting three and cutting workers’ pay by 10 per cent.”
What can Germany do about it?
Align with the U.S. on tariffs for Chinese imports
Germany could collaborate with the United States to impose substantial tariffs on Chinese car imports, aiming for strong measures like a 100% tariff rather than partial ones capped at "up to 45%." A unified, assertive stance on tariffs could create a more balanced playing field in the automotive industry and protect domestic manufacturers from aggressive pricing strategies by Chinese competitors.
Deregulate the EU financial market
Embracing deregulation in alignment with the EU’s broader goals, such as those outlined in Mario Draghi’s report, could improve the flow of capital within the EU and increase competitiveness. By providing easier access to funding, the EU can stimulate growth, support innovation, and empower, not only the German companies, to remain competitive on a global scale.
Strengthen supply chain resilience
Building a more resilient supply chain - less reliant on single countries or regions - can mitigate risks from disruptions.
Promote skills in software and computer science
Investing in education and training for emerging skill sets, particularly in software and computer science, is crucial as vehicles become increasingly connected and autonomous. This focus can help Germany transition from traditional engineering strength to software and digital innovation, preparing the workforce for future industry demands.
Establish a Joint European Automotive Initiative
Creating a collaborative, EU-wide "Airbus for the automotive industry" would enable Germany and other European nations to compete globally by pooling resources, innovation, and production capabilities. This initiative could enhance Europe’s position in the automotive market, focusing on electric and autonomous vehicle technologies to compete with China’s rapid advancements.
Develop core competencies in strategic technologies
Strengthening Germany’s expertise in key technologies, such as battery production and electric motor design, will be critical.
Prioritize domestic interests over overseas industrial profits
Germany’s long-term strategy should recognize the need to balance domestic economic health with overseas interests. Supporting regional industries and limiting reliance on revenues from production in China can ensure that Germany’s local economy remains strong, competitive, and independent.
Invest in affordable and sustainable energy, particularly Nuclear Power
Ensuring access to cost-effective and reliable energy sources is essential for Germany's industrial competitiveness. By investing in nuclear power, Germany can provide a steady supply of affordable energy that is less vulnerable to market fluctuations and polution than fossil fuels. Expanding nuclear capacity, alongside renewable sources, could lower energy costs for manufacturers, enhance energy security, and contribute to climate goals by reducing dependency on coal and imported natural gas. This shift would position Germany’s industries to compete on energy-intensive innovations, secure in reliable and stable power sources. The Greens will try to kill any idea, but let’s not forget that a ‘green’ agenda without China and India will never work. Layoffs, Europe’s car crisis
Uber can be a super app without being a ‘super app’
Uber is thinking of merging (acquiring?) Expedia. Do you remember my Newsletter #95 where I announce that the company is transitioning to a Multi-Service Platform? Well, here we are gain.
1/ Merging Uber and Expedia could bring together former colleagues, such as Uber's CEO, Dara Khosrowshahi, who once led Expedia. This connection could make cultural integration between the companies more seamless and foster a more aligned vision.
2/ With a market value of $170 billion, Uber has the financial power to explore such a partnership. If Khosrowshahi pursued a $26 billion acquisition of Expedia, only a modest boost in their combined cash flow would be needed to yield a strong return on investment.
3/ The idea of creating a "super app" in the West, akin to China's WeChat, is appealing. While companies like Meta and Alphabet have avoided consolidating services, a potential Uber-Expedia merger could bring Uber closer to a comprehensive "life operating system". LINK
Artificial Intelligence
Anthropic published several courses:
Anthropic API fundamentals - teaches the essentials of working with the Claude SDK: getting an API key, working with model parameters, writing multimodal prompts, streaming responses, etc.
Prompt engineering interactive tutorial - a comprehensive step-by-step guide to key prompting techniques. [AWS Workshop version]
Real world prompting - learn how to incorporate prompting techniques into complex, real world prompts. [Google Vertex version]
Prompt evaluations - learn how to write production prompt evaluations to measure the quality of your prompts.
Tool use. LINK
[Paper] Large Language Models reflect the ideology of their creators. LINK
[The White House] Memorandum on Advancing the United States’ Leadership in Artificial Intelligence. LINK
Things Happen
The Inflation Reduction Act allowed China to extend its dominance in some clean energy technologies. LINK
Open letter from Jeff Bezos to the Washington Post Publishing Board. LINK
Palmer Luckey (from Anduril) on the Pentagon’s future of mixed reality: “You’re going to see an AR headset on every soldier, long before you see it on every civilian." LINK
Having competitive manufacturing means deploying loads of robots; see Singapore. LINK
[Study] Married Men sit atop the wage ladder. LINK
TSMC Arizona chip plant yields 4% higher than Taiwan. LINK
Bloomberg: Why Europe Is Unprepared to Defend Itself. LINK
Will the China Cycle Come for Airbus and Boeing? LINK
Industry reports
Bloomberg’s extensive report on what China has achieved: a lot.
What has not been achieved and where lags: AI (chips), Machine tools, aircrafts. LINK
Rule no 1: You don’t produce what you can’t control. Case study: Germany. LINK
Who owns all of the US debt? LINK
Curiosity corner
“What I Wish Someone Had Told Me” - by Sam Altman. LINK
The lifecycle of a Coca-Cola can. LINK
Game theory with Ben Polak. LINK
How the Electoral College actually works. LINK
America's top 100 vegan restaurants. LINK
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