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Read by
BCG
500 Startups
Used at top MBA programs including
Stanford Graduate School of Business
University of Chicago Booth School of Business
Wharton School of the University of Pennsylvania
Kellogg School of Management at Northwestern University
Reading Time Estimate
9 min read
1. The inflation in the US economy is probably not transitory
  • On Wednesday, the US Labor Department reported that over the 12 months ending Dec 2021, the “all items” Consumer Price Index – which measures what urban consumers (93% of the population) pay for goods and services – increased 7.0% on a non-adjusted basis. It is the largest increase since the 12-month period ending Jun 1982 – towards the tail-end of the 1981-1982 recession (“the worst economic downturn in the United States since the Great Depression,” which was triggered by the Fed’s efforts to fight inflation that reached 14.8% at its peak).
  • There is a sense of anxiousness among industry watchers. The Fed has been walking a fine line – its prior “transitory” stance could have been stabilizing if it was right but risked being destabilizing if the market thinks the Fed is not committed to fighting inflation. Federal Reserve Bank of St. Louis president James Bullard said last week that the Fed’s inflation-fighting credibility “is more at risk today than it’s been at any point since I’ve been at the Fed over the last three decades,” and that it was “incumbent upon [the Fed] to make it clear that we do intend to keep inflation under control.”
  • According to the recently released minutes from the Fed’s Dec 2021 meeting, the Fed could raise the federal funds rate (which the Fed has kept to near zero since the start of the pandemic) “sooner or at a faster pace than participants had earlier anticipated.” This is being motivated by inflation concerns as well as the substantial declines in unemployment (weekly jobless claims are at their lowest levels in 52+ years). Fed chair Jerome Powell is now calling inflation a “severe threat” to achieving maximum employment, saying the Fed is preparing to raise interest rates and reduce asset holdings now that the country no longer needs economic support.
  • With wages going up, it puts a floor on how much inflation can settle back down after supply issues are worked through. As billionaire Bill Ackman has put it: “[I]t’s hard to roll back wages once you roll them up [to keep up with prices].” This can also hold generally true for the prices of products and services – once prices go up for a long enough period, they often don’t go back all the way down.
Related Content:
  • May 21 2021 (3 Shifts): Inflation & bubble concerns grow louder as the Consumer Price Index rises
  • Dec 18 2020 (3 Shifts): Are Robinhood and the Fed propping up bubbles?
2. The power and promise of large-scale mesh networks
  • While hardware-based mesh networks are picking up steam, relatively few players have the “hardware scale” to build a network that extends connectivity and fine-grained location tracking into outdoor spaces. Apple – one of these players – launched its AirTag item tracker in Apr 2021.
  • Mesh networks like Apple’s AirTags are an opening foray into a broader universe of context-based services. The use cases could extend to access and authentication (e.g. smart locks, unlocking cars), offline-online experiences in mixed-reality environments (e.g. AR applications/games), asset tracking and indoor localization, resource-sharing in commercial spaces, and other smart city and IoT-based business services.
  • With mesh networks, we’re seeing another extension of big tech’s competitive advantage in ecosystem scale. In addition to their hardware installed base, a key determinant of success will be how they handle users’ data, privacy and security. Certainly, they are facing competition – a wide array of consumer technology companies (including Tile) are working on UWB-enabled devices. However, privacy and security concerns tend to help large established players with the resources to address those issues. Which means this is another arena where big tech will likely win out, and others will have to play in their sandboxes.
Related Content:
  • Apr 23 2021 (3 Shifts): Is the new AirTag a signal of Apple’s grander IoT ambitions?
  • Jan 28 2021 (Brief #41): Are 5G networks finally getting real for US consumers?
3. Consumer technology firms push into vehicles to “redefine mobility”
  • In the announcement, Sony CEO Kenichiro Yoshida indicated that Sony is exploring the commercial launch of an EV (though at least one analyst skeptic believes the unit will ultimately be focused on selling electronic systems to automakers). Yoshida emphasized the centrality of entertainment in Sony’s vision: “Sony is well-positioned as a creative entertainment company to redefine mobility.” In addition to 40 sensors inside and out, the Vision-S vehicles include speakers in passenger seats for 3D sound experiences, digital video service integrated into the front panoramic screen and individual rear-seat displays, and PlayStation game-streaming.
  • Yoshida highlighted in-car connectivity as the key element that would allow the Vision-S to be “a vehicle that continuously evolves” and can present a personalized cabin for each user. While the connected-car movement is not new, it has evolved through a plethora of integrations with smartphones (e.g. Apple CarPlay, Google’s Android Auto), device-based and built-in digital assistants (e.g. Amazon’s Echo Auto), smart-home ecosystems, and in-car payments. EVs, in particular, have fewer moving parts and incorporate more software controls – making it easier for non-traditional players to move in with a new consumer experience.
  • Google announced at CES 2022 that it was partnering with Volvo to let users download and watch YouTube in their vehicles as well as connect with the Google Home ecosystem. (Volvo already has integrations with other Google services, such as Maps and Google Assistant.) There are also separate automotive efforts underway from other consumer tech firms like Apple, Foxconn, Tencent (with Geely), Baidu (also with Geely), and Xiaomi.
  • Automakers are eyeing the potentially lucrative in-car software services market. Stellantis, for instance, is targeting $22.5B in annual revenue from software by 2030, with higher tech-like margins. Connectivity allows for over-the-air software updates – an approach made prominent by Tesla – which can generate additional revenue streams post-purchase. These updates might unlock new vehicle features or open up new subscription services (such as in-car entertainment).
  • The key question continues to be who will own the customer relationships – and tap connected-car data. Few consumer technology firms are seriously considering mass production of vehicles on their own. If anything, they are continuing to signal the desire to focus on software/IP and partner for the vehicle build. Sony, for instance, is working with an array of partners, including Tier 1 automotive suppliers Magna, Bosch and Continental.
  • Automakers want to retain ownership of the consumer relationship, and are wary about becoming a commoditized “OEM factory” for tech-branded cars. Tech vendors like Microsoft and Waymo have become more sensitive to that concern and sought to position themselves as neutral technology providers. On the other hand, automakers need to take care to avoid “software bloat” or being too heavy-handed, and ensure a coherent, customer-centric experience. We could be headed towards a world where a given car model may have multiple possible integrations (e.g. Apple vs. Google) but the experience is highly personalized for the user’s needs and preferred ecosystems.
  • It’s not clear whether any of the consumer technology firms (including Sony) will find success beyond being a strategic vendor to automakers. As we’ve seen with the struggles of Apple’s long-running automotive project, it’s not that easy for non-traditional players to enter the automotive space (Tesla being a notable outlier). What’s needed are automotive vendors willing to take a backseat – which is reportedly what Apple has been prowling around Japan and South Korea looking for.
Related Content:
  • May 28 2021 (3 Shifts): Hyundai’s in-car payment system and the latest in connected cars
  • Jan 22 2021 (3 Shifts): Big tech firms team up with automakers on EVs & autonomous vehicles
Disclosure: Contributors have investment interests in Apple, Google and Microsoft. Amazon and Google are vendors of 6Pages.
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