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1. Amazon moves into autonomous vehicles with the $1B+ acquisition of Zoox
  • Zoox, founded in 2014, had raised $1B to pursue the development of autonomous technology, a purpose-built autonomous vehicle, and a ride-hailing network. It was one of 7 companies approved under California’s Drivered Autonomous Vehicle Passenger Service Pilot program to transport passengers on public roads without charge and with a human safety driver. Zoox had begun testing its technology on retrofitted Toyota SUVs in San Francisco and Las Vegas. Its ambitious plans included a reveal of a bidirectional purpose-built vehicle without a steering wheel this year, launch of a robotaxi service in Las Vegas, and commercial pilots by early 2021. However, Zoox’s future became uncertain with the layoffs of 120 contract workers in response to the COVID-19 crisis and struggles to raise capital.
  • While Amazon has clearly had interest in autonomous vehicles, autonomous vehicle R&D is notoriously expensive. The Information estimates that $18B has been spent on self-driving R&D to date. Amazon, which has slim margins for a big tech firm (it saw a 4.1% net profit margin in 2019), had shied away from serious autonomous R&D before picking up Zoox at a relative bargain.
  • We are still years away from Level 5 full automation (Waymo’s CEO has said we may never get there). The state of the art is Level 4 fully driverless passenger-carrying vehicles within a limited geo-fenced area and available to a small vetted group. However, we are inching closer to autonomous delivery being a reality, with California recently approving testing of driverless delivery vehicles without a safety driver on public roads.
  • Autonomous last-mile delivery will change the game for Amazon, Walmart, and other retailers, as well as delivery providers such as UPS and Postmates. When it happens, it will change the economics of delivery – lowering the cost of same-day delivery and making high delivery density a bit less important. In urban areas, delivery times will come down to under 30 minutes and consumers will come to expect ultra-reliable delivery and live tracking. Autonomous middle-mile delivery will also have an impact, allowing for more frequent replenishment of stores and micro-fulfillment centers, less inventory per SKU, and a larger SKU assortment. It also sets up the possibility for direct transfer between larger middle-mile and smaller last-mile autonomous delivery vehicles, without bringing the inventory into a store.
  • Related Briefs:
    • Apr 28 2020: Robotaxis, local delivery & the future of driverless ground vehicles
    • Mar 26 2020: Grocery delivery, ecommerce & the renewal of Walmart
2. Apple reinforces its walled garden with Apple Silicon chips in Macs
  • This past week at its annual Worldwide Developers Conference (now virtual), Apple announced, along with a host of other updates, that it would begin transitioning from Intel processors to its own Apple Silicon chips in Mac computers (20M+ annually) by the end of this year. It’s a major inflection point for Apple, which has used Intel chips for 15 years and has been working on its own chips over a decade. The transition is expected to take two years.
  • While Apple will support Intel-based Macs for “years to come,” it is providing tools now to help developers make the transition. The Rosetta 2 software will help convert existing MacOS applications for the new architecture. According to an Apple executive: "The vast majority of developers can get their [MacOS] apps up and running in just days." Certain applications – such as “heavy-duty” media-editing software designed to also run on Windows – might require more work, though Adobe and Microsoft have already adapted some of their applications. Apple is also offering the Universal App Quick Start Program for $500, which comes with documentation, forums, beta versions of macOS Big Sur and Xcode 12, and the loan of a Developer Transition Kit (hardware).
  • Apple is gravitating towards Universal apps” that can run natively across all its platforms, and hardware components designed in-house. 42% of the iPhone’s core components is reportedly designed in-house, from 8% less than 5 years ago. Apple’s strategy in its consumer business is multi-pronged – cutting-edge hardware for which it owns the IP and integration (resulting in a well-controlled cost structure), a high-quality ecosystem of apps (nearly 2M today) and services that now extends to the computer, and a closely managed user experience and privacy-centric positioning that encourage consumer trust. Like the other big tech firms, Apple’s strategy involves drawing consumers into its ecosystem and keeping them there.
  • The most significant risks for Apple right now are its global supply chain and antitrust scrutiny. Most of its products are made by contract manufacturers in China, but it has lately been working to diversify its supply chain. Apple is expected to extend its relationship with Taiwan-based TSMC, which already makes Apple’s A-series chips and plans to open a plant in Arizona, for the manufacturing of the new chips. Apple is also currently on the receiving end of antitrust scrutiny for its practices surrounding the App Store and Apple Pay, which could threaten to pierce its walled garden.
  • Related Briefs:
    • Apr 4 2020: Global supply chains diversify away from China
3. Mastercard follows Visa with its acquisition of data-aggregation API firm Finicity
  • Finicity, founded in 1999 and one of the early players in the financial-API space, aggregates banking and credit data from financial institutions for fintech app developers to integrate through an API. The data can be applied to use cases ranging from loan and mortgage decisions to financial management and budgeting tools. Finicity claims integrations with 16,000+ financial institutions (including Wells Fargo, Fidelity Investments, Capital One, and JPMorgan Chase), 95% of US deposit accounts, and similarly high coverage of investment accounts. Finicity places strong focus on credit decisions powering Quicken Loans’ Rocket Mortgage, Experian Boost, and acting as a credit agency for some of its own products.
  • The acquisition strengthens Mastercard’s positioning in “open banking” – i.e. the sharing of financial data with 3rd-party applications via APIs, securely and with consumer consent. Mastercard’s strategic rationale for the investment is three-fold: (1) Extending its position as an open banking partner to fintechs, especially in North America; (2) streamlining credit decisions and enhancing the ACH and real-time payments experience, and (3) using Finicity’s APIs and bank partnerships to enable standards-based, permissioned data access (Plaid, in contrast, has been criticized for its screen-scraping practices).
  • Mastercard and Visa are both pursuing a “network of networks” with the ability to move money anywhere and at scale – beyond owned network/rails, across borders, between individuals (P2P), for ecommerce and bill payments (C2B), as business-to-business remittances (B2B), for reimbursements, payouts and payroll (B2C), and across different payment rails (e.g. ACH for checking, card networks, real-time payments). The “network of networks” strategy means interconnecting with all the financial systems in the world, with a universal API on the front-end.
  • Mastercard’s focus on expanding its multi-rail, real-time payments network has led it into the growing open banking space, as well as partnerships with fintechs and tech firms. In 2019, it launched open banking services in Europe – where the compulsory revised Payment Services Directive (PSD2) took effect in Jan 2018 – and now has connections with 1,800+ financial institutions. It also in 2019 entered into agreements to buy Denmark-based payments platform Nets for $3.2B, as well as cross-border payments firm Transfast and bill payments platform Transactis. Mastercard has partnerships with British fintech Revolut for its cards, with Apple on the Apple Card, with Amazon to tokenize customers’ card numbers, with WhatsApp in Brazil, and with Samsung on the Samsung Money debit card, among many others.
  • Related Briefs:
    • Feb 7 2020: Visa’s $5.3B bet on Plaid & the pathway to open banking
    • Dec 13 2019: Tech players expand their ecosystems through payments & financial services
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