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May 27, 2020
Good morning! This Wednesday, the lowdown on the booming virtual economy, Oppo wants to get into chipmaking, and Amazon wrote the news. Want Index in your inbox each morning? Subscribe here.
What Matters Today
- 1:30 p.m. PDT: Workday's earnings will give a sense of whether companies are still spending on enterprise software. Oppenheimer analysts think around 15% of Workday's revenue is exposed to distressed industries but say the company could benefit from pandemic-driven digital acceleration.
- 1:33 p.m. PDT: SpaceX is set to launch astronauts for the first time. In today's Source Code, Protocol's David Pierce explains why this is such a big deal for the private space industry. (If you're in the U.K., you might be able to see the launch from your window.)
- 2 p.m. PDT: HP hosts its earnings call. Deutsche Bank's Jeriel Ong thinks remote work might have helped it sell some extra computing equipment, but that it probably won't offset the problems caused by the "retail driven nature" of its device sales.
- 2 p.m. PDT: Box is expected to report 12% year-on-year revenue growth, with the cloud storage company an obvious beneficiary from remote working.
- Also today: AT&T launched HBO Max, its big attempt at taking on Netflix.
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As of 4:35 a.m. PDT: Nasdaq Futures: 0.47% | Euro 600: 0.65% | Nikkei: 0.70% | Hang Seng: -0.36%
- Apple plans to open around 100 U.S. stores this week, though most will only offer curbside pickup.
- Google reportedly plans to start reopening offices in July, starting at 10% of the building capacity and aiming to hit 30% by September.
- ByteDance reportedly made more than $3 billion in net profit last year on more than $17 billion in revenue.
- From Protocol: Zipline got approval for long-distance autonomous drone delivery.
- Riot Games announced in-game arena branding for League of Legends esports matches. Mastercard and Alienware are the first advertisers.
- Expedia is reportedly shutting down Expedia Group Multifamily Solutions, which makes software to help landlords manage short-term rentals.
- Tesla cut its prices amid a slowdown in demand.
- Advertisers are reportedly trying to defer payments to Quibi.
- Nokia closed an Indian manufacturing plant after a reported 42 employees tested positive for COVID-19.
- Gartner expects smartphone shipments to drop 13.7% year-on-year this year, compared to a 10.5% decline for PC shipments.
- Ola Electric, a spinout from Ola, acquired Etergo, an electric scooter company.
- Infineon raised more than $1 billion in a new share issuance.
- KKR is investing $1 billion in Global Technical Realty, a new venture to build data centers in Europe.
- SoftBank is reportedly considering a $1.5 billion sale of its OSIsoft stake.
- Amazon is reportedly in talks to buy Zoox, the self-driving car startup. The price would reportedly be below its most recent valuation of $3.2 billion.
Making real money in a virtual world
The real economy isn't doing too great right now. Online, though, things are different. According to John Egan, CEO of L'Atelier, an independent research subsidiary of BNP Paribas, Second Life's GDP has jumped 27% in recent months.
- Egan and his team have spent the last six months studying the "virtual economy" — the ways in which people make money creating and selling in-game goods.
- Their research found that there are hundreds of thousands of people with jobs that take place primarily online, ranging from esports players to virtual baby designers (really!). Collectively, they generate more than $66 billion a year in income.
Right now, the virtual economy is dominated by two extremes, Egan told me.
- There are a select few people making millions from esports and influencing, while many others use the virtual world "for almost economic survival," he said.
- In Venezuela, for instance, some people farm in-game currency in Runescape, selling the proceeds to make an average of $40 a month — well above the $3.61 minimum wage in the country.
- For those players, the virtual world has the potential to "provide an opportunity for people to step away from some of the barriers of social mobility and income inequality that they may deal with in the real, analog world," Egan said.
But he thinks there's more money to be made. The question is whether we'll see millions of people generating an average, middle-class income from the virtual world — something Egan thinks could be plausible in the next few years.
- Platforms, for one, will want to monetize this economy. Right now, most big video games forbid players from extracting value by selling in-game items for real money. They're scared of being legally liable if things go wrong — for instance, if criminals use the platform to launder money.
- But "users are increasingly frustrated" with not being able to make money from these games, Egan said, forcing them to turn to gray markets or monetize in other ways (by using games to create a social media presence they can sell ads against, for instance).
A potential solution? In-game storefronts. "You could imagine a situation where the game publisher provides licenses to third parties to distribute assets through those shopfronts," Egan said.
- Rockstar's Red Dead Redemption 2 would be a potential candidate for this, he thinks. "I think there's opportunities to create third-party access within the platform in a controlled way," he said, adding that he expects this kind of thing to roll out in the next four or five years.
- "Twitter is completely stifling FREE SPEECH, and I, as President, will not allow it to happen!" — President Trump did not like being fact-checked by Twitter.
- "If fewer people are allowed in a building, humans become of higher value. You don't want to waste a human on a mundane task if you can automate it." — RightHand Robotics' Vince Martinelli says the pandemic is accelerating retailers' robot rollouts.
- "We don't want to spend a great deal on lithium at the moment … Investor appetite is not there." — Vincent Mascolo, CEO of mining company IronRidge Resources, said a slowdown in electric vehicle demand is hurting the lithium industry.
- "Remote work will allow orders of magnitude more people to participate in the innovation economy … Despite all the benefits of innovation clusters, the requirement for physical co-location has been one of the most important bottlenecks on innovation." — Entrepreneur First's Matt Clifford thinks remote work could lead to a boom in innovation.
Huawei's problems worsen
What's going on with Chinese chipmakers might be the most interesting, and important, tech story in the world right now. Tense relations between the U.S. and China have second- and third-order repercussions that are set to shake up the entire tech landscape — providing huge opportunities for some companies.
- One such company is Oppo. Today, the Nikkei Asian Review reports that the BBK-owned smartphone manufacturer is investing heavily in building its own chip design unit, hiring talent away from MediaTek and UNISOC.
- Oppo's got two reasons for doing this. For one, it could give Oppo the edge on Huawei. If Huawei starts to struggle to acquire cutting-edge components, its smartphones might become less competitive. If Oppo starts developing its own, superior chips (as opposed to using the Qualcomm and Mediatek ones it does today), it might be able to pick up some of Huawei's market share.
- Second, there's the worry that it might face the same restrictions that Huawei has — which, for a company that uses an awful lot of U.S. components, could be a real problem.
That second reason is particularly interesting because it captures a broader theme in the tech industry right now: the importance of self-reliance. As geopolitics get ever more unpredictable, it's never been more crucial for a tech firm to have backup plans — ideally ones located in its home country.
- Huawei knows that all too well. An earlier Nikkei report found that the company has rapidly jettisoned U.S. suppliers, with Corning's glass the only major component sourced from America.
- And it's now trying to secure its memory chip supply, according to recent Korea Economic Daily reports. One source told the paper that the company is stockpiling components in case it gets cut off from Samsung and Hynix.
With U.S./China tensions continuing to worsen (the U.S. is reportedly considering sanctions in response to what's going on in Hong Kong), self-reliance may become more important still.
Amazon writes the news
Good PR isn't especially easy to come by these days, especially if eight of your warehouse workers have died from COVID-19 amid employee criticisms of your workplace safety measures. But that hasn't stopped Amazon! The company wrote and produced a TV package for news stations to run, touting just how much things have improved. And at least 10 stations actually ran it. Fair warning: The terrifying video of news anchors reading the same, Amazon-written script will make sure you never sleep again.