On this edition of Futurum Tech Podcast we talk about Amazon HQ2. Was it a good deal? Was it a bad one? We also talk Blackberry, Volkswagen, Dell Technologies, and a whole lot more. Tune in now for Futurum Tech Podcast.
Our Main Dive
While Amazon was out hunting for a second (and third) Headquarter’s location, every major city in the US was hunting for Amazon. In the end, it’s a split decision, with 25,000 employees being sent to both NYC’s Long Island City and Virginia’s National Landing, sort of. But was it a good deal for Amazon and the cities selected? Or is there more to this story (and the looming protests) yet to play out?
Our Fast Five
We dig into this week’s interesting and noteworthy news:
- Blackberry targets AI-powered security
- SpaceX launches hundreds of tiny satellites
- Looking at a cyber-security moonshot to save critical infrastructure
- VW plugs in its electric vehicle plans
- Dell Analyst Summit
Uber, and the missing $11b dollars
Crystal Ball: Future-um Predictions and Guesses
Corporations and massive tax incentives.
Fred McClimans: Hello, and welcome to this week’s edition of the Futurum Tech Podcast. I am your host today, Fred McClimans. I am joined by my colleagues in crime, because what we do is just so bad sometimes, Daniel Newman and Olivier Blanchard. Gentlemen, welcome to this week’s edition of the Futurum Tech Podcast. How are we today?
Daniel Newman: Always fun to be here on a Friday, lots, and lots, and lots to talk about this week, Mr. McClimans.
Fred McClimans: Yes. Olivier, how are you doing?
Olivier Blanchard: I am doing awesome. I actually am not coughing or blowing my nose today, so that’s a heck of an improvement from last week.
Fred McClimans: So, we’re going to, moving forward, put a little restriction in place on TMI, but before we do that, I do want to let our listeners know that we do have a full lineup today of hopefully interesting topics, enjoyable topics, insightful topics. As we present those to you, we hope that you do enjoy them, and you find them insightful, but the Futurum Tech Podcast is not an investment recommendation show. We are not making any investment advice here. We’re not giving any investment advice. You shouldn’t infer anything that we say regarding investments.
So, with that, today we’ve got some good topics. We’re going to kick off here in a moment with Amazon. We’re going to touch on some of our old favorites out there, Blackberry, we’re going to talk a little bit about Uber, because we can’t get through an episode without talking about Uber, and we’re going to talk a little bit about what’s going on in the AI space, and we’re going to talk about electric vehicles.
So, gentlemen, are you ready to start your engines and dive into Amazon, which is one of those giant mysteries that was sitting out there for months and months, where would Amazon’s new headquarters be located?
Daniel Newman: I don’t know if we can start our engines right after you talk about electric vehicles. I think you can try that one all again there, Fred.
Olivier Blanchard: No, we can start our engines.
Daniel Newman: … pretend to start your engines and drive in a very, very rapid golf cart.
Fred McClimans: Let me put it differently then. Gentlemen, are you ready to spin your wheels up?
Daniel Newman: Let’s do it.
Fred McClimans: All right. So Amazon, Jeff Bezos, Amazon, one of the most loved, and most hated, companies in the country, perhaps even the world, at some point. Amazon decided last year that they were going to relocated, or I’m sorry, not even relocated, but they were going to expand, and split their headquarters into two different locations, and the hunt began.
And when I say the hunt, it wasn’t necessarily the hunt by Amazon to find a new location, rather it was the hunt by politicians in local municipalities and states to find ways that they could craft a deal full of tax incentives and all sorts of nifty things, including, it turns out, a helipad on top of a building in New York City, all these things that they could throw at Amazon to bring that second HQ2 for Amazon into their location.
It was hard fought. There were a number of cities rumored to be in the mix, and then at the last minute Amazon pulls sort of a fast one, they call up and they say yeah, we bought this, but we want to return it, and they split the headquarters into two locations, 25,000 employees each, average salary that they’re promising for these employees is $150,000 a year. That’s a lot of money.
They decide on Crystal City or, in an interesting twist, what the Virginia bidders are calling now National Landing, which is pretty much Crystal City bordering on Pentagon City, right down on the Potomac River, right across from Washington, DC, and Long Island City in New York City.
Now, we have a situation here, guys. In Virginia most people are pretty happy. In New York City there have been some pretty nasty protests. There have been people pushing back, people questioning what about the people who live where Amazon is going to be located? They’re being displaced. What about taking that $1.5 plus billion that the city is going to ultimately give back to Amazon, and how about we spend that on infrastructure, on schools, on subways?
And the protests, at this point, while they may have started off, I think, with some good intent, I think it’s kind of devolved on either side into just sort of this pent up frustration match.
You know, Dan, what’s your take on this? Do you think this is turning into a quagmire? And do you think it’s right for Amazon to split their headquarters now into three locations?
Daniel Newman: Well, I think Amazon just pulled the ultimate publicity stunt, getting massive press for well over a year as they disguised a plan that many companies have, which is expanding their footprint, by renaming it as an HQ, which again, you could call any building you operate out of your HQ. Boeing split their HQ between Chicago and Seattle for a long time, and you’ve seen many companies make that claim, right?
Anywhere that houses executives, boardroom meetings, you can call your headquarters. And again, that’s really just semantics, because how you determine which place is your headquarter is merely something you would have your lawyers file.
So, Amazon’s a big company, and now they’re saying we have multiple headquarters in the US. Lots of companies have multiple headquarters in the US. Lots of companies have multiple headquarters around the world.
So, back to my point, pat on the back to Amazon, great publicity play. They’ve gotten so much media attention over the course of a year for basically expanding jobs and promising more job opportunities into some new geos inside of the US. Could they have just hired more people on the West Coast, in the great northwest where they are? Probably.
And they’re not going to pay for these employees, by the way. I mean, these 20,000 workers at roughly $150,000 a year, I believe is what that, let’s do the math, quick math, three billion? $3 billion. So, they’ve got almost 60% of that first year of expense 100% paid for in tax breaks and incentives, and that was just the New York tax incentive.
Fred, do you happen to know, what was the incentive for the headquarters in Virginia? I don’t have that in front of me.
Olivier Blanchard: It’s 750 million.
Fred McClimans: A lot less.
Daniel Newman: 750 million, but over two and a half billion in tax breaks.
Fred McClimans: Now, that’s over 10 years, and the interesting thing though, Dan, if you look at that money, it gets paid out over time. Now, there is some upfront improvements to the region, but Amazon is also committing to put billions of dollars into each location.
But if you look at it from a dollar’s perspective, look at the tax rate in Virginia. It’s lower than it is in New York, but it’s still there. If you take the employee count that they’re going to be adding in, you look at the average salary, Virginia, they get payback in four or five years, and then they’re positive from a tax revenue perspective, plus they’ve got an additional 25,000 jobs, they’ve got additional businesses coming in because they want to be there near Amazon.
Daniel Newman: Well, you didn’t let me finish. So, my point is, is that Amazon made a great deal, and a lot of people are kind of pissed off about it. They made a great deal for themselves.
The question mark with all these kinds of tax incentives is do they really work? Does the company stay beyond the incentive, period? And again, I haven’t looked at all the details of the agreements, but once that incentive goes away, does the company start shifting and funneling jobs, and moving to another headquarters to get another tax incentive?
And again, we’ve seen that happen on smaller scales, right? Remember all those jobs Carrier brought to Indiana because of a tax break, and then the minute that break was realized they offshored them?
I’m just saying, like, Amazon did a great job, because you know what? To their credit, in this economy, they took advantage, as a corporation, of a desire in major cities to have them, and to have their presence, and to have their jobs, and to have one of the most prolific companies on the planet expanding their business into their market.
The fact that you’re going to have protests in markets is standard stuff now, right?
Fred McClimans: Right.
Daniel Newman: It happens everywhere. People love to find a reason to complain about anything. The people of New York would have been ticked off if they didn’t get it, they’re ticked off that they did get it, they’re ticked off of the terms of the deal, there is no deal that they would be happy about. This is just a societal norm now. We’re just pissed about everything.
So, long and short of it is Amazon took advantage of a climate that enables massive companies to take advantage of a government, and of municipalities, and states that are desperate to find and create jobs, have no meaningful way or idea on their own how to create those jobs, and good for them.
You know, like I said, will this be good for everyone, good for society? Is Amazon doing anything really, really meaningful? That’s going to be harder to say, and that’s going to be a longer term thing that we’re going to have to keep our eyes on.
So, I won’t take the whole show over, but I’m just saying, I’m not, I wasn’t disagreeing with you, I was just saying their deal, on paper, was really smart, because what they just did, and again, their amortization of the tax breaks, Fred, that doesn’t matter. In the end it’s the net net. Amazon already has the revenue and run rate. They’re not running negative.
All right, I’ll let go, because I’m sure Olivier had plenty of things to say, hopefully not the complete social view, but you know, you do have that little bit of European in you.
Fred McClimans: So, Olivier, before I get to you on this, because I want to set this-
Daniel Newman: I’ll be happy about that.
Fred McClimans: … I want to set this up for you in the right way here. If you look at what’s taking place in Virginia, and Dan, I agree, I think this, business wise, is a very smart deal for Amazon, and Amazon is not alone. Every big corporation out there, when they move, when they open a new facility, they go through the same process, just on a smaller scale.
If you look at Virginia, they’re already planning expansion of university resources into the area. It’s going to drive a lot of additional business expansion there, in part because it’s near DC, but everybody wants to be near Amazon. So, I think the growth rate in that area is going to be fantastic.
In New York City, Governor Cuomo and Mayor de Blasio, they’re estimating a nine to one ROI over the tenure of this contract, or over the Amazon deal here, and I think that’s 10 or 15 years. That’s a huge return. That’s an amazing return, and cities, just like companies, they’re valued based on their growth.
If a city is declining in size, it’s going to shrink, and, well, that’s kind of obvious. If it’s declining in size, if it’s shrinking, the value of that city declines, and that’s a huge issue there.
So, Olivier, as Dan said, you’ve got an interesting perspective on this here that we may not have, and I’d love to hear it.
Olivier Blanchard: No, no, I don’t. I mean, I don’t blame Amazon for any of this. It was a smart move. They had leverage. It’s a markets, they played their hand super well.
Just as a footnote, Seattle, where they’re headquartered now, is the second-best market for tech talents. National Landing, Virginia is the third, so it’s the next in line in the entire country, and then the New York Metropolitan area, or Queens, is the fifth.
So, it’s not just a play on tax incentives and money. Amazon located itself on the West Coast and the East Coast. It’s specifically in the places that are seats of economic power, seats of influence, and a place where they could easily recruit the tech talent that they need. So, like, everything was just super well organized, super well executed.
The difference, though, between Virginia and New York, or Queens, is that it’s a net positive for Virginia, because it’s not really that crowded, and I know, I have friends who live in that area who have been trying to sell their homes for over a year, and couldn’t get anybody to buy. Suddenly they have three, well, one of them just emailed me the other day and said that she had three offers in one week since the announcement. So-
Fred McClimans: Yeah, we’ve seen that down here.
Olivier Blanchard: Yeah, yeah, and it’s the same sort of thing, I see it in Greenville, South Carolina, when BMW came to town and completely changed the face of Greenville. All it was, was just, I think, 8,000 jobs, it transformed the area and was a huge economic boon. National Landing, Virginia, I think that the result, the outcome on the quality of life, the value of property, the economic dynamism of the area is going to be 100% positive.
With Queens it’s a little bit different, because you already have a very crowded area with somewhat limited resources. You have infrastructure that already is stretched to its limits, public transportation is absolutely not capable of handling this.
On the one hand, yes, it’s good for property owners, property values are going to go up, it’s creating jobs, it’s doing all this stuff, but it’s also going to strain local services, it’s going to displace a lot of people who, economically, won’t be able to compete, and that creates a lot of stress.
And I don’t blame Amazon for this, Amazon can certainly be part of the solution, but I blame the politicians and elected officials who didn’t put conditions in the contract to try to incentivize Amazon to help them find solutions upfront, not just kick the can down the road and say well, yeah, at some point you’ll help us, or you pledge to invest money and fund a few schools or whatever. So, I think that there’s a mismanagement there that’s entirely their weight to bear, not Amazon’s.
Fred McClimans: In a sense, I think some of this angst here is similar, but still a little bit different from what we saw in the Foxconn situation, where they were going to invest a couple billion dollars, they were going to employ five, 10,000 plus high wage workers, and the tax package, you know, the incentive package, just kept ballooning and ballooning.
In this case, I don’t necessarily see that with Amazon, because I have a lot more faith in Amazon actually doing what they’re talking about here, actually moving in, occupying the buildings, taking about a million square feet of the Citicorp building, which, who knows, will probably become the Amazon building at some point, and I believe that’s where the helipad is going to go.
But there’s an interesting question here. Should Amazon, or any big corporation that has this much influence, should they be distributing their wealth, their presence, into new areas, which they’re doing to an extent? But should they, from a corporate social responsibility perspective, and Dan, I’d love to hear your thoughts on this, is there value if Amazon had said look, we’re going to go to middle America?
Daniel Newman: Well, go back there, when you say going to middle America, do you mean not New York, not DC? Is that what you mean, like, putting it in another-
Fred McClimans: Well, you know, let’s go Chicago South.
Daniel Newman: Oh, well, I mean, physically speaking, I mean, we’re back to that, you know, remember the way the world sees our map? There’s a New York, a Disney World, Los Angeles, and then a bunch of corn. So, I mean, of course it never hurts to show some love to the middle of the country. I mean, Chicago for instance, my hometown, has a tremendous amount of large Fortune companies that headquarter themselves here.
But I guess the more mind-boggling thing to me was you’d think a company like Amazon would want some significant real estate to continue expansion on, and the places they picked are not particularly friendly for ongoing expansion. Like, I saw Dallas as a great opportunity, or also a very tax friendly climate, generally speaking, Texas.
Denver seemed to me like a market that would make a lot of sense. Between the airport and the City of Denver is, like, 100 miles of nothing, and Amazon could have built the biggest factory, spread out there, and created jobs, and maybe drove tax into some of these places that have tax friendly, high growth economies.
But, you know, at the same time, and we got to get on, I know, from this topic, and I’m playing host momentarily here-
Fred McClimans: That’s fine.
Daniel Newman: … New York and Virginia, these major markets, DC, Chicago, New York, LA, they’re not seeing population increases. A lot of them are seeing population decreases due to tax, due to tougher environments. Businesses are leaving these economies, right? So, they needed the win.
I really do think that was what it came down to. I bet you we won’t see it all, but if the tax packages probably had a huge weight in their final decision making, and a city like New York, who, much like my beloved Chicago, has just squeezed enterprises out of their city because of bad tax policy, and they needed it. It was a win. It was a win. It was going to bring jobs.
It was going to bring high quality, and you’re talking $150,000 a year on average jobs. The only thing I’d like to say about that is I still wonder how many of that is weighed from a handful of executives that are going to be making seven figures, and then a whole bunch of people that are making 40 grand.
Fred McClimans: Yeah, there’s probably some imbalance there, you know. Now, from a negotiation perspective, I think it’s worth pointing out, in Virginia the deal was struck with the local counties. They all pulled together, along with the universities, and put forth their bid, and in the process, renamed, for themselves, Crystal City to National Landing.
But in New York the deal was made with the state. Cuomo pretty much got his way with that. So, I can understand some of the angst there.
Who knows? Maybe something comes of this, and in fact, we’re going to revisit this at the end in our crystal ball section here, but I think there’s a lesson to be learned here, and I’m just not sure what it is yet, but this is certainly an interesting thing to watch play out, and when you get players like Bernie Sanders now weighing in, and attacking both Amazon and Walmart, saying hey, look, you guys are doing really well, we think you have an obligation to pay your employees more, you start to get some political movement behind there.
So, we can come back to this at the end of the show, Dan. I know you got a question here, but you’re right, we are running long. I do want to get to our fast five today, because there are other things in the world happening besides Amazon, and we’re going to talk about those.
Dan, I’m going to hand it over to you. Blackberry, AI, and cybersecurity, what’s going on there?
Daniel Newman: Well first, it’s just hilarious to talk about Blackberry on a tech show, because most people don’t even realize they’re still around. They are the butt of many jokes from the stage for me. I always try to identify, in a room of 1,000 people, the least one person who still uses the Blackberry.
Olivier Blanchard: I can vouch for that. I’ve watched you do that. You actually, it’s true, he does it.
Daniel Newman: And it’s almost always one. There’s almost always one, and it cracks me up, and it generally cracks the room up.
But Blackberry just spent up $1.4 billion, so clearly they’re still bigger than most people realize, and that was through the acquisition of AI powered cybersecurity startup Cylance. The founder of this company, Stuart McClure, happened to have founded another cybersecurity firm, and in 2004 he sold for a measly $86 million.
Now, this particular company is an endpoint protection platform, so it’s designed to protect our mobile devices, and it can help thwart advanced threats using AI. Its suite of security protocols inspects networks for weaknesses, and shuts them down if detected, and it doesn’t require a signature from an existing threat to block it, and it spots new threats.
I did read that, because I did not memorize that, but very interesting, interesting to see Blackberry on the map, and interesting to see them maybe finding a new identity in helping protect our devices, as opposed to providing us with the devices themselves.
Fred McClimans: Yeah, well, you know, I think a lot of people, they have forgotten that Blackberry is still around. Go to New York City, by the way, go to the investment community, and there are Blackberries everywhere. Blackberry, for the last couple years, has been making their mark in security, secure communications.
I think this is kind of an interesting play for them, and it’s a moonshot of sorts, and we’ll talk about a different moonshot here in a moment, but Olivier, I’m going to hand it over to you. You just got to lay this one on me. I’m looking at the materials here, go ahead.
Olivier Blanchard: Yeah, SpaceX? Okay. So yeah, so it’s not quite a moonshot, we’re not going back to the moon just yet, but Elon Musk and his SpaceX company has just won approval by the Federal Communications Commission, the FCC, to put 7,000 Starlink internet satellites into orbit.
So, what does the FCC have to do with rocket launches? Not necessarily a whole lot, but there’s quite a bit of wireless airwaves and bandwidth for this plan to work, and the plan, I think, is to put somewhere around 12,000 satellites into space, in orbit, that will beam wireless internet down to areas that don’t have the internet, so it’s this huge network of communication satellites that Elon Musk is trying to put in space.
So, it’s kind of an interesting thing. This was a huge milestone. It’s interesting of the FCC, that we sometimes agree with and don’t agree with, gave the okay to this. So, we’re kind of entering a new era of ubiquitous wireless connectivity around the world, thanks, in part, to Elon Musk.
Fred McClimans: You know, it reminds me a little bit of the Iridium platform, generations of technology ago, when Iridium lobbed up 60 plus satellites into orbit around the earth to provide back then, you know, 2.4 kilobit per second.
Olivier Blanchard: Yeah.
Fred McClimans: So, we’ve come a long way. So, one last question, Olivier, are those, do you know if those are the modular cube type satellites?
Olivier Blanchard: Oh, I don’t know. I have no idea, but I know that there’s a lot of them, so they have to be relatively small, because I think that the plan is, I mean, so there’s 12,000 in total, which is going to take years to do, but I think the plan is to put up something like 1,200 in the next couple years. So, that’s a pretty aggressive schedule for that many satellites to be launched into space.
Fred McClimans: You know, and…
Olivier Blanchard: So I’m assuming they’re small payloads, very small payloads.
Fred McClimans: If you thought being an air traffic controller was tough, on the ground, I can’t imagine what it’s like in space.
So, speaking of space, I’m going to lay on you, here, a moonshot of sorts. So, everybody remembers the famous moonshot with Kennedy, to send a man to the moon. We have a different kind of a moonshot here taking place, a cyber moonshot. There is an initiative underway by the National Security Telecommunications Advisory Committee.
They have been pulled together, recognizing that, in the United States, we have a significant issue with protecting our critical infrastructure, that’s roads, transportation, food, you name it. Just about everything today is becoming critical for us.
So, to kind of focus the energy of a moonshot type atmosphere, they pulled this group together, a number of very influential people on this, from a number of very powerful tech companies. They have been working on a 10 year plan that would actually kind of revitalize and bring together all of the communities in the United States to have a singular focus for rethinking the way we think about cybersecurity and the technologies. You know, for example, quantum computing and its rule in encryption, right up there at the top, 5G, and how we can build 5G so that it’s secure from the very beginning.
So, yesterday they finally got approval, as part of the organization, to proceed with their next step and start with the actual initiative. So far it’s been pretty much planning up to date on that.
But it’s going to be an interesting thing. There are a lot of moonshot jokes out there, but I think anything that brings together industry, government, and individual users to kind of rethink about cybersecurity with a 10 to 20 year horizon is a good thing in my book.
So, speaking of books, Harley Davidson.
Olivier Blanchard: No, actually not Harley Davidson, it’s Volkswagen this week, but I-
Fred McClimans: No, but the connection to Harley Davidson was last-
Olivier Blanchard: Yeah, that’s right, I-
Fred McClimans: … last show we talked about Harley Davidson, so connect Harley Davidson-
Daniel Newman: Those things don’t connect at all, gents, but-… that was fun.
Olivier Blanchard: I will now, yeah, connect the dots. So, last week we talked about Harley Davidson starting to make electric motorcycles, which was, I think, also a huge milestone in our electrification of transportation, and this week Volkswagen committed to completely refitting three of its plants, and I think it will affect something like 10 models of vehicles for Volkswagen by 2022.
And so, there is a conversion from fossil fuel to electric going on at Volkswagen also. So, I think that we’re starting to see an acceleration in the trend of automotive companies moving away from fossil fuels, and moving to electric vehicles. And we can have a separate debate about whether or not electricity is a byproduct of fossil fuels, but that’s a topic for another day.
Fred McClimans: When you talk about Volkswagen and the push to eliminate fossil fuels, I can’t help but think about the issues they’ve had with fudging the emissions tests.
Olivier Blanchard: That is correct. So, with electric cars they won’t have to fudge emissions tests anymore, so that’s-
Fred McClimans: Yes.
Olivier Blanchard: … that’s a double positive.
Fred McClimans: Very good. All right.
Daniel Newman: Their senior executives will go to jail, which, if you did that here in the US, you’d probably be given a cabinet position, see, that’s the difference between here and there.
Fred McClimans: Probably. So, Olivier, do you know where these vehicles are destined for? Because 2022, that’s right around the timeframe that China has said if you want to sell into China, X percent of the vehicles have to be electrified.
Olivier Blanchard: Yeah, no, I have no idea. I mean, the plants are kind of scattered around Europe. So, one of them is Zwickau, I think, which is in East Germany, there is Emden in Hanover as well. So, for sure these vehicles are destined for the European market, what percentage of those are destined for markets outside of the EU I do not know.
Fred McClimans: And I can guarantee, between now and then, the trade landscape will look much different.
Olivier Blanchard: Probably, yeah, and I don’t think that right now is necessarily the best way to look into our crystal ball about this, especially with regard to trade, because things are still kind of undecided and fluid, let’s say.
Fred McClimans: Yes.
Olivier Blanchard: But, I think, yeah, I mean, if the company at home is making these vehicles, and if they work, if consumers buy into them in Europe, and Harley Davidson is making electric vehicles, I think that electric vehicles are more popular, especially with millennials, who already are kind of on the fence about owning vehicles anyway, and are kind of raised in an environment that is much more eco-friendly and eco conscious, I think, than electric vehicles are going to … If millennials ever own a car, I think it’s a lot more likely, 10 years from now, that they’ll be electric car than a old style gasoline burning car.
Fred McClimans: Very good, very good. So, Dan, take us home out of our fast five today. We’re talking Dell.
Daniel Newman: Sorry, from between the fourth and the fifth I think we did another full segment. I forgot what, all right, no, so, spent the week at the analyst summit for Dell, and there’s a lot of talk about this DVMT deal, and basically Dell as a whole is a private company, but as you know, acquired EMC, VMware, which was owned by EMC, remained a public company.
Now we’re in the process of Dell working back towards another public offering, but they have some things, some business to take care of, and one of them is a takeover offer that they’re doing to regain shares, a special class of shares. They’re going to spend about 24 billion, and it looks like this takeover is going to go through, and this will increase their stake in VMware, and it will basically give them the power to take the company back public.
The company’s performed tremendously under the private guise of Michael Dell. They’ve made a bunch of expansions into areas, and they tend to be leading a number of segments, from servers, to cloud, x86, which I just mentioned servers, storage. So, they’ve done really well, and they’re going to, looks like they’re going to cash in, and a number of people are going to do very, very well.
But they did have some fairly sizeable competition, with magnate Carl Icahn being one that was thinking of standing in the way, but today it was actually published that he said, “I can’t stop it, even though I think we could get a much better deal for the investors.” It looks like it’s going to go through, and it turned out to be around $120 a share over the 109 originally offered, and I think it’s December 11th there is going to be a shareholder vote, and Dell could once again rejoin the public exchange.
Fred McClimans: That would be the backwards completion principle from the tubes or something there, kind of rewrapping around. It’s amazing to see what Dell has been able to do with that public private, public private partnership, I guess, of sorts there, never ceases to amaze me.
But talking about amazing things, it’s time to talk about tech bites, and I got to say guys, this week was a tough one. Facebook was kind of up there as a contender, you know, in the fact that I think they’ve almost cemented a permanent spot on the podium.
But this week we’re going to hand this over to Uber, who managed to lose $1.1 billion this quarter. Now, if I lose that, I’m in big trouble, but Uber, they’re still on track to IPO next year.
So, the interesting stuff here, they still have 6.5 billion cash on hand. They’ve got an additional 500 million from Toyota sitting out there. They’ve got a two billion debt offering that’s out there. Uber Eats, this was kind of interesting, Uber Eats accounted for 2.1 billion in revenue, 150% gain year over year, and they’re on target, they say, to hit 70% of the US population by the end of 2018.
But guys, come on, this is a cash cow that has been sliced, and diced, and turned into hamburger, you know? Olivier, what do you think of this?
Olivier Blanchard: I still am a little bit of at a loss about a company like Uber losing a billion dollars. I don’t know where it’s all going, and I haven’t looked into their financials.
I don’t know, I’m not that familiar with their operations, but it just seems crazy to me that a company that essentially doesn’t seem to have that much overhead, and seems to also skirt local regulation by not having to pay for medallions or any kind of fees, somehow manages to burn through that much [inaudible] it’s a little bit of a mystery to me, but I’m not so interested that I’m really looking into it.
Fred McClimans: Well, you know, they’re speculating here that their valuation could be over $100 billion if they pop. I think some of the estimates are 115, $120 billion for that.
Dan, what’s your thought? How does a company like this continue to lose money, continue to kind of double down on, as Olivier said, this, you know, hey look, we’re not the traditional company, we don’t have the traditional overhead, how do they keep doing this, and do you think it’s sustainable?
Daniel Newman: As of now it’s not a compliment to say this, but they’re kind of like the Facebook of social media, and they’re working their way towards being the Snapchat or the Twitter, and what I mean by that is really the market sentiment continues to stay strong as long as revenue grows. So, people aren’t going crazy about whether or not they’re making money, because we’ve really trained markets to say, well, we have enough revenue, we’ll figure out how to make money later. It’s kind of like we have a lot of users, we’ll figure out how to make money later. That’s the popular sentiment and trend right now.
And remember, all this stock pricing is being driven up by hedge funds and investors that are standing to make a lot of money when this thing sells, so why would they want the valuation to go down? They’re going to push that valuation up. They’re going to find institutional investors, and schmoes like me, who will buy it at the IPO, and they will cash out with lots and lots of money, and then we will fluctuate, and watch that stock go from 10, to 12, to zero, because I just don’t believe that Uber has the ability to turn a profit any time soon.
So, I ultimately see them landing more as a Twitter in the long run, but right now they’re still the darling, and even though Lyft has shown continued growth, better business culture, better behavior, ethics, potentially as good, if not better platform, they just haven’t quite gotten the sentiment of the people because Uber is Kleenex and everyone else is everyone else.
So as of right now, Uber sits strong, has a great brand identity, has strong revenue growth, has no ability to make profit, but I just, I still think they sit in a good position because, first of all, the people driving the valuation are the people that stand to benefit the most, which I repeat, and second of all, they have such strong brand, which I just said, that that almost seems to be more important than anything else these days when it comes to deciding which companies win and which companies lose, even if you do lose a billion dollars a quarter.
Fred McClimans: Yeah, but you know, looking forward here, I mean, they’re having a really tough time, have had for years a tough time in China, they’re having a tough time in India. They are finding more and more cities in the US where not only are they competing against Lyft, but these local municipalities have now started firing back with regulations that actually have some teeth into them.
And as I look at Uber, they look more like a taxi company on tech steroids, you know, than they did a few years ago, where they were truly a breakout kind of firm. Today it’s a little bit different. The ability to deliver food, Uber Eats, yeah, that’s great, but there are a lot of other competitors out there with that.
I’ll go out on a little bit of a limb here and, like we did for Snap, you know, we recommended that people just forget the name Snap, I think from an investment perspective that Uber looks like it’s going to fall into that category as well. But I am very interested to see what they do next year, and what Lyft does, because they could be a darling out there.
Olivier Blanchard: Wait, wait, actually, before we-
Fred McClimans: Oh wait, oh.
Olivier Blanchard: Yeah, I have a segment note, really quickly, because I wanted to give a special mention to our second runner up in the Tech Bites, because I can’t move on without mentioning this guy.
So, Japan’s new cybersecurity minister, a gentleman by the name of Yoshitaka Sakurada, made the admission to a committee of lawmakers, not long ago, that he has never used a computer in his life, and I thought we couldn’t move on from tech bites without acknowledging that Japan’s new cybersecurity minister, who’s 68 years old, has never, in his entire life, used a computer, and testified that whenever a computer needed to be used in his daily duties, he just instructed secretaries and staffers to do it for him. This is the guy in charge of cybersecurity in Japan, so Kudos to him, and now we can move on.
Fred McClimans: Well, you know, I think in contrast to a lot of the politicians that we have here, if you look at the congressional testimony of Facebook, Google, Twitter, and so forth, I don’t think very many of them have ever actually turned on a computer, or have figured out how to master their phone either.
Olivier Blanchard: No, and with lawmakers it’s unfortunate, but understandable. But when you actually appoint somebody to be the minister, or the secretary of cybersecurity for the entire country, and a country that has, incidentally, a lot of very technically qualified people, they found the one guy who doesn’t use a computer, and never has, to be in charge of the entire cybersecurity apparatus for an entire nation.
Fred McClimans: Well, look at it this way, he’s probably the least hackable guy.
Olivier Blanchard: Well, okay, that’s a good point.
Daniel Newman: Maybe they’re just looking for some change of thought, right?
Olivier Blanchard: Touché.
Daniel Newman: They can say they’re disrupting the methods. You know, all you guys, kind of like Peter Griffin in Family Guy, they show a clip of him when he was in Vietnam running around as a clown through the forests, and he said, “Yeah, you guys are all stupid. They’re going to be looking to shoot the army guys.”
You know, it’s kind of like the metaphor, we just found the guy that is going to think completely differently, even if it is stupid.
Olivier Blanchard: Good point.
Fred McClimans: Right. So, gentlemen, before we dig into our crystal ball here for a quick glance, I do want to, because Olivier, we’re giving props out here, of a sort, I just want to share out here, who are some of the players behind the cyber moonshot? You’ve got companies like Unisys, Dun & Bradstreet, Harris Corp, let’s see, Iridium Communications, which is back out there again, surprisingly, McAfee, Fireye, Ribbon Communications, AT&T has to be there, of course, Communication Technologies, and Neustar. So, you’ve got some strong players out there, and I wish them well, and we’re going to be watching this one really closely.
Crystal ball time, gentlemen. Let’s go back a minute to our original conversation, as we like to do here on the Futurum Tech Podcast, Amazon, the deal has been struck. Do you think that there is enough momentum from the Democrats, from some of the disenfranchised in the New York City area, from the Bernie Sanders crowd out there attacking Walmart and Amazon. Do you think there’s enough clout there to actually change the deal that’s in place, and kind of reset the playing field for corporations moving forward with this type of massive tax incentive? Dan?
Daniel Newman: So is your real question whether or not, going forward, this won’t happen again, or this will be different going forward, in terms of the way these deals come together?
Fred McClimans: Sure.
Daniel Newman: I mean, I’m being sincere. I just want to make sure I’m following you.
Fred McClimans: Yep, no, I understand, no-
Daniel Newman: But, or were you asking if they can actually put so much pressure on Amazon, on the State of New York, that the deal actually-
Fred McClimans: Yeah.
Daniel Newman: … falls through.
Fred McClimans: Well, so, let’s qualify this a bit, and you can give me two answers here if you like. The first is, is there enough momentum, do you believe, to actually force a change, of any type, to the Amazon deal? Number one.
And number two, if you do think that’s the case, do you think this is a strong enough movement to actually start to change the way these kind of deals are given out in the future?
Daniel Newman: Not a chance, this deal is done. I firmly believe this is a done deal. I firmly believe the people do not have any say. There’s way too much long term benefit to New York, as far as they see it, which is through the creation of this many jobs, and politicians make and break their existence on job creation as one of the key tenets of their success, and now you have a governor who can put a stake in the ground and say I brought Amazon to New York.
And sure, there’s going to be some protestors, but there’s going to be nearly as many jobs as protestors. This could be the biggest, greatest presentation ever of a new company, because they will have the mall of New York lined from front to back with the greatest audience that has ever existed come see Amazon as they land, and a similar experience will happen in New York.
No, this will not change, and between you and me guys, maybe I’m the political outsider here, I don’t believe the left or the right do anything differently, I just think they say it differently. And I think ultimately, in the end, the corporations control most things, so I sound a little bit of a conspiracy theorist, but you know what? I don’t think that either have the strength or the power to fight these big corporations, because ultimately, when it comes time to be reelected, they need them too badly.
Fred McClimans: Olivier, do you think that crowd that Dan is talking about in New York City, will it be the biggest crowd ever?
Olivier Blanchard: I mean, it doesn’t matter if it’s a big crowd or not, it’s occupy Amazon, is that going to be the next hashtag? I mean, I applaud them for protesting and doing what they want to do, but ultimately no, I don’t think that, on the New York side, I don’t think the deal changes. That’s not going to happen.
And on the Amazon side, I don’t think it’s going to change either, but what we may see is enough, if there’s enough pressure, is Amazon moving into a PR mode, and starting to push stories about all of the good it’s going to bring to the area, all the donations it’s going to make, all the investments it’s going to make in public education, in the jobs, in essentially revitalizing that part of the area. So, you may see a more aggressive PR campaign by Amazon, and around Amazon, to show the benefits of the deal, but no, the deal is not going to change.
Fred McClimans: Yeah. Yeah, I kind of agree with you both here. I don’t think this deal changes. I do believe that there is a likelihood that, as Olivier, you’re pointing out here, the revitalization, actual things happening, you know, better subways, better roads, better infrastructure, donations, contributions on the part of Amazon, I can see that easily going into full swing here.
The big question there is after you spend all this money to kind of revitalize this area, does that really benefit the people who are living there today.
Olivier Blanchard: Oh, it does. The problem now is the budget shortfall. So, you have these tax incentives that are basically kind of like, you know, not necessarily putting New York in the red, but it’s money that’s not coming in, let’s just put it that way. And so, if you have to modernize and revitalize your infrastructure to meet the demands of this new headquarters, and you’re not necessarily bringing in new money right away to do it, how will you invest in those improvements?
And I think that’s where the rubber meets the road, and I think that’s where there’s a real, legitimate problem with this deal in terms of where is the money going to come from to be able to make the changes that are required for the area to adapt to this new stress.
Fred McClimans: Yeah, and unfortunately we do know from past history that despite the fact that there is a lot of potential here for tax revenues to flow back into the city, for new people to move in, for new communities, new businesses, and new economic ecosystems to build up around Amazon, we always know that it doesn’t play out exactly as we would like it to, which is why we call that a crystal ball, and not our future guaranteed bet on the roulette table.
So, Dan, Olivier, thank you very much for being part of this week’s Futurum Tech Podcast. I would like to thank our listeners for listening, and encourage you, as my son says, smash that like button, hit subscribe, let us know what you think about the podcast. We would love to hear from you. Please, let us know, and please, come back next week, where we have another edition of the Futurum Tech Podcast lined up for you.
I’m Fred McClimans, on behalf of the entire team here at Futurum Research, Dan and Olivier, thank you very much, we’re out.
Disclaimer: The Futurum Tech Podcast is for information and entertainment purposes only. Over the course of this podcast, we may talk about companies that are publicly traded and we may even reference that fact and their equity share price, but please do not take anything that we say as a recommendation about what you should do with your investment dollars. We are not investment advisors and we do not ask that you treat us as such.
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