On this edition of the Futurum Tech Podcast, Lyft’s IPO, rise of the Chinese phone makers. Facebook bans white supremacists, Huawei’s “insecure stuff” in the UK, IBM introduces hyper protect services, Facebook again with discrimination of housing, and our crystal ball, will Uber’s IPO be impacted by Lyft’s performance or will it? These stories and more coming up on this episode of FTP.
Our Main Dive
Diving deep into Lyft’s IPO as $LYFT on the Nasdaq. Rival Uber appears next up on the NYSE and the comparisons are underway. But while Lyft’s performance may well shape Uber’s are these two really in the same business? We’re not so sure. And just who is the original ride hailing app? Hint: it’s not Uber.
Our Fast Five
We dig into the week’s interesting and noteworthy news:
- Salesforce has a Backpage issue
- The rise of the Chinese phone makers
- Huawei’s latest challenge isn’t spying it’s insecure tech
- Facebook bans white supremacists
- IBM’s new Hyperprotect Services
Facebook is sued by the US over enabling discriminatory housing advertisements. It’s real and it’s not going to be an easy fix.
Crystal Ball: Future-um Predictions and Guesses
Will Uber’sIPO be impacted by Lyft’s performance? Hint: we think so and it won’t be a free ride.
Fred McClimans: Welcome to this week’s edition of FTP. The Futurum tech podcast. I’m your host this week, Fred McClimans. Joining me as always are my colleagues at Futurum Research, Daniel Newman and Olivier Blanchard.
Gentlemen, we’ve got a lot of lifting things to talk about today, how are we feeling?
Olivier Blanchard: Well that was awful, but we can lift on from that one, Fred.
Fred McClimans: Very good, well guys we’ve got a very busy show today. We’re going to be diving into the IPO of Lyft. Lyft has beaten Uber to the IPO marketplace and we’re going to dig into that and discuss some of the ramifications, and the challenges, and in general what we think about that ride share market here. We’ll also be touching a bit on Salesforce. We’re going to take a look at some of the Chinese phone makers. We’re going to talk about Facebook because it wouldn’t be an addition of FTP without Facebook in here somewhere. We’ll talk a little bit about IBM and they’re hyper protect services. And we’ll have an interesting crystal ball discussion here about the impact of Lyft’s IPO on Uber at the end. But before we begin as we always do, especially today because we are talking about the Lyft IPO. I do want to remind our listeners that Futurum Research is a research and analysis provider not an investment advisor. The Futurum Tech podcast is a newsletter and podcast intended for entertainment and informational purposes only. Futurum Research does not provide personalized investment advice and no investment advice is offered or implied by this podcast.
And please we hope you find what we’re going to talk about here informative and entertaining, but you need to make your investment decisions on your own. So with that, gentleman, Lyft has made their mark. They have become the first ride-sharing company in the US to go public. They did so this morning in an oversubscribed deal. And I do have to point out because I know this is going to get lost in this mix for some people but Lyft was actually the originator of the ride-hailing service not Uber. We tend to think of that backwards because of Uber’s size. But when Lyft founded the company it was actually a true ride share type of offering. That was not the case with Uber. Uber was at that time involved in hiring black cars for their services, the black car stretch limos, small limo type of service there. They adopted the Lyft business model and they did real well with that, very well. But don’t worry because Logan Green and John Zimmer, the founders of Lyft, they are doing very well today. So the share price opened this morning at 10:45, I think they had a subscription price or anticipated price of I think around $72 dollars a share.
They blew right past that on the open and they’ve pulled back a little bit here, now they’re about $81 close to $82 a share. But at its peak they were up $86 a share plus on their opening day. So Lyft by the numbers, just to kind of get some of these out of the way here, Lyft is not a small company by any means. In 2018, they did $2.2 billion dollars in revenue, that was more than double the $1.1 billion in 2017. But they also increased their losses, they had $911 million in losses last year, and there’s a common thread here guys, Lyft and Uber, they are both in the gain market share mode. They are not in the profitability mode, and they are both very unprofitable. In fact, Lyft has lost $3 billion dollars since 2012. Now to be fair, Uber loses $3 billion dollars about every other day, but they are substantial larger and they are looking at an IPO potentially within the next 30 days or so with a market valuation that absolutely makes Lyft’s $26, $27 billion dollar valuation look like chump change.
Right now people are speculating that Uber could actually come out in the $120 billion dollar range with market cap.
But now interesting, Lyft’s ride-hailing market share was 39 percent at the end of December 2018 up from 22 percent in 2016 according to their filing. So these guys are not small, but they are in that growth mode here. Some interesting side notes on this, much like Snap, the founders have special shares. So while they individually owned less than one percent of the company each, they control a majority of the voting shares of the equity. And that’s something that when Snap did it they kind of opened up the possibility for others to follow. And I believe Lyft is the first company, certainly the first tech company to follow through with that and actually create a separate class of stock there. And I’ve got to say that I’m not a fan of that at all. I think that if you’re an investor in a company your share should be worth an equal vote with everybody else, but that’s not the trend that we’re seeing here today. So without getting too deep into the financials of this and we’ll follow this up in the show notes and have a complete breakdown of Lyft and Ubers financials moving forward.
But Dan Olivier, we are travel people. We travel a lot. We use ride-sharing services a lot. I’ve got to ask what’s your gut reaction to Lyft coming to market before Uber and the extreme overpricing of this deal because they’re not profitable. And neither Lyft nor Uber at this point have any plans that get them anywhere close to profitability. Olivier, what’s your thought here? Is this really a big day, I mean does it open the floodgates for other tech companies or is this just sort of another Snap that’s just kind of going to languish?
Olivier Blanchard: I hate to be cynical about this and maybe I’m missing the point. And they’re good companies, I like Uber and Lyft, and I’ve softened a little bit on my stance against the Airbnb’s, and Ubers, and Lyft’s of the world.
But I still can’t shake the notion that a lot of these IPOs are absurd. The pricing doesn’t make sense to me. And maybe I’m too old-school, maybe I still think of companies as having to make money and having to actually be profitable, not IPOs based on hype and best-case scenarios with monetization 10 years down the road or 20. Lyft has already achieved scale. And the story in the last 10 years with a lot of kind of newer companies and platform companies was always like, “Well scale matters more than profitability. If you scale first you can get profitable later.” But Lyft has already kind of scaled, and I’m still not seeing profitability, so I’m really skeptical. Having said that, I enjoy Lyft and there’s something to be said for Lyft actually differentiating itself as a company as a brand from Uber in terms of its culture and some of the stuff that it’s doing, things that it gets into. But at the end of the day it’s the same drivers and the same cars, right?
They have the Uber sticker and the Lyft sticker, so the customer experience outside of the app is exactly the same. So I don’t know, I’m conflicted about it, there’s a financial piece of this that I don’t get. And if we’re talking about IPOs then it’s a pretty important piece.
Fred McClimans: Yeah, well when you look at the companies and just both Lyft and Uber here, there’s enough commonality in what they do, they’re both in ride-sharing, so it’s easy to kind of compare them there. But the two companies themselves, they are very different. Lyft is a US company. They have focused very much on sticking within the ride share as well as the bike share and the scooter share that are important to them. They have been involved in the development of autonomous technology. They have a billion dollar investment from General Motors, and they are leveraging that to generally work on that next wave of autonomous vehicles. Contrast that to Uber where Uber is everywhere in the globe. And where they aren’t in the globe it’s because they’ve tried and they’ve failed very often winding down their operations and in some instances I believe doing that in the exchange for a stake in the local ride-sharing company that kind of bested them in that market. And that’s a whole other discussion there because when you do that, yes, you’re gaining a piece of equity in that particular market.
But you’re tying your fortunes to the successes of another company that you don’t control. And for me that’s a huge risk factor for Uber here. But Dan taking a look at Lyft here and I guess Uber as well, this rush to gain market share doesn’t that remind you a lot of the rush to gain eyeballs in the social media space?
Daniel Newman: Well let’s face it, this is an adoption play. They’re betting on the come. They’re betting on what’s going to happen. They have to be because no sound, sane businessperson puts money into something that is losing a billion dollars in a year, it doesn’t make sense. But it has, it’s made sense and it has paid off. Companies like Facebook that when they went IPO were in states of barely making money, not clear monetization strategies, and they’ve paid off very well. Now Facebook’s had its own issues and I’m sure we’ll even talk about that on this show, Twitter as well. And of course, Twitter hasn’t ever paid off as a stock the way a Facebook or LinkedIn, for instance, have. But Twitter as you we’ve seen even when they became profitable didn’t become any more interesting to investors. And in fact, to some extent they declined because we’d train the investors, so well to buy into growth as opposed to buying into success and profitability. But this is a hot area so we’ve had these trends like cryptocurrency, it’s a big trend, social media, it’s a big trend. Well sharing economy is a big trend and it hasn’t been one that’s necessarily been monetized in many ways in the form of IPOs.
So this is one of the first and one of the biggest. Having said all that I actually think Lyft has some of the fundamentals. I’ve read some of the executive press since the IPO and they said we’re excited and we’re ready for the accountability that comes with being publicly traded. They must have some ideas that they believe are going to take them into a state of profitability. I will also say Lyft versus Uber, Lyft has been more steady. Lyft has worked towards more controllable losses. They’ve built a stronger culture. They haven’t necessarily expanded so wildly and trying to be everything to everyone, everywhere. They have their market size under control. Their product, in my opinion, and just from experience has been somewhat better. The drivers that drive for Lyft and Uber tend to think Lyft is the one they prefer from a culture standpoint. Now from a volume standpoint Uber still has its perks. So having said all that I think Lyft is in a somewhat decent space in the next four to maybe six or eight quarters to turn into a state of making profit.
Meanwhile, raising $2.3 billion dollars is going to give them the longevity they need. They’ve only lost three billion over seven years, so this cash should sustain them. This money that they’ve raised for a long time to get towards profitability and, of course, they’re going to have to be thinking about autonomous vehicles. They’re going to have to be thinking about new means for driving profit, but let’s face it, if they can put a fleet of autonomous vehicles and eliminate a lot of their overhead, which is people and of course that’s perhaps damaging to all those contract workers. But it could actually be very profitable towards them because they can put those assets on the books, those vehicles become their assets. And financially they build a huge balance sheet while concurrently having a lot of depreciation and simultaneously increasing profitability.
Fred McClimans: Right, it’s interesting that you bring up the subject of the drivers here because both Uber and Lyft, they both talk relatively openly about the fact that they really see their future in autonomous vehicles. It’s not the drivers that they are relying upon today. And that actually makes a lot of sense because it solves one of the biggest profitability issues that both of these companies have, and that is utilization of assets. And we talk about this a lot when we talk about digital transformation, when we talk about the power of predictive analytics, the power of machine learning, it’s all about understanding what assets you have, what the operational state is. When a particular device might need to repair, when it might have some downtime. How can you proactively schedule around that so that your assets that you have in your company, they are functioning at full capacity 100 percent of the time. And with Lyft they are really exclusively focused on that ride-sharing market. And that means that their drivers have to be active 100 percent of the time, no downtime. Now Uber, they have kind of substituted in there for that. They have the same issue, but they also have things like the Uber Eats service, and some of the package delivery services.
So they’re finding ways to keep their drivers moving and generating revenue, but it just kind of fundamentally makes sense that if they can go into that model whereas you said, they own their asset, they control the autonomous car. And downtime isn’t necessarily as much of an issue, and you can also have the autonomous car do just about anything you wanted to do without anybody pushing back, that does potentially improve their profitability stats a bit there. But I think it’s still a challenge for these guys to really figure out how they can make this business model work long-term. And I don’t think that in the next two or three years either of these companies is going to pull it together. But I will say that when I compare the two companies here from an IPO perspective, I think that Lyft is going public because they have the ability to go public, and they have the discipline, and the focus to actually move into that space and leverage that. Uber, on the other hand, I think is the exact opposite.
While Lyft has the management structure in the discipline in place to go public, I think Uber needs to go public just to be forced into some type of management discipline because they are kind of all over the place. And when you compare the two companies, Lyft in my mind, I think their management team is stronger. I think their business model is much more predictable and under control. I think that both of these companies have some competitive issues that are huge because of various regulatory concerns global competition. And if you look at somebody like Uber that has been successful in the Uber Eats space, let’s face it, I can’t find a restaurant anywhere that offers food delivery service that chooses just one delivery service. They utilize them all, so that’s a very competitive here. But I am kind of interested in looking at the issue here of Lyft going public first. To be honest without profitability, without even a plan to profitability, I kind of get turned off by this type of a deal with Lyft.
But I think the impact here on Uber could be really interesting. If the market decides that Lyft is more of a Snap type of investment and they pull back over the next month before Uber goes public, I think that could impact Uber’s ability to raise the level of cash that they’re thinking about here. I mean does that make sense to you guys or am I reading too many tea leaves here?
Daniel Newman: No, I think you’re on the right track. I think Uber’s business models different. They’ve been more global. They’ve entered more markets. Lyft like I said has been much more methodical. They’ve grown slower, one isn’t right and one isn’t wrong, and I think that’s the question. The real question is I think and Olivier, sorry if I trounced on you, I think we’ll these IPOs make them accountable because when you’re public you can’t continue to lose money at these rates. They must believe they have the ability to turn a profit because very few companies that have struggled to show a profit within a few quarters of going public have survived for very long. So they must somewhere deep down think they have that scale, or that magic, or that cost reduction, or that new business model that’s going to take them from where they are to a place where they’re going to show their investors returns. You can only have negative earnings per share for so long.
Fred McClimans: Right, right, well if you look at this though this seems to be sort of a turning point. I mean right now there has been a lack of solid tech IPOs in the marketplace, and Lyft coming out having a good day today could set the stage for others. I mean we’re already looking at Uber obviously coming out potentially within the next month, two months here. Slack is teed up, Palantir teed up, Pinterest, another potential candidate, Airbnb, another potential. Postmates, potentially, as well, Casper, selling mattresses online, I’m not sure if that’s a tech play or quite what it is. But they’re one of the companies that’s rumored to be sitting on the fence there. CrowdStrike, another that could potentially go this year. I mean there’s a lot of activity building up here, and a lot of interest has been kind of sitting out here. Now that said, I think we’re still in a shaky state with the US and the global economy.
And I don’t think Lyft even if they have great success over the next three four months here, I don’t think they can lift the rest of the markets up and set the stage for everybody else at this point. They’re just not that impactful here. But Olivier, I’ll give you the last word on this, what do you think we’re looking at here with the rise of tech IPOs moving forward. And is this a year that the market actually starts to get more techy again?
Olivier Blanchard: I hate to always circle back to Apple but they have been kind of a dominant player in the tech space, and just in the business space, and in the culture space as well globally. So I think there’s an Apple effect to everything even if it’s subconscious, and I see Apple as kind of grasping at straws all of a sudden trying to become a bank, and TV station, all these other things, a new source, trying to generate new revenues from old ideas. And I think that with investors that’s not necessarily something that’s being overlooked or completely missed, and investors are looking for the next hot tech stock. And I don’t think that Lyft is necessarily it, and it’s not definitely not a replacement for what Apple has been, but I think that in the next few years. Tech investors especially are going to be testing the waters and looking for opportunities. And when they’re investing in Lyft, they’re investing, first of all, early or earlyish in the lifespan of that type of company. And I think they’re investing in the possibility that Lyft will actually be able to transition to autonomous vehicles, and “self-driving hotels” or self-driving offices essentially.
I think that they’re looking at a confluence of technologies that will make transportation very different in the future. And they’re betting on the possibility that Lyft’s might be one of the two or three companies in the world that is best positioned to develop that future and profit from it. And so that’s ultimately what I’m seeing, so I don’t see an investment in Lyft as an investment in what Lyft is today. But in what the future of transformation will be. And the role that Lyft might be playing in it, so that’s as optimistic and as logical as I can be with regards to how well that an IPO went.
Fred McClimans: Well actually, that’s a really interesting perspective. I had not thought about that the idea that these guys could really be the winners in the autonomous vehicle space and in the autonomous transportation space, even moving forward that certainly Uber is strong in that area. But we know Uber in their autonomous vehicle program, well, they’ve had their fair share of legal issues so far moving up. And I’m not convinced that Uber can compete against the general autonomous vehicle market coming up from Tesla, and General Motors, and Audi, and everybody else out there. But that’s an interesting one, and I think you’re right about Apple. Apple has lost a bit of luster and in fact even the Microsoft, Facebook, Amazon especially with some of the talk going on about potential regulatory threats or divestiture actions. It’s a definitely an interesting space to watch here and we will be watching it, but with that, let’s move into our Fast Five for the day. We’ve got five actually I think pretty interesting topics this week. Dan, I’m going to let you kick this off with a bit of an update on Salesforce. Another big company out there that seems to be in a bit of an awkward position right now.
Daniel Newman: Yeah, it’s a tough week for Salesforce. The company has typically and mostly presents good news, solid growth, but this week they incurred an interesting challenge as they were sued by 50 women as part of a larger lawsuit for their potential role in helping Backpage, which is the now-defunct website that was sort of the next-gen Craigslist that got most of its notoriety for its use by johns for soliciting prostitutes. And of course, with that came it’s used for trafficking. And at this point there is a claim that has come out that Salesforce allegedly was a knowing accomplice and complicit in helping develop tools within the Salesforce platform that made Backpage more successful at being able to solicit prostitutes, john’s, and traffickers around the world. So in itself it’s not about so much sales forces platform as it is about the potential that there was a number of people in their sales and development teams that we’re aware of how Backpage was using this technology. And they complied and potentially even helped develop technologies that would allow Backpage to be more successful.
Obviously, this is a massive allegation. And right now in the world of tech we all know tech can be used for evil a lot and in many different capacities and ways. I think this is something to watch because if it is indeed true. I think it could open up a world of additional types of suits for such activities. And it really does bring in questions of just how knowing organizations are and I’d liken it to banks potentially providing credit, and funding, or services to terrorist groups. And this happen, but I don’t think the terrorist groups walk into the bank and be like, “Hello, we’re a terrorist group. We are building missiles, and we plan to use this money to buy weapons to cause acts of terror around the world.” It’s usually done very subtly through many different shields, walls, and laundering activities. Well in this case I have my doubts that someone walked into Salesforce and like, “Hey, we’re trying to get traffickers connected to potential John’s, help us build a tool for that.” But that’s essentially what they’re alleging here, and if you read the document they’re basically saying they knew what was going on and they helped build it.
So big topic, very concerning, raises my alarms. I really hope for Salesforce’s sake that it isn’t true or accurate that they knew. But it will continue to bring up that question mark around when tech is used for bad, should tech companies have any liability? And frankly, I think the answer is no because what they built they can’t control just like an automaker can’t control if a car is used to drive into a building.
Fred McClimans: Right, but there’s that point like you mentioned there that there’s a certain amount of culpability that comes into play when you do kind of know what somebody is doing. And maybe you look the other way. And we saw something similar here with the ISPs and websites that were operating as platforms saying, “Look, we don’t have any control over what somebody uses our telecommunications network for, our mobile phone service for, our ad posting on Backpage or craigslist.” But there’s a certain point at which a lot of these organizations have said, “Well look, yeah, we’ll work to filter out this type of content.” And when you do when you get closer to the content, more liability comes up. So this is certainly going to be an interesting one to watch here. So let’s move along, Olivier, you’ve got a sort of a group Fast Five here for us, what’s going on?
Olivier Blanchard: I’ve been thinking a lot about smartphones recently and I don’t know if it’s because of Mobile World or because Apple is on my mind way more than it should be, but the smartphone market is changing. And what triggered me this morning and why I kind of switched one of my topics to this because I noticed that Huawei had seen or announced a 40% jump in smartphone sales in 2018. And it made me think through all the conversations I’ve had in the last few months about the rise of several Chinese handset makers. So Huawei is definitely one of them, and that rise has been ongoing for a while, they’re a dominant presence in that market. But there’s also two other ones that I want to bring up because they’re not as well-known in the United States, but they’re actually making really solid progress in the space and one of them is Oppo. Oppo is a Chinese handset maker that is targeting younger users, so they’re a very different type of company with a different type of product with a very specific demo that they target. And Oppo is definitely one of the companies to watch. Another one is Xiaomi, which is spelled XI-AO-MI, and there are also purveyor of not just phones, but all kinds of devices that are super great.
So these three are kind of at the moment and Apple’s star is kind of fading a little bit, which could be just a temporary problem. I don’t think Apple is going to completely crash and burn. But at a time when smartphone sales from Apple are kind of flat and actually down a little bit, and Apple is unable to really remain super competitive in that core iPhone market and trying to build its revenue streams through services like news, being your credit card apparently, and other stuff. It’s interesting to see that these Chinese handset makers are actually taking over and doing the kind of stuff that Apple should have been doing. And if you look at global smartphone sales, this is kind of like the last points of this not so fast, Fast Five break up, is if you want to look at a breakdown of the entire global smartphone market. The leading company, the leading brand is not Apple, it’s not Samsung, it’s other, first of all. But as far as like specific with like basically a quarter of the market is other, it’s other small companies that have like small shares, but a lot of them.
The larger, the number one smartphone manufacturer in the world is, can you guys guess? Do you know? It’s Samsung, okay, so it’s Samsung, I didn’t want to put you on the spot.
Fred McClimans: We knew what you were going to say.
Olivier Blanchard: Yeah, and then Apple and Huawei are kind of head-to-head for second and third, but then in fourth position you have Oppo. And right behind Oppo has about eight nine percent of the market, and Xiaomi has about seven or eight percent, and after that you have Vivo and Motorola and stuff. But I thought it was really interesting that two of the top five smartphone makers in the world Oppo and Xiaomi are relatively unknown in the United States and they’re still growing while Apple is not. And that’s something to bear in mind because I think that it’s a topic that we’ll be revisiting in the next year.
Fred McClimans: Yeah, real quick to follow up on that. Do you think that these two players kind of right on the cusp year that they’re attractive enough or there’s any type of a possibility that somebody merges those two together or one of the other players acquires them?
Olivier Blanchard: I don’t think so. I think they have their own cultures. Their businesses are doing well, there’s really no reason for them to consolidate. And actually I think it’s healthier that the market doesn’t consolidate too much. I like having these different that are doing very different things. And although, I’m not a huge fan of Huawei as company, and the role that it plays with regard to threatening us leadership in technology and the way that it plays with the Chinese government, it’s a kind of undermine security and technology around the world to they’re mutually beneficial ends, Huawei does make a damn good phone. And actually I think Huawei makes a much better phone than Apple. So I like that they’re this way. I just think that it’s a big world, it’s a global market. We tend to think in a very kind of us centric way about smartphone sales, and maybe we should start paying attention to how global that market really is that there’s a much bigger, richer ecosystem of smartphones out there than just the “Apple versus Android fight.” It’s not just Samsung and Apple up there, there’s really good stuff coming down the pipe.
Fred McClimans: Yeah, it’s interesting. We have a huge ocean and there are a lot of fish in the ocean. But I don’t think there are too many fish that are as big as they actually think they are or as we perhaps think they are. So sticking with that theme of China and Huawei, my Fast Five this week takes us right back to Huawei and the issues that have been ongoing with that company and cybersecurity and in particular the threat of espionage. We know that in the US, Canada, in Great Britain, in Australia, and other countries, Huawei has faced some significant headwinds in a large degree because of the United States, the administration here putting pressure on other companies on allies to ban Huawei from participating in the rollout of 5g technology. Which as we know is I mean that’s the hot area for technology in the mobile space. And being kept out of that would be a significant barrier, a massive moat just right around Huawei themselves and potentially other Chinese companies. So in the UK what happened a few weeks back is they started to soften their position a bit and say, “Yeah look, we just we don’t feel quite as strongly as the US does and we think there may be an opportunity to use Huawei’s equipment in our 5g network.”
And then this week along comes the UK government security watchdog who raises new concerns about Huawei and the threat of cyber espionage, and cyber security. But this is a bit interesting here because they’re not accusing Huawei of using their technology or the Chinese government to be using their technology for spying. They’re simply saying, “Look, we’ve done a whole bunch of vulnerability tests on your product and we think your cybersecurity hygiene is abysmal. We think your ability to design a quality, the product that doesn’t have bugs, doesn’t exist.” So in essence they’re just coming back and I think the direct quote out of the group was they criticized the basic engineering competence of Huawei in building their products. So this whole issue is becoming a massive quagmire. I’m not sure we’re going to get any resolution out of it anywhere, but it’s interesting to see the lengths that some of these government organizations are going to keep this company out of the Western marketplace here. And I still as I’ve said before I think there’s got to be a significant component of trade regulation in there. We’ve seen that in the past and I wouldn’t be surprised if that’s part of this issue here today as well.
Moving along, our fourth Fast Five now. Dan, I’m going to toss it over to you and get the lowdown from you on IBM’s hyper protect services, what’s going on there, what caught your eye?
Daniel Newman: Yeah, so I had a chance to get briefed this week on their hyper protect services and one of the big focuses for this is blockchain and crypto custodianship. And if you know me you know I’ve been a little bit bearish at times on the blockchain at least in its short term proliferation. But I’m starting to see some light at the end of the tunnel and this particular application and the services really gain my interest because one of the problems with crypto as a whole has been the ability to provide the protection of the data and the transactions handle them at a speed that they need to be handled to be managed, but also to be in compliance and to protect. And really in order to do this and IBM’s been leading this for some time, but you really had to make massive investments in infrastructure. And this was because you really needed to be premises, and so you were looking at IBM mainframe products like Z or Linux One. And essentially what hyper protect is going to do is they’re going to offer a hardware security module, and this is part of it.
There’s a number of services that essentially allows key management where you can completely containerize in and put your data in the cloud, so you can run IBM blockchain, for instance, in the cloud on Linux One in the cloud, and have no accessibility from administration to access the data. And this is really unique because up to this point there’s really no way to be in compliance to handle the speed and it can currently be secure and have all the encrypted data end-to-end, not just at rest but in memory and emotion and in flight. So what they’re basically doing is saying, “We are going to make this where companies can build and launch crypto and blockchain enabled services in the IBM cloud. And run it on Linux One in the IBM Cloud and not requiring on-premises.” So if you’re not a blockchain or security or privacy, you may not fully see this. But right now the infrastructure hurdles and the barriers to entry have been huge. But if IBM Cloud can offer this as a service this may actually be a way to get IBM Cloud really back in the game and back on the map to have this matching success that they’ve had in the mainframe and Linux One space.
Fred McClimans: Wow, that’s actually a pretty significant step forward there. Now I know that IBM is using their Linux One platform in the IBM Cloud, but are they going to extend this as well to their CSP partners for some hybrid implementations?
Daniel Newman: Yeah, so I did not get the confirmation on that yet, Fred. But one of my advice because obviously we do work with IBM and we advise, so not only do we get briefed but sometimes we provide. And one of the things that I had immediately suggested was this would be great if it was available on AWS, and on Azure, and on other platforms, right? I mean why stop at the IBM Cloud because it is obviously only a small percent. So I think IBM has to think about how they want to do that, do they want to protect this as a unique differentiator and offer it strictly on their cloud, or knowing that we’re entering a multi cloud world and there’s certainly a big proponents of that, are they going to make this a multi cloud offering where the containerized abilities can be moved from cloud to cloud on-premises and in public environment? So it’ll be one to watch, but these service has just launched these past few days and they will continue to be expanded and rolled out in the coming month.
Fred McClimans: Great, and again because you brought it up you reminded me we do need to inform our listeners that in the truth in advertising or the fair disclosure, IBM is a client of Futurum Research. So now Olivier, our last Fast Five here, we’re going back as we seem to every week, we’re going back to Facebook. Is this good news or bad news for Facebook?
Olivier Blanchard: It wouldn’t be a Futurum podcast if we didn’t bash Apple and talk about a Facebook. But we’re not actually it’s just statistically correct. No, we’re actually not going to bash Facebook this week. They finally did something that is kind of cool. So there’s good news and bad news, the good news is that Facebook as is its right, since it’s not the US government, it’s a company, it’s a business. And therefore, has no reason to allow freedom of speech to everyone the way the government has to has decided to finally do something about toxicity on its platform and has zeroed in on white supremacists. And so Facebook this past week has announced that it would start blocking and banning white supremacist speech, which is a good thing in theory, and I look forward to how they’re going to do it. The bad news is I’m not really sure how they’re going to execute on that. And I’m not talking about having moderators and algorithms look for keywords or groups of keywords and kind of flag potential hate speech and then do whatever they’re going to do, which is to either delete it, or block it, or do whatever.
My issue with it is that in order to be able to do this you have to first be able to properly define the limits that you’re trying to frame. And a white supremacist, a white nationalist, loosely affiliated, right-wing, aggressive libertarian who harbors maybe some racial animosity, those things, there’s a lot of nuance there, it’s not black and white. And while the very extreme ends and virulence of white supremacy is easy to identify on a platform like Facebook. The kind of soft edges of where that kind of bleeds into the mainstream sometimes is a lot more difficult to discern. And so I’m curious I look forward to seeing how Facebook is going to manage this, and maybe they’ll pull it off and it’ll be a really good case study in how to do it. But I have my doubts that they’ll be able to, so work in progress, but just next time you’re on Facebook see if things start to change and see if should you run into that kind of unpleasant encounter with the white supremacists, see how Facebook handles it.
Fred McClimans: That’s interesting because just this week it came out that Twitter is working on a process to label or mark tweets from public figures that it feels break its Terms of Service. The bullying, whatever they feel is inappropriate that would normally land somebody in Twitter jail, but find a way to essentially take a public figure that has said something that would normally get them banned, but leave that post up. But attach some type of a mark to it to say, “Look, this is not an acceptable use of our service.” And that’s drawn some interesting attention here because obviously the way politics are going today in the US there are some politicians that occasionally use Twitter every day to bully or harass people. And this is sort of an interesting situation, I think it kind of dovetails a bit with Facebook’s efforts here. And speaking of Facebook we’re going to stay with Facebook for our tech bytes to segment of the week because, Olivier, as you said it wouldn’t be Futurum Tech podcast if we didn’t talk about Facebook. But Dan, this actually kind of goes back a bit to your Fast Five about Salesforce. This week Facebook was sued by the Department of Housing and Urban Development for allowing housing discrimination not by Facebook, but by its advertisers.
And what we see happening here is a situation where the beauty of Facebook from an advertiser’s perspective is that you can define exactly the demographic that you want to target with your ads. And from Facebook’s perspective, it’s a feature, put it out there. But apparently they are knowingly letting people who are advertising for homes, for condos, for real estate property, and so forth. They’re letting them use those same features to essentially block certain people out of seeing ads for housing, and of course, that’s in violation of the Fair Housing rules in the United States here. And they’re getting slammed for it, they’re getting slammed pretty hard, and this is a really interesting one because other than the one hand they’re putting out an advertising product that you want to be fully functional. On the other we’re putting Facebook into a situation where they now have two police who’s using their advertising platform, which they’ve had issues there with some of the allegations of international interference in US politics and so forth.
But this one I think there’s actually some teeth into this lawsuit here because you can’t let somebody say, “Look, we’re putting up a new housing development, and we’re only going to let people of this sexual orientation in, or only people who are under this age, or only people who meet this racial profile that we’re looking for.” So I think it’s going to get messy. Dan, do you see that that same kind of mix that I’m seeing here with potentially Salesforce or do you see it a little bit differently?
Daniel Newman: Well I think the challenge is that Facebook has been at this kind of for a while, and they’ve been consistently challenged for their practices around what people see. The more algorithmic they’ve gotten the more that they become culpable for the way information gets targeted and moved around. So this particular case is interesting because it really comes down to the regulatory environment that industry. These advertisers are likely profiling or looking for a certain audience based upon who they think would be a primary candidate to purchase their home. So by saying you’re not being fair you’re kind of saying, “Well you need to advertise to more people. You need to spend more money because the more people you want to reach the more money you have to spend.” And so the advertisers, of course, are going to try to be as narrow and targeted as possible so that every single click would be focused towards someone that they think could buy their property, same way we might target a report.
We don’t want to send a report to everyone. However, our industry is not regulated that way. So we can say we only want it to go to these people and if it goes to other people that’s fine, but we don’t care, we’re not looking to reach those other people. I think the real question here is Facebook, do they know all the rules regulations and compliance of every single industry in which advertising is allowed. For instance, it’s like pharmaceutical, for instance, financial and banking. There’s tons of regulatory and Facebook does not necessarily have this open up like a middleware industry for compliance and in management of advertising and truth in advertising or every single compliance and regulated industry on the planet, I don’t know. For this one I think to some extent can Facebook do more? Yes, I mean they can make sure that you only have X percentage of your advertisement covered in words. So I’m sure they can make sure that if a certain demographic needs to see content that they can see the content. The question is who pays for that.
So if the advertiser only wants to reach a certain demographic, but Facebook has to reach more, does that become a Facebook responsibility to basically brought in the advertisement? But concurrently, should they be charging that housing or that company selling that housing project which becomes another question. Again, different than Salesforce, with Salesforce I think it fairly falls into three categories. It’s either complicit participation, it’s negligence, or it’s just BS. In this case I don’t think Facebook is, and again, I’m the first to ride them when they’re wrong. I don’t think they knowingly we’re committing any sort of effort to target. I think they were allowing advertisers to set filters, and I think those advertisers set filters and then somehow they became in breach. So for instance and I guess I’ll leave it at this Fred, if you pay to advertise a high-rise project in the Wall Street Journal, and you’re not a subscriber to the journal. Is it the journals fault that you didn’t pick up the journal, read the journal, and see the advertisement.
And so I can see it kind of from both sides; however, standards of Fair Housing, we as a country have committed to making sure that people have the opportunity to participate in housing, so long as they’re able to afford it. And so there is some culpability on every media channel to make sure that data is available or that information is available to those that it wants.
Fred McClimans: Yeah, I think in this case here when I think of the Wall Street Journal versus Facebook, I think the journal has just naturally a narrower demographic. And you can choose to advertise in the journal or you can advertise in the Post, or USA Today, something like that. But with Facebook they touch everybody and letting people use Facebook, I would have to expect that they know people are going to target fairly explicitly with this. Olivier, does this rise to the level that you see some type of maybe clarification required in terms of what types of ads can use what type of demographic criteria? Or is this just something that requires some type of regulation? And how do you see this being fixed? I mean compare this to Facebook banning white supremacy?
Daniel Newman: Right, I mean it’s a good question. I think that what I’m getting out of this is that we’re not exactly sure still what exactly happened or at least I’m not clear on it whether it was what you guys just talked about, which is just a matter of targeting ads, or allowing advertisers to target specific audiences, or Facebook physically doing something. So it seems to me that at best it’s just a reminder that that maybe we need to create clearer lanes, clearer guidelines for advertisers, and for companies like Facebook to make sure that they don’t run afoul of US law or even of ethical concerns. And this made be a good learning moments, but I think it begins with understanding exactly what happens, why it was wrong, or what parts of it were wrong, and what advertisers and platforms like Facebook can do to make changes, so it doesn’t happen again. But to me, of all the things that Facebook has been guilty of, and perhaps because I don’t understand it as well or it’s not as obvious to me as some of the other things that it’s done, this seems kind of like the, I would put this in the B list, not in the A list of Facebook acting badly.
Fred McClimans: Yeah, well Facebook had been dinged before, in fact, they just settled a lawsuit recently with the National Fair Housing Alliance, and the ACLU that charged them with age discrimination in advertisements, and among a few other things. And during that settlement Facebook said they were no longer going to allow housing specific ads to target based on age, gender, or location. But I think here we’re talking about something that’s substantially broader than this, it’s certainly something to watch and I think, Dan, as you mentioned early on in the show, there’s an issue here of responsibility, ethically sale of your product or allowing people to ethically use your product, that we’re at that point now where I think that conversation needs to be had. And unfortunately, we don’t have enough time to have that conversation on today’s program, but I’m sure we’ll revisit this in the future.
So gentlemen, before we wrap up today’s show let’s pull out the crystal ball and go back to our main dive of the day, Lyft and their IPO. Real quick right now as of the recording time on this show, let’s see what is Lyft’s per share price? Lyft is down now to $80.76 cents per share, which is a ton of money. So Dan, Olivier, and Olivier, I’ll start with you, 30 days out, what’s the share price?
Olivier Blanchard: Wait, hold on.
Fred McClimans: You don’t have to give me a number, just up or down.
Olivier Blanchard: With all the disclaimers of-
Fred McClimans: … we’re not making any recommendations, we’re not telling anybody what to do. What do you think the market cap of Lyft will do, is it going to go up, is it going to go down, 30 days?
Olivier Blanchard: 30 days, wow.
Fred McClimans: 30 days.
Olivier Blanchard: 30 days, I think it actually goes down a little. I think it’s going to keep going up for a little bit, but I think, yeah, 30 days it’ll be lower than what it is right now, but not by much.
Fred McClimans: Got it, okay, and Dan.
Daniel Newman: Yeah, I think it’s going to drop. I think we’re going to see it back … The estimated target for the IPO was someone on $62 to $65 a share, so they already got that big boom at $72. I think they got that initial burst. I think when it got up to $85, $87 a lot of your day traders bailed basically [inaudible] their money, got out. I think what happened is I don’t know that the longs are really there yet. I think most of the investment in the shares purchased today we’re probably institutional. I think, of course, there was a speculative investment, when you start pricing things this price per share, a lot of speculative investors can’t get in with much volume. We’re not talking about an IPO at $20, remember, and wasn’t Facebook like in the $20s and they launched their IPO?
Fred McClimans: Yeah.
Daniel Newman: So we’re talking about $80 a share you say, “I want to take a shot. I want to buy 100 shares.” You better have $8,000 laying around to buy 100 shares of Lyft, a company that hasn’t made a penny yet.” So I think it’s institutional, I think the institution’s bought a lot of it. I think the institutions, a chunk of them are going to take their money and run. So I’m thinking you’ll be back into the mid-60s to 70s a month out. I think it’ll fall even further.
But I think stability comes in that four to eight quarter range, which I predicted when their products are defined, and they start turning profits. And I do think I like Lyft. I think their leadership is good, the culture is strong, and I think they’ll find a way to profitability.
Fred McClimans: Very good, yeah. I think in the 30-day window here, I think they have to inevitably pull back a bit especially with the Uber IPO potentially coming up so close here. And for this type of investment obviously it’s an IPO we’ve got the lock-up period for certain employees, and shareholders in place that will help kind of prop things up so there could be a further drop six months or so down the road.
Daniel Newman: What I will say is this Friday is I think this will absolutely create a stir and a frenzy from the institutions to get into the Uber play. They will make billions that day.
Fred McClimans: Well interestingly enough I mean the institutional investors that are moving in to Lyft right now it’s very rare that institutions go in and just choose one winner in a sector. They average across that. They invest in the sector, you either believe this is a good marketplace or you don’t. And if you don’t you don’t buy into anybody with these long-term funds, so I would expect that anybody that’s buying into Lyft today as a long term as an institutional investor, they will also be buying into Uber as well, but it’s going to be an interesting market to watch. But yeah, 30 days out I don’t think they’re where they are today. And so with that, Dan, Olivier, thank you. Great insightful and deep show today for the Futurum Tech podcast. I’d like to thank our listeners and remind everybody if you like the podcast go ahead and subscribe.
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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.
Fred is an experienced analyst and advisor, with over 30 years of experience in the digital and technology markets. Fred launched the equity research team at Samadhi Partners and provides marketing strategy through the Wasabi Rabbit digital agency. He previously served as an EVP and Research Vice President at HfS Research, launching its Digital Trust practice and coverage of emerging “trust-enabling” technologies. Read Full Bio.