Looking Through A Glass Onion


WA-1st-Mo-mfd-AGlass Onion was a play on the idea of transparency and the multi-layered.  It was a Lennon song intended to poke fun at all those looking for deeper meaning and hidden messages in Beatle songs, overanalyzing something not intended to mean anything more than it was.  The lyrics intended to incite the conspiracy theorists, including those who believed the ‘original’ Paul was dead.  The song referenced past tunes –  Strawberry Fields, I Am the Walrus, Lady Madonna, Fool on the Hill and Fixing A Hole.

Just when I sat down to scratch out a few thoughts on an investment theme, the now completely common but increasingly powerful smartphone, CBS 60 Minutes ran a segment about “Brain Hacking.”   The segment portrayed an intrusive reach into the psyche of the young and impressionable smartphone user, focusing on the efforts by some social apps to maximize engagement.  Presumably these efforts are all about chasing eyeballs and clicks, business models aspiring for advertising revenue or some other track to commercial legitimacy.  “We know how to engage you but how do we make money from this?”  But the broader point reinforced a growing reality – we are a world becoming conditioned and obsessed with looking at our phones.

imagesThat’s how far and fast these chunks of metal and glass, or glass onions, have come.  We seem past discussing how brilliant this hand-held technology is and onto exploring social consequences.  We are adapted, but so quickly so that maybe we’re  taking for granted the innovation constantly taking place?

As the largest and probably most analyzed company in the world, Apple is fairly transparent.  Between equity analysts, bloggers and Macworld media, there’s an entire industry of scrutiny, pundits chasing down every update and rumour.  Apple’s iconic past begets the expectation for the next big thing.

The iPhone, now ten years old,  became this free-market democratic platform for engineers and visionaries to create apps that communicate, inform, socialize, entertain, shop, help you get around.  Yes many of these apps are games and yes many are free and yes, many aren’t used that much after download.  But I think of this as evolutionary.  Today Apple shelves over 2.2mm varied apps in its’ app store and has seen a cumulative 150 billion downloads.  Despite these astronomical numbers, we know innovation and ideas will only continue to make the iPhone better.  Who knows what it might be capable of doing?

The smartphone only getting smarter is an industry in and of itself.  So while pundits impatiently await for Apple’s next big thing, it’s still maybe worth dwelling on the glass onion.  But first, just to make a point, Starbucks coffee.

The value of a door

By the 80’s the art of the humble roasted bean had already been around for centuries.  In the US, it was not necessarily a glaringly obvious platform to start the Starbucks global chain that evolved to today’s 26,000 stores in over 75 countries and over $20B in annual sales.  But in came marketing guru Howard Schultz who purchased the 6 original stores and a roasting facility with the vision of creating an enhanced customer and social experience revolving around great product.  He expanded the customer palate with high-margin choices and quality and predictable efficient service.

The stores were consistent and comfortable, whether you were on the go or there to hang out.  It caught on, driving location growth and same-store-sale growth, capturing more revenue with options of tea, cold beverages, meals, snacks, desserts.  Today some locations are testing wine.  Whether you are at a location around the corner, or under your office tower, or at an airport,  you know what you are going to get.  That is the power of brand identity, the knowledge and expectation of what is behind the door.  Once established, it is a funnel for more.

This proverbial doorway, brand value, is the reason why the very day a burger chain named McDonalds decided to sell chicken, their scale made them one of the largest sellers of chicken in the world.  The so-called doorway to Amazon, be it via your computer or tablet or smartphone, is why their mix of price, convenience, logistics and growing loyalty momentum accumulated 43% of all online US retail sales in 2016 – and disrupting traditional retailers and commercial real estate values along the way.  The doorway is how Netflix and Amazon and YouTube are reshaping linear tv.   It’s how a Spotify could jump the music industry in streaming, and how Uber and Airbnb became global business models.  The 860mm iTunes accounts, doorways, are how Apple revolutionized the music industry, turned credit card numbers into Apple Pay and are a gateway to movies, books, podcasts, and who knows what other content or service down the road.  Apps are the doorways of  B2C, B2B,  wherever and whatever they may be.

Well here’s another place you can go,  Where everything flows

Think of the doorways in your day, your week, your life.  With phone in hand,  you can pay your bills and trade a stock, shop, reserve a movie ticket or watch one.  You can order groceries, count steps and calories and work out with a trainer.  You can tune your guitar, listen to just about any song ever recorded, get realtime news, or ask about next week’s meetings and directions to get there.  You can get informed, look for a job, find a date, book a honeymoon, buy a house, a used crib, hire a dog walker, renew your prescriptions and sell your old stuff.  You can even keep up with the temperament and policies of a 70 yr old tweeting President.

Over and above the miraculous advancement of the functionality of your phone, to communicate, share, socialize, record, inform, it is becoming the platform for the commerce of your life that is only going to get bigger and better.  I use Apple as example out of homage to their breakthrough in design, but the app platform is obviously not specific to them – Android represents some 80% of the smartphone market.  Some industry estimates have the global smartphone market doubling by 2020, to over 6 billion.  That’s a lot of apps and pocket doorways – to a product, or service or an idea.

Aside from the expanding reach that comes with the proliferation of 6 billion, the layers within the glass onion also promise to offer an increasing taste of today’s current buzz in new technology themes.  The internet of things, augmented reality, artificial intelligence, virtual reality, the cloud, big data, fintech, autonomous vehicles – these are exponential technologies representing real growth and are and or will be a factor in what that glass will be capable of doing.  These technologies, the future, will still amazingly fit in your pocket.

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In Apple’s latest quarter, the iPhone represented close to 70% of its $79B sales.  So the analyst’s preoccupation with everything iPhone isn’t misplaced.  Channel checks, supply chain, market share, growth, replacement cycles, new features – they all drive the short term investment psyche.  It’s also why those searching for big growth are so impatient about Apple’s next big thing –  cars, acquisitions?

However Apple’s Services business, which is essentially Apple Music, iTunes, Apple Pay, and the App Store – Apple’s doorways – is comparatively only about 10% of the company. Still, approaching $30B in annualized revenue, its almost 50% bigIDCforecastchartger than Starbucks.  This is unbelievably fertile soil for growth, even if overshadowed currently by the sheer size of their hardware product sales.  Their  platform for the world’s doorways, businesses existing or ideas yet conceived, including their own, and the continued embrace of all the new tech coming, suggests that literally a world of opportunity still awaits them…and Google and this entire industry.  These platforms are connectivity, representing maybe the world’s most obvious economic playground for growth and disruption.

In the world of investing, obvious can be either elusive or crowded.  As always, time-frame in assessing investments is everything.  The world faces some serious macro related growth issues.  After several years of central bank led run-up in all asset markets, and with all valuations stretched on almost any historical measures, it is a difficult time for long term investors to find value or be complacent.  But as thematic investors look for more obvious trends to latch onto, the layers in the glass onion represent a great metaphor for a predictable place to scour for the connections to ideas.  Whether it be in the home, the car, the workplace, be that workplace a hospital or a factory or a farmer’s field, this glass is only going to become a more powerful, capable, penetrating, useful, even necessary part of life.  There are 6 billion reasons why companies that engage it and create will lead.  And those that don’t adapt will be disrupted.

The revolutions in content and entertainment and shopping, and even in finance, are well underway.  Maybe these represent digitization’s low hanging fruit.  I’ve heard big data described as the new oil of our economic future.  If so, the glass onion will play a critical role in how we use and share it.

And as for Brain Hacking, I get it.  Society is absorbing a brand new way of living.  To me, in my 50’s, it’s evolution.  Kids today don’t give the technology a second thought because its literally all they’ve ever known.  So maybe the big picture isn’t our obsession with the smartphone, even though I sympathize with parents everywhere trying to manage their kids from being sucked too far down an app hole they could never have related to when they were 12.  If everyone is destined to own the glass onion, and they will only be made smarter and more powerful, maybe the real long term story is in how the glass onion obsesses with us.

 

Glass Onion –  Lennon/McCartney

I told you about strawberry fields,  You know the place where nothing is real

Well here’s another place you can go,  Where everything flows
Looking through the bent backed tulips,  To see how the other half live
Looking through a glass onion

I told you about the walrus and me, man,  You know that we’re as close as can be, man
Well here’s another clue for you all,  The walrus was Paul
Standing on the cast iron shore, yeah,   Lady Madonna trying to make ends meet, yeah
Looking through a glass onion

Oh yeah,  Oh yeah,  Oh yeah,  Looking through a glass onion

I told you about the fool on the hill,  I tell you man he living there still
Well here’s another place you can be,  Listen to me
Fixing a hole in the ocean,   Trying to make a dove-tail joint, yeah
Looking through a glass onion