Trouble in China's tech sector; Google and Facebook are spending big to buy politicians; the streaming wars continue; and more.
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EconByte

Issue 5/2019: Trouble in China's tech sector?

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Here are eight bits of news I found interesting this week, along with some brief commentary.

1. A Winter Storm Looms for China’s Tech Sector.

Chinese investors are increasingly reluctant to throw good money after bad into a sector, much like its US counterpart, that burns through considerable amounts of cash on a daily basis. According to the article, “China’s graying population makes it harder for internet companies to maintain their main revenue growth from advertising while finding new users”. Maybe advertising isn’t the way forward? Silicon Valley, take note. Note: paywall.

2. Google, Facebook spend big on U.S. lobbying amid policy battles.

Google spent a company-record $21.2 million on lobbying the US government in 2018, with Facebook also spending more on government lobbying in 2018 than it ever had before at $12.62 million. If you want privacy but also want to use Facebook and Google without paying for the privilege, then you’re out of luck. Politicians are using well-publicised privacy concerns and media outrage to further their own goals; in reality, it’s likely that any regulation that results will only help the established players at the expense of smaller and yet-to-be-conceived competitors.

3. Disney is already losing over $1 billion in streaming, and its Netflix competitor has yet to launch.

“The media company said in a filing on Friday that its investment in Hulu was the primary contributor to a $580 million loss in equity investments in the fiscal year that ended Sept. 30.” Incidentally, Hulu just lowered the price of its advertising-supported service from $7.99 to $5.99. Personally, I can’t wait to see how the streaming market plays out. Netflix lost about $3 billion in 2018 and has over $12 billion in debt. No one is making any money at this stage, and a divide is growing between subscription-funded services (e.g. Netflix) and advertising-funded services (see below).

4. Viacom to acquire Pluto TV for $340 million.

Pluto TV is a “free”, advertising-supported streaming service “that recreates the classic TV channel guide… Pluto TV offers more than 100 channels that air in a linear fashion 24 hours per day”. Viacom is a more traditional, yet alternative media company (Comedy Central, MTV, etc) funded by, you guessed it, advertising. So it’s a good fit. Pluto was never really a Netflix competitor but it’s certainly something I’m sure the likes of Facebook looked at acquiring.

5. Apple reportedly looking to subsidize Watch with Medicare plans.

That’ll help the bottom line. Apple has already infiltrated schools and education departments around the world, why stop there? Note that Fitbit has also been aggressively pursuing the space and has “announced its inclusion in the National Institutes of Health’s new All of Us health initiative”. No doubt Google is having a crack, too.

6. How open-source software took over the world.

Could an open-source social network usurp Facebook? The article doesn’t delve that deep but as technology improves and business models evolve, I certainly wouldn’t rule it out. The whole thing is a decent read but the title is a bit misleading. As the article concluded, “Today, we see a healthy cohort of open-source businesses, which is quite exciting… [but] these open-source companies will need to grow and mature and develop their products and organization in the coming decade”. A better title might have been: “How open-source software is trying to take over the world”.

7. 200+ Banks & Financial Organizations will use RippleNet in 2019.

RippleNet is the blockchain behind the cryptocurrency, Ripple (XRP). “When you use XRP, instead of having to pre-park all your money in foreign accounts around the world, you hold your funds locally, under your control, your stability, your creditworthiness. It’s a much better position structurally.” As the article notes, the current system - SWIFT - can take three working days to move funds from one account to another in a different currency, whereas Ripple can do it in two minutes. Note that Ripple isn’t alone in this space (e.g. Stellar Foundation’s XLM serves a similar purpose). Increasing efficiency in finance, especially international banking, increasingly looks to be crypto’s first real-world “disruption”.

8. Curious 23andMe twin results show why you should take DNA testing services with a grain of salt.

“Charlsie Agro and her twin sister sent for DNA test kits from five companies… [But] despite having virtually identical DNA, the twins did not receive matching results from any of the companies.” Privacy concerns aside, 23andMe noted that its analyses are “statistical estimates”. Also known as, take your DNA matching results with a grain of salt. If you’re willing to give it up in the first place (there’s a very good chance at least one of the 5 companies Charlsie sent her DNA to will be hacked, or sell its data to the highest bidder, in the next 5 years).

Image of the week

I’m not a fan of technical analysis. At all. You could even say I’m vehemently opposed to it. So, here’s an xkcd image from earlier this week making fun of people who draw lines next to historical data that have no predictive value.

The voodoo that is technical analysis

That’s all for now, have a great weekend.

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Issue 5/2019 was published by Dr Justin Pyvis. Feel free to send feedback, suggestions for future issues, ideas, insults, or pretty much anything that crosses your mind to his Keybase chat.