The cloud drives Amazon; Big data are overrated; yet more privacy concerns; and more.
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EconByte

Issue 9/2019: The cloud drives Amazon

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Here are eight bits of news I found interesting this week, along with some brief commentary. Note that this will be the last update for at least a week, as I need to spend a bit of time upgrading the newsletter.

1. AWS Drives More Than Half of Amazon’s Operating Income.

“For Amazon, the cloud is the little engine that could. Amazon Web Services comprised just 11% of the company’s overall sales in 2018, but delivered more operating income than all other business units combined.” Everyone thinks of Amazon as this online shopping behemoth, but where it’s really cleaning up is in the cloud computing space.

2. Forget privacy: you’re terrible at targeting anyway.

Big data are overrated: “Everyone loves collecting data, but nobody loves analyzing it later.” It turns out that analysing enormous amounts of data to make predictions about human behaviour doesn’t help all that much. Why? Because “almost everything produced by machine learning (ML) could have been produced, more cheaply, using a very dumb heuristic you coded up by hand, because mostly the ML is trained by feeding it examples of what humans did while following a very dumb heuristic”.

3. Canada’s Bell Tried To Have VPNs Banned During NAFTA Negotiations.

“How exactly you’re supposed to determine that somebody is using a VPN to not watch Bell’s own television services isn’t really explained, and the fact that enforcement would likely be technically impossible appears to have been an afterthought. As Canadian Law Professor Michael Geist was quick to note, trying to ban VPNs just as they’re reaching critical mass as a partial solution to raging North American privacy scandals suggests Bell may not exactly have its finger on the pulse of common sense on this particular subject.”

4. Snap’s User Base Stops Shrinking as Revenue Beats Estimates.

“Though Snap failed to add any new users since the prior period, the steady numbers are a victory considering that analysts projected the amount of people using Snapchat daily would shrink.” Not good news for Snap (its stock rose because it beat expectations of a decline), but it does indicate not all is lost for Facebook once its userbase eventually stops growing (if it hasn’t already), with Snap growing its advertising revenue into a flat user base: “Snap said it has been able to add more advertisers using its automated tools, increasing demand and therefore boosting prices for promotions on the mobile app.”

5. Google Stock Falls on a Lower Fourth-Quarter Profit Margin.

“The Google parent company had revenue of $39.3 billion in the fourth quarter, up 22% from a year ago, beating Wall Street’s estimate of $38.9 billion… But the company’s profitability continued to fall in the quarter.” Interestingly, research and development spending was $6 billion in the fourth-quarter, up from $4.3 billion a year earlier and capital expenditure climbed to $7.1 billion from $4.3 billion a year ago. For Google’s sake, the R&D had better be going into something better than recent flops such as its failed social media network, Google+.

6. China continues 5G push despite economic slowdown and Huawei setbacks.

There’s no question that 5G is the future. Interestingly, here in Australia (where Huawei was banned for national security reasons) Optus - one of the three companies rolling out 5G - has already announced its initial 5G pricing. It plans to offer a 50Mbps guaranteed, unlimited data plan for $70/month, going live in about 6 months from now. A quick look at its website shows unlimited NBN (the government’s $100 billion white elephant) is currently $70/month with no guaranteed minimum speed. 40Mbps is the typical busy period speed, apparently, but it caveats that with “subject to line speed capacity”. What’s left of the NBN’s wafer thin business case is rapidly evaporating.

7. Inside Wisconsin’s Disastrous $4.5 Billion Deal With Foxconn.

Unlike Amazon’s NYC campus, this definitely would not have gone ahead without the subsidies (and shouldn’t have): “Under the terms Walker negotiated, each job at the Mount Pleasant factory is projected to cost the state at least $219,000 in tax breaks and other incentives. The good or extra-bad news, depending on your perspective, is that there probably won’t be 13,000 of them.” Note that the $219,000 number is inflated, as a tax break doesn’t “cost” the state anything, if the job wouldn’t have existed without it. The article doesn’t make clear how much the state is actually out of pocket, although it does say later on that there were “$764 million in local incentives from Mount Pleasant and its home county of Racine”. Assuming the 13,000 job figure, I put that at about $58,770 per job - still far too much, but nowhere near the headline-grabbing $219,000 per job the article cites.

8. Reddit is raising a huge round near a $3 billion valuation

Is Reddit the new Facebook? I don’t think so; for me it’s more of a Twitter substitute. Whatever the case, investors are frothing: “Reddit is raising $150 million to $300 million to keep the front page of the internet running, multiple sources tell TechCrunch. The forthcoming Series D round is said to be led by Chinese tech giant Tencent at a $2.7 billion pre-money valuation… [Tencent will be] kicking in the first $150 million of the round.”

Image of the week

This week’s image comes courtesy of Our World in Data. “The observed rise in costs of services may be partly attributed to the so-called ‘Baumol’s cost disease’, which is an important exception from the general regularity that the pay for labor – the wage – reflects the productivity of labor. Baumol’s cost disease describes the phenomenon whereby wages rise in jobs which have experienced little improvements in labor productivity in order to compete with salaries in other sectors.”

Price changes in consumer goods and services

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

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Issue 9/2019 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.