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The space economy is picking up speed! 7investing founder Simon Erickson chats with ARK Invest analysts James Wang and Sam Korus about the new opportunities launching in the final frontier.
June 15, 2020 – By Simon Erickson
The space economy is picking up speed. Once considered an uninvestable sector, the entire sector is now attracting the attention of entrepreneurs and small businesses. Between the miniaturization of satellite components and a 10x reduction in the cost of rocket launches, the final frontier is finally becoming economically affordable for a new wave of space-borne ventures.
Even though this makes for great news headlines, what will the new space race mean for investors? Are there specific commercial applications that offer the greatest opportunities? What impact will these newly-launched technologies have on the rest of our Earth-bound businesses?
I spoke about those topics with disruptive innovation specialists James Wang and Sam Korus of ARK Invest. ARK’s thematic ETFs invest in several of the most innovative companies in the world (and beyond). As you might expect, they’re also quite interested in outer space.
In our conversation, James, Sam, and I discuss why the commercial space economy should be on the radar of investors. I describe why imaging and sensing could become “the next GPS”, Sam explains the impact of miniaturization on satellite costs, and James compares satellite internet with 5G for the future of connectivity.
We also describe how the coronavirus could create several long-term opportunities for investors, especially in enterprise software and in healthcare.
0:00 – Introduction: Why Simon’s interested in the space industry
2:44 – Miniaturization of satellites and falling launch costs
8:32 – Foundational technologies: What will be the next GPS?
13:52 – Space Tourism: Can it be affordable, and what could it enable?
18:06 – Satellite internet and its second-order impacts
24:46 – 5G Mobile vs Satellite internet
31:53 – Updates on cloud-based enterprise software
36:38 – Investing in a crisis: the long-term impacts of the coronavirus
Publicly-traded companies mentioned in this interview include Virgin Galactic, Amazon, Alphabet, MongoDB, and Illumina. 7investing’s advisors and/or guests may have positions in the companies that are mentioned.
This interview was originally recorded on April 15, 2020 and was first published on June 15, 2020.
[00:00:00] ARK Invest’s James Wang: I should give our listeners some context. Because normally it’s us. People talking about how ARK invests. And then, here we’re talking about you. So how we crossed paths.
I put up a Twitter poll saying, “Hey, who should we talk to next on the ARK FYI podcast?” And like something like a hundred people responded. And I think your name was recommended strongly as someone to talk about what’s happening with space. And that’s why we have Sam Korus also joining us today.
It’s so interesting that space was not really an investable idea for really a long time. And now, it’s all of a sudden interesting again.
So we’re really here to talk about what’s happening in the world of space and launch vehicles as well as software. Which is something that you’ve also written about and something that I’ve been spending increasing time covering.
So let’s start with space. How did you get interested in this? Who have you talked to? And what do you think are the key trends and technology changes that’s happening in the space industry?
7investing’s Simon Erickson: Right. So first of all, James, I’m from Houston. So we’ve got NASA right in my backyard. Maybe that had something to do with the interest in space. Like you mentioned right up front there.
But it is fascinating. I think it’s just something that’s captured our imagination for decades. And I guess one of the interests that I have in this field right now, being everything that we just talked about innovation, is you’ve just seen such a reduction in the costs of getting to outer space. An order of magnitude decrease in launching payloads into outer space.
And what is that going to mean? And that’s kind of the broader conversation that you, I, and Sam can get into here.
Is what will private enterprises and investable companies getting more and more involved in the space race – aside from just government defense contractors – mean for individual investors like us? I think that’s very, very exciting right now.
You also asked who I’ve talked to lately. I talked to an ex-NASA astronaut, Sandy Magnus. Dr. Sandy Magnus spent some time up on the International Space Station. By the way, she said the view is fantastic up there. As I would expect she would.
We just talked to the creators of the first space-themed ETF recently, which is investing in companies that derive the majority of their revenue from space based operations. And just also a couple of local contacts here that I’ve been keeping in touch with for years.
I think this is one of the most interesting fields that is not a whole lot of investors’ radar right now. And that interests me.
[00:02:44] ARK Invest’s Sam Korus: It is interesting. As both of you said, you’ve got the cost reductions. You have the private side. Right. And the history of space has been for the last two decades plus, very government driven.
But now we’re at this point where it’s seeing an increase in government interest and an increase in commercial interest. Which is an interesting tailwind for all of this to happen. And, one of the things you said, declining launch costs. Absolutely true. I think another thing that people under appreciate who aren’t as familiar with the space is, the cost of a satellite used to be far more expensive than the cost of the rocket itself. But you have the miniaturization of technology. You’ve got pretty much cell phone/Smartphone components that can now make a satellite. And so you have this huge cost decline in the satellite as well.
When you’re talking to these people and companies, what are some of the most exciting opportunities that come to your radar?
Simon Erickson: I’m taking that as a space pun right there, Sam. “On your radar.” [Sam laughs.]
I think that the general theme is that this is an industry that builds upon itself. And it started, as you just mentioned, as a government fascination. Funding for contracts for projects. Getting to the moon would be something that NASA would fund. The Defense Department would fund.
And this is something that has, over those decades, helped companies figure out how to efficiently build rockets. Or efficiently build satellites. Or take that research that’s been done from all of this funding and build things from it.
G.P.S., The Global Positioning System, was developed by the Air Force in the 1970s. And here we are, 45 years later, and it’s delivering food for Uber Eats to us.
Navigation and timing, too. Position, navigation, and timing. This is something that’s controlling all the bank transactions across the world right now. That’s built off of satellite technology that was originally government funded.
And now, like you also mentioned Sam, the government still has a military interest in space. We’ve got Space Force now that is an independent branch of the military that’s focused on space-based military activities. We’ve seen China putting rovers on the moon in the last couple of months. And so maybe the US is very interested in doing more things like that.
But I guess what I’m trying to say is I think all of these stack upon themselves. Just like G.P.S. was something really cool that came out 45 years ago that has now got great commercial opportunities. I think lower launch costs, coupled with smaller satellites, coupled with a renewed interest from the government in outer space, all stacked together to what we’re going to start seeing is some pretty awesome commercial opportunities.
James Wang: Can I ask the non-specialist question for both of you here?
Lower launch cost seems to be what’s happening here. I mean, I can understand SpaceX certainly should help with that, given that their vehicle is reusable. But SpaceX is one company. And they don’t single-handedly determine the cost. Has cost just come down as a whole? And if so, what’s the technology enabler for other people’s launch platforms to be coming down in cost?
Sam Korus: So I’d say the first thing there is competition, right? Like when SpaceX first offered the Falcon 9, the cost that it came in at was not a revolutionary cost. That’s what it cost, inflation adjusted, what the ULA was offering 15 years prior.
But you had 15 years of monopoly and bloating costs. And so, SpaceX came in and they said, “Alright, let’s reset this. We’re not a bloated company and now there’s competition.”
Then you have the reusability. So that’s coming into play.
And then there’s also another segment starting, which is these small rocket companies. And so, because you have the reduction in size of components similar to the Smartphone, the evolution of cell phone technology shrinking, the weight and cost of the satellite shrinks. And so you can have smaller rockets and useful payloads up.
Simon Erickson: I would agree, James, too. Even ride share, which is something else that SpaceX is offering. Where you can kind of piggyback on their rockets that are launching. You can get a satellite into space for less than a million dollars now. Because of, like Sam just mentioned, the increased competition. SpaceX is at something like $1,500 a kilogram for payloads. Like I said, an order of magnitude lower than what we’ve been used to seeing. So that’s just unlocking new commercial opportunities.
James Wang: Was ride sharing a thing before SpaceX? You know who came up with that?
Sam Korus: I don’t know specifically, no. But it is, I think, enabled by the emergence of small sats. You are no longer sending these huge geostationary satellites that are just in one spot over the Earth. People are sending up smaller and smaller satellites. Where, now it’s actually possible to have more than one payload per rocket.
[00:08:32] James Wang: That makes sense. G.P.S. has been such an important foundational infrastructure and we invested a lot in that. Is there any sense that we’re doing similar things now? Like where there is infrastructure building, maybe in the form of ground staff or maybe in terms of satellites and rockets. Are we doing foundational work such that we can expect dividends over a number of years?
Simon Erickson: For G.P.S. specifically? Or other foundational technologies?
James Wang: The space in general. Like whether launch vehicles or otherwise?
Simon Erickson: I mean, some of the perspectives I’ve heard on this have just been imaging and sensing. You’ve kind of had Google Maps, which is freely available for most people, because Google is an advertising supported company, that has just unlocked a lot of different imaging opportunities.
And in addition to that, in addition to looking at what’s going on in Earth, there are other opportunities to sense what’s going on out in the atmosphere and outer space.
One company that I think is interesting that’s doing this is called Black Sky Global. Which is able to monitor weather patterns across the world so that they can optimize shipping routes. So if you’re shipping things across the ocean or air, I mean, this is something that can really help do that more efficiently. So you don’t have problems that arise with those.
They’re also doing it for monitoring weather. I mean, it’s really been interesting to see, especially right now with the coronavirus, to see the weather patterns and pollution patterns and all that stuff that we don’t think about too much. But it is important if you’re looking at predicting weather. Especially in times of a crisis or a hurricane or something like that. Monitoring what’s going on out there. Having people make predictions on what that’s going to look like.
And even surveillance. People are getting more creative on seeing how many cars are parked outside of Wal-Mart to figure out how their quarterly numbers are going to be. If you can subscribe to something that’s not a government project, but it’s actually a commercial opportunity to start seeing things around the world and have it be not too invasive to people’s privacy. Something like that could have some interesting opportunities we haven’t even thought about yet, I think.
Sam Korus: I also think it’s interesting when you think about, I think now it’s kind of shifted. Where the investment isn’t necessarily coming in a huge part from the government. You need a pretty healthy risk appetite for space investment. But the government is still a huge end customer for a lot of things. And so, a good example of this is there’s a company Aireon that’s doing satellite based flight tracking. And so, they’re doing tests now with the FAA and other organizations. But if they can prove that this works well, then that’s a huge improvement over the existing technology stack. And, it’s like the Malaysia flight that went missing; if you had satellite tracking, nothing goes missing. Because you’re tracking it over water. It’s not self reported locations. And so even if the investment isn’t necessarily coming from the government, the government can be there as this and customer to design for.
Simon Erickson: And James, I think at the end of the day, this is probably good news for you. Because it just brings a whole lot more data points for those machine learning and artificial intelligence companies.
James Wang: Yeah. I mean, I would love that. But Sam, it’s so funny you should mention the Malaysian Airlines incident. I never thought about the simple fact that why couldn’t we just see it? Unless there’s cloud cover or something. But even in those cases, at cruising altitude, you typically fly above the weather. So what you’re really saying is right now we’re not at the point where we’re actually observing every part on Earth and recording it. Is there a point to that level?
Sam Korus: Yes, we’re underway right now. So the history of air traffic control is pretty interesting. But the general gist of it all is, right now you’re pretty much tracked over land. And then you’re set on a path and you self report where you are when you’re over the ocean. And so that’s why, if you look at flight paths, there’s like a corridor over the Atlantic Ocean. And planes have to be spaced out by distance and height. And only a set amount of capacity can go through that, because you need these safety distances. Because you’re not 100% sure where any one plane is. And that’s why if you’re over the ocean, and you go down, you’d look at the last reported location.
But there is this shift to a ADSB for tracking. And if you were to satellite track every plane, you’d have Real-Time-Location everywhere over the globe.
James Wang: Wow that’s exciting.
[00:13:52] Sam Korus: I would like to know, Simon, a big debate in our office is on space tourism. What is your take there? We have very mixed opinions, I would say.
Simon Erickson: Well last I saw, Sam, the tickets for Virgin Galactic were $250,000 a pop. So if you’re going to buy one, make sure you get the window seat. [Sam laughs].
Right now, only for a very select market that can afford that kind of ticket price. I think the thing that got Chamath Palihapitiya so interested in investing in this company and bringing it public was the idea that he’s going to get those costs down pretty significantly as they have more pilots and more aircraft that can facilitate this.
I think it’s too early, in my opinion. I think that Virgin is still a super risky investment at this point. Just because the market…they’re not doing any flights right now. They’ve been promising for years that it’s going to be “this year.” And then a year goes by, and then it’s another year. And they do have a lot of people that are real excited about going up and doing that. But I think the enthusiasm should be tapered just a little bit.
James Wang: These flights. How long are they?
Simon Erickson: I think they’re 45 minutes. Right Sam?
Sam Korus: Yes. So it’s interesting. So you have Virgin Galactic with the 45 minute flight to an hour. But it’s a shorter period where you’re actually in space. Some of it’s the ride up, ride down. And I think Blue Origin is like a 5 to 15 minute. Because there’s is just straight up, straight down.
James Wang: And the Virgin is more like a ballistic trajectory?
Sam Korus: Well, you know, they’re taking off with the plane. They’re dropping the rocket. And then going. So, yeah, it’s more more of a plane-type design.
James Wang: Does the Virgin platform, would that enable point to point transportation at all?
Sam Korus: So I think that’s the interesting thing, right? When we’re talking no longer about space tourism, we’re talking about point to point travel. One, I think this is even further out. But having something that could land on a runway is incredibly useful. You already have all of the infrastructure that exists. When you see the incredible SpaceX video of those two boosters landing simultaneously, you get two sonic booms going off in succession. So if you can avoid that, that makes the infrastructure and logistics of point to point travel far easier.
James Wang: But wouldn’t wouldn’t the Virgin aircraft also have a sonic boom problem? It’s still going through the sound barrier.
Sam Korus: In theory, you could do it elsewhere and glide in. More like an airplane.
James Wang: So it wouldn’t be local. OK, I see. At the point of landing.
Sam Korus: Right. Right.
James Wang: Simon, when you think of imaging companies, it seems like there’s imaging — given that it is the low hanging fruit. It seems like there’s so many startups operating in there in that space. What do you look for, that would differentiate one from another?
Simon Erickson: I mean, that’s a tough one to answer for me, Sam. I mean, you’re right. It is, at the end of the day, it’s like how high-fidelity of an image do you need? And then what are you using that for?
It seems like it’s going to be a subscription-based product that makes sense there. Or something like Google that’s supported elsewhere by advertising or something like that.
I don’t think you can make a ton of money charging for super high resolution images. But I mean, something else that could be subscription based too, is how we’ve seen so many of those satellite products go also. Sirius XM if you’re broadcasting music. Something like Dish Network. I mean, consumer TV is the number one consumer application for satellites today.
[00:18:06] We’ve even talked about satellite Internet. I mean, you know that’s something that Elon Musk has got a lot of interest in for SpaceX because it’s “the low hanging fruit” for him. You’ve got to build iteratively and incrementally to make money. So you don’t go bankrupt too. We’ve seen OneWeb really having some problems with that this past month. But if you do have something that’s producing cash flow, is it serving a demand right now?
Maybe it’s high speed Internet. Or at least a complement to the existing Internet infrastructure that we have. Doing the backhaul or whatever it might be. That you could complement with satellites versus just building more towers and/or laying more fiber.
Sam Korus: I do like the Elon Musk quote recently, saying “there has yet to be a satellite company that has not gone bankrupt while putting satellite into orbit.” So obviously very, very high risk business plan.
I do think the broadband opportunity for underserved people in the US is an attractive first market. One thing that we’re still – and I’d be interested if you have heard anything about this or your thoughts on it – the last piece to the puzzle, you have the declining costs of the rockets, the cheaper satellites. But it’s the end user terminal that actually connects the individual to be satellites. It’s still the mystery component and cost declines for this equation to to work out.
Simon Erickson: The antennas you’re talking about, Sam?
Sam Korus: Yeah.
Simon Erickson: Yeah. I don’t think I have a good answer for that one either.
James Wang: So we’ll still wait and see. SpaceX seems to believe that they have something that will be promising to the end consumer and affordable.
Simon Erickson: Yeah, and when you’re talking about consumers, too. I mean, how about the companies that will just benefit from this that might not be directly participating in it? Right?
We we’ve talked about SpaceX and they’re putting up satellites and stuff. But I’m also thinking in terms of companies like Facebook and Google. Who really have an interest in getting half of the world’s eight billion people connected to high speed Internet.
And even though that might not make sense right now, if you’re thinking about in terms of just how much will people pay for for Internet or something like that, if you’re in a remote location. A company like Facebook has a huge interest in that. Or a company like Google has a huge interest in getting for almost four billion people that don’t have high speed Internet today hooked up as quickly as possible and to their platforms.
So maybe you’ve got some kind of subsidy or something coming from these multibillion dollar or trillion dollar tech companies just because they really see the benefit of something like this.
You know, we saw Google try this with their fiber experiment. You know, years ago they wanted to get wireless Internet as kind of a shot across the bow of the telecom companies. Just to say, “OK, if you’re not going to build it or not going to provide Internet for these people, we’re going to try it out ourselves.”
And ultimately, a lot of those projects, Sam, got put on hold. It didn’t make economic sense.
But again, if you’re talking in terms of billions of people through satellites versus putting up wireless towers in locations across the United States or the world, something like that could get a lot more interesting. Particularly as we’re seeing those developing economies growing really, really quickly right now.
Sam Korus: I think that’s a great point. Pulling in these other companies as well. And right. You had Google Fiber. But you also have Project Loon. Where the balloons, weather balloons, providing Internet.
I think really interesting is Amazon announced their plan to launch, I think, roughly 3000 satellites. That’s not a Blue Origin move. That’s an Amazon move. And you have Amazon, who’s partnering with Iridium, providing AWS capabilities and plug ins through Iridium satellite network for IOT [Internet of Things] applications. So these giant companies are also very interested in this space.
Simon Erickson: And is it a platform? You know, what is the space economy? With these cubesats that are four inches wide that are being blasted up on SpaceX’s rockets and all of a sudden or functional?
I mean, is this a platform that consumers can start to build things off of? I mean, James, is this the next geocities? Where instead of us all building our own Web pages that have goofy pictures, we’re able to use these tiny satellites to do things as consumers?
It’s a fascinating idea. I don’t see the opportunity for that in the next year or two. But something like that, as this becomes more accessible: You’ve got more access, you’ve got lower costs, you’ve got a bunch of people that are interested in doing interesting things out there.
This has gone down from government super expensive projects to companies that could afford to do those things to the consumer market now. It’ll be really interesting to see how that plays out over the next decade, two decades.
Sam Korus: And then, right now we’ve just been talking about orbital space. Right? Obviously, there’s the whole sub orbital domain as well.
And this is one of those things, when we look at those imaging companies. Why put a satellite up and get imaging through there, if maybe an autonomous drone could get it for even cheaper. Right?
So it’s an interesting type of dynamic between the types of things drones can do versus what satellites can do. So I think that’s an interesting thing to keep in mind.
And then also, I don’t think we need to go into too much depth right now, but just all the business opportunities in that sub orbital space as well. With drone deliveries. I think those saw pretty solid adoption with coronavirus in China. Delivering some some goods via drone.
Simon Erickson: Yeah, I agree. I mean, how about the service component for all of this, right?
Any time you have a human being doing anything in space, it’s orders of magnitude more expensive. But if you’ve got autonomous robots fixing things that are broken on the satellites. Great opportunity there. If you’ve got something to help you avoid collisions with this space debris or other satellites that are floating around out there. Great opportunity for that.
I mean, there’s going to be this whole sub industry of just taking care of the things that are up in space. Because you’ve got to protect your investment, protect your business. Just like you want to keep the Internet running, if you’re an Internet based company today.
James Wang: That’s totally true. You take any IT kind of market and the revenues for services is at least as large, if not larger, than the revenues for software and hardware.
[00:24:46] But I want to just kind of circle back on the Internet broadband through satellite. And really ask…we’ve seen you… We’ve talked about all the kind of alternate ways of delivering Internet that’s failed. And ultimately, you look at what is gaining momentum at mass in terms of just taking over how people use the Internet. It is really just cellular. Right?
It’s gone from very quaint, kind of 2 1/2 G to 3G, that’s sort of usable. And LTE, basically we’re now at the point where you can get all your Internet through LTE. And with 5G, the last kind of bit of congestion you would get. And denser areas theoretically would get resolved.
So I come from kind of the mobile world of looking at things. And I guess my question back to you guys is, “why wouldn’t mobile win this battle?” Given just its sheer scale, technology maturity, and the fact that all the devices – or especially the most important computer, the phone – is designed to interface directly with the 5G signal. Whereas if you have an Internet delivered, you’ve got a satellite delivered Internet, your phone can’t talk to the satellite. It’s still a pizza box attached to a window. That, you know, seems like an old broadband kind of perspective on the Internet. Sam?
Sam Korus: So, yeah, I’ll take it. I think that’s a great question and the biggest risk, really. I mean, that’s the history of satellite development. You go back to the 90s and they said “this is what we’re going to do.” And then there were cost overruns because giant satellites and outsourcing. And then you had mobile come along. And that was way cheaper. So I think there is that existing risk.
The other question is what is the cost to get to these underserved customers? And is it worth it for a telco currently? And so, even in the US, like 42 million people don’t have access to broadband Internet.
James Wang: Like a fixed line?
Sam Korus: Yeah.
James Wang: Ok. But they have LTE signals, presumably?
Sam Korus: I need to double check. But I imagine they do have some coverage. But, you can imagine if you’re trying to do something relatively high speed or valuable, that LTE may not cover those needs. From a business standpoint.
James Wang: Simon, your thoughts?
Simon Erickson: It’s a good question, James. I don’t think that I have a really good answer for it right now. Other than the fact that it’s the same equation that we’ve been trying to solve for decades, really.
That if you’re in remote areas, there’s four billion people out there that aren’t getting high speed Internet. But they’re not contributing to the digital economy that most of the developed world is. They don’t have a ton of money to immediately start spending on things.
So how does the financial equation make sense? Do you want to have it be advertising based? Or insights based, where you’re asking those people questions about what they need? And then you try to get services in their hands.
It seems like a lot of Africa right now is doing cellular based transactions. Like you just mentioned. So maybe you don’t need a high speed Internet for something like that.
But we’ll see. Maybe it has something to do with video or something that would require more bandwidth and lower latency. But I don’t think that we have a clear answer for it just yet.
James Wang: I mean, coming from looking at the mobile world where we’re going, there is such huge momentum for 5G happening right now. And 5G is going to, over time, 10x/100x bandwidth and reduce latency again by an order of magnitude. That is pretty hard to beat, I’d say, as a moving target for for Internet delivery.
Sam Korus: I have a question, James. 5G is even smaller coverage area. Right. It requires more capital investment per geography served. Is that correct?
5G, you need more antennas, in terms of city area, so you can actually get that increased bandwidth.
Being in Montana now, right. So it’s like, in the most remote areas, you have 3G still. Then in most areas you have 4G. And then, in cities, that’s where 5G will be. And those will just continue to expand out and out.
So it’s a question of, “Can satellites leapfrog the expansion outwards?”
James Wang: Yeah, the thing is, 5G doesn’t stand on its own. It’s basically on top of 4G.
So in reality, what will happen, is if you’re in the outskirts where 5G hasn’t deployed, it will just default back to 4G. And if not, 3G.
So it’s not like this cliff. But you get basically different levels of service, depending on how much infrastructure is being built out. But for areas that are built on. And 5G is not also one monolithic band frequency. It has the higher frequencies, that’s still not really happening yet. The new high frequency channels are really easy to have interference from trees and just obstruction. That’s why it’s not economical. You need very narrow kind of signals to point directly at the devices.
Whereas the lower frequencies in the megahertz, it just kind of radiates evenly everywhere. It goes through walls. It’s the same basically band as the 4G.
So that stuff will still work over long distance. You just can’t serve as many users. Certainly not every user using 4k Netflix. But once we have the high frequency rolled out, you’ll need a lot of antennas, especially for kind of metro areas. But in theory, that would deliver basically as much Internet as you can consume today.
Sam Korus: Makes sense.
Simon Erickson: I mean James, the obvious solution is that everyone in the world needs to be watching Netflix all the time. Which is already taking up 14% of the world’s bandwidth, is what I’ve seen.
So if we have Netflix everywhere in the world, that’s the obvious use case for satellite, in my opinion.
Just kidding. For those who can’t see my face, right now.
James Wang: I think they are doing that! [Laughs] I think, if not Netflix, then certainly YouTube and and some of the local content that’s very popular with folks.
[00:31:53] Simon, you also write about what’s happening in the way of cloud and software. What has caught your eye there? Software and cloud are not new ideas. They’ve been around since at least Salesforce’s 2004 IPO.
What is new and interesting today, that you’re showcasing to your newsletter subscribers?
Simon Erickson: Yeah, it’s the same thing I would think that you see also, James. There’s just a lot more information that needs to be understood. And companies are starting to get a handle on that better. And have better tools to start harnessing that.
Cloud and A.I., those are big topics. Those are “two beer conversations” and definitely another podcast that we could have on those. But I do think that it’s still the adoption, at least for small businesses, is limited.
The world is getting smarter about the information that it has. And it’s getting a larger peripheral vision of the information that it has. And I think that my overall takeaway is that we’re getting better understanding that. And companies are starting to hire data scientists to make sense of it.
James Wang: If the “must-have applications” a few years ago were Salesforce and Workday and Service Now, what’s the critical new use cases that these new software companies are unveiling to the world?
Simon Erickson: I think a lot of it is just making it easier to use, right? You’ve seen certain companies just put information in people’s hands and the tools to get that in front of their hands as quickly and accessibly as possible. So you don’t have to have a PhD or a graduate degree in data science to make sense of the information that you have.
So to me, to make this the “must have”, the new category is going to be…you know, we’re spending all of our time and Excel right now. We’re spending all of our time collecting data. And the majority of it is just gathering it and seeing what’s useful to us. I think that the most important thing is getting quick access to reliable data, so you can make a decision off of it. Rather than the 30 or 40 hours a week that you’re spending right now just trying to find what it is you’re looking for.
James Wang: Which companies do you think’s doing the best job in making that happen?
Simon Erickson: I have some disclosure reasons that I can’t mention the one that I would like to right now. But I do believe there are publicly traded equities that are addressing it.
James Wang: I see. Well which technologies do you think are are getting adoption? If you talk about maybe software standards or database standards?
Simon Erickson: So for databases, we’ve seen cloud-based databases grow incredibly quickly recently, right? MongoDB has gotten, what is it, 50 million downloads on the free side of things. Replacing those traditional databases like Oracle or something like that. So I think that’s very interesting. This whole open source movement, where you’ve got developers experimenting with things and then coming back and saying, “Hey, I need this level of service and reliability. And I’m willing to pay this much money for that.” That whole software as a service, platform as a service, infrastructure as a service, coupled with an open source software, I think is pretty interesting right now.
For Mongo and others, there’s a lot of debate on whether free software companies based on open source can really build a viable business model? What’s your take on that?
There are things that you need if you’re running a business that you will pay money for. Reliability and service was the early business case for cloud computing. This was something that Rackspace figured out really early. That customer service and that reliability was very important.
And so, yes I think that open source – just the idea of putting the code out there and letting people tinker with it – is interesting. I do still think that once you start using those tools for a business that needs reliability and service. I mean, back to the thing we were just talk about with space, you need to have something that’s going to make sure that your business is continuing 24/7.
And so I think it does make sense, James. I like the ‘freemium’ idea, where you play around with it for free. And once you’re ready to start doing something commercially with this, we’ll offer something else that’s very important. And that will allow you to build on top of that.
[00:36:38] James Wang: When you write to investors, right now in the middle of the Coronavirus, kind of mid April now, what kind of conversations are you having from your readers? What are people worried about? And what do they want to know most from you?
Simon Erickson: Biggest question right now is “what do you think is going to happen once this coronavirus either goes away or we aren’t thinking about it every single day right now?”
So, long term, what is the permanent change to whatever market it is we’re talking about. And how are you investing to capitalize on that?
And there’s a bunch of trends that we see kind of developing. And James, something that I’ve mentioned a lot – that we published to our site at 7investing, is that it seems like a lot of crises have permanent changes that come from them.
So the dotcom. I mean, 2001, so much of the Internet was based off of traffic and Web site hits and advertising. And then there was kind of this transition. Where we said, “OK, it’s not just all about advertising anymore. We need to start to shift to subscriptions.”
And that’s a difficult change. That’s a difficult transition for a lot of companies. But that was something that was necessary. We talked about the banks and the financial crisis of 2008. All of a sudden, you start seeing these alternative lenders, right? Affirm. Others that are looking at different data points that weren’t captured in those bank loans from before. All of a sudden, you have a new way of small businesses, that didn’t have the checkmarks from before to get a loan, can now have access to capital. And they’re at better performing loans than there were before. That even the big banks were making.
Or how about consumers in other countries? If you’re a farmer in a rural area and you don’t have a whole lot of interaction with banks because you’ve been paying cash. But there’s a way to see that you pay back whoever is providing you credit over time, you’re contributing to the global economy. You’re probably a low risk loan that wasn’t in the system before. And now there are ways you can start seeing things like that. So there’s different ways of looking at data that I think came out of that financial crisis.
The interesting one will be from the Coronavirus that we’re talking about right now that everybody’s asking about is, “OK. Are companies going to bring all their employees back to work?” You know, are we just going to have a lot of Montana-based employees calling in and doing work remotely? Or are we going to to need to have everybody back in the office? And how is that going to change the structure of jobs that we have? Or is the nature of work itself going to change?
You know, I think something like that is very interesting. I think our health care system is very interesting right now, too. Because we saw such a spike in the volume of patients going to hospitals that they couldn’t possibly keep up with it. So how do you bring some of those non-critical patients that don’t need to be in the E.R. at that moment, how can you start doing telehealth appointments for stuff like that? How can you get them in front of a doctor that can that can treat something that’s not serious? And then how can they get access to either the diagnostics or the prescriptions or whatever it is that they need as a follow up from that appointment in a way that doesn’t bring you into the hospital.
Because things like this really show us that yes – the hospitals definitely have their place in society. But when there’s a spike and something like this happens, we can’t have it that every time this comes around, we have hospitals that aren’t able to handle everything.
So I’ve put a lot of thought about those lately. I do think that there’s probably going to be some permanent market changes. And like I said, I think that the health care industry is going to be one of those.
James Wang: Are there companies you would you would mention that are helping to catalyze those changes and making those possible?
Simon Erickson: I mean, it’s all going to be objective, right? And proactive, I think, has got to be the answer for health care.
You see whatever diagnostic company that could detect an early stage cancer or an earlier stage cancer. We spend a hundred billion dollars across the world on cancer treatments right now. The drugs and the treatment routines that people go through. But if you can catch something at Stage 1 instead of Stage 4, the five year survival rates of a patient goes up dramatically.
So I think that something like oncology has got not only a huge cost saving, but also a huge benefit to society. Because patients would be living longer from something like that. And there’s a lot of publicly traded companies based on sequencing technology. I know you guys know Illumina and everything that they’ve built for the past two decades. That are now able to detect at very, very high levels of accuracy, different types of diseases and cancers. That’s one that’s definitely on my radar.
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