1. SpaceX’s Starship Could Lower Rocket Launch Costs by an Order of Magnitude
SpaceX already has lowered rocket launch costs dramatically. SpaceX’s Falcon 9 rocket, for example, entered the market at ~$2,600 per kilogram to low Earth orbit ($/kg to LEO), 80% below the cost of incumbents.
The economics of SpaceX’s next generation Starship depends not only on refurbishment costs but also the number of re-uses. Based on our research, Starship’s refurbishment costs will be equal to, if not lower than, the Falcon 9’s, which Musk put at roughly 10% the cost of the rocket. Musk also has stated several times that the marginal cost for the Starship to transport mass to space should be below $100/kg, suggesting roughly $200/kg to LEO, an order of magnitude below that of the Falcon 9. Although the technical risk is significant, ARK’s research suggests that these cost assumptions are conservative, leaving room for further price declines and adoption.
2. Autonomous Trucks Seem to Be Trailing Other Autonomous Solutions
This week Waymo partnered with Daimler to build autonomous trucks, several years after committing to partner with Fiat and Volvo on electric vehicles. Building autonomous machines from the ground up will be an important step forward for Waymo, as vertical integration seems key to creating well-functioning autonomous systems. Because Daimler has struggled to develop an autonomous driving system internally, this deal with Waymo could present it with a new lease on autonomous life.
While some observers argue that autonomous trucks will commercialize before full self-driving passenger cars, ARK does not agree. While trucks are much heavier than electric vehicles and require more space and time to maneuver, autonomous passenger cars have been testing on roads for years. Dominated by small truckers today, the freight market is fragmented putting a brake on adoption cycles.
That said, Tesla, Amazon, and Walmart are investing in autonomous freight solutions, suggesting that one of them could convert to an autonomous fleet. According to ARK’s research, autonomous electric trucks could transport freight for 3 cents per ton-mile, 75% less than the 12 cents for human-driven diesel trucks and 25% less than the 4 cents for rail transport.
3. Transformers Could Accelerate the Timeline for Autonomous Transport
Pioneered by Google in 2017, transformers are a version of neural networks achieving human level accuracy in the generation and understanding of human language. Transformers formed the base of BERT, which powers Google search, as well as GPT-3, OpenAI’s groundbreaking generative model enabling human-grade writing.
Transformers are enabling not only human-level language but also computer vision. Based on a new paper under review, transformers classify images with 88% accuracy, comparable to ResNets, the current industry standard. When trained with more data, however, transformers outperform ResNets, pointing potentially to superior scaling capabilities.
Autonomous driving is an obvious application for transformers. Tesla, for example, has more data than compute resources. Transformers can absorb more data with less compute time, potentially enabling computer vision systems to achieve higher levels of accuracy at a faster rate relative to existing algorithms, accelerating the timeline for autonomous transport.
4. Social Commerce Was Front and Center in A Week Filled with Company Earnings
During their earnings calls this week, Pinterest, Snapchat, and Facebook commented on an emerging trend: social commerce. In addition, TikTok announced a partnership with Shopify to accelerate its commerce efforts.
Why is social commerce burgeoning now? In our view, three technology/business shifts serve as explanations.
- Fintech solutions enable any site to accept payments.
During the past five to ten years, fintech companies like Square, Stripe, and PayPal have created online services that enable e-commerce payments that are easy to use. They have lowered the barriers to entry so that any social platform can participate in e-commerce.
- Any site can access low-cost ecommerce infrastructure.
Several ecommerce infrastructure providers are enabling any site to access order management, warehousing, and shipping. Amazon, Shopify, and others have built ‘fulfillment-as-a-service’ solutions, making e-commerce so easy that businesses do not need to take any inventory risks.
- The dominant social platforms are embracing social commerce.
Obviously, social commerce could not evolve without the cooperation of traditional e-commerce and social media platforms. While initially Facebook, Pinterest, Snapchat, and Twitter centered their business models on advertising, recently their focus has broadened to include commerce. On its most valuable asset – Instagram – Facebook has added a tab dedicated to shopping. In-app shopping is transforming Instagram from a lead generator at the top of the funnel to a full-fledged e-commerce provider. Most global online platforms and retailers seem to have identified this kind of funnel compression as a primary objective, marking the next leg of growth for social commerce.
5. J.P. Morgan Launches A Card Reader to Compete with Square and Other Payments Companies
Last week, J.P. Morgan Chase launched QuickAccept, a service bundling business banking accounts and card readers. The card reader is much like the hardware that fintech companies like Square, PayPal and Shopify and incumbents like First Data and Ingenico offer. To differentiate its offering, QuickAccept is offering instant transfers to J.P. Morgan business banking accounts at no charge.
In 2019, J.P. Morgan’s CEO Jamie Dimon tipped his hat to the new world saying that Square “did all stuff we could have done that we didn’t do”. Square had pushed beyond commoditized payments capabilities, offering products like small-dollar loans, e-commerce, marketing, QR codes and payroll, all of them designed to help businesses grow. In our view, key to Square’s value proposition are these sticky value-added services. Missing from Square’s offering, however, are business bank accounts which should be launched after Square receives its ILC banking license in 2021.
Interestingly, J.P. Morgan calls QuickAccept an “all-in-one solution” for small businesses, “cobbling together services from banks and fintech providers”. We disagree. If merchants were to switch to QuickAccept, many would lose services like small-dollar loans, e-commerce, marketing, QR codes, payroll, and other software services, all offered by Square but currently not by QuickAccept.