Please enjoy ARK Disrupt Issue 115. This blog series is based on ARK Brainstorming, a weekly discussion between our CEO, Director of Research, thematic analysts, ARK’s theme developers, thought leaders, and investors. It is designed to present you with the most recent innovation takeaways and to keep you engaged in an ongoing discussion on investing in disruptive innovation. To read the previous issue, click here.
1. People Are Listening to More Music Than Ever, Thanks to Streaming
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Spotify’s IPO will be a good reality check on the state of the music market. After nearly two decades of falling revenues, the music market has turned around thanks to rapid growth in streaming subscriptions. According to IFPI, streaming revenue grew 47% in 2015 and more than 60% in 2016. While IFPI hasn’t released an update, Spotify’s filing sported a 38% increase in its subscription revenue, which hit $4.5 billion in 2017.
Total listening hours also are growing rapidly. According to Nielsen, last year Americans listened to 21% more music, 32 hours on average per week, than in 2016. Because the world’s music catalogue now is available on demand, consumption habits have changed fundamentally. Knowledge workers, for example, often listen to music throughout the work day, a use case that didn’t exist a decade ago. Unlike TV or movies which require much more attention, music consumption can overlap with other activities: walking, commuting, running, working, and training at the gym. As a result, music can accompany more than 50% of waking hours, something no other medium can claim.
The financial community is skeptical of Spotify’s prospects. It operates at a loss and pays 75% of its revenues to the music labels. In addition, it likely will not be able to pivot to original content as easily as has NetflixNFLX because music consumption depends heavily on catalogues and familiar tunes. It also faces stiff competition from AppleAAPL and Amazon who bundle their music services via devices like the iPhone and Echo.
While valid, these impediments do not consider the most important variable, the size and growth rate of the market: the streaming market is booming, and Spotify is leading the charge.
2. Amazon Wants to Partner with Banks as It Continues to Delight Consumers
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AmazonAMZN has its sights on a new space – banking. According to reports by the Wall Street Journal, the e-commerce giant is in early talks with financial institutions to build a “checking-account-like” product for its customers.
Amazon will not buy or create a bank but will partner with one, such as J.P. MorganJPM or Capital OneCOF, to hold deposits. Then, it will design and manage the customer experience.
Amazon could benefit from such an ecosystem by attracting younger and lower income individuals to join its e-commerce platform. It could introduce the young to checking accounts, enabling them to shop online and, with more sophisticated data analytics, Amazon also could offer accounts to low-income individuals who cannot afford or are denied traditional bank accounts.
At the same time, Amazon could use this banking strategy to reduce its own costs. According to Bain & Company estimates, if its customers were to pay for goods with an Amazon bank account instead of credit cards, Amazon could avoid more than $250 billion in annual interchange fees in the US alone. Bain also estimates that Amazon banking could attract 70 million accounts in the US within five years if just half its existing customer base were to participate. If so, it would rival Wells FargoWFC, the third largest bank in the US.
3. The Logistics Industry is Going Autonomous
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This week WaymoGOOG announced that it will test autonomous trucks in Atlanta this year. While Waymo plans to apply its expertise from developing autonomous systems for passenger cars, trucks are a different form factor and could require additional development work.
Waymo’s news comes on the heels of Uber’s announcement that its autonomous trucks are on the road in Arizona. In both cases, drivers are or will be behind the wheels, ready to take over if necessary.
Waymo and Uber are not the only firms with aspirations for an autonomous logistics future. Later this year, Florida-based Starsky Robotics plans to launch autonomous trucks with a remote operator network, and Peloton plans to run autonomous truck platoons for commercial deliveries.
ARK estimates that during the next five years an autonomous electric truck could transport cargo for $0.03 per ton mile, compared to the $0.12 per ton mile cost of a human driven diesel truck today. At $0.03 per ton mile, trucking will be cheaper than rail, a provocative finding as rail and trucks ship roughly the same ton miles of freight in the US today. In other words, the logistics industry should face a period of disruptive innovation during the next five to ten years.
4. CRISPR Could Increase Wheat and Rice Yields to Meet Global Demand
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Establishing global food security is a top priority as the global population increases and arable land continues to decline. The United Nations estimates that the world will have to increase food production by 70-100% by 2050 to accommodate population growth. While genetically modified organisms (GMOs), traditional breeding techniques, and natural evolution largely have kept up with food demand historically, they are unlikely to be adequate longer term.
CRISPR technology could be the answer to the incremental demands on the global food supply chain. For the first time, wheat and rice – neither of which has been genetically modified – are amenable to CRISPR genetic edits which could increase their yields. Moreover, while traditional cross-breeding typically has required 7-10 years to evolve new wheat or rice traits, CRISPR should be able to introduce the same traits within a year.
ARK forecasts that the adoption of CRISPR technology in the farming of crops, livestock, and aquaculture will increase calorie production by 585 trillion, enough to feed an incremental 800 million people on a 2,000 calorie diet by 2025… just in time, as the global population is likely to grow 800 million by 2025.
ARK's statements are not an endorsement of any company or a recommendation to buy, sell or hold any security. For a list of all purchases and sales made by ARK for client accounts during the past year that could be considered by the SEC as recommendations, click here. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. For full disclosures, click here.