Please enjoy ARK Disrupt Issue 142. 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. Bentonville UP Added to Our Understanding of the Potential for Electric Air Mobility
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Last weekend, ARK had the opportunity to attend an electric air mobility conference in Bentonville, Arkansas, hosted by TransportUp. We heard from a number of teams about their respective projects and challenges. The two hurdles mentioned most often were regulation and the loud sound associated with passenger drones.
Sound is important because, as ARK has modeled, landing fees are the largest cost factor in helicopter transport operations. Electric air taxis should be quieter and more maneuverable than helicopters, allowing for a buildout of helipads which will drive down landing fees. If air taxis are not quiet enough, then the buildout of helipad infrastructure probably would face significant opposition.
The Federal Aviation Administration (FAA) has not kept pace with other countries in approving and regulating electric autonomous aviation. Regulators in China have been the most progressive, enabling both E-Hang and JD.comJD to test and commercialize drones. Indeed, developing countries, which are less encumbered by NIMBY (Not In My Backyard), could leapfrog the developed world and commercialize electric air taxis first, prioritizing cities with extreme traffic congestion. Meantime, in the developed world, regulatory barriers could push the cost of commercialization from hundreds of millions to billions of dollars, turning off investment from venture capitalists and other private equity investors.
Addressing concerns around air traffic management, a number of companies presented progress on both routing and sense-and-avoid technology. In our view, autonomous route planning and flight will be simpler than path planning for autonomous vehicles, though landing and takeoff do present unique challenges.
The biggest surprise from Bentonville UP was that most companies were focused on flight ranges in the 50 to 100s of miles, typical of existing markets, with technology and other variables designed accordingly. ARK’s research suggests that an electric autonomous air taxi with just 10-15 miles of range, enabling customers to fly from city centers to airports, could generate significant demand much sooner.
2. Could the Apple Watch Series 4 Be as Successful as the iPhone?
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Apple surprised the market this week with the first FDA-approved electrocardiogram for sale to end-consumers: it embedded that capability into its fourth generation Apple Watch, which is thinner, faster, and larger than its predecessors. While previous generations of the Watch could notify wearers of suspicious pulse-rate changes, AppleAAPL has closed the loop by empowering users to forward EKG results to medical professionals. Adding to its utility, the Apple Watch can detect falls and contact emergency services if a person is unresponsive, suggesting that it is transitioning from a nice-to-have device to a necessity for certain demographics, particularly the elderly. While 10% of iPhone buyers have purchased an Apple Watch historically, its new life-saving features should increase the cross-selling opportunity substantially.
With these advances, Apple is preparing for a wide scale deployment of its Watch that could mirror that of the iPhone. Initially, consumers paid only $200 for the iPhone, as its telecom partners picked up the majority of the tab, $650. As a result, the iPhone was a cashflow hit for both Apple and the telecom operators. iPhone owners were willing to pay for much more data than historically had been the case, and Apple sold more than a half-trillion dollars-worth1 of devices before AT&T ended its subsidy in early 2016.
Health insurance providers could become to the Apple Watch what telcoms were to the iPhone. If patients wearing an Apple Watch were to incur health costs substantially lower than others, insurers probably would be willing to subsidize its use. Simple math suggests that success on just one indication—atrial fibrillation—could incentivize insurance companies to give everyone in the US over the age of 402 an Apple Watch for free. While insurers probably will proceed cautiously, collecting data to make sure that the economic case is sound, pilot programs already have started without EKG capability, suggesting that FDA approval will accelerate the trend.
3. What Are the Trade-Offs for Enhanced Technological Capabilities of Cryptonetworks?
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As ARK’s research has shown Bitcoin’s annual throughput capability at the base layer is several orders of magnitude below any existing payment system, but other metrics are putting that metric into an interesting perspective. As measured by annual transactions value, Bitcoin’s base layer is supporting two times the throughput of PaypalPYPL today and is within an order of magnitude of Visa’sV throughput. In other words, the use case for Bitcoin’s base layer as a settlement network for large transactions is real and growing.
Increasingly, a cryptonetwork’s technological capabilities seem to come at the cost of other features, such as security, censorship resistance, and the predictability of money supply. Aiming to be a global non-sovereign monetary store of value, bitcoin would not want to see advancements in its technological base layer occur at the expense of censorship resistance, security, or money supply. Alternatively, a cryptonetwork like Ethereum, aiming to provide trustless and decentralized computation, might prioritize technological capabilities over the other variables.
A common metric used for measuring technological capability and blockchain scalability is transactions per second. Given the goals of various cryptonetworks and the tradeoffs they are willing to accept, Bitcoin should and does support lower transaction counts than Ethereum, as shown below.
At the same time, while Ethereum supports higher average transaction counts, Bitcoin should support greater value per transaction given its use case as a settlement layer for large value transactions. Such is the case, as shown in the graphs depicting both total transaction value and average transaction size below.
4. Will Challenger Banks Deliver Real Value to Consumers?
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Challenger banks are “challenging” traditional banks. Typically, their go-to-market strategy is online and mobile, allowing them to offer competitive pricing and a better user experience. Chime, Simple, N26, and Varo Money are notable startups in this space.
More than 100 challenger banks worldwide have attracted significant venture capital investments. Most of these banks have targeted low-income and underserved demographics which, in the US, account for only 7% of households. To address the middle- and high- income end of the market in the US and elsewhere, these startups are trying to overcome customer inertia associated with moving from traditional checking accounts by competing on pricing and interest rates. In the US, for example, challenger banks are offering an average deposit rate of 0.79%, three times more than traditional banks.
Competition on price basis does not qualify as disruption innovation. Instead disruptive companies need to leverage technology, offering products and experiences that are inherently different from the existing world order.
5. Creating Next-Generation CRISPR is Not Enough
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While CRISPR-Cas9 genome-editing has emerged as a technology with the potential to cure disease by correcting genetic mutations, it will have to overcome a number of challenges to realize its full potential. CRISPR-Cas9 derived from Streptococcus pyogenes bacteriumcan cut DNA efficiently, but it is difficult to deliver to patients because the delivery mechanism, small adeno-associated viral (AAV) vectors, cannot handle its 1,368 amino acids.
Recently, in an attempt to solve this problem, scientists from UC Berkley reduced the size of CRISPR-Cas9 by two-thirds using a method known as Minimization by Iterative Size-Exclusion Recombination (MISER). While the new variant lost its ability to cut DNA, it did retain its binding affinity. At the same time, other variants retained the cutting function.
While an important step in creating next-generation CRISPR tools, innovation is not limited to CRISPR molecules. Intellia TherapeuticsNTLA, for example, has overcome size limitations by innovating upon its delivery platform. Lipid nanoparticles (LPNs) are safer and four times larger than AAV vectors. Unlike viral vectors, LPNs can be administered multiple times without comprising patient safety. While LPNs have fared the best in liver indications historically, Intellia has been optimizing its delivery platform for the central nervous system (CNS).
Realizing the true potential of CRISPR genome-editing will require finesse and creativity. While many labs are racing to develop next generation CRISPR tools, history has shown that a strong delivery platform is critical for commercial success.
- Company reports (Apple, AT&T); ARK estimates. ↩
- The lifetime annual medical cost burden of strokes for people over age 40 in the US comes to roughly $100 billion and approximately 20% of those strokes are attributable to Atrial Fibrillation (AF). Early diagnosis of Atrial Fibrillation reduces stroke-risk by 2/3rds, so if the Apple Watch were consistently capable of diagnosing Atrial Fibrillation (and had no other health benefit) then insurers would see a 5-year savings of $70 billion; they could by everyone in the US over the age of 40 an Apple Watch for $60 billion. This calculation is intended to be indicative of potential performance; all numbers are roughly representative of root truth. ↩
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