ARK Disrupt Issue 62

ARK Disrupt Issue 62: AI, Fintech, Internet Access, and Genome Editing

Please enjoy ARK Disrupt Issue 62. 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. IBM Watson Health Hits Its Stride

Six years after Watson beat human contestants at Jeopardy! and three years after the inception of Watson Health, IBM’sIBM artificial intelligence (AI) unit is hitting its stride. In early February 2017, Jupiter Medical Center in Florida announced that it will offer Watson for Oncology, a specially trained program that points doctors to treatment options for their cancer patients. Jupiter is the first community hospital in the US to adopt Watson for Oncology. Chinese and Indian hospitals were the early adopters.

Watson for Oncology is the product of a collaboration between IBM and Memorial Sloan Kettering (MSK). IBM provides computer expertise with Watson, its flagship machine-learning arm. MSK contributes its patient data and oncologists to train Watson with real world experience and millions of medical publications.

While internet giants like GoogleGOOG and FacebookFB are the leaders in exploiting artificial intelligence for their existing businesses, IBM seems to have the best go-to-market strategy for transforming AI into new businesses. In recent years, it has spent $4 billion to acquire a treasure trove of patient data and medical images. Just as important, it has partnered with health care companies like IlluminaILMN, PfizerPFE, MedtronicMDT, and Quest DiagnosticsDGX, customizing AI for genomic, medical device, lab, and pharmaceutical applications.

Currently Watson’s revenue is buried in IBM’s Solutions Software segment. Solutions Software, a mixture of legacy and new divisions, grew only 6% in 2016. Watson’s rollout strategy, traditional industry by traditional industry, is and likely will be more painstaking than the AI-aided accelerated growth strategies associated with internet advertising and the cloud.

IBM’s strategy should take time in the more traditional health care, financial, government, education, and utility sectors, but many companies in those verticals have been its clients for years, potentially giving it an important edge in transforming the way the world works with AI.

2. Fintech Is Booming In Indonesia

With a population of 257 million, the fourth most populous country in the world, Indonesia also is one of the highest unbanked countries in APAC.1 Almost two-thirds (63.7%) of adults over the age of 25 remain unbanked.2 Consequently, given its increased smartphone penetration, we believe Indonesia is in a sweet spot for fintech innovation.

In 2015 Indonesia attracted more than 103 fintech deals, representing 50%3 growth on a year over year basis. Ranging from mobile to gateways, payments attracted the most capital, accounting for 43%4 of the new startups. As shown below, Indonesia is following the lead of India, Japan, and Singapore, all of which have experienced a burst of fintech innovation in the last few years.

ARK Disrupt Issue 62 fintechSource: TechInAsia Data

In Indonesia, Go-Jek is a good example of the fintech revolution. The logistics and transport startup quickly learned the importance of a payments system that bridges the divide between consumers who prefer cash, and online apps that only accept digital payments. It quickly integrated the innovative Go-Pay app into Go-Jek and then acquired Ponsel Pay, another payment platform, to facilitate cash payments.

We believe other fintech companies with unique payment platforms and business models burgeoning in Indonesia include Kinerja Pay, Moka and KUDO. While in early days for digital payments, Indonesia is primed for success with a growing population of tech savvy customers who love their smartphones as much as any other users in the world.

3. Suddenly, Google’s Project Loon Is More Economic For Internet Services Worldwide

News broke this week that Google’s Project Loon team found a way to get its internet-beaming balloons to hover instead of flying with the wind. Project Loon is one of Google’s “other bets” aiming to provide internet access to remote areas of the world.

Initially Google planned to send balloons into the stratosphere to form rings around the earth and beam internet coverage. Now that the balloons can hover, Google has refined its algorithms so that clusters of balloons can stabilize in small wind loops, eliminating the need to send as many balloons as originally planned up to complete a circle around the world.

Now, Google should be able to launch Loon service not only faster but also much more cost-effectively than it or we anticipated. In early research, ARK had estimated that Google’s balloons could deliver internet access to remote areas for just $4 per month, or for much less than could drones or satellites, as shown below. Validating this research, Google ended up scrapping its drone project and Facebook’s project is struggling.

Given Google Loon’s latest breakthrough, the $4 per month charge that we estimated originally could be $1-2 too high, potentially a big deal for the emerging markets. Please stay tuned for an update of this research.

4. New Genome-Editing Guidelines Support Germline Modifications

Recently convened by the National Academy of Sciences and the National Academy of Medicine, 22 of the world’s leading geneticists, physicians, and legal scholars released a much-anticipated report with guidelines for genome editing. While advances in genome editing will allow for the modification and regulation of genes to treat diseases, they also raise a myriad of ethical concerns. Most important among these questions, should the editing of germline cells – sperms, eggs, and embryos – be allowed to change inheritable diseases?

Contrary to a ruling in 2016, which barred the Food and Drug Administration (FDA) from reviewing research in which a “human embryo is intentionally created or modified to include a heritable genetic modification,” the guidelines released this past Tuesday offer more latitude. While the guidelines did not condone immediate embryonic research, they did suggest that, with strict oversight, germline genome editing should be permitted if:

  • No reasonable alternatives exist.
  • The edit prevents a serious disease or condition.
  • The edit produces a version of a known ‘healthy’ gene.
  • The edit is not to enhance the embryo (memory, eye color…).

CRISPR genome editing does have its limitations. In particular, scientists are working through off-target effects as well as editing efficiencies and specificity. In the future, the guidelines could require every edited genome to be validated by sequencing technology, another potential milestone for DNA sequencing technology.

  1. APAC: Asia Pacific Countries.
  2.  Google and Temasek, e-economy in SEA presentation.
  3.  PWC, Fintech APAC landscape developments 2015.
  4. Fintech Indonesia & Daily Social, Indonesia Fintech Report 2016.

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.