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Disruptive Innovation Updates – Best of Last Week’s Brainstorming

This is a blog series 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 keep you engaged in an ongoing discussion on investing in innovation.

1. The Gigafactory Tour

This past Wednesday TeslaTSLA invited media to tour the Gigafactory in Nevada. One of the notable pieces of news that emerged is that Tesla will transition from a 18650 cylindrical cell (18mm diameter and 65mm height) to a 21-70 cylindrical cell (21mm diameter and 70mm height). Assuming constant energy density (Wh/l), the new cells will have 38% more energy than the old cells. JB Straubel explained that the jump in cell size will optimize costs, while Elon Musk projected that the cells would cost less than $100/kWh by 2020. Musk also reiterated that the Gigafactory would produce 150GWh in the same space as the original design, three times his original estimate of 50GWh. For a great breakdown of the Gigafactory opening, we suggest reading this article.

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2. Braces Without the Doctor’s Visit

Align, the company that makes Invisalign braces using 3D System’s 3D printersDDD, recently took a stake in Smile Direct Club (SDC). SDC ships clear aligners direct to customers, circumventing the monthly visits to dentists or orthodontists for additional aligners in their treatment plan. SDC treatments cost $1,500 if paid in full upfront, while metal braces can cost anywhere from $3,000 – $7,000. SDC’s patients typically have mild alignment cases that do not require the movement of molars. In fact, Align has observed that the overlap of SDC with its current customer base is small – just 2%. Further, 30% of patients who decide to try Smile Direct Club have dental cases too complex to be treated at home. Given its new shareholder, SDC has agreed to refer these customers to an Invisalign doctor.

Opening up the direct to consumer channel is an exciting move for Align. It could expand the total available market, as SDC’s lower cost solution brings individuals with minor alignment needs into the market, or back into the market for a retweaking.


3. Instagram is the New Platform for Brands & Celebrities

In May 2015, ARK did its first survey of user engagement with the three largest social platforms: FacebookFB, TwitterTWTR, and Instagram. We found that while Facebook dominated in absolute reach and Twitter owned real time news, Instagram was becoming the go-to destination for savvy brands and celebrities. In June of 2016, we repeated the survey. While we had expected similar trends, the explosion in Instagram’s engagement was surprising.

Brands and celebrities have been the biggest beneficiaries of Instagram’s increasing popularity. Starbucks and H&M both have added more Instagram than Facebook followers during the last year. Just as impressive, Instagram was the fastest growing social network for eight out of ten celebrities by a wide margin; indeed, celebrities attracted more followers on Instagram than on Facebook and Twitter combined during the past year. Clearly, Facebook made an outstanding decision when it purchased Instagram for $1 billion in 2012 as its revenues should top $3 billion this year. Read our full report on the ARK research website.

Celebrity Instagram Follower Additions, Investing in Innovation


4. Does Ethereum’s Life Hang in the Balance?

Last week when we congratulated the Ethereum developers on a job well done with the hard fork, we were too hasty in our praise. Some may say we were chomping at the bit. Even Vitalik Buterin, founder of Ethereum and legend within the cryptocurrency space, may be eating the words he wrote: “We would like to congratulate the Ethereum community on a successfully completed hard fork.”

At that time, Ethereum as we knew it had split into two blockchains, each of which supported a separate cryptocurrency. Supporting the cryptocurrency called ether (ETH), one of the chains took funds from the DAO attacker, intending to return them to DAO shareholders. The other chain, supporting the cryptocurrency called ether classic (ETC), was unchanged, leaving the attacker with his funds.

After the hard fork, each of these currencies was riding on a blockchain as different in some sense as Bitcoin and Dash, Litecoin and Steem, Nxt and XRP, and so on. Different cryptocurrencies…supported by different blockchains, different developers, different miners, and somewhat different code. Initially, as expected, the overwhelming majority of developers, miners, and value backed ETH.

Then, economics and free markets took center stage, throwing the Ethereum community for a loop. Although ETC had dropped to a fraction of ETH’s value, miners began to realize that they could make more money mining ETC because so many of their counterparts had turned their time and attention to ETH. As a result, mining hashing power started shifting back from ETH towards ETC. As mining resources shifted, traders realized the emerging opportunity in ETC and responded by driving massive volumes through available exchanges. Interestingly, a large percentage of trades has been from bitcoin into ETC, suggesting perhaps that Bitcoin maximalists have been pumping the price of ETC in an attempt to ensure that a contentious fork works to the detriment of ETH.

We think Ethereum is in a dangerous place now because miners are hashing two versions of its blockchain, weakening both. While things have settled down somewhat, the value and mining power of ETC relative to ETH remain in the 10-15% range. ARK believes that the longer the two versions of Ethereum co-exist, the weaker the entire Ethereum platform will become as the networking effects are divided between ETH and ETC.

The blockchain community is in a state of flux, seemingly to the benefit of the Bitcoin blockchain. Our best wishes go to the Ethereum developers, as we see tremendous value in their platform. At the same time, we applaud the Bitcoin developers: while their slow and steady philosophy has invited much scorn from the community, clearly they made the right decision to shy from a hasty hard fork. Meanwhile, some are calling Steemit a Ponzi scheme as its cryptocurrency plummets in value.


5. “Smart Threads” May One Day Talk to Your Doctor

A team of researchers has developed a new class of material that may gather in vivo diagnostic data wirelessly transmitted to doctors’ offices in real time. However, the concept has been proven only in mouse models thus far.

The “diagnostic thread” has microsensors that are interwoven and can collect data on pH levels and glucose levels, as well as transport small amounts of bodily fluid to the microsensors for analysis. The data is then transmitted wirelessly, perhaps by radio frequency identification (RFID).

If successful, these microsensing threads could revolutionize medical diagnostic and monitoring processes. That said, it is too early in the research process to conduct human trials.

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.