253: Constellation Software in One Graph, Cloudflare's Model, Dan McMurtrie, Russia vs Facebook, Apple M2, Google Maps, Hydropower, and Licorice Pizza

"life isn’t a point, it’s a vector"

They mistook my kindness for weakness

—Lana Del Rey, Mariners Apartment Complex

🍊 I’m teaching my oldest son about the scientific method using clementines.

It started when he was peeling one, and I wondered if the genetics of the plant meant that all clementines had the same number of segments. We counted the internal pieces (11), and then made a hypothesis.

Remote-controlled clementines!

Ever since, we’ve been counting and keeping track.

So far, we’ve had six with 11, three with 10, and one with 14.

I’m also teaching him about odds, and updating them as new information comes in. Next I’ll show him how all these numbers can be shown as a graph….

📕 🏋️ 🧮 Speaking of parenting, in the intro of edition #243, I wrote about reading Jocko’s book ‘Way of the Warrior Kid’ to my son (who just turned 8yo a couple of days ago).

We’re now done with that one, and a few chapters into the second book in the series, ‘Marc’s Mission’.

I gotta say, Jocko knows how to teach kids and motivate them.

My son is still doing pull-ups daily, his record is 10 in a row (!), and we’ve bought flashcards with the times-tables on them, even though he hasn’t even started learning multiplications in school yet — he wants to know them cold by the time they get to that in a year or two.

🎤 🎼 🖋 Ever since Leonard Cohen died on November 7, 2016, every time something horrible happens to the world, this thought crosses my mind: “At least Leonard Cohen didn’t have to see this…”

Trivia: My youngest son’s middle name is “Cohen” in his honor.

🇺🇦 Got this t-shirt in the mail on Friday:

💚 🥃 For the price of one alcoholic drink, you get 12 emails per month (plus 𝕤𝕡𝕖𝕔𝕚𝕒𝕝 𝕖𝕕𝕚𝕥𝕚𝕠𝕟𝕤) full of eclectic ideas and investing/tech analysis. That’s 77¢ per edition for the serendipity engine.

If you make just one good investment decision per year because of something you learn here (or avoid one bad decision — don’t forget preventing negatives!), it'll pay for multiple years of subscriptions (or multiple lifetimes).

As Bezos would say of Prime, you’d be downright irresponsible not to be a member, it takes 19 seconds (3 secs on mobile with Apple/Google Pay — if you don’t see paid options, it’s because you’re not logged into your Substack account):

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Investing & Business

Constellation Software’s Businesses in One 🌸 Graph, Updated Fractal Edition

Back in edition #226, I posted an older version of that graph made by Carter Johnson.

At the time, I asked him if it would be updated and he basically told me to “stay tuned”… Well, here it is! You can click on the image to zoom in.

Consistent to our prior image, the inner rings are the six operating groups, followed by verticals, with the outer ring being individual business unit companies.

Keeping with aesthetics, a few sacrifices had to be made. Vela’s eight operating groups, any strictly IP / Product related acquisitions, and acquisitions at the Business Unit level are not included. Maybe the next updated image we'll include those.

Thank you, Carter! 💚 🥃

🌥 Cloudflare’s COVID Headwinds & More 🌤

Some highlights from a recent presentation by Cloudflare’s CFO, Thomas Seifert:

it's a misconception that COVID was a significant tailwind to the business. It actually started out as a significant headwind. And that is part on how our business model is structured. When COVID happened and traffic spiked, we all depended more than ever on the Internet. Traffic went up by 60% with a [flat rate] subscription business model.

So we are not able to pass on those explosion in costs in our prices. We were able to digest these headwinds, both from a margin perspective, but also from a growth perspective. So when we entered '21, they were not easy compares or difficult compares. It was really basic organic growth.

I think COVID might have accelerated enterprises digitalizing their business models, that certainly helped.

It’s important to understand this dynamic to understand Cloudflare.

They charge mostly flat rates to customers, unlike some others that have much larger consumption components (Fastly, Datadog, Elastic, Snowflake, etc), and they are infrastructure (whatever customers do happens on their network, unlike if you buy software from Adobe or Autodesk, which mostly use local CPU/GPU cycles), so a huge spike in usage from existing customers is bad for business, at least in the short term.

On TAM expansion (which is an over-used term, but seems pretty legit here):

When we went public 2 years ago, we treat -- the elevator speech was we described ourselves as a Cisco as a service. Every time you go to a Cisco, or a Cisco-like competitor and you buy a load balancer, or firewall, or router, we offer this as a service from our network.

we sized the TAM at that time at around $38 billion. And then we added Cloudflare for Teams protecting infrastructure, VPN replacement, gateway, browser isolation, e-mail. Now that added probably another $20 billion of TAM. And then we launched a suite of projects called Magic Transit, Magic WAN, Magic Firewall, where you take that protection that we offered on an application layer down to Layer 3. That adds another $30 billion.

And then there's Workers

They won’t even venture to guess the TAM of Workers, their distributed programmable edge platform, but it seems pretty big too.

Not Core Cloud Big™, but certainly big for a company with $650m TTM revenue.

The teams have been incredibly busy over the last 2 weeks to onboard the Ukrainian infrastructure on our network in order to help them protect and stand up with north of 30 Ukrainian government sites now on our network and a significant part of their financial infrastructure. And this is not about money, this is about doing the right thing from a moral and from a business ethics perspective.

They’re doing this for free — I wrote about their partnership with Crowdstrike and Ping recently.

On the win-win, symbiotic relationship with ISPs around the world:

the value we provide to local ISPs or regional ISP is still the same. We help them to save substantial amounts of cost. They don't have to backhaul traffic because we are local in cache, a lot of traffic locally.

In a lot of cases, we help them increase revenue. Other than the United States, in other parts of the world, Internet consumption is not flat fee and all you can eat; you pay for it as a consumer by consumption.

We make the Internet faster — conversion rates higher. So that's a unique opportunity for them to increase revenue. So that is a big benefit.

👋

Interview: Dan McMurtrie, Longevity & Resilience Masterclass Edition

Really great interview with Dan by friend-of-the-show and supporter (💚 🥃) Frederik ‘Neckar’ Gieschen:

• Dan McMurtrie: Resilience, Recovery, and Longevity in Investing

There’s also a full transcript here if you’re a paid sub.

It’s packed full of insights, shared experience, and practical recommendations.

I listened to that one while walking in the woods (which it sounds like Dan would agree is a good habit to have), so I don’t have detailed notes, but I recommend the whole thing.

Dan: Where you are today is irrelevant. The only thing that matters is the change. The rate of change over time. You cannot control where you are today because that already, right now already [happened]. So only you have to focus on is just, you have to immediately make the changes so that tomorrow is better and tomorrow is better and so on.

As I said before, life isn’t a point, it’s a vector. Make sure yours is pointed in the direction you want to go. →

Dan: One of the things that I've talked to you about is when I studied really great investors people who have outside track records of 20 or 30 or 40 years plus there is a habit of, I’d be slightly hyperbolic to call it laziness, but I think about it as a certain sort of tactical laziness.

So it's really more an economy, an economy of motion where a lot of them have this ability to sort of calmly sit and observe and not expend very much energy for long periods of time. And then strike very aggressively at a certain point in time. And it’s not that they're doing nothing during the observation periods.

They're just slowly accumulating information and observations and they're gaming things out in their head, but really, really low sort of metabolic clip. And it reminds me a lot of looking at any real large, physically large predator in the animal kingdom. They all like just don't move for a lot of time.

They just kind of sit there and, you know, are hanging out in the side and it takes a lot of calories to move a 400 pound muscle machine that's designed for murder. And so they really can't afford to move around. They just have to sit there and look, and then they'll see something that looks like a lot of calories to them.

And then they become these like horrifying murder monsters for 30 seconds to a minute. And then they eat all the calories they're going to get for three weeks. And it's like as a kind of natural lesson again there.

🐯

Russia moves to designate Meta [aka Facebook] an “extremist organization”

Authorities blocked access to Facebook last week under a new media law, but the “extremist” designation, if approved by a court, would effectively criminalize all of Meta’s operations in Russia. The company’s Instagram app would also be blocked. (Source)

In pure Orwellian fashion, platforms are criminalized because they allow people to find out the truth outside of the state-controlled channels.

Even without this, new laws in Russia already threaten to jail citizens for up to 15 years for contradicting the official narrative on the war or protesting (or even holding a blank piece of paper).

The transition from authoritarian to totalitarian is complete.

Interview: Matthew Klein on the Economic Fallout from the Russia-Ukraine War

I apologize, I don’t remember where I found this one, but it’s a good episode of the ‘Macro Musings’ podcast that puts into context a lot of the potential economic impacts from the war, the sanctions, energy, from Russia being disconnected from the rest of the world, etc.

• Matthew Klein on the Economic Fallout from the Russia-Ukraine War

Related: Here’s a good thread about the Russian economy and how dependent it is to the rest of the world.

Kamil Galeev @kamilkazani

This shows how deeply Russia is integrated into the Western technological chains. What Russia produces is produced on Western industrial machines, with Western technologies, Western software and with Western details. That ofc includes military industry which uses this all, too

This isn’t your mother’s 1970s oil crisis

Mark Dow:

Oil is still dying. Price goes up, price goes down. Cycles, bubbles, pandemics, wars, etc.

We can argue about pace and slope, but nothing's going to change the direction of this chart over the next 20 years.

The US oil consumption has roughly flatlined at 19-20mm bpd for the past 20 years

Over that period, USD GDP is up 50%

h/t Carl Quintanilla (🎬)

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Science & Technology

Is Apple’s M2 going to be based on the A16 core?

The Vegas odds seem heavily in favor of the upcoming M2 SoC being based on the A15 from the iPhone 13, but it’s taking long enough for M2 Macs to come out that I’m starting to wonder if Apple isn’t planning to leapfrog.

What if they made the M2 from the same building blocks as the A16 that will be in the new iPhone next fall?

Otherwise, by the time the M2 comes out, it’ll almost be a generation behind, and that seems like a weird cadence since Apple has control over the whole pipeline and can develop the M in parallel with the A series.

Maybe the M cadence will be to skip an A generation, so we’d have:

• M1 = A14

• M2 = A16

• M3 = A18

• etc…

I don’t give this very high odds of happening, maybe 20%. We’ll see.

5 great Google Map tips/features you may not know about

I think you’ll learn at least a few useful things from this.

I literally started using Google Maps on the day it came out, and there’s some of these that I didn’t know (or had seen mentioned years ago but had forgotten about).

h/t Kevin Kelly

Russian oligarch involved in blocking hydro-power line from Quebec to Maine and Massachusetts

I wrote in edition #248 about Putin’s cronies funding anti-nuclear NGOs in Europe to help maintain their dependence on Russian gas. Looks like something similar happened in the US:

A mere 412,086 residents of the Pine Tree State—less than 38 percent of the eligible electorate—voted in the November referendum that decided the fate of the New England Clean Energy Connect (NECEC) project. The scheme would have linked the Maine and Massachusetts electrical grids with 1200 megawatts of renewable hydroelectricity from Quebec. The 243,943 people who voted against construction of the 145-mile transmission line did so against the wishes not only of Gov. Janet Mills, but of Energy Secretary Jennifer Granholm [...]

Despite receiving approval from multiple Maine agencies and from the Army Corps of Engineers, securing a presidential permit for cross-border infrastructure, and installing some 120 structures and completing much of the tree clearance, the NECEC lost on Election Day. And Calpine, owner of the state’s biggest power generator and the enormous natural gas plant in the town of Westbrook, won—as did one of the company’s largest shareholders, Access Industries and its owner Len Blavatnik. [...]

[Blavatnik] owes most of his estimated $33.4 billion fortune to his dealings in the old USSR., where he began dabbling in the 1990s, experts say.

“Len Blavatnik is one of the top oligarchs in Russia,” Dr. Anders Aslund, a former economic advisor to the Russian and Ukrainian governments, told The Daily Beast. “He just happens to be a U.S. citizen.” [...]

Helping bankroll astroturf campaigns to block renewables:

Calpine operates the natural gas-fired generation facility in Westbrook, Maine, that federal Energy Information Administration figures show is far and away the largest single power producer in the state, pumping out more than a million megawatt-hours in 2020. [...]

this ignores the leadership role Calpine played in the fierce and costly campaign to persuade first authorities, and then the public, to block the project.

The piece then goes on in more detail about the various regulatory attacks and financing of local NGOs and “citizen groups” to oppose the project.

Calpine “feared that the NECEC would flood the region with so much cheap electricity that its own assets would become unprofitable.”

You wouldn’t want that, cheap hydroelectricity to replace more expensive and polluting coal and gas on the Eastern seaboard… Ugh

h/t my friend JPV (✍️)

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The Arts & History

‘Licorice Pizza’ (2021, Paul Thomas Anderson)

Paul Thomas Anderson is hit-and-miss for me — I’ve really liked some of his films like ‘Boogie Nights’ (1997) and ‘Magnolia’ (1999), but didn’t enjoy others much, like ‘There Will Be Blood’ (2007) (I’m apparently an outlier on this one) and ‘The Master’ (2009).

But I really really dug ‘Licorice Pizza’ — the title is apparently a reference to vinyl LPs — and will see it again someday.

It’s largely about a sense of time & place (similar to Tarantino’s ‘Once Upon a Time in Hollywood’), plus a coming-of-age story… very episodic and character-based, so if you’re looking for a plot that cleanly goes from A to B, this probably isn’t for you (my wife gave up on it halfway through — I think she didn’t care too much about the characters, and there wasn’t too much plot to fall back on).

The cinematography is *beautiful*, and I was really impressed by the two leads, who are first-time actors and look like real people (acne and crooked teeth adding to the realism). Cooper Hoffman was good, and it’s hard to talk about him without mentioning that he’s Philip Seymour Hoffman’s son, but to me, it’s really Alana Haim that made the film work.

There’s also lots of neat little trivia, like the fact that Alana’s on-screen family is her real family, and she’s in a band called ‘Haim’ with her sisters.

There’s also a great cameo by Tom Waits.

I had no idea he was in it, but he has the most recognizable voice in the world, so while I didn’t immediately recognize how he looks, as soon as he started talking, I told my wife “he sounds like Tom Waits”.

Bradley Cooper also goes all out while looking like Luke Wilson’s character in Royal Tenenbaums. Very memorable.

There’s also this bit of trivia that won’t mean anything until after you’ve seen the film:

Whenever Alana is seen driving the truck, it is actually Alana Haim driving the truck, not a double nor a camera trick.

Wow!

If you’ve seen it and want more, here’s the director talking about the film and a discussion of it:

• Licorice Pizza with Paul Thomas Anderson and Jeremy Kagan

• The Big Picture: Let’s Talk Licorice Pizza

♟Interview: Annie Duke & Garry Kasparov on Decision-Making in War

Good interview/discussion, filed under ‘real-time history’ and ‘poker vs chess’:

• Winter is Here Ep. 2 Decision Making in War