272: Shopify vs Amazon Logistics, Microsoft Cloud, Young Druckenmiller, Jeff Bezos 2017 Letter, Adyen Hitting the Brakes?, Nuclear Fusion, and Bilingualism

"Logistics is all about process and uniformity and reducing errors."

Tactics is knowing what to do when there is something to do; Strategy is knowing what to do when there is nothing to do.

—Savielly Tartakower, French-Polish Chess Grandmaster

🐦 🦅 I think as someone publishing stuff online, I’m contractually obligated to mention that Elon Musk did it, he bought Twitter.

Now we're in the in-between part where everybody projects what they want to believe — good or bad — onto this event…

⚡️⚡️⚡️ Cigarettes have a pretty bad reputation, mostly because they’re unhealthy, addictive, and stink up the place.

Over time, most people’s brains compress this idea to something like “I hate cigarettes”.

But what if cigarettes could somehow be made to be *good* for your health, non-addictive, full of vitamins and antioxidants, smell nice or be totally odorless, and cigarette butts were compostable and even good for the soil..?

What’s the point of hating such cigarettes?

All along, the hate was directed at the negatives attached to the thing, not to the whole thing.

I feel like we need to do a similar decoupling with many people’s view of energy, because decades of “knowing how energy use causes all these problems” has compressed the idea in people’s minds.

Energy use is GREAT for humanity.

Almost everything we hold dear, directly and indirectly, is because we’ve been able to harness so much non-human energy.

Without it, billions of people wouldn’t be alive, and all the things that these people created and discovered; most technologies wouldn’t exist; there’d be a lot more wars (scarce resources tend to cause instability); a lot less art and innovation and, well, pretty much anything that isn’t subsistence farming.

Only after freeing up most of humanity to develop other skills because food is plentiful does civilization truly flourish.

My point is: Energy is great but for so long we’ve heard of the negatives that come with the most common sources (fossil fuels = pollution, petro-dictatorships, etc).

What we need is to separate these things in our minds and aim both to get away from these negatives *and* increase the positives. (we forget about that second part)

Matthew Yglesias writes:

since the mid-1970s we’ve been increasingly aware of the limits and problems with this model, and it’s put us on an energy diet. Now when we invent something cool, we often have to say “too bad the energy requirements are so high.” [...] this is a backward way of looking at things. The turn toward conservation and efficiency was a necessary evil in an era when we couldn’t come up with a better way to deal with geopolitical instability linked to oil and pollution linked to all forms of fossil fuels.

Instead, we should raise our clean energy production ambitions. We don’t want to replace 100% of our current dirty energy — we want to generate vastly more energy than we are currently using and make it zero carbon.

What difference does it make in how you look at it?

In the “energy is a necessary evil” frame, we look at our current electricity needs and then ask, “How can we generate all that from zero-carbon sources?” In the alternate framing, you say that to the extent we can develop affordable, zero-carbon sources of electricity, we want to generate tons and tons of electricity. Ideally, we would want to replace much more than 100% of current gas, coal, and oil with zero-carbon sources of electricity and use that to literally power a bold new era of rapid economic growth.

Yglesias then goes on to paint a picture of what such a world of energy abundance could look like (better standards of living all around, large-scale water desalination, vertical farming, direct air capture of carbon, etc).

💚 🥃 If you’re not a paid supporter yet, I’m hoping that this is the edition that makes you go:

“Hey, I think I want to support what he’s doing here.”

Thank you for that!

Oh, and we hit this round-number milestone yesterday 🥳:

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I just realized I had never seen a photo of a young Stan Druckenmiller

Funny how we forget that the people who we get to know at a certain age once were also fresh-faced kids with uncertain futures.

h/t Friend-of-the-show and supporter (💚 🥃) Frederik Gieschen

🚚 📦📦📦 Shopify fighting Amazon Logistics (AMZL) by cobbling together third-party logistics (3PL)? 🤔

I remember reading The Moon is a Harsh Mistress by Robert A. Heinlein as a kid —

As an aside, one of the central plot points is a lunar colony wanting political independence from Earth, and using an electromagnetic catapult to threaten Earth with throwing very large rocks down the planet’s gravity well which, on impact, would delivery about as much energy as nuclear weapons…

— one of the phrases in the book that always stuck with me was ‘There’s no such thing as a free lunch”.

It’s a good compressed idea to keep in mind: when something seems too good to be true or too easy, there’s often a catch or something you’re missing…

This is the phrase that came to mind when I heard about Shopify creating their own fast & cheap (2-day or less) delivery system by using third-party logistics partners cobbled together with software and APIs.

While I think it’s probably the best thing that they can do with the cards that they have in their hands, and it would probably be foolish to try to out-spend Amazon from a much smaller revenue base, with much less expertise in the world of atoms, starting from behind by almost 30 years…

…but I have my doubt that they can get Amazon-like speed, quality, and price without doing the heavy lifting themselves. That sounds like a ‘free lunch’ to me, because otherwise, what was the point of Amazon spending around $105 billion dollars on its logistics over the years? Wouldn’t Amazon have just gone 3PL if it was so much easier, faster, and cheaper for a similar result?

Here’s what I think the crux is:

Logistics is all about process and uniformity and reducing errors.

These are harder to do with a patchwork of third-party companies each with their own different warehouses and trucks, each with their own culture and equipment stock, than with a wholly-controlled and uniform system.

It’s about rapid iteration and diffusing learnings and best practices across the whole organization so that the overall learning rate remains high.

That’s hard to do with a federated/fragmented group of operators, even if they’re connected by a software API that standardizes some things. Lots of other things will always remain different and of varying levels of quality and performance, and won’t be as observable by the ‘overseer’.

Sometimes, you’re only as good as your weakest link, and it helps when you can rapidly find that link and fix it. But if you don’t have perfect visibility into your whole operation, and you don’t have direct control of every link, it’ll be a lot harder to find and fix problems, and to transfer that knowledge to every other part of the system.

🏎 🐢 Is Adyen “stepping on the brakes”? 🤔

I was discussing Adyen and the recent news that they would be a payment processor for Amazon in Japan with my friend Jerry (💎 🐕), who has forgotten more about the world of payments than I know, and he mentioned something that I found striking:

Adyen [is] fairly stubborn on price.

Imagine [Adyen’s] growth if they ran at 25% EBITDA margins

How much quicker would they be stealing [market share]? Would that create more long term value?

This gave me a great mental image.

You know how it’s said that all these unprofitable high-growth software businesses are said to be investing in growth, so it’s why they’re not profitable yet?

Like, they could be, but they’d rather re-invest all their margin and more into things that will make them grow faster (faster hiring, more sales & marketing spend, more R&D, keeping prices low to grab customers that they expect won’t churn for a very long time, etc).

Well, if you think about it like that, Adyen is basically stepping on the brakes while still growing incredibly fast.

By having EBITDA margins that almost compete with Visa, they’re trading some growth for profitability, and if they decided to, they could be more aggressive on price (ie. offer lower fees from some big potential customers) and grow even faster (though less profitably).

Jeff Bezos: “High standards are contagious”, implications edition 🤔 ⬆

Here’s an excerpt from Amazon’s 2017 shareholder letter:

Intrinsic or Teachable?

First, there’s a foundational question: are high standards intrinsic or teachable? If you take me on your basketball team, you can teach me many things, but you can’t teach me to be taller. Do we first and foremost need to select for “high standards” people? If so, this letter would need to be mostly about hiring practices, but I don’t think so.

I believe high standards are teachable. In fact, people are pretty good at learning high standards simply through exposure. High standards are contagious. Bring a new person onto a high standards team, and they’ll quickly adapt. The opposite is also true. If low standards prevail, those too will quickly spread. And though exposure works well to teach high standards, I believe you can accelerate that rate of learning by articulating a few core principles of high standards, which I hope to share in this letter.

Universal or Domain Specific?

Another important question is whether high standards are universal or domain specific. In other words, if you have high standards in one area, do you automatically have high standards elsewhere? I believe high standards are domain specific, and that you have to learn high standards separately in every arena of interest.

I was reminded of this while listening to friend-of-the-show David Senra (🎙📚) discuss his highlights from the Bezos letters.

David has a great insight that I want to relay and amplify here:

There’s a very good chance that you won’t get exposed to incredibly high standards in your daily life, or if you are, it’ll only be for a certain period of time, or in one area of your life but not in others.

Maybe you have an incredible boss, teacher, friend, partner, etc, that lifts you up just from exposure. But maybe you don’t, or maybe you have to move to a new job/graduate/etc…

David’s insight is that you can choose to expose yourself to these world-class high standards through books, podcasts, articles, online relationships, whatever.

Thanks to modern telecommunications, the world is your oyster, and if you only look, you’ll find plenty of things that can lift you up.

I’m not saying it’s magical and doesn’t require hard work too, but at least the opportunity is there to learn from the best and allow their good example to rub off on us.

The situation would’ve been very different not that long ago, when it was more a roll of the dice whether you stumbled upon a great mentor or company culture or group of friends, or you simply were unlucky and never found a pocket of “high standards” to immerse yourself in.

Microsoft ☁️

Alex Morris (TSOH Investment Research) @TSOH_Investing

$MSFT Commercial Cloud revs to ~$94 billion run rate (+32% YoY) FWIW, Microsoft's TOTAL revs five years ago (FY16) were ~$92 billion

Make sure to read that second line in Alex’s tweet!

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☢️ ‘The Nuclear Fusion Energy Delusion?’ (Podcast)⚡️

Very interesting episode discussing nuclear fusion with Gerrit Bruehogg (“a nuclear engineer with a background in fission reactors and particle accelerators who is currently doing his thesis at the Laboratory for Laser Energetics on inertial confinement fusion):

• The Nuclear Fusion Energy Delusion? feat. Gerrit Bruhaug

After some recent stuff had increased somewhat my optimism about fusion, this episode cooled it back down a bit. Not because it may not be amazing *someday*, but because that day is probably still relatively far away, and in the meantime, fission should be the main horse to bet on and is amazing in its own right (we want reliable gigawatts, not novelty for its own sake).

The discussion about the challenges of neutron damage to very expensive and sensitive equipment inside a fusion reactor vs the much lower damage to much cheaper materials (huge steel vessels, etc) in a fission reactor was a very insightful contrast.

🗣🗣 ‘bilingualism plays an important role in mitigating cognitive decline and promoting successful aging’ 🧠

I’m posting this one mostly because it makes me feel better about myself.

I learned to speak English late, starting when I was around 15-16, so it’s not quite in the native-language part of my brain the way that kids who learn two languages in early childhood can integrate it (speaking two languages without any detectable accent! What a dream).

Despite having no aptitude for languages, I somehow did it, and it has been one of the best things I’ve done, and of which I’m most proud of (in the intro edition #62 I wrote about how I think of pride).

Back to the study:

A key concept when discussing prevention or mitigation of cognitive aging is that of cognitive reserve (CR; Stern et al., 2020). CR is defined as the discrepancy between the expected and observed levels of cognitive impairment, given the observed level of age-related neuropathology or brain disruption (Stern et al., 2020). In other words, CR is the individual ability to compensate for age-related neural deterioration and maintain optimal cognitive functioning. [...]

The analysis revealed a significant effect of both L2 years (β = −2.797; p < 0.001) and L2 proficiency (β = −9.045; p < 0.001) on the executive performance of senior individuals, which differentially impacted congruent and incongruent trials [...]

These results indicate a contribution of bilingualism to CR that spans beyond that of traditional CR proxies.

I like this Reddit comment:

Knowing two languages isn't as simple as it sounds if you've got the frame of reference of one who only knows one language.

You learn that there is a lot of culture and history in the language that differs greatly from yours. For example certain expressions and their origin and also etymology is fascinating, especially if you're learning two related languages

So true. It’s not just a mechanical translation of words in your brain, it’s a different culture and way to think. Makes me wonder about languages that are more different from each other than French and English (my two), and how that expands your mind 🤔

Source.

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Lightfall (book 1) & Amulet (book 1)

Since I first wrote about it in edition #268, my son & I have finished Lightfall: The Girl and the Galdurian, and I have to say, it was A+ for me. Just delightful!

The art is what stood out most. I can’t wait to read book 2 (released April 26, 2022) just to get to see more! When we finished the first, my son was briefly sad, but I surprised him by telling him that I had pre-ordered book 2 and that it was coming very soon, and he actually jumped with joy and hugged me. That’s a good endorsement of a book series!

After we finished Lightfall, we started Amulet: The Stonekeeper (book 1) by Kazu Kibuishi.

I don’t like the art and the world-building as much as Lightfall so far, but it’s still very good, and we finished book 1 in two days (we’re starting book 2 now — I like that elves are the bad guys in this world, a nice twist on the usual convention).

It’s a bit dark, with some pretty sad scenes and creepy monsters that I wasn’t sure if my 8yo-with-an-hyperactive-imagination would handle well, but so far so good.

I’ve already got books 3-5 from the public library, I feel like we’ll probably binge that series…