41: Constellation Software's Modaxo & Topicus Spin, Elastic Deep-Dive, Microsoft Teams Incentives, Jeff Lawson's Buy vs Build, China's Semiconductor Push, and Communication with Aliens?!

"I didn’t even know that Space Investment Quarterly existed"

Not every change is an improvement, but every improvement is necessarily a change.  If we only admit small local errors, we will only make small local changes.  The motivation for a big change comes from acknowledging a big mistake. 

There is a powerful advantage to admitting you have made a large mistake.  It's painful.  It can also change your whole life.

It is important to have the watershed moment, the moment of humbling realization.  To acknowledge a fundamental problem, not divide it into palatable bite-size mistakes.

Do not indulge in drama and become proud of admitting errors.  It is surely superior to get it right the first time.  But if you do make an error, better by far to see it all at once.  Even hedonically, it is better to take one large loss than many small ones.  The alternative is stretching out the battle with yourself over years.  The alternative is Enron.

-Eliezer Yudkowsky, The Importance of Saying ‘Oops’

⬆︎⬆︎⬆︎⬆︎⬆︎⬆︎⬆︎⬆︎⬆︎⬆︎⬆︎⬆︎⬆︎⬆︎⬆︎⬆︎⬆︎⬆︎⬆︎⬆︎⬆︎⬆︎

→ If you’re a US citizen, please vote. ←


Investing & Business

Jeff Lawson on Buy vs Build, The Three Software Eras

Ben Thompson did a good interview with Twilio CEO Jeff Lawson about the acquisition of Segment (I wrote a little about it in edition #38). Both the transcript and audio are behind Ben’s paywall, so I’ll just post a small excerpt of a point that Jeff made that I thought was well-explained, and encourage you to go read the whole thing if you’re a subscriber:

Jeff: It’s interesting, when you pattern match, there’s really been three great eras of software. I mentioned the first one, the era of big software, these multimillion dollar multi-year projects. And then, around the turn of the millennium, came the next great era of software with SaaS. Suddenly you didn’t need IT to rack up servers and to spend multi-years. [...]

it used to be that the big decision in companies was “Build versus buy”, the classic IT decision. It was either like, “Well, we’re going to go just buy some solution that gets forklifted in by vendor,” or “We’re going to go build, we’re going to go build something from scratch. It’s going to be very hard.” So you had vendors regularly coming in and telling you smart sounding things like, “Well, you don’t want to reinvent the wheel, we’ve already built the thing” or “Is that value added? Is that your core competency?” and those things all sounded pretty good so most companies would just buy most of the software they needed to run the business. But as it turns out, as the world has turned digital, the interface that we have with most of the companies that we do business with is now a digital one. So our view of our bank is now a screen and same for almost all the companies that we do business with. [...]

In that world, you can’t just buy the same software that every company in your industry, all your competitors have, and expect to be differentiated. You need to build. [...]

Then the incumbents start building. Pretty soon, it’s not a matter of “Build versus buy”, it’s “Build versus die

Read the rest here (sub required).

Constellation’s Topicus Share Timeline

I wrote about the Topicus spin-out (which is basically TSS + Topicus) in edition #29. At the time, we didn’t have a timeline, but the company release some details yesterday:

If the Condition Precedent is satisfied, the record date for Constellation shareholders entitled to receive the Conditional Dividend is October 28, 2020 (the “Record Date”), and the payment date will be determined and announced once the Condition Precedent is satisfied.

Constellation Software’s Volaris Creates Modaxo (Future Spin-Out?)

Volaris’ transportation businesses (which formed around the original Trapeze acquisition, where CSI COO and Volaris CEO Mark Miller was the founder, iirc) are changing their identity to Modaxo.

I have a hard time understanding why they would do this if they aren’t thinking of a spin down the road, since all these businesses were already inside the same operating group (Volaris) and could already share information, and CSI generally prefers to split things apart and make them smaller, not aggregate them together and make them bigger.

¯\_(ツ)_/¯

One benefit of creating this umbrella unit would be to improve what Mark Leonard has described as “a sense of identity” for employees that is bigger than at the business unit level, but isn’t as unfocused as at the group or holding company level. So maybe this has nothing to do with a spin (or at least, not an imminent one).

Here’s the release:

Today marks the official launch of Modaxo, a new, dedicated global organization bringing together businesses from across Volaris Group that collectively focus on advancing new technologies and innovations for People Transportation. Bill Delaney has been named Modaxo’s CEO.

Delaney was already CEO of the “Global Transit Portfolio” inside Volaris, and before that he was a portfolio manager there. He’s based in Australia and was in charge of M&A in the Asia Pacific region at Volaris and a managing director at Trapeze (the transportation group).

With more than two dozen companies, representing 12 brands, Modaxo comprises 2,000 people, operating from 35 offices in 21 countries around the world. Today’s launch of Modaxo, brings these businesses together under a global banner, with a singular focus and passion to provide the software and technologies that move the world’s people.

The businesses that make up Modaxo retain their existing brands and continue to service customers in their local markets, but become part of a larger organization with Modaxo, sharing industry knowledge and market understandings to help drive new product innovation and services.

Businesses under the Modaxo banner include Binary System, Cittati, Empresa1, Holmedal, Imperial, PLANit, Signature Rail, Systemtechnik, TransTrack Systems, Trapeze Group, and TripSpark.

Here’s the new company website.

Mark Leonard had said at the 2020 AGM that they were interested in “trying a spin-out or two.”, so maybe this is number two.

h/t @Pearnick

New Business Formation in the U.S.

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Rev your engines…

Source. Via @scheplick, h/t John Huber

Intel to Sell its NAND Business to Hynix for $9 Billion

Intel has agreed to a $9 billion deal to sell most of its memory business to South Korea’s SK Hynix as it moves toward more diverse technologies while shedding a major Chinese factory at a time of deepening trade friction between Washington and Beijing.

Intel said it will keep its “Optane” business of more advanced memory products, which analysts say are mostly produced in the United States. [...]

SK Hynix will acquire Intel’s NAND memory chip and storage business, including a related manufacturing site in the northeastern Chinese city of Dalian. SK Hynix said the companies expect to get required governmental approvals for the deal by late 2021. (Source)

NAND is what is commonly known as flash memory. It’s what is used in SSDs (the solid state replacement to the old spinner-platter HDDs) and mobile devices for storage.

It’s a commoditized business where good economics come from scale and consolidation of the industry, which probably isn’t a game that Intel should be trying to play. The main benefit of the divestiture will be one fewer distraction for management, who should be focusing on the core business line.

Space Industry Rebounding

I didn’t even know that Space Investment Quarterly existed, but according to it:

After a slow Q2 for Infrastructure investment, companies at this layer of the stack bounced back in Q3 to pre-covid levels. In fact, with just three quarters booked, 2020 is already the largest year on record for Infrastructure with $5.5B invested YTD. Despite the pandemic, momentum in the Space economy continues. (Source)

This should be good for Heico’s ETG segment, among other suppliers to the space (the space of space, eesh…).

Elastic Q1, Financial, Technical, and Competitive Overview

Petter Offringa has a nice, detailed write-up on Elastic’s Q1 results that also covers a lot about the company’s recent hires, feature releases, competitive position, etc. If you’re interested in the company, it’s a good overview of where things stand these days. But it’s 11.5k words long, so don’t expect to read it over a handful of cashews.

One thing that Peter is great at because of his technical background is highlighting the velocity at which Elastic is moving and releasing features and products. Financial people can sometimes overlook this by looking at just the numbers, but it’s an important aspect of what makes Elastic able to handle competition from AWS better than might be expected just by looking at the resources of each:

While I agree that any large legacy software provider can spend enormous sums to launch a competitive offering, if they can’t execute a rapid fire product development, test and release cycle, they will fall behind smaller, more nimble players. Entrenched legacy providers usually maintain a methodical, measured product cycle as a consequence of their size and customer requirements. [...]

Elastic delivered three separate major releases during the four month period from May through August, ranging from version 7.7 to 7.9. While these are labelled as point releases, Elastic packs multiple feature additions across all solution categories into each release. In some cases, these include whole new product offerings. Because of Elastic’s pricing model, consumption of new products and features will generally result in increases in usage, which drives up revenue.

On this, Ragunath J. reminded me of the saying: “In a race between fox and rabbit, the fox runs for his dinner where as rabbit runs for his life.” (known as the Life-Dinner principle, coined by Richard Dawkins and John Krebs in 1979 — “a characterization of the race between predators and prey that is meant to emphasize the supposed selective asymmetry between the players.”)

In this case, I’d modify the metaphor a bit and say that often, it’s more like a bear chasing a rabbit. The energy expenditure/inertia, and the relative size of the reward if the prey is caught, is even more skewed.

But we shouldn’t go too far with the animal tales either, because it may make it sound like it’s inevitable that the smaller, more focused players will win. Nothing of the sort is certain, and reality is often “both”, where more than one player can be successful at the same time, with neither delivering a crushing defeat to the other for a long time.

And while AWS is huge, individual units within it can be nimble if they have the right local management/internal culture/talent/etc. So it doesn’t just matter that you’re competing against AWS, but against which part of AWS…

Back to Elastic Q1: I’m also excited about them moving to a consolidated agent (V7.9). It’s clearly the way to go from a technical point of view, and gives a better user experience to the customer.

Read the rest of Offringa’s post here.

Microsoft Board Boosts Nadella’s Teams-Based Incentives

As Dee Grady points out:

Image

They’ve rejigged many of the %, but the Teams MAU increase is probably most notable.

Speaking of Microsoft, they’re teaming up with SpaceX:

Microsoft would help connect and deploy new services using swarms of low-orbit spacecraft being proposed by SpaceX, and more traditional fleets of satellites circling the earth at higher altitudes. Microsoft’s initiative targeting commercial and government space businesses, formally launched Tuesday, comes about three months after Amazon Web Services, the e-retailer’s cloud unit, disclosed its space-focused effort. [...]

Microsoft’s goal is to create integrated, secure networks, linking various cloud, space and ground capabilities. The system, for instance, would accumulate and analyze huge volumes of data, supporting missions such as space-debris surveillance and missile warnings and helping to control the orbits of commercial satellites. (Source)

All this could be linked up with the new Azure Modular Datacenters, which “could open up the amount of locations for deploying modular data centers, which are self-sufficient computing facilities packed inside shipping container-like enclosures that can be plopped anywhere a big cloud customer may need computing infrastructure.”

h/t North Bluff Capital (also this one)

In the ‘Simple But Not Easy’ Category

Reminds me of possibly my favorite scene in Boardwalk Empire (yes, it’s that speech by Arnold Rothstein).

How the Universe/Mr. Market Punishes You (And Aliens!?)

This is something I wrote in a email conversation with a reader of this newsletter (hi Jeremy). The context was what I wrote about Liberty Global in edition #39:

Every time I talk about [a stock] that isn’t working, I kind of expect it to start working [again], as if the universe [is] paying attention and [is] just waiting to prove me wrong.

Of course, it’s not how things work directly, but indirectly, since human brains are all pretty similar, when you’re feeling like giving up on something, most [investors] probably are too, so that may be the bottom, and when you think something will stay great forever, others probably are [thinking that] too, which may be the top. So in this indirect way, the universe does like to prove us wrong... [Just through biology rather than magic.]

It’s not an original thought, but most of the useful ones aren’t, and there’s a lot of value to refreshing memory and relearning the basics periodically.

The concept extends to so many things in human civilization. It’s because our brains are mostly pretty similar that almost all drama follows a relatively small number of tried and true structures and tropes. Over millennia, through trial and error, we’ve discovered what works on most people, and so novels, plays, films, etc are shaped by our brain architecture.

Same for optical illusions (they work on most people because our visual cortexes are very similar), or the tricks pulled by con artists, or common locations and situations for traffic accidents, etc.

If humanity had more cognitive diversity, the artifacts of our civilization would be a lot more varied (I’m not saying they aren’t, but compared to the space of all possible minds, our brains all cluster in a pretty tight area, and so does the stuff we produce).

Ok, this is getting out there (*bong rip*), but if we ever contact aliens species, either they’ll be smart enough (super AI?) to understand us pretty easily, because we’re not all that different and varied, or they won’t be smart enough for that, in which case we may never understand each other much, because we could be in very different spots on the mind-shape possibility map, in which case our subjective experiences may just be too dissimilar, and we wouldn’t be able to have any useful mental model of “the other”.

Wow, how did this get here from Liberty Global? ¯\_(ツ)_/¯


Science & Technology

China’s Massive Push into Semiconductors

Beijing is expected to sharply increase financial support for the chip industry as part of its 14th Five-Year Plan, to be announced at the end of October, in response to US efforts to block China’s development as a technology power.

Some state media have dubbed this push the “Great Semiconductor Leap Forward”, referring to the 1957 order by Mao Zedong to surpass western industrial nations by producing steel in backyard furnaces — an effort that eventually led to history’s largest famine.

President Xi Jinping has pledged to invest $1.4tn in the six years to 2025 to build high-tech industries from mobile networks to artificial intelligence. [...]

China imports more than $300bn of semiconductors a year, above any other product including oil. A significant amount of those chips are for China’s export industry. [...]

While China has spent billions trying to create its own semiconductor industry over the past 40 years, the scale of the latest push — and the rhetoric surrounding it — are unprecedented. (Source)

Backblaze Reliability Stats on 150k Hard-Drives

Backblaze is the cloud backup service that I personally use (I wrote about it in the intro of edition #22), and they periodically release stats on the crapload (that’s the technical term) of hard-drives that they use.

The Q3 2020 annualized failure rate (AFR) of 0.89% is slightly higher than last quarter at 0.81%, but significantly lower than the 2.07% from a year ago.

It’s a large enough sample to be able to get an idea of which brands and models are most reliable, and it’s just cool data if you’re a geek. When you scan the numbers, make sure to take into account of how long specific models have been in use, don’t just look at the last column.

Here’s their Q3 report.

What’s Rational?

This line by Rory Sutherland (posted by Jim O’Shaughnessy) reminded me of a pet peeve of mine:

"Being slightly bonkers can be a good negotiating strategy: being rational means you are predictable, and being predictable makes you weak. If you are wholly predictable, people learn to hack you."

I agree with the tactic, but I would word it differently. If being a bit unpredictable is more effective, then it's rational to be a bit more unpredictable, and it's irrational to be predictable. Rationality is about achieving your goals, not about sounding like Mr. Spock, IMO.

A lot of the time in every day speech, “rational” is being used to mean more a “type of personality” or some caricature based on Mr. Spock or Sheldon or whatever, rather than what I think is the actual meaning of rationality (Richard Feynman was quite rational. but he wasn’t some dry, humorless automaton who doesn’t understand messy human feelings and complex social situations).

I’ve always enjoyed Eliezer Yudkowsky’s description in his Twelve Virtues of Rationality, and I think virtue 0 kind of says what I’m trying to say here:

Before these eleven virtues is a virtue which is nameless.

Miyamoto Musashi wrote, in The Book of Five Rings:

The primary thing when you take a sword in your hands is your intention to cut the enemy, whatever the means. Whenever you parry, hit, spring, strike or touch the enemy’s cutting sword, you must cut the enemy in the same movement. It is essential to attain this. If you think only of hitting, springing, striking or touching the enemy, you will not be able actually to cut him. More than anything, you must be thinking of carrying your movement through to cutting him.”

Every step of your reasoning must cut through to the correct answer in the same movement. More than anything, you must think of carrying your map through to reflecting the territory.

If you fail to achieve a correct answer, it is futile to protest that you acted with propriety.

If you know a way to achieve your goal, it can be rational to do that, even if it doesn’t look like something Mr. Spock would do. There can be other reasons that stop you (it’s unethical, too difficult, etc), but saying that you have to act more irrational on-purpose to achieve a goal is basically just saying that it’s rational to do so, even if it looks irrational to others.


The Arts & History

Today I’m enjoying digital art by Joey Camacho:

(a section of this one is my new phone’s lock screen background)

These are part of a series called Progress Before Perfection from 2015.

This one called Step and Repeat and this one called Plasticity (click to see) are also nice. I’d post the pics here, but I’m afraid that emails with too many images more often get caught by filters (which you can prevent by white-listing this mailing list’s email, btw)…

If you want to support the artist, you can buy prints or license art here.

Artists as Psychologists

Some of the world’s finest psychologists are artists. They’re discovering things about our minds, and explaining their discoveries to us in their own unique ways through various mediums. There’s a lot to learn, if we’re open to learning what they have to teach in their plays, novels, films, albums, paintings, sculptures, etc.

There aren’t that many keener observers of the human mind than William Shakespeare, for example.