6: How Costco Convinces Brands to Compete with Themselves, Zuck's 'Destroy Mode', and Bunnies

"Life isn't about finding yourself. Life is about creating yourself."

Life isn't about finding yourself.

Life is about creating yourself.

—George Bernard Shaw

“Finding yourself” can cement you into a strict role with unnecessary expectations, and close you off to potential and opportunities.

Don’t find yourself. Never know who you are.

—Mark Manson

Nothing to add.


Investing & Business

-Kirkland: ‘How Costco Convinces Brands to Cannibalize Themselves’

Interesting piece by Adam Keesling explaining how Costco gets brands to compete against themselves by manufacturing Kirkland products that are sold right next to their branded products and are often of equal or better quality:

Kirkland’s success defies our intuition and experience. Shouldn’t lower prices lead to lower quality products? How can they offer rock-bottom prices but still have some of the best products around?

The answer is this: they get the best manufacturers in the world — who already have products on Costco shelves — to make Kirkland products. [...] And not only that, but according to a Reddit user who worked at a Costco supplier, Kirkland products have to be at least 1% better than the equivalent branded products (on some metric of their choosing). Costco forces manufacturers to compete with a better version of themselves.

Why is it still profitable for various brands to manufacture for Kirkland?

with the Kirkland products, brands don’t have to spend nearly as much money on marketing. They don’t need to pay for Facebook ads or run television campaigns. The only remaining marketing expense might be the account reps associated with the Kirkland account. [...]

if a brand can weave their way into becoming one of the 3,700 SKUs in a Costco warehouse (compared to one of >100,000 in a Walmart) it gives them access to one of the highest volume sales channels in the world. The upside is so large that brands don’t mind having an unbranded version of their product sitting next to their branded product.

You can read the whole thing here.

-Price of Books in the Netherlands

The chart above shows what happened to the price of books in the Netherlands after the printing press was introduced in 1473. (Source: OurWorldInData, Via Azeem Azhar)

-Independent Software Providers vs Hyper-scale Cloud Vendors

Good post by Peter Offringa giving an overview of the competitive landscape in the cloud, when it comes to the hyperscalers vs the more focused SaaS players. His view is that:

Investors occasionally raise competitive concerns for independent software providers that cloud vendors will choose at some point to crush them. I posit that threat has passed in many categories.

Some of the benefits enjoyed by the small fish:

multi-cloud by default favors the independent providers. The CEOs of several independent software companies refer to this as neutrality. They claim that enterprise IT organizations are increasingly showing preference for a neutral provider when possible, due to concerns around cloud vendor lock-in. Beyond neutrality, I believe there are several other factors that benefit the independent software providers and will continue to drive their growth going forward. [...]

They advantages over the whales fall into these broad categories:

Focus

By focusing on a particular niche, the independent software provider is able to go very deep into their technology solution. Rather than standing up a service that largely duplicates what is available on the market currently, they dedicate resources to innovation and addressing harder problems.  [...] Customer feedback will be targeted and largely unfiltered, as it isn’t obfuscated by an account manager covering many categories. [...]

Network Effects

As a service reaches critical mass, it begins to benefit from network effects. By examining the behavior of users within their services, providers can glean insights that make the product better. This can take the form of fewer bugs, more granular logic or more connections with outside systems. Observing customer behavior can also influence future product enhancements or spawn brand new products. [...]

Talent

Talented employees will generally gravitate towards the independent software providers. This is primarily because greater financial opportunity and career growth exists. Most of the upside has been realized at Amazon, Microsoft or Google at this point.  [...]

Product Development Velocity

As a consequence of focus, network effects and talent, the product development velocity is generally higher at the independent software providers. [...] the impact of a successful release on the independent software company’s success is more evident. [...]

This is just a few short excerpt from a much longer piece, which includes an overview of the history of the hyperscalers. It’s a good read, I recommend it.

-Tech Big 4 Q2

-Focusing on Outcomes vs Products

Here’s George Kurtz, Crowdstrike’s CEO, talking about an important distinction:

And one of the most important things that we focused on early on is getting the right outcome for customers. […] people were buying lots of AV, and they were buying lots of firewalls. But I didn't believe they were getting the outcome that they wanted, which was not to be breached. And if you think about every breach you've ever read about or heard about, they have 2 things in common. They had AV and they have firewalls, and they weren't stopping the breach. So we focused on stopping the breach.

Too many companies focus narrowly on moving their products out the door, and often, they get beat by a competitor that gets really good at selling holes, not just drills.

-Taking a Moment to Remember…

Remember when oil futures fell more than 100% in a day and went negative?

That’s the interesting thing about finance/investing/business… You never can predict everything. There’s always surprises. Even when things seem calm, the next day can always bring something unexpected.

Remember in 2017 when volatility was extraordinarily low (the VIX spent the year mostly between 8-11), and the most common complain was about the lack of volatility? I don’t think those people have been complaining in the past couple of years…

The GDP was down about 33% in Q2 in the US. Not something anyone would’ve predicted even 1 year ago…

-Here’s what Company Debt Revolvers were Doing in March 2020:

S&P Global even said in their Q2 presentation that “Growth in total global corporate debt outstanding in 1H20 approximates 4-year annual average” (Average annual increase of $884 billion vs an increased of $781 billion in 1H20).

-Zuckerberg Emails from 2012 on his Decision to Buy Instagram

Some emails released for the House antitrust subcommittee’s hearing are an interesting read if you want to better understand what Mark Zuckerberg was thinking at the time (or at least, what he wrote down about it). The Verge has the emails here.

The line right after the underlined passage is interesting (“These entrepreneurs don’t want to sell (largely inspired [by] our success), but at a high enough price — like $500m or $1bn - they’d have to consider it.” He then goes on to talk about the “aggressive” valuation of their company at the time (which was right before their IPO) and how vulnerable they were in mobile… More here.

A different article shows texts by Instagram co-founder Kevin Systrom discussing whether Zuck would go in “destroy mode” if they didn’t sell:

Screen Shot 2020 07 29 at 10.59.14 AM

two things they seemed to agree on: Zuckerberg was most worried about Instagram getting bought up by Twitter, and they were worried about Zuckerberg trying to crush Instagram if they refused to sell.


Science & Technology

-Ilya Sutskever interview: Deep Learning

Good interview with Ilya Sutskever, the Chief scientist of OpenAI and a very important contributor to the field of deep learning and AI/ML. The interview was published on May 8, 2020.

Here’s the audio-only version.

Here’s the outline of what is discussed:

02:23 – AlexNet paper and the ImageNet moment
08:33 – Cost functions
13:39 – Recurrent neural networks
16:19 – Key ideas that led to success of deep learning
19:57 – What’s harder to solve: language or vision?
29:35 – We’re massively underestimating deep learning
36:04 – Deep double descent
41:20 – Backpropagation
42:42 – Can neural networks be made to reason?
50:35 – Long-term memory
56:37 – Language models
1:00:35 – GPT-2
1:07:14 – Active learning
1:08:52 – Staged release of AI systems
1:13:41 – How to build AGI?
1:25:00 – Question to AGI
1:32:07 – Meaning of life

I know I’ve been posting lots of AI interviews recently, but it’s been on my mind and I’ve been going through a bunch. It’s easier to learn when you don’t spread things out too much, so you don’t have time to forget details… I’ll post interviews on other topics too.

Also, I didn’t understand everything in this interview, and if you find yourself struggling and understanding, say, 25% of things, I suggest you keep going. 25% is better than 0%, and sometimes the best way to learn is to dive in the deep end… The next time you dip a toe in the topic, maybe you’ll recognize concepts and words (that you looked up in the meantime, right) and now understand 35%. Rinse and repeat.

It’s how I learned about finance and investing. Never studied or or worked in the field, just dove in, and at first understood very little… Over time got to understand a little more.

-Nice Backyard Science with Blowtorches and Masks

-Teaching GPT-3 to Detect Nonsense

GPT-3 can pretty easily be made to say very nonsensical things, like :

Q: How many eyes does the sun have?
A: The sun has one eye.

Q: How many eyes does a blade of grass have?
A: A blade of grass has one eye.

But it turns out that the model can detect nonsense, it just has to be told to do so, and may not do it automatically, because it’s trying to complete the text based on context.

Here’s Nick Cammarata of OpenAI showing one way to do it:

it’s all about the prelude before the conversation. You need to tell it what the AI is and is not capable. It’s not trying to be right, it’s trying to complete what it thinks the AI would do :)”

Here’s the attached screenshot that shows his impressive results:

-The Four Quadrants of Conformism

I really enjoyed this essay by Paul Graham giving a kind of taxonomy of conformism. It’s a useful lens through which to view society:

The resulting four quadrants define four types of people. Starting in the upper left and going counter-clockwise: aggressively conventional-minded, passively conventional-minded, passively independent-minded, and aggressively independent-minded. [...]

The four types are not equally common. There are more passive people than aggressive ones, and far more conventional-minded people than independent-minded ones. So the passively conventional-minded are the largest group, and the aggressively independent-minded the smallest. [...]

Why it’s important to protect an environment in which the conventional-minded don’t take over and stamp-out the unconventional and enforce groupthink:

I'm biased, I admit, but it seems to me that aggressively conventional-minded people are responsible for a disproportionate amount of the trouble in the world, and that a lot of the customs we've evolved since the Enlightenment have been designed to protect the rest of us from them. [...]

Why do the independent-minded need to be protected, though? Because they have all the new ideas. To be a successful scientist, for example, it's not enough just to be right. You have to be right when everyone else is wrong. Conventional-minded people can't do that. For similar reasons, all successful startup CEOs are not merely independent-minded, but aggressively so. So it's no coincidence that societies prosper only to the extent that they have customs for keeping the conventional-minded at bay

-Everything New is Old, and Vice Versa

“The Autoped was an early motor scooter or motorized scooter manufactured by the Autoped Company of Long Island City, New York from 1915 to 1922.” (Via Massimo)


The Arts

-Derek Sivers Interview

“Time is like distance. We can’t see far very well.”

I enjoyed this interview of Derek Sivers by Shane Parrish. I’ve been reading things by Derek, and heard a few interviews of him over the years, and I’ve always been attracted by his outlook on life and his original-thinker’s approach to problem solving.

If you don’t know him at all, his website has a good ‘‘about page”, and he’s been sharing his notes on the books he’s read for years. It’s a great resource to get a distilled overview of a book you may not want to read but are still interested in, or to refresh your memory on a book you read long ago.

In most countries it’s considered polite to communicate. In Finland it’s polite to leave people alone.

One example that I enjoyed are his notes on ‘Finland Culture Shock’ by Deborah Swallow. I find Finland very interesting (the scientific research on sauna use is quite fascinating — I plan on getting a small non-IR sauna from Costco for my basement at some point), and while I don’t have time to read the whole book right now, the notes give a good idea of the flavor.

-The Little Things that Make You Smile are Worth a Lot