If you already use Slack for work, most of this won’t be new to you. For those of you who have never used Slack and are not aware of its network effect, the simplest way to describe it is: “iMessage on steroids for businesses.” Android phone-toting readers in the US will inherently hate this analogy but grasp perfectly well what I am saying.

Functionally, Slack is more than simply a company chat app, just like iMessage is more than a mere texting app. Slack is designed to provide a one-stop solution for all enterprise collaboration needs. This includes integrating with all the software you use at work, be it Salesforce, Zoom, GSuite, Office 365, or something else. In fact, it integrates with most of the 1,800+ apps a company could possibly use. You can think of Slack as the control tower of a workplace, so to speak. It has shared channels that give workers the power to collaborate across organizations and the necessary enterprise management tools to scale.

Interestingly, Bill Gates and Satya Nadella passed up on the opportunity to buy Slack in 2016. In response to this new competition, Microsoft pushed out Teams in 2017. We should note this was not the first time Microsoft had tried to tackle collaboration. Its efforts have spanned more than a decade, starting with Communicator in 2007. It was followed by Lync in 2010 and Skype for Business in 2015 before Teams emerged, borrowing heavily from Slack. While Teams has its benefits, such as working perfectly with Office 365, a wise Redditor once hit the nail on the head by observing, "Slack works. Teams creates work." One problem is that companies no longer stick with Microsoft products - on average, they use over 163 apps, most of them not integrating with Teams.

We tried Teams and hated it. The best way to describe the difference is by saying that Slack has the finesse of a consumer product whereas Teams is clearly a B2B product and an inferior one. But does it matter when Teams is free with Office 365? Are the benefits so much greater that companies would be ready to spend more to use Slack? We'd argue they would as long as they are willing to invest in their employees.

The power of the network effect and the moat a communications tool can organically create can be hard to imagine. A good example most people can relate to is the dominance of iMessage in the US. Any Gen-Z or Millennial knows of ousted friends or has done the ousting themselves because of the dreaded green bubble, which shows up when an iPhone user is texting with an Android user. The green bubble limits chatting functionality to traditional text. Benign as this may seem, families have been torn apart, buddies unfriended and hearts broken because of the green thing. We only half-jest because its effects are very real. There is even research which indicates that not having iMessage in the US is detrimental to your dating life. And good luck getting a US iPhone user to download another chat app – it’s like pulling teeth!

Let’s consider a similar scenario in a corporate setting. This time, however, the communication tool is Slack, and employees can start using it for free on all platforms, so there is no excuse for not having it. But suddenly, somebody wants them to download Teams. That same judgment iPhone users pass when a green bubble appears is magnified because this time, people are pressed to download and use an inferior product. Slack is available for free - if a company doesn’t pay for the premium version, its workers can keep using the free one. This is called a freemium model. This in addition to Slack’s first mover’s advantage and polished product has made Slack the default communication tool for work. Further evidence of Slack’s dominance shows in Microsoft’s willingness to take drastic steps to defend its own turf by banning the use of Slack for its own employees. There are many companies that compete with Microsoft, but few are completely banned within its own walls and it’s not hard to imagine why.

Microsoft claims Teams has more users than Slack to represent market leadership, but this is a weak argument. Android beats iOS on numbers as well, but we all know this doesn’t tell the whole story. Not all users are created equal. Besides, can we all be honest here? Nobody has ever said, “Let me Teams you.” If employees had a choice, they would be using Slack, but, alas, they rarely do. Microsoft Teams comes free with Office 365, meaning it doesn't require lengthy budget approvals. Companies looking to get by with software that is “good enough” will use Teams because…well, it's free. Companies looking to invest in their employees will undoubtedly choose Slack.

Stewart Butterfield publicly addressed Microsoft Teams on stage at Wall Street Journal’s Tech Live conference in Laguna Beach and exposed some alarming information about some of Microsoft’s “unsportsmanlike” tactics used against Slack.

• Microsoft published this chart during Slack’s quiet period prior to its direct listing, in which Slack could not publicly respond due to SEC rules. This was done intentionally to hurt Slack’s direct listing and public reputation knowing fully that Slack could not defend itself. Smart? Perhaps, but also a bit low.

• Microsoft has been rumored to pay companies to use Microsoft Teams. It is already aggressive for Microsoft to bundle Teams with Office 365 for free, but to provide monetary incentives to use Teams is starting to touch on anti-competitiveness and Microsoft has a lot of experience with that. Remember Microsoft was found guilty of abusing its monopolistic powers to have Internet Explorer installed on every single PC in the 1990’s.

We know that Bill Gates vetoed on an opportunity to buy Slack in 2016, and decided to transform Skype in to a Slack competitor. We also know from well documented sources that Gates was merciless when it came to business. Paul Allen, a Microsoft co-founder, even called Gates a “ruthless schemer” in his memoir recalling a time when he overheard Gates discussing diluting his shares in the company he co-founded while he was recovering from lymphoma. And while Gates is no longer actively managing Microsoft, he is still more involved at Microsoft than headlines would have you believe.

Past behaviors point to Gates heavily influencing Microsoft's decision to attack Slack with borderline anti-competitive and monopolistic tactics. And while all of Washington, DC is focused on breaking up Facebook, Amazon and Google, Microsoft seems to have a free pass to push its weight around without any legal repercussions. If past behavior is any indication, Microsoft will take its fight with Slack to the legal limit - and perhaps then some.

“Whatever work you do, you can do it in Slack” is the first thing to greet you when you go to Slack’s website. It's a bold, exciting, intriguing, and perhaps ambiguous claim. According to its S-1 filing, the company is on a mission “to make people’s working lives simpler, more pleasant, and more productive.” Let’s discuss this without the distraction of financial numbers and operating metrics. So, what is Slack, and how is it disrupting the way people work?

Communication Tool

Slack is first and foremost a communication tool. We have witnessed how quickly consumers tend to adopt the latest communication tools. It was IRC in 1988, followed by email in 1995, and AIM in 1997. In the early 2000s, text messaging took over as cell phones became mainstream. No conversation about communication would be right without giving credit to the iPhone, which burst onto the scene in 2007 and changed the consumer electronics industry forever. Within a couple of years of the iPhone launch, chat apps became mainstream. Fast forward to 2019, and consumers around the world have a wealth of chat apps to choose from, WhatsApp, iMessage, WeChat, and Facebook Messenger being only a few examples.

However, if you take a walk through any office in corporate America, instead of employees collaborating seamlessly on their computers or digital dashboards, you’ll see exactly what you would have seen a decade ago—employees reading, drafting, and sending endless emails. Corporations still use email as their primary channel of communication! It is incredible that the remarkable progress at the consumer level has failed to trickle into the business world.

Many companies have tried to solve this problem and failed. Google, for example, had many attempts with Google Chat, Wave, and Hangouts. Microsoft and Facebook both had their shots as well. But Slack would be the company to solve the problem. In 2013, Stewart Butterfield and his team launched Slack, and users loved it.

"[Email] created fragmented silos of inaccessible information, hidden in individual inboxes. When new members joined the team, they were cut off from the rich history of communication that occurred before they arrived. Transparency was difficult to achieve, and routine communication had to be supplemented with status reports and stand-up meetings in order to keep the team coordinated,” as noted in Slack’s S-1

Slack was invented in response to the fragmentation of the information contained in conversations, decisions, and data in the workplace. The solution came in the form of “channels.” Channels are similar to group chats where conversations, documents, and application workflows remain available to all channel members, as opposed to concealed in one’s inbox. As employees leave or join a channel—as they would for a project—they have access to the entire history accumulated in that channel. With Slack, organizations finally have a better option than email.

However, Slack is more than just an email replacement. It was designed to integrate with third-party applications, providing notifications and actionable workflows. For example, if you need approval for an expense report on Concur (an expense management application), you can simply send the request through Slack, and your manager can approve it with a single click of a button. The alternative would be to send an email, log in to Concur, find the expense tab, and then locate the specific expense report. Does this functionality sound familiar? If so, it is because we use it regularly on our phones every day.

 

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Slack is an open platform that makes it extremely easy for developers to integrate with. Slack can currently integrate with over 1,800 applications. In addition, Slack has recently launched a visual editor for non-developers to build workflows on the platform, bringing the power of Slack’s system to everybody.

“For whatever tools our customers already use...we want to make their experience of those tools better because they use Slack,” says co-founder and CEO Stewart Butterfield.

Slack’s open platform is not all that different from the apps on your phone – they make it work better, which is what Slack does with business software. Once you understand this, it is easy to see how helpful Slack could be in the workplace.

Collaboration Hub

Finally, the glue that brings everything together is collaboration. Everything on Slack was designed with collaboration in mind. For example, the open platform that allows different workflows to be integrated with Slack can be accessed across several departments and by different employees. This means the customer support team that works with Zendesk can share tickets with the engineering team that works with Github. Or the sales team that works with Salesforce can share information about the customer with the other departments. Everybody, from customer support and engineering to sales, is in the loop—all in one channel, all in Slack. Besides, with the launch of shared channels, two different organizations can now collaborate in a single channel—each with its own software stack.

“Slack is a more human way of communicating,” as noted in a Slack usability study

The importance of collaboration to Slack cannot be overstated. Every design choice Slack implements is meant to make collaboration easier. On average, companies use over 163 software applications, and juggling them can be frustrating and challenging. Slack was specifically designed to ease this pain.

Marc Andreessen once famously said, “software is eating the world,” more recently amending it to “software has eaten the world.” Software is great because it provides considerable increases in productivity, but it has its downsides. People and data become siloed into specialized roles. But here comes Slack—a new layer of the technology stack that brings people, applications, and data together, ready to change the way people work.

Tesla has updated the Model 3 online configurator with some changes for the base version of the vehicle, the Model 3 Standard Range Plus, which is now listed with 10 more miles of range and is $500 more expensive.

Earlier this year, Tesla launched its base Model 3 for $35,000 – something that the company had been promising for years.

But things got increasingly complicated after the launch as Tesla removed the configuration from its website and made it more difficult to order the vehicle just a month later.

Instead, Tesla created a Model 3 ‘Standard Range Plus’ (SR+), which became the new base version on the online configurator at $38,990, and Tesla sold a software-locked version of the car at $35,000 for those ordering “off-the-menu”.

The Model 3 Standard Range Plus was listed with a range of 240 miles.

Today, Tesla updated its online configurator and the vehicle now has a 250-mile advertised range:

Elon Musk revealed in an interview released today that the Tesla will aim for a base price of $49,000 for its coming pickup truck. The company also aspires for it to have better “truck-like capability” than a Ford F-150, whilst being a better sports car than a regular Porsche 911.

 

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Keeping on the topic of the appearance, referencing the sole teaser image that has been released about the truck, Ryan McCaffrey also asked “which end of the truck was that?” Elon Musk responded:

The front. … It’s kind of like a Blade Runner truck. That’s the idea. It’s not going to be for everyone … for sure, when we unveil this thing, there’ll be some people who are like — ‘Oh, that doesn’t look like a truck, I don’t want to buy it.’ It’s like when they came out with automobiles, people were like — ‘Oh, I like a horse and carriage.’ … ‘Sure, okay, you can stick with your horse and carriage, but you’re going to get an automobile later (you just don’t know it).

Elon musk sure sounds super confident about this upcoming truck. We are really excited about it, and we hope you are too.

We live in a truly special time to be investing in. We live in a time where the rate of technological change is accelerating to a degree that the world may transform itself beyond recognition during our lifetime – perhaps even multiple times. The fact that smartphones have reached the current level of ubiquity in just 10 years is rather astounding in the context of the PC that took nearly 40 years to do the same – but perhaps not surprising when viewed in the context of the broader history of technological innovation which has always exhibited accelerating change.

Why this is happening

There is a fundamental reason for this, perhaps best known as the core thesis of renowned futurist Ray Kurzweil: the laws of accelerating returns. The crux of this is that like evolution, technological innovation benefits from a positive feedback loop: new technologies that are developed are then used to develop further technologies. This fundamentally makes technological change exponential, rather than linear. There appear to be enough examples throughout history to give credence to this – Moore’s Law being the most famous. In 2001, Kurzweil famously wrote that we won’t experience 100 years of progress in the 21st century – and that it’ll be more like 20,000 years of progress (at the then prevailing rate of progress). What sounded like hyperbole back then clearly sounds somewhat more credible today, looking back at everything that has happened since the turn of the century.

Is everyone ready for it!?

Paul Gilding’s book The Great Disruption was released around the world over 2011 to wide acclaim. It is now being translated into various languages. The Dutch edition has been released (see here) with the German version due for release in late 2012.

A bracing assessment of the planetary crisis that we can no longer avoid-and the once-in-an-epoch chance it offers to build a better world.

“One of those who has been warning me of [a coming crisis] for a long time is Paul Gilding, the Australian environmental business expert. He has a name for this moment-when both Mother Nature and Father Greed have hit the wall at once-‘The Great Disruption.’ ”

– Thomas Friedman in the New York Times

We live in a truly special time to be investing in. We live in a time where the rate of technological change is accelerating to a degree that the world may transform itself beyond recognition during our lifetime – perhaps even multiple times. The fact that smartphones have reached the current level of ubiquity in just 10 years is rather astounding in the context of the PC that took nearly 40 years to do the same – but perhaps not surprising when viewed in the context of the broader history of technological innovation which has always exhibited accelerating change.

Why this is happening

There is a fundamental reason for this, perhaps best known as the core thesis of renowned futurist Ray Kurzweil: the laws of accelerating returns. The crux of this is that like evolution, technological innovation benefits from a positive feedback loop: new technologies that are developed are then used to develop further technologies. This fundamentally makes technological change exponential, rather than linear. There appear to be enough examples throughout history to give credence to this – Moore’s Law being the most famous. In 2001, Kurzweil famously wrote that we won’t experience 100 years of progress in the 21st century – and that it’ll be more like 20,000 years of progress (at the then prevailing rate of progress). What sounded like hyperbole back then clearly sounds somewhat more credible today, looking back at everything that has happened since the turn of the century.

Warren Buffett vs. Elon Musk

Warren Buffet and Elon Musk had an interesting exchange on their business philosophies earlier this month – which started by Musk downplaying the importance of “moats” and claiming that “the pace of innovation… is the fundamental determinant of competitiveness.” At Berkshire Hathaway’s annual meeting a few days later, Buffett responded that while more moats appear to have become susceptible to invasion recently, “there are some pretty good moats around.”

As investors, we are students of Buffett and this makes us structurally partial to him. But in today’s day and age of accelerating change, we actually think that Buffett and Musk are both right. A business should never say no to a deep and wide moat. At the same time, the world is changing so fast that the premises on which such moats are based are often getting disrupted by technology and business model innovation at an unprecedented pace. The most potent combination is when a company has both – strong competitive advantages as well as a formidable culture of innovation. Amazon is perhaps the best example. The company’s “always day 1” mentality and relentless pursuit of innovation have led to a virtuous cycle that keeps strengthening not only Amazon’s products and services but also the incredible moats that it has already built. Walmart, on the other hand, has let its negligible pace of innovation render the company’s remarkable moats less relevant over time, ultimately getting overtaken against all odds by a former startup.

What is scary about today’s world is that companies with the largest moats are often in fact those that also have a culture of rapid innovation embedded in their DNA: technology companies. This wasn’t always the case. In fact, a decade ago, only one out of the top 10 companies by market cap was in tech, compared to seven today. This new phenomenon has meaningful implications for long/short equity. It means that the bifurcation of secular winners and secular decliners seen in recent years will likely continue – and perhaps even accelerate over the coming years. Organizational culture and structure are notoriously difficult to change, and it is nearly impossible for the disrupted companies to turn the tide when the winning firms have bigger moats and more rapid innovation. Mean reversion might happen in the equity markets over a month or a quarter, or perhaps even a year if randomness prevails. But structurally, without meaningful regulatory intervention, we believe that there is absolutely no turning back in the foreseeable future.

Furthermore, even outside of the technology sector, we are seeing more and more winning companies that are behaving like the winning technology firms – relentlessly pursuing scale and innovation in their products and services, rather than resting on their laurels. It’s almost as if there is accelerating change even in the art of building successful companies, as firms draw inspiration from some of the most successful companies in the world and iterate on it. And the lines between tech and non-tech are increasingly blurring: we often forget about the humble beginnings of world-class firms of today such as Amazon and Netflix, which originally operated an online bookstore and a DVD-by-mail business, respectively. We are now witnessing the rise of such firms in other traditional sectors, such as Tesla in the global auto/energy sector and Ping An in the Chinese insurance sector.

 

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This is huge.

• Shopify on Wednesday unveiled a series of new products aimed at its core small to medium business customers, including a fulfillment network.

• The new machine-learning tech "predicts the closest fulfillment centers and optimal inventory quantities per location to ensure fast, low-cost delivery," according to a company blog post. The tool swings into action once a customer completes checkout, Shopify said.

• The company also announced "Shopify Plus" for larger, fast-growing retailers, giving them a "single view" of all their stores for better integration of their operations. And Shopify is also previewing an upgrade to their point-of-sale systems.

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Shopify has been steadily improving its core offering to the small and medium size businesses that make up its target base and aren't likely to access the kinds of massive POS systems employed by larger retailers. But competition is fierce in that space, with the likes of Square, Clover, Toast, Stripe and others vying for business from small to medium stores and direct-to-consumer players. 

The fulfillment network announced this week is a rare differentiation among those rivals. "Shopify's addition of fulfillment capabilities is confirmation that we're addressing an important challenge in the market," Patrick Cadic, vice president of sales and marketing at UPS fulfillment platform Ware2Go, said. "As consumer expectations for both B2B and B2C are set by the biggest players in retail, small and mid-sized businesses are under more strain than ever. A data-driven logistics solution is a critical piece of the puzzle to level the playing field. Going forward, the leaders in this market will be those that give every business the independence to pave their own way."

Shopify's combined reach is poised to make it the third largest e-commerce site behind Amazon and eBay, according to Ryan Anderson, director of performance marketing & analytics at e-commerce agency FortyFour. "Shopify will connect merchants with third-party logistics providers who can fulfill packages in line with Amazon Prime, so this is potentially a challenge to Amazon," he told Retail Dive in an email. Plus "Shopify is plugged directly into your existing systems and is offering additional value adds like custom boxes that UPS and Amazon can't or won't currently deliver."

These options may also help retailers fortify their own customer relationships, something that Amazon does through its Prime perks like its streaming service and photo storage.

But Shopify hasn't listed pricing for its new fulfillment product, and it's not likely to be competitive with Fulfillment by Amazon in light of Amazon Prime now promising one-day or at least two-day shipping on many items, according to Ethan McAfee, CEO and founder of Amazon outsourcing partner​ Amify. Outside fulfillment costs are usually twice if not four times that of FBA, which is a de facto requirement for sellers that want to take advantage of the massive demand that Amazon Prime drives to them, he told Retail Dive in an interview.

The real value is smoothing the nightmare of inventory and fulfillment snafus that can occur because smaller sellers must work with third-party logistics providers that don't often have the level of control and transparency that Shopify is now offering, McAfee said.

WeWork, an office-sharing startup, is reportedly moving ahead with plans to go public despite a massive drop in valuation, and one of its biggest investors is balking at the prospect, according to Reuters. 

WeWork’s largest investor is SoftBank Group, which faces the prospect of having to write down the investment because of the lower valuation, or pump more cash into the venture to buy some time.

WeWork was valued as high as $47 billion during private fundraising rounds, but it dropped to between $15 billion and $18 billion when an initial public offering (IPO) was considered. SoftBank has invested more than $10 billion into WeWork.

The lower valuation is due to concerns over the viability of the WeWork model. Some analysts say that for the company to be successful, it has to rely on some longer term liabilities and some short-term revenue. There are also questions of how the company would perform if the economy takes a dive. 

The lower valuation will hurt SoftBank because right now it’s looking for capital from investors for a second Vision Fund. SoftBank returns have already been impacted by less than stellar returns for Uber and Slack, which both recently went public.

 

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SoftBank CEO Masayoshi Son and longtime lieutenant and group Vice Chairman Ron Fisher, who were recently in favor of the listing, recently said it would be better to hold off on the IPO, rather than power forward.

This is nuts! Masa said.

They apparently asked We Company Chief Executive Adam Neumann to hold off, but he has reportedly refused to do so.

WeWork went through $2.36 billion in capital the first half of 2019, and it needs to raise between $3 billion and $4 billion from an IPO. The company secured $6 billion in commitments from banks, but it’s contingent on raising at least $3 billion from going public.

If SoftBank would give We Company more cash, it would be easier to postpone the IPO, but Son has so far not wanted to do that, considering how much has already been invested. 

Homeowners looking to sell their homes in Phoenix and Atlanta can now get a cash offer on Redfin’s website. However, it’s not Redfin they’ll be selling to.

The Details

Here's what is interesting:

• As part of a new partnership, customers in those two cities can request an “instant offer” from real estate sales heavyweight Opendoor on Redfin’s website or mobile app to buy the house. Redfin has its own instant offers service, RedfinNow, but it is not available in those two markets, so buyers will be able to compare an instant offer from Opendoor with a more traditional listing with a Redfin agent.

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• The surprising partnership between the two real estate rivals adds a new twist to the increasingly competitive trend of real estate companies opting to buy and sell homes directly. In an interview with GeekWire, Redfin CEO Glenn Kelman said the company remains committed to expanding RedfinNow, but it is teaming up with Opendoor to give its customers more choices.

• “We did the deal with Opendoor because RedfinNow just can’t expand fast enough,” Kelman said. “We think would-be listing customers want to compare what they can sell their home for to an instant offer, and it’s important to us that we give those folks the choice.”

 

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Redfin’s decision last year to make direct home sales through RedfinNow an important part of its long-term strategy, and the rapid growth of Opendoor — which is now buying and selling homes in 20 markets across the U.S. and aims to get to 50 by the end of 2020 — juiced the rising “iBuyer” market, the popular term for these types of sales. Zillow Group’s pledge to refocus its business around direct sales shook up the industry, and the real estate giant projects that the instant offers business alone could be a $20 billion unit in three to five years.

Kelman says the alliance with Opendoor has nothing to do with Zillow’s pivot, though Zillow Offers is available in both Phoenix and Atlanta. Seeds of the partnership dates back roughly a year, well before Zillow went all-in on home sales, when Opendoor CEO Eric Wu reached out to Redfin. The two companies have come close to pulling the trigger on the integration a few times since then, but Redfin kept tinkering with RedfinNow to get it right.

Phoenix and Atlanta made sense as the kickoff to this new partnership because Opendoor is already active in both markets and RedfinNow is not available in either place. However, Redfin does have a large audience in each area.

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Redfin gets the benefits of offering more choices for its customers, making it more of a one-stop shop for real estate, access to Opendoor’s catalog of listings and a referral fee each time someone takes an Opendoor offer. Opendoor gets in front of a larger audience.

 

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Kelman said the two companies went into this partnership knowing that they will continue to try “beat each other’s brains out” in competing for homes in markets where their sales services are both active. Kelman doesn’t expect Redfin to support a RedfinNow offer and an Opendoor offer for the same home.

“We’ve been absolutely clear with each other that the competition is going to continue, but we also recognize there are places where we can help one another out,” Kelman said.

Earlier this week, RedfinNow launched in Austin. Other markets offering the program include Dallas, Denver, Los Angeles, San Diego, Inland Empire and Orange County, and Redfin plans to expand to additional areas later this year.

RedfinNow is classified under a reporting group called “Properties” in the company’s balance sheets. That segment was responsible for $21.4 million in revenue in the first quarter, a 7X increase over the $3.1 million it brought in a year ago.

You need to take a look at this article:

Redfin remains bullish on instant offers, but it is being selective about the homes it pursues. The company completed about 50 sales in the most recent quarter. Having well-heeled Opendoor, fresh off a $300 million funding round in March, as a partner means Redfin customers will be able to get offers on homes Redfin itself might not be in position to purchase.

“Just like we have partner agents when Redfin agents are too busy, we need someone like Opendoor to help us when we run out of money to make an offer on a home, or it’s a property type we don’t support, or it’s in a market we haven’t reached yet,” Kelman said.

We created a presentation on Tesla. Check it out by clicking on the link below.

Disabled the presentation for now.

It is difficult to discuss enterprise software without at least mentioning Microsoft, and there is no better time than now: last week the company (briefly) became the third U.S. company, after Apple and Amazon, to achieve a market capitalization of over $1 trillion, and is currently the most valuable publicly-listed company in the world.

It is one that I have been able to document stage-by-stage. The critical breakthrough was three-fold, and, as is so often the case, the three breakthroughs were really about the same existential question — whither Windows:

• First, Microsoft’s leadership accepted that its nature was that of a horizontal company, not a highly differentiated vertical one built around Windows.

• Second, Microsoft embraced a world where Windows was one client amongst many, and targeted its services to iPhone, Android, Linux, and Mac.

• Third, and most importantly, Satya Nadella brilliantly navigated The End of Windows internally, freeing Microsoft employees to build products that customers actually wanted, not that Microsoft needed.

 

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Here's a quote you might enjoy:

Once you remove the burden of support and maintenance — that’s handled by the service provider — it suddenly doesn’t necessarily make sense to buy from only one vendor simply because they are integrated. There is more freedom to evaluate a particular product on different characteristics, like, say, how easy it is to use, or how well it supports mobile. And it’s here that Microsoft products, particularly the hated SharePoint, were found to be lacking.

The SaaS Business Model

There are three parts of any new paradigm in technology: doing current use cases better, coming up with a new business model, and creating entirely new use cases. Microsoft, to Ballmer’s credit, was actually very early to the new business model aspect of SaaS.

Previously, enterprise software was sold on a license basis: companies bought software on a per-seat basis (or per-server or per-core basis in the case of back-end software), and when new versions of the software came out, they would potentially update — or not. Or not wasn’t great for anyone: companies would be running on out-of-date software, and vendors would not make new revenue.

What Microsoft figured out is that it made far more sense for both Microsoft and their customers to pay on a subscription basis: companies would pay a set price on a monthly or annual basis, and receive access to the latest-and-greatest software. This wasn’t a complete panacea — updating software was still a significant undertaking — but at least the incentive to avoid upgrades was removed.

There were also subtle advantages from a balance sheet perspective: now companies were paying for software in a rough approximation to their usage over time — an operational expense — as opposed to a fixed-cost basis. This improved their return-on-invested-capital (ROIC) measurements, if nothing else. And, for Microsoft, revenue became much more predictable.

 

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This is a numbered list without actually using the numbered list format:

1. Amazon

This company and Alibaba are the two largest e-commerce companies in the world. Nothing else comes close. JD and eBay aren't competing effectively. Shopify, though, is another story.

2. Apple

Slowly but surely becoming a wearable company. Gonna put an extra blank line here.

3. Microsoft

It's amazing what a great CEO can do, even to a company as big as Microsoft. Empathy is key - this seems to be true across so many professions.

This one has two paragraphs, just to see what it looks like.

4. Tesla

Will become by far the largest company in transportation & energy sectors.

The market is having a very negative reaction to Tesla's 2019Q2 earnings release.

We think the market is mistaken - here are our three key takeaways from the earnings release & call.

1. Remarkable financial discipline

Tesla's opex declined 7% vs 2019Q1 despite deliveries growing 51%. Cost base is at critical mass. This bodes incredibly well for earnings in 2020 when China & Model Y production begins in earnest at an even higher gross margin than Model 3.

 

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2. Model 3 now sustainably profitable

A key question was whether Model 3 gross margin will deteriorate once the Standard Range Plus variant (the cheapest option) is available globally. Even though this rollout happened at the end of Q1, with a corresponding impact on mix & ASP, normalized auto gross margin actually improved sequentially in Q2 vs Q1. Furthermore, Model 3 ASP is now stable. This is a meaningful milestone for Tesla.

 

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3. Planning for continued exponential growth

Some wonder whether growth will stall from here as Model 3 production is finally at scale. Elon Musk answered that yesterday, with his reference to Terawatt-hr scale battery production plans.

For the sake of sustainable energy consumption, there is a mind-numbing amount of gas cars (1.5B+) that need to go, despite Tesla's success so far, they haven't made a meaningful dent in replacing them. But the company isn't standing still: it has a terawatt-hr scale plan.

The combination of autonomy - which would dramatically increase the unit economics of Tesla's business - and Terawatt-hr scale production - which would increase volume by 30-100x - could lead to some truly extraordinary wealth creation.

 

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We will follow up with a more detailed analysis of Tesla's Q2 earnings!

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