E162: Live from Davos! Milei goes viral, Adam Neumann's headwinds, streaming's broken model, microplastics & more
Jan 19, 2024
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Live from the World Economic Forum, the hosts discuss Davos' changing reputation and highlight Milei's impactful speech. They critique Boeing's safety issues stemming from regulatory capture and dive into the startup struggles of Adam Neumann. The conversation shifts to the streaming industry's broken business model and the ongoing challenges of rising costs and subscriber churn. Additionally, they explore alarming studies on microplastics in bottled beverages, emphasizing the health risks and environmental concerns surrounding plastic consumption.
Understanding the legacy aspects of an industry is crucial when disrupting it with a tech-enabled business.
Differentiating between gross margin and net operating margin is essential for assessing the scalability of tech-enabled businesses.
Plastic particles present in bottled beverages raise concerns about their impact on human health and the need for sustainable packaging.
Deep dives
Adam Newman's real estate venture, Flow, faces financial troubles
Adam Newman, the co-founder of WeWork, has started a new venture called Flow, which focuses on renting apartments in cities with a focus on social interaction and shared spaces. However, the venture has faced financial troubles with Newman unable to make his interest payments on a variable rate mortgage. The issue stems from his acquisition of properties at the top of the market with a capital structure heavily reliant on debt. The timing and lack of attention to the financial aspects of the business have contributed to the difficulties faced by Flow. This case highlights the importance of understanding the legacy aspects of an industry when attempting to disrupt it with a tech-enabled business.
Assessing the nature of tech-enabled businesses
When considering tech-enabled businesses, it is essential to differentiate between gross margin and net operating margin or profit. Software businesses with their virtual costs of goods sold (COGS) can achieve high gross margins on the margin, making them attractive investments. However, businesses that carry large physical world COGS are not software businesses, but rather tech-enabled businesses. It is important to assess the nature of the COGS and consider their scalability. True marketplaces and digital platforms can achieve perfect gross margins as they do not own physical inventory. However, caution must be exercised with tech-enabled businesses that rely on physical infrastructure or inventory, as they face higher costs and potential erosion of gross margins over time.
The erosion of gross margins in software businesses
The erosion of gross margins in software businesses has become more evident, even in best-in-class SaaS companies. Previously, these businesses could generate high gross margins in the 90s, but now many are seeing margins in the high 60s to low 70s. This indicates that pressure is mounting in the market, and even the most successful software businesses are experiencing a decline in gross margins. It is crucial to recognize that the software-enabled business is unlikely to transition to 30% gross margins, but rather the other way around, as evidenced by market data.
Plastic contamination in beverages: A cause for concern
A recent study has revealed that plastic particles are present in significant quantities in bottled beverages, with up to 10,000 particles per liter of liquid. While the health implications are not yet fully understood, previous research has suggested that these microplastics have the potential to disrupt cellular function and lead to inflammation and other health issues. This finding raises concerns about the cumulative effects of plastic consumption on human health, especially since these particles can cross barriers and enter cells, including the blood-brain barrier. Efforts are underway to develop biodegradable plastics to mitigate the environmental impact and incorporate sustainability practices in packaging.
The impact of plastic consumption on the environment
Plastic packaging, such as single-use plastic bottles, has contributed to significant environmental issues, including pollution in oceans and landfills. The convenience and low cost of plastic have made it the preferred choice for many consumer products. However, the excessive use of plastic, coupled with inadequate recycling practices, has led to the accumulation of plastic waste in the environment. Efforts are being made to regulate the use of plastic packaging and promote sustainable alternatives, such as glass or biodegradable materials.
The need for collective action and alternative solutions
Addressing the issue of plastic pollution requires collective action from individuals, governments, and industries. Regulations aimed at reducing plastic packaging and promoting sustainable alternatives are crucial. Additionally, efforts to develop biodegradable plastics and improve recycling technologies are underway. Consumers can contribute by making conscious choices, such as using reusable containers and supporting businesses that prioritize sustainability. The ultimate goal is to transition towards a circular economy where waste is minimized, and resources are reused and recycled.
