Wednesday Nov.20, 2019

Warby Parker isn't glasses. It's "vision."

"_Todd, do you know if the Warby lenses make me look bloated?_"
"_Todd, do you know if the Warby lenses make me look bloated?_"

Hey Snackers,

Can't make this up. The Winklevoss twins of Facebook-ish fame have been busy running their own cryptocurrency exchange, which just made its 1st acquisition — a startup run by another set of twins.

Markets dragged down because Home Depot botched its own virtual renovation (more on that below).

Downer

Home Depot stock falls 5% because it botched a website job

Home Depot renovated its website... Looks terrible. The Atlanta-based chain's sales rose 3.6% last quarter — that's less than what investors expected, so shares fell 5%. Plus, Home Depot downgraded its outlook for the rest of the year. Strange, because yesterday we also learned that 1.3M homes began construction in the US last month. That should mean big Home Depot businesses.

Windows, not websites... One big reason for the miss was Home Depot's botched web development renovation (not exactly its specialty).

  • 45% of Home Depot's sales come from professional contractors, the other 55% coming from "DIY" customers (like us).
  • Since pros know the difference between an Allen and a Phillips head, HD is building them a personalized online shopping experience.
  • But like all renovations, this project isn't going well. Investors hoped it would lead to new sales last quarter, but development delays messed with that.

Home Depot's performance is ruled by an 80/20 rule... 80% depends on macro issues it can't control: the housing market, tariffs, and the price of lumber. The other 20% depends on HD's actual performance. Those percentages aren't exact, but you would've expected more from the current situation:

  • Home prices are high, so DIY homeowners might splurge on re-flooring that bathroom with fresh marble.
  • House construction hit a 12-year high last month, so pro contractors should be busting down HD's doors for fresh 2X4s of timber.
  • But HD suffered last quarter because it missed on the part it can control.
Launched

Warby Parker whips up its 2nd ever product: Contact lenses

"The Warby Parker of Warby Parker"... is Warby Parker. The OG direct-to-consumer brand basically created the cut-out-the-middleman digital-first concept 9.5 years ago with eyeglasses. Then it noticed something: 40% of its customers also wear contact lenses. So it's launching Scout, its own brand of contact lenses.

Close one eye and read the letters on the chart... If you're still squinting to understand why Warby created Scout, just look at the prices — they un-blur the broader strategy:

  • $95 = typical Warby glasses
  • 2 years = the average amount of time before most Americans replace their glasses
  • $110 = a 3-month supply of Scout contact lenses (delivered to your door, of course).
  • 3 months = that's how often Warby lens customers will pay up for refills — which is $440 for Warby every year.

We're calling this the "Sequel Strategy"... and we noticed it's trending with Warby's fellow direct-to-consumer unicorns. With a Sequel Strategy, companies spinoff their 1st long-lasting product with new shorter-term ones to snag consistent revenue from the same customers. Here's who's doing it:

  • Warby sells you glasses every 2 years — but you buy Scout lenses in between.
  • Casper sells you a mattress every ~10 years — but you buy its new sheets and pillows in between.
  • Allbirds sells you shoes every ~2 years — but you buy its new socks (you get the picture) in between.

What else we’re Snackin’

  • Hookup: Capital One is offering exclusive restaurant reservations as a reward through OpenTable
  • Broadcast: Roku stock drops 4% after the little-streamer-that-could plans to sell 1M shares of its own shares to raise money
  • Retail-pocalypse: Macy's drops 11% after it was hit with a data breach (blame it on the ol' "unauthorized computer code")
  • Subscribers: Netflix suffered "little-to-no impact" in terms of lost subscribers from the Disney+ launch
  • #tryhard: Facebook unveils its own meme-making app: Whale
  • Curate: Spotify bites deeper into podcasts by launching curated pod playlists aka "Your Daily Podcasts"

Wednesday

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Power

World out of balance: It costs the US 3¢ to make 1 penny

The cost of producing the US penny rose 13% in fiscal 2023 to 3.07 cents. Yes, that means that Uncle Sam loses more than two cents for every cent it produces. (And no, you can’t make it up on volume.)

For the record, that’s the 18th-straight year the penny’s face value has been below production costs, fueling calls for abolishing the lowest value denomination coin. Canada started to phase out the penny in 2013, joining Australia, Brazil, Finland, New Zealand, Norway, and Israel, according to Smithsonian Magazine.

3.07¢

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Business

Netflix is going to stop sharing subscriber numbers

After posting subscriber numbers that beat expectations today, Netflix says it’s no longer going to share those numbers starting in the first quarter of 2025. That’s a big deal since subscriber numbers have long been one of the main metrics that investors have looked at.

“In our early days, when we had little revenue or profit, membership growth was a strong indicator of our future potential,” its shareholders letter read. “But now we’re generating very substantial profit and free cash flow.” The company said that it will focus on revenue and operating margin as its main financial metrics, while it will look at time spent on the platform to gauge customer satisfaction.

Another way to read this? They’ve hit market saturation and just aren’t going to be growing that much anymore, and they thought they’d end on a good note. Going forward they’re focusing on how to get more money out of the customers they do have.

They’re doing so by cracking down on password sharing and charging for extra members. They’re also pushing people to ad tiers, which are more profitable than non-ad tiers.

“Scaling ads to become a more meaningful contributor to our business in ‘25 and beyond,” Netflix said.

Netflix’s ads membership grew another 65% in Q1 over the previous one, after rising 70% the quarter before, and 40% of signups in ad markets continue to be for those ad plans.

Tech

Meta’s not telling where it got its AI training data

Today Meta unleashed its ChatGPT competitor, Meta AI, across its apps and as a standalone. The company boasts that it is running on its latest, greatest AI model, Llama 3, which was trained on “data of the highest quality”! A dataset seven times larger than Llama2! And includes 4 times more code!

What is that training data? There the company is less loquacious.

Meta said the 15 trillion tokens on which its trained came from “publicly available sources.” Which sources? Meta told The Verge’s Alex Heath that it didn’t include Meta user data, but didn’t give much more in the way of specifics.

It did mention that it includes AI-generated data, or synthetic data: “we used Llama 2 to generate the training data for the text-quality classifiers that are powering Llama 3.” There are plenty of known issues with synthetic or AI-created data, foremost of which is that it can exacerbate existing issues with AI, because it’s liable to spit out a more concentrated version of any garbage it is ingesting.

AI companies are turning to such data because there’s not enough good, public data on the entire internet to train their increasingly greedy AI models. (Meta had reportedly floated buying a publisher like Simon & Schuster to satisfy its insatiable data needs.)

Meta, of course, isn’t the only company that’s tight-lipped about where its AI data is coming from. In a now infamous interview with WSJ’s Johanna Stern, OpenAI’s chief technology officer Mira Murati was unable to answer questions about what Sora, OpenAI’s video generating app, was trained on. YouTube? Facebook? Instagram — she said she wasn’t sure.

What is that training data? There the company is less loquacious.

Meta said the 15 trillion tokens on which its trained came from “publicly available sources.” Which sources? Meta told The Verge’s Alex Heath that it didn’t include Meta user data, but didn’t give much more in the way of specifics.

It did mention that it includes AI-generated data, or synthetic data: “we used Llama 2 to generate the training data for the text-quality classifiers that are powering Llama 3.” There are plenty of known issues with synthetic or AI-created data, foremost of which is that it can exacerbate existing issues with AI, because it’s liable to spit out a more concentrated version of any garbage it is ingesting.

AI companies are turning to such data because there’s not enough good, public data on the entire internet to train their increasingly greedy AI models. (Meta had reportedly floated buying a publisher like Simon & Schuster to satisfy its insatiable data needs.)

Meta, of course, isn’t the only company that’s tight-lipped about where its AI data is coming from. In a now infamous interview with WSJ’s Johanna Stern, OpenAI’s chief technology officer Mira Murati was unable to answer questions about what Sora, OpenAI’s video generating app, was trained on. YouTube? Facebook? Instagram — she said she wasn’t sure.

Today’s earnings: Who’s making money edition

Here are some some notable numbers out this morning, as earnings season gathers steam. Thursday’s main event will be Netflix after the close of trading. (Keep an eye on its advertising business.) But until then...

7.13%

The 30-year fixed rate mortgage is back above 7%, according to weekly numbers from the Mortgage Bankers Association, the highest level in four months. High borrowing costs are creating havoc for would-be buyers, as affordability lingers at the low levels not seen consistently since the late 1980s.

Business
Rani Molla
4/18/24

Amazon’s spy ops on rivals: shell companies, printed docs, and a fake Japanese streetwear brand

Some companies check out rivals’ websites, stores and public filings to stay abreast of the competition. Amazon made its own fake shell company and brands, transacted hundreds of thousands of dollars per year undercover on competitors’ platforms, and kept its intel operation a secret for nearly a decade even from others at Amazon, according to a fascinating investigation by the Wall Street Journal.

Working as a seller called Big River, a secret group of Amazon employees gained access to rival platforms, including Walmart, FedEx, and Alibaba. They used Big River email addresses and went to seller conferences as Big River employees. They even stayed hidden within Amazon itself. These employees would take screenshots of competitors’ systems that they would then show others at Amazon in person to avoid an email paper trail.

Perhaps most strange of all, the company created a fake Japanese streetwear brand called “Not So Ape” (clearly a play on A Bathing Ape) and continues to sell products from the brand on a Shopify store, presumably as an attempt to learn the inner workings of the shopping platform. Of course, copying is old hat for Amazon.

In meetings where they’d use this clandestine information to inform Amazon’s own business practices, the group resorted to literal paper. “[T]he team avoided distributing presentations electronically to Amazon executives. Instead, they printed the presentations and numbered the documents. Executives could look at the reports and take notes, but at the end of the meeting, team members collected the papers to ensure that they had all copies."

Working as a seller called Big River, a secret group of Amazon employees gained access to rival platforms, including Walmart, FedEx, and Alibaba. They used Big River email addresses and went to seller conferences as Big River employees. They even stayed hidden within Amazon itself. These employees would take screenshots of competitors’ systems that they would then show others at Amazon in person to avoid an email paper trail.

Perhaps most strange of all, the company created a fake Japanese streetwear brand called “Not So Ape” (clearly a play on A Bathing Ape) and continues to sell products from the brand on a Shopify store, presumably as an attempt to learn the inner workings of the shopping platform. Of course, copying is old hat for Amazon.

In meetings where they’d use this clandestine information to inform Amazon’s own business practices, the group resorted to literal paper. “[T]he team avoided distributing presentations electronically to Amazon executives. Instead, they printed the presentations and numbered the documents. Executives could look at the reports and take notes, but at the end of the meeting, team members collected the papers to ensure that they had all copies."

Crypto
Jack Morse
4/17/24

Worldcoin pivots to the blockchain… with a 'humans only' discount

Worldcoin, the “proof of personhood” crypto project launched by OpenAI’s Sam Altman, said it plans to launch its own ethereum layer-2 (L2) blockchain dubbed World Chain. The pitch: a blockchain where it’s both easier and cheaper for people to transact than bots.

Worldcoin has made waves for its iris-scanning metallic orb that promises a future where people can mathematically prove they’re real humans and not AI bots.

But it’s run into trouble: the orbs have been banned across Europe and Africa, and the associated WLD crypto token has plunged 50% over the past month.

For project insiders, who reportedly received a token allocation of 25% of supply, that could equal significant losses. 

Which is what may make World Chain attractive. Crypto exchange Coinbase launched its own L2, Base, last year. Base has since seen rapid user growth — activity that’s generated the exchange millions of dollars in weekly fees

Worldcoin could benefit from similar revenue if its L2 is adopted around the world.

But it’s run into trouble: the orbs have been banned across Europe and Africa, and the associated WLD crypto token has plunged 50% over the past month.

For project insiders, who reportedly received a token allocation of 25% of supply, that could equal significant losses. 

Which is what may make World Chain attractive. Crypto exchange Coinbase launched its own L2, Base, last year. Base has since seen rapid user growth — activity that’s generated the exchange millions of dollars in weekly fees

Worldcoin could benefit from similar revenue if its L2 is adopted around the world.