#207: Software, Crypto, TikTok, Tesla, & Oncology

Who will dominate the $400 billion enterprise software market? Will the winners be giants like Microsoft and Amazon or smaller companies with what we believe to be focused, best-of-breed products like Slack, Zoom, and Atlassian?

Okta’s “Business at Work 2020” report provides some intriguing answers. Best-of-breed software products are gaining share, as an increasing percentage of Microsoft Office 365 customers are buying GSuite, Slack, and Zoom licenses, as shown in the chart above. The notable exception is storage, in which Box has been losing share successively each year.

Unlike in the late 1990s when Microsoft captured market share by bundling software, at the expense of startups like Netscape, the market now is much larger, supporting the growth of incumbents and upstarts alike. For knowledge workers, software has become the productivity multiplier. As a result, we believe companies are buying more software today than ever before.

Lightning company Zap has announced a new product that will allow users to make payments on the Lightning Network – a second layer solution on the Bitcoin blockchain – with any bank account or debit card. Strike, a Zap application on the Lightning Network, hopes to encourage mainstream adoption of bitcoin.

Initially designed as an onramp to buy bitcoin with fiat currencies directly through a Lightning wallet, Strike has pivoted toward enabling users to pay Lightning invoices with a debit card or bank account. For consumers and merchants looking to exchange goods and services, the initial design failed to consider not only the volatility of bitcoin but also the tax implications of bitcoin transactions and the complexity of interfacing with the Lightning Network.

With Strike, users no longer “have to deal with volatility, taxes, or setting up a wallet to interact with Bitcoin. In fact, they don’t even need to own bitcoin to scan a Lightning QR code.”

Now bank accounts can interact with the Bitcoin network. “Bank accounts and debit cards can now speak to nodes all over the world, and nodes all over the world can now speak to bank accounts and debit cards.”

Strike should help merchants that have faced obstacles onboarding their services through traditional payment rails like Visa and PayPal. Now any merchant in the world should be able to accept fiat payments without a bank account.

According to Snap CEO Evan Spiegel, TikTok’s content is more entertaining than Instagram’s. TikTok is a popular short-form video app that last year added more than 500 million users globally, equivalent to roughly half of Instagram’s user base.

TikTok differentiates itself from other apps with a new approach to content distribution. Unlike most social platforms with a follow-and-feed content model, TikTok focuses on serendipitous discovery driven by an AI recommendation engine. After a user uploads a video, TikTok sends it to a small number of users and, depending on different engagement statistics – watch time, likes, comments, shares and downloads – it decides whether or not to push the video to a broader audience, repeating this cycle until engagement peaks.

TikTok’s distribution model gives any user, even those with no followers, an opportunity to go viral. Indeed, it is turning upside-down the follow-and-feed model that rewards users who have a massive number of followers. TikTok has made it easier for new users not only to increase engagement, but also to create interesting content at professional-grade quality with AI-enabled video editing tools.

The link below illustrates how TikTok uses AI to pair videos with soundtracks that make each video more engaging: TikTok’s AI Working Magic.

This week we learned that Tesla Autopilot will use video labeling, enabling a step function improvement in its autonomous driving potential. Today Autopilot collects videos from 8 cameras in Tesla cars, each of the 36 frames per second annotated individually to identify pedestrians, cars, traffic signs, and objects on the road, as it develops 3D scenes of the cars’ surroundings. These scenes help Tesla cars with path planning.

In an upcoming rewrite of the Autopilot system, Tesla’s neural net will combine the thousands of frames from the video feeds in each car to build and label 3D scenes and, simultaneously, plan a path. Combining the perception, image recognition, and path planning tasks in a single step, Tesla estimates that its full self-driving (FSD) chip will improve the accuracy of the image labeling significantly and increase Autopilot’s efficiency by 3 orders of magnitude, or 1000-fold, compared to the previous Nvidia-based chip solution.

On Tesla’s earnings call, Elon estimated that Autopilot would be feature-complete in a couple of months. Autopilot’s upgrade seems to be an important step in Tesla’s plan, regulation permitting, to launch a fully autonomous taxi network in the next year. In ARK’s latest model, we estimate that the network should launch in two years.

Oncologists sequence tumors to find novel genetic mutations that can guide them to personalized, targeted therapies. Startlingly, a recent study concluded that the percent of patients with metastatic colon cancer (mCC) receiving comprehensive tumor sequencing has dropped from more than 50% in 2013 to 40% in 2017.

Among the explanations for this drop, the authors note that clinicians – particularly in community hospitals – do not seem to know enough about testing guidelines and available diagnostic tests. In addition, whether in community hospitals or academic research hospitals, doctors often struggle to collect enough tumor tissue in patients with metastatic cancer to sequence the sample.

ARK believes that comprehensive, blood-based liquid biopsies will address the tissue challenge in patients with advanced forms of cancer. Blood-based sequencing tests, like Guardant 360, are comprehensive, minimally invasive, and cost-effective. Indeed, if the number of patients who received improperly matched therapies in the study had been lowered by just 2.3%, the savings would have supported liquid biopsies for the entire patient cohort (n=1,497). As we believe liquid biopsies should proliferate in oncology clinics, ARK expects that the percent of patients receiving adequate sequencing will increase, ultimately democratizing access to precision-based cancer therapies.