Dan Routh

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On November 20, 2016, Dan Routh commented on Video Games Are the New Football :

Wow, I had no idea that viewership of eSports events was this high, and growing that quickly. This increasing size makes your worry about ownership, which Hugo also addressed, even more pressing. I hope for everyone’s sake that long-term deals are able to be reached. I believe there are a couple reasons to think that this is likely to happen. The first is that there is likely a Zone of Possible Agreement between the game developers and players. Both would benefit from a deal being reached, and so without a negotiating failure, you would hope this would happen. Additionally, as the NFL has demonstrated, when incentives are aligned between parties, a league can work to grow the pie for everyone, and this is likely more lucrative than when each party acts in their own best interest.

On November 20, 2016, Dan Routh commented on The New York Times’ Digital Journey :

I believe one reason the New York Times was successful in its transition to digital (besides due to Laura working there), and will continue to be successful is its brand. Laura mentioned its status as a reputable news source. Its repute includes reporting accurately on the news. But it also includes a reputation for quality and thoughtfulness.
I believe that highlighting the Times’ quality will be crucial in getting people past the paywall. You are right to point out that people don’t pay for the Times to get the fastest news. But they do pay for it to get very high-quality and well-written news. Free news sources abound. But if you are going to spend your time reading the news, you might as well read high-quality news. Or this is how the New York Times should pitch its product, in my view, anyways!

On November 20, 2016, Dan Routh commented on Citibank: Protecting Against Cyber Threats :

Art Vandilay made a great point at the end of his comment: banks should partnerships with silicon valley cyber security startups. I agree, and can report that my previous employer, J.P. Morgan, has done this to some extent. Rather than a formal partnership, a security manager at JPM would approach a fledgling company with a good product, and offer to be the first buyer of the product. This may seem like a big risk for JPM; after all, what if the product doesn’t work? This risk however is mitigated by a couple rewards: the startup often offers a very low price on the product, and the startup is often willing to work with JPM to build out the product further to match JPM’s desires. Once the product is built out, the startup can sell to other customers based on its relationship with JPM, resulting in a win-win for everyone.
Art’s point may be that these kind of partnerships should be the norm for big banks rather than the exception. This point very well may still stand. However, knowing that the partnerships have been shown to be viable by at least JPM, the others should consider adopting similar practices.

I like the idea to focus on experiences. Given the less tangible nature of an experience (vs. a consumer good), the potential value to be delivered to a customer trying to make a purchasing decision is even larger. Operator could provide that value and potentially create a viable business model in doing so.
One issue that will be persistent for Operator is establishing trust. That is, does the consumer trust Operator to provide accurate, tasteful, and unbiased advice? The latter of these is something that I often struggle with in using a third party to recommend a good or service to me. For example, if I ask a tour guide to recommend a local restaurant, I assume that the recommendation will be colored by incentives between the tour guide and the restaurant. What Operator will need to do is convince a skeptical millennial generation that Operator is different than tour guides, and in fact is providing quality unbiased advice.

All of us consent to third parties storing and to some extent using our data. Indeed, in order to be able to use many social media or e-commerce platforms, we are required to do so. Oftentimes, the data isn’t even required for the company to deliver the service we are seeking. For this and other reasons, some of us find this required consent to be a “hard sell.” That is, we are reluctant to give up our privacy, but in the end we do because the value we get from the service is high.

I believe InfoBionic would have an easier “sell” than social media or e-commerce companies. While some patients might be initially wary to consent to use of their medical data, they can be comforted in the fact that this data will be used to save lives. As we saw in the Watson case, more quality data leads to better results when it comes to machine learning. Thus, each person contributing their data would directly lead to a smarter device that can improve accuracy of diagnoses. Since consenting would directly lead to saving lives, I believe people will willingly contribute their data for the benefit of all.

I was surprised to see that Coke’s three main areas of focus in its sustainability initiatives did not have to do with water. Given that water is 90-99% of the ingredients of its products, and given the potential fresh water shortage to face society in the future, it seems like this should be a major areas of focus for Coke. This is not to say that its other efforts are not laudable, but it is convenient that these areas seem to positively impact Coke’s bottom line, whereas water sustainability efforts may have the opposite impact.

Nonetheless, I was glad to see that Coke has sought to reduce its demand on the water cycle through reducing the ratio of water used in its formulations. Still, I wonder whether a company with as many talented people and resources as Coke can do more. Are there additional ways to help address the future fresh water shortage we all could face?

Beyond its water consumption, one other way in which Coke imposes externalities on society is the health concerns related to its products. Some cities have resorted to banning large soft-drinks in an effort to reduce the sugar intake, and relatedly the obesity rate, of the population. If Coke is taking water out of its drinks, I wonder what it is putting in them to replace it. Hopefully not more sugar!

On November 6, 2016, Dan Routh commented on Allstate on the Front Line: Insuring Against Climate Change :

Thanks for the great article and analysis. One piece of Allstate’s policy that intrigued me was #1: restricting or denying policies in vulnerable geographies. Allstate is free to choose which markets it wants to do business in, and there are benefits to this. Indeed, by choosing not to do business in especially risky areas, Allstate can effectively signal to would-be homebuyers that the area is not safe for a home.

However, I was surprised that Allstate was opting to cancel or fail to renew policies in certain circumstances. This seems like an incident of Allstate mispricing risk: perhaps they failed to account for the climate change impacts mentioned in the beginning of the post. Now, the homeowner may have mis-assessed the risk as well. But Allstate canceling the policy seems to be shifting all risk onto the homeowner, leaving him out to dry. If Allstate cares about the well-being of its customers, it should be careful not to punish certain customers for its own mistakes.

Agreed with Miras – this was a concise and terrific post. Doug points out that clean-tech VC investments failed for a number of reasons. Naturally, some of these are due to external influences: macroeconomic factors affecting capital markets, and other factors that presumably led to Fisker not being able to commercialize a product. What is even more interesting however, is that there seems to be a capital mismatch, as Doug points out.

There are plenty of similarities between clean-tech and other areas of VC investment like consumer internet companies. Participants in each industry develop cutting-edge technology, and have huge addressable markets. And so it seems intuitive that a given venture capital fund could invest in both industries. However, when required investment timeframe differs, problems emerge. One of these problems can be divergent expectations for timing of return of caspital. This may create a capital mismatch: i.e. if Kleiner is forced to exit, or reluctant to invest more capital, before a project is completed because of Kleiner’s fund structure.

As Doug notes, this problem has been solved before in venture, with biotech funds having a longer duration. The same thing has occurred in private equity. Certain funds have longer time horizons, which reduce these timing mismatches. Additionally, private equity funds that at one point invested in many industries out of one fund have decided to separate into multiple funds to match the demands of limited partners. Many such firms have launched real estate funds and energy funds, given the unique characteristics of these industries. That this kind of segmenting has been so successful in the past should give additional credence to its viability in the future. Aligning the incentives of the investors and the entrepreneurs seems crucial if the next generation of VC-backed clean-tech firms are to be successful.

On November 6, 2016, Dan Routh commented on Making Beer Green :

AB Inbev might have a hard time forcing upstream supply chain members to bear all of the cost of water reduction efforts. As Student12 correctly points out, AB InBev has forced costs onto its suppliers in the past, including $1.2 billion working capital move after the Anheuser-Busch transaction (1). Could AB InBev do this again? Do suppliers have enough margin in their cost structure to absorb incremental water reduction costs? It is hard to say without more information.

Still, there could be a way for AB InBev to increase its impact, without once again completely aggravating its suppliers: form a joint initiative, with shared risk and reward. Smitha’s post (“Wasted Water: An Inside Look at AB InBev’s Water Risk Approach”) offers a great theoretical framework for what a plan like this could look like.

Williams, C. (2000). Management. Cincinnati, OH: South-Western College Pub.

On November 6, 2016, Dan Routh commented on Wasted Water: An Inside Look at AB InBev’s Water Risk Approach :

Your idea is an intriguing one: by treating water as a shared asset and risk across its supply chain, AB InBev could increase its control over water sustainability efforts, and correspondingly increase its impact as well. I agree that AB InBev could have more credibility by putting its own skin in the game by sharing in the risk. Maria does make a good point as well however, essentially asking, how could this work in practice?

While it’s not immediately clear what the best way would be for AB InBev to approach its suppliers with what may be a difficult conversation, I would argue there is good reason to think this could work. AB InBev is a behemoth in the industry, and has substantial negotiating power over its suppliers. For an example of this, here is an excerpt from the book “Management” by Chuck Williams:
“One of the ways in which [AB InBev] leveraged [its] bargaining power was to tell its suppliers… that it would pay them for its product shipments 120 days after being invoiced. With existing contracts providing payment 30 days after being invoiced, that meant that AB InBev’s suppliers would have to wait an extra three months to be paid… [giving] AB InBev an additional $1.2 billion in cash flow per year, but… at the expense of its suppliers.”

In this working capital optimization conversation, AB InBev used its power to win at a zero-sum game: each extra day they took to pay their suppliers represented cash in their pocket that wasn’t in their suppliers’. If AB InBev can prevail in this kind of negotiation, it seems reasonable to expect they could also prevail in this water discussion. After all, all members of the supply chain can share in the reward of an industry-leading water sustainability effort, and the cost for this would be shared as well, making this more of a win-win.