Uther's Profile

Well met, Lee. Your post made me recall a conversation I had with a gentleman in New York a couple years back about the real estate market – specifically regarding the role of brokers and the value (or lack thereof) that they provide. At the time, I felt strongly (and still do today) about technology one day disintermediating the real estate broker, but this gentleman countered by saying the process of buying or selling a home is analogous to one going to see the doctor. Nowadays, patients can have as much access to information as doctors have, but at the end of the day, the patient will still go to visit the doctor because the doctor is the “expert.” Leaving aside the absurdity of that comparison (e.g. virtually anybody can become a licensed real estate broker, whereas becoming a doctor requires years of education and training), he does have a point. Trading stocks and booking flights have been commoditized and no longer require human agents, but real estate is different because finding a home is, as you said in your post, “is as much an emotional decision as it is quantitative.” Since none of the others who commented have posted about this yet, I’d be curious to hear your thoughts about what you think of this company called Trelora. They are a full-service brokerage that only charges its clients a flat fee ($2500) as opposed to the 5-6% of the purchase price. Unlike traditional brokerages, the firm pays its agents a regular salary and benefits as opposed to the commission-only compensation split of traditional brokerages. Trelora is currently limited to the Denver market, but seem to be gaining some traction and they have been getting rave reviews.

http://www.trelora.com/

Well met, T.S. I recall former Barnes & Noble CEO Michael Huseby (who is now Executive Chairman of one of Barnes and Noble’s subsidiaries) saying on an earnings call about Barnes and Noble’s more “personal relationship with customers” as a key differentiating factor with Amazon. There has also been some evidence that seems to suggest that demand for physical books may be more resilient than previously thought. In my view; however, the problem with Barnes & Noble is the issue with “free riders” who essentially treat Barnes & Noble retail stores as public libraries. The “free rider” label can be put on anyone, but I see this type of behavior the most in students, retirees, unemployed and homeless people. These people come in and grab a stack of magazines (occasionally books as well) and read them cover to cover without paying. If Barnes and Noble is lucky, this person might buy a drink from the Starbucks that is attached to the bookstore. Barnes and Noble should discourage this behavior by shrink-wrapping magazines and books (particularly new releases), but it does not do so because its reasoning is that a store should be as inviting/welcoming as possible to encourage people to browse and hopefully buy something before they leave. This feels to me like wishful thinking, and unless the company can find a way to discourage this free rider problem, I don’t see how they will be able to survive in the digital age.

Well met, zaradi. The storyline of Under Armour expanding into wearable products is particularly compelling when one considers the fact that the company is pushing forward in an area that its biggest rival (Nike) has essentially all but retreated from. Incidentally, after Nike abandoned its foray into wearable products (i.e. FuelBand), it ended up working more closely together with its long-time strategic partner Apple (e.g. Apple Watch Nike+). You mentioned in your post that Under Armour has been working hard to create partnerships with companies such as HTC to create a suite of wearable devices. A quick glance at HTC’s financials do not paint a pretty picture (e.g. HTC’s revenue has declined by 30+% yoy over three of the last four years and the company has posted four consecutive years of negative free cash flow). The key takeaway is that Under Armour needs to also make sure it develops the right partnerships if it is going to make its ambitious vision into a reality.

Well met, Rexxar. I am unconvinced that Blizzard Entertainment (and the ultimate parent company Activision Blizzard) is going to make any major inroads in augmented reality/virtual reality (AR/VR) in the foreseeable future. The current AR/VR ecosystem is still very fragmented. Gio Hunt, Executive Vice President of Corporate Operations at Blizzard Entertainment, said in an interview during Blizzard’s annual gaming convention that “There is no [single] VR platform today; there are actually several, and they’re all competing with one another. So there’s not even a standard for what VR or AR means…”[1] In other words, AR/VR is still in the very early stage of the product development funnel. You mentioned in your post that Activision Blizzard acquired King Digital in February 2016. That seems to be more indicative of the company’s strategy (at least in the immediate future) going forward – focusing on mobile and the huge market of casual gamers.

References

[1] Keach, Sean, Trusted Reviews: “Blizzard ‘looking at’ virtual reality games, but no Warcraft VR plans right now,” November 8, 2016

Well met, Paul. It is clear that GameStop has been able to survive an industry-wide secular decline in large part due to the monopoly it has enjoyed in the secondary market for video games. With that said; however, it is unclear to me whether GameStop will inexorably go the way of Blockbuster. One can also see certain parallels with what GameStop is facing today and what Netflix was facing not too long ago. In 2007, Netflix found itself at a critical juncture when its original DVD movie rental business was increasingly transitioning to a digital streaming model. As we now know, Netflix was able to evolve its business model to not only provide streaming, but also create its own content. In an attempt to diversify from its core brick-and-mortar business of buying and reselling used video games, the company launched in 2016 an in-house publishing label called GameTrust. In sum, while the challenges and structural headwinds posed by digitization are undoubtedly very real, I would not be too quick to declare “Game Over” for GameStop just yet. If GameStop can find a way to evolve and make itself relevant, there may still be plenty of life left in the years to come.

It is clear to me that some form of collective action is necessary to deal with the major issue of climate change and, indeed, the Olympics could very well represent an ideal platform. Unfortunately, the reality is that the Olympics would be a platform for only 1% (arguably less) of the world’s population. What hinders the development of collective action is that climate change is a problem that is inherently very difficult for human beings (the remaining 99%) to care about due to its intertemporal nature. Dan Ariely, behavioral economist from Duke University and author of the book “Predictably Irrational,” has said that global warming is the quintessential problem for humans not to care about because it has all the elements of human apathy (e.g. it takes place very far into the future, it effects other people first before affecting oneself and anything that an individual done is a drop in the bucket) which combine to make people simply not care. In short, I am optimistic about the Olympics being a viable platform to facilitate the discussion surrounding climate change, but I am less optimistic about its actual ability to create real solutions that would make a significant difference.

Natural disasters are becoming increasingly severe due to climate change and will only continue to get worse in the future. As far as the US is concerned, by far the biggest natural disaster risk is that from hurricanes, which historically have accounted for approximately half of total insured losses. Some of that risk can be offloaded to capital markets through catastrophe bonds and related investments (approximately $72 billion, which is about 12% of the $565 billion capital in reinsurance), but overall I think that most insurers will be left with little choice and would need to increase their premiums in anticipation of the greater number of severe hurricanes (and other natural disasters).

http://www.wsj.com/articles/the-insurance-industry-has-been-turned-upside-down-by-catastrophe-bonds-1470598470

A few have commented on the steep decline in the number of ships traversing the Northern Sea Route between 2013 and 2014. Part of the decrease in 2014 can be attributed to the weather which made traversing the route in 2014 more dangerous compared to 2013. However, there are some issues involved from an operational standpoint. Reducing the absolute transit time (e.g. from 35 days to 15 days) is one thing, but ensuring that the ships arrives on time at its scheduled arrival date is another. In shipping, as in TOM, the concept of “just-in-time” (JIT) is important. Moreover, many of the newer container ships that are being built today are too bulky and cumbersome to use in the Arctic, thereby making the Northern Sea Route less attractive than it would originally appear.

Curious to know if Beam’s Japanese parent company Suntory Holdings Ltd. has had any influence on Beam (and by extension Maker’s Mark) from a CSR standpoint? In Japan, Suntory Holdings Ltd has created a lot of long-term initiatives for preserving the environment and reducing the environmental impact of its business activities. Since the deal between the two companies closed in 2014, there have been some growing pains (mainly cultural in nature) in the post-merger integration, but the environment and sustainability seems like something the two companies could agree on. Incidentally, the current CEO of Suntory Holdings Ltd is an HBS alum (Class of 1991, Section B), so perhaps there is some potential for a case study in the future…

Almonds have become something of a “super” food in recent years due to their nutritional value and health benefits. If I am interpreting things correctly, the technology and techniques described in this post for reducing water usage when growing almonds have similarities to the hydroponics that are used to grow crops in greenhouses. Given the importance of almonds as a high value crop that can only be grown in a very limited number of locations across the world (within the US, only California), it will be important to find ways to reduce the environmental impact of their production.