Advertising - Short(ened) Ad Time and Short(ed) Ad Companies

Did Netflix Lose a Potential Rev Stream Before Activating it? 

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Earlier this week Fox Networks Group’s ad sales chief floated the idea of cutting commercial ad time down from 13 minutes to 2 minutes an hour in a speech he gave in Los Angeles. This is interesting on a number of levels.

First, this would pose a real challenge to advertisers who, undoubtedly, would have to fight for limited but costly supply. Yes, television advertising has flat-lined, but it is still one of the most effective means to get brand messaging out.

Second, such a maneuver could have the effect of squeezing Netflix ($NFLX). Numerous underwriters highlight that Netflix can always open the ad spigot to help it grow into its ever-growing capital structure. And they’re not talking about product placement. If ads are eliminated elsewhere, will consumers focused on the ultimate user experience tolerate ads before watching treasured content like Ozark or 13 Reasons Why? Or will that result in friction and, in turn, leakage? If this decision gains traction, this as-of-yet-untapped revenue stream for Netflix could be collateral damage.

Ultimately, minimal advertising may help draw users back to content. But it will create all sorts of issues for brands trying to sell product AND, by extension, the advertising companies trying to place those brands.

To point, earlier this week the Financial Times reported that “[h]edge funds have amassed bearish bets of more than $3bn against the world’s largest advertising companies in an attempt to profit as the industry undergoes wrenching disruption and slowing growth.” Publicis, WPP, Omnicom Group ($OMC), and Interpublic Group of Companies ($IPG) are all short targets of funds like Lone Pine and Maverick Capital. With corporates like Proctor & Gamble ($PG) cutting ad spend and Facebook ($FB) and Google ($GOOGL) monopolizing same and building custom tools that cut out the middlemen, this is an area worth continued watching.

America's Second-Largest Retailer is Closing Stores

Guest Post By Mitch Nolen (@mitchnolen)

Source: Kroger & Co. 

Source: Kroger & Co. 

America’s largest supermarket operator is shrinking.

Kroger Co., the owner of over 20 grocery chains and other retailers, is closing supermarkets and jewelry stores, as well as selling hundreds of convenience stores, while simultaneously hitting the brakes on new openings that the company had already publicly announced.

It's a major U-turn for a serially acquisitive company that has become the nation's second-largest retailer, behind only Walmart in total U.S. sales. While cutting its store count, Kroger is prioritizing $9 billion in spending over three years on initiatives like splashy technology upgrades at its remaining stores.

The upheaval is just the latest in a grocery industry grappling with Amazon’s aggressive advances into its territory.

The Cincinnati-based retailer sold 762 convenience stores to British firm EG Group last month, is shutting an undisclosed number of jewelry stores and has shed net total of 13 jewelers in the first three quarters of 2017, and has closed or is closing at least 18 of its grocery stores since the start of the company's fourth quarter, a development one community leader describes as a “crisis.”

The supermarket closures are a departure for Kroger from recent years. Their store count grew in 2015 and 2016, and there was no store reduction in the final quarters of those years. Combined with the suspension of planned openings, and the company’s explanations, it becomes clearer that this isn't normal annual pruning.

Already in the first three quarters of Kroger's fiscal year that ended February 3, there's been a net closure of six grocery stores.

Kroger is suspending multiple — but not all — store openings and other major projects, such as store remodels, replacements and expansions.

A Kroger spokesperson declined to comment for this story, citing a quiet period before the company’s annual earnings report due out Thursday morning. However, in earlier statements made to local media, one representative said, “Company wide, the pace of construction has slowed down.”

Another official described a “shifting of capital expenditures in the short term from brick and mortar to focus on the customer experience in our existing stores, e-commerce and digital technology.”

The supermarkets that are shutting down are just a fraction of the more than 2,700 that Kroger operates, but any grocery store that closes has an impact on the neighborhood it served. Some closures are devastating.

Two supermarkets have closed in Peoria, Ill., a city once considered synonymous with Middle America. Kroger says neither store had been profitable in over 15 years. Two food deserts have been left in their stead.

“I am not exaggerating when I say we are now in a food crisis in this zip code, 61605,” says Peoria City Councilwoman Denise Moore. “That is one of the most hard-pressed zip codes in the country, let alone the state.”

“There is no supermarket in the entire district,” she adds, referring to her constituency that stretches along the Illinois River and cuts through Downtown Peoria. The district was home to Caterpillar Inc.’s corporate headquarters until earlier this year.

Moore worries about residents not only losing access to healthy food, but also to the store’s pharmacy and Western Union facility, where people without bank accounts can pay their bills.

The company is also shelving store expansions at two of Peoria’s other Krogers.

Another city, Memphis, was also hit by two Krogers closing. The city's mayor, Jim Strickland, took to Facebook to say he was “disappointed by Kroger's decision.”

In a potential reference to the predominantly African-American communities the stores served, he added that “these neighborhoods are no less important than any other neighborhoods in our city, and citizens who live there absolutely deserve access to a quality grocery store.”

The impetus for the closures may be financial, but residents have noticed the affected neighborhoods’ demographics.

In Peoria, one of the closed stores, on Wisconsin Ave., served a majority-minority neighborhood. The closest supermarket now is a Save-A-Lot discount grocer in a majority-white neighborhood two miles away. Walking there from the closed store would take 44 minutes, according to Google Maps.

The other Peoria Kroger sat just outside the edge of city limits, on a highway across from a predominantly black neighborhood where 36 percent of households and 83 percent of families with children under five live below the poverty line. The store is a mile and a half from the next-closest supermarket in a predominantly white neighborhood.

Kroger didn't respond to a Memphis news station that asked last month about an effort to boycott the company, but Kroger had previously stated that each closing store in the city had lost more than $2 million since 2014. The company similarly declined to respond for this story, citing the quiet period.

In other cities, Kroger is closing in different types of neighborhoods. One location, a concept store called Main & Vine, closed in a predominantly white neighborhood in suburban Seattle where the median household income is $82,000. The store went dark less than two years after it opened.

Kroger is said to be eyeing potential e-commerce acquisitions. Online bulk seller Boxed reportedly rejected a bid from Kroger, and the company was said in January to be considering an offer for Overstock.com. Kroger was also reported to be weighing a partnership with Alibaba, China's largest e-commerce site.

At its supermarkets, Kroger is rolling out a scan-as-you-shop system to 400 stores called “Scan, Bag, Go.” Available as a phone app or a dedicated handheld device, it will eventually let customers transact their own payments, too, so shoppers can just walk out with their items.

The sudden ramp-up of “Scan, Bag, Go” came after Amazon teased Amazon Go, Amazon’s newly opened convenience store with “just walk out” technology, which uses cameras and sensors to eliminate checkout lanes.

But just because retailers offer new technology doesn't mean shoppers will use it. Earlier pilots of grocery scanning apps failed to gain traction. And mobile payment systems like Apple Pay and the newly rebranded Google Pay aspire to be the future of commerce, but three years after they first launched, everyday usage remains stubbornly low, according to data from PYMNTS.com, an industry journal.

Kroger is also expanding its online grocery service, called ClickList, which is now available at over 1,000 of the company’s approximately 2,800 grocery stores. Amazon is rolling out free two-hour shipping for Prime members at Whole Foods.

Kroger-owned stores known to have closed or be closing since the start of the company's fourth quarter include:

Tucson, AZ: Fry’s at 3920 E Grant Rd.

Savannah, GA: Kroger at 14010 Abercorn St.

Peoria, IL: Kroger at 2321 N Wisconsin Ave.

Peoria, IL: Kroger at 3103 W Harmon Hwy.

Mitchell, IN: JayC at 1240 W Main St.

Jackson, MI: Kroger at 3021 E Michigan Ave.

Clarksdale, MS: Kroger at 870 S State St.

Charlotte, NC: Harris Teeter at 16405 Johnston Rd.

Columbus, OH: Kroger at 3353 Cleveland Ave.

Portland, OR: Fred Meyer at 5253 SE 82nd Ave.

Memphis, TN: Kroger at 1977 S 3rd St.

Memphis, TN: Kroger at 2269 Lamar Ave.

Brownwood, TX: Kroger at 302 N Main St.

Plano, TX: Kroger at 4836 W Park Blvd.

Gig Harbor, WA: Main & Vine at 5010 Point Fosdick Dr. NW

Cudahy, WI: Pick ’n Save at 5851 S Packard Ave.

1000 store closures have been announced in the past two weeks. Follow @mitchnolen to get updates and @Petition for news about disruption, generally.

Ad Agencies Get Hammered (Short Don Draper)

Changes Afoot as Large Corporates Like P&G Shift Spend

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Draper never would’ve made it in the age of #MeToo anyway.

This week, Proctor & Gamble ($PG) announced that it cut its digital ad spending by approximately $200mm, a shot across the bow of certain undisclosed big ad players (cough, Google) and a major blow to the middlemen ad agencies that seem to be caught in a maelstrom of disruption. Back to that in a sec. More on P&G,

P&G, however, has not cut overall media spending. Funds have been reinvested to increase media reach, including in areas such as TV, audio and ecommerce media, a company spokeswoman told Reuters.

Not yet, anyway. P&G intends to cut an additional $400mm in agency and production costs over the next 3 years. In so doing, they’re also going back to the old school after realizing that the 1.7 seconds of eyeball view time doesn’t necessarily translate into sales. Podcast producers take note.

So what about those middlemen? Judging by WPP’s 10% stock price plummet this week ($WPP), investors are bearish. WPP is a British multinational advertising and public relations company besieged by the ease with which advertisers can publish directly on Facebook ($FB) and Google ($GOOGL) and, in an instant, receive performance metrics. Ad agencies, therefore, are no longer needed as much to connect brands with end users. Per the Wall Street Journal:

For their part, big ad agency companies that have traditionally bought advertising space on behalf of marketing clients are under pressure to reinvent themselves to remain relevant as the industry changes. Advertisers are demanding that their agency partners be more transparent about media-buying, so it is clear that agencies are getting the best possible deal for the clients and aren’t receiving rebates from sellers.

Disrupting kickbacks too? Rough.

Is Digital Media in Trouble?

Don't Sleep on Digital Media "Distress"

Last week we announced that we'll be rolling out our Founding Member subscription program in early '18. The response was overwhelmingly positive with many of you reaching out and essentially saying "what took you so long." That warmed our heart: thank you! We look forward to educating and entertaining you well into the future. The timing fortuitously dovetails into a general narrative about the state of digital media today. 

For instance, is it fair to characterize Mashable as a distressed asset sale? Well, the company - once valued at $250mm - is reportedly being sold to Ziff Davis, the digital media arm of J2 Global Inc., for just $50mm. So, what happened? New capital for media companies has dried up (unless, apparently, you're Axios) amidst weakness in the ad-based business model. With Google ($GOOGL) and Facebook ($FB) dominating ads to the point where even Twitter ($TWTR) and Snapchat ($SNAP) are having trouble competing, digital media brands are feeling the heat. Bloomberg highlights that at least a half dozen online media companies - from Defy Media (Screen Junkies, Made Man, Smosh) to Uproxx Media (BroBible) - are also considering sales to bigger platforms. Indeed, in an apparent attempt to de-risk, Univision is ALREADY reportedly trying to offload a stake in the Gawker sites it recently bought out of bankruptcy.

Which is not to say that bigger platforms are killing it too: the Wall Street Journal reported earlier this week that both Buzzfeed and Vice will miss internal revenue targets this year. Oath, which is Yahoo and AOLbinned 560 people this week. Of course, those in the distressed space know that one's pain is another's gain. To point, Bloomberg quotes Bryan Goldberg, founder of Bustle, saying "Small and more challenged digital media companies have been hit hard. This is a time for companies with cash flow and capital to start acquiring the more challenged digital assets." That sounds like the mindset of a distressed investor: the buyside and sellside TMT (telecom/media/technology) bankers must be licking their chops. Back to restructuring, these sorts of mandates may be decent consolation prizes for those professionals not lucky enough to be involved with the imminent bankruptcies of (MUCH larger and obviously different) media companies like Cumulus Media ($CMLS) and iHeartMedia Inc. ($IHRT), both of which are coming close to bankruptcy (footnote: click the iHeartMedia link and tell us that that headline isn't dangerous in the age of 280-characters!). For instance, Mode Media is an example of a digital media property that failed last year despite at one time having a "unicorn" valuation (based on $250mm in funding), a near IPO, and tens of thousands of users. It sold for "an undisclosed sum" (read: for parts) in an assignment for the benefit of creditors. Scout Media Inc. filed for bankruptcy in December of last year and sold in bankruptcy to an affiliate of CBS Corporation for approximately $9.5mm. Not big deals, obviously, but there are assets to be gained there. And fees to be made. 

In response, (some) digital media brands are looking more and more to subscribers and less and less to advertisers in an effort to survive. Longreads' "Member Drive," for example, drummed up $140,760 which, crucially, it'll use to pay writers for quality long-form content. Ben Thompson has turned Stratechery into a money-making subscription-only service; he told readers that they're funding his curiosity and their education. Indeed, his piece this past week on Stitch Fix ($SFIX) may have, in fact, impacted sentiment on the company's S-1 and, in turn, the company's IPO price. These are only two of many examples but, suffice it to say, the "Subscription Economy" is on the rise

Which is all to say that our path is clear. And we look forward to having you along for the ride. Please tell your friends and colleagues to subscribe TODAY: existing subscribers will get a preferential rate.

Amazon's Disruptive Force...

...Is Industry & Asset-Class Agnostic

Scott Galloway likes to say that Amazon simply needs to make a simple product announcement and the market capitalization of an entire sector - of dozens of companies - can take a collective multi-billion dollar hit. On a seemingly weekly basis, his point plays out. Upon the announcement of the Whole Foods transaction, all of the major grocers got trounced. Upon news of Amazon building out its delivery infrastructure, United Parcel Service Inc. ($UPS) and FedEx Corporation ($FDX) got hammered. Upon news that Amazon was getting into meal kits, Blue Apron's ($APRN) stock plummeted. This week it was the pharma companies that got battered on the news that Amazon has been approved for wholesale pharmacy licenses in at least 12 states. It was a bloodbath. CVS Health ($CVS) ⬇️ . Walgreens Boots Alliance ($NAS) ⬇️ . Cardinal Health ($CAH) ⬇️ . Amerisource Bergen ($ABC) ⬇️ . Boom. (PETITION NOTE: obviously impervious - for now - are the ad duopolists, Alphabet Inc. ($GOOGL) and Facebook Inc. ($FB), both of which, despite news that Amazon did $1.12b in ad revenue this quarter, had massive bumps on Friday).* Luckily there isn't an ETF tracking doorman and home security services because if there were, that, too, would be down this week

What Galloway has never noted - to our knowledge, anyway - is the effect that Amazon's announcements have on the leveraged loan and bond markets. Remember that Sycamore Partners' purchase of Staples from earlier this year? You know...that measly $6.9b leveraged buyout? Yeah, well, that buyout was financed on the back of $1b of 8.5% unsecured notes (issued at par) and a $2.9b term loan.Ah...leverage. Anyway, investors who expected that the value of that paper would remain at par for longer than, say, 2 months, received an unpleasant surprise this week when Amazon announced its "Business Prime Shipping" segment. According to LCD News, the term loan and the notes traded down "sharply" on the news - each dropping several points. Looks like the "Amazon Effect" is biting investors in a variety of asset classes.

One last point: this is awesome. Maybe the future of malls really is inversely correlated to the future of (livable) warehouses. 

*Nevermind that Amazon's operating income declined 40% due to a 35% rise in operating expenses. Why, you ask, are operating expenses up? How else could Amazon be poised to have half of e-commerce sales this year?
 

The (Hard) Business of Eating

Long VC Subsidies & Facebook's Copying Skills

Generally speaking, there are four categories in the dining space. First, there are the QSRs (quick service restaurants). Your run-of-the-mill fast food spots fall into this space. For the most part, these guys are doing okay: McDonald's ($MCD) and Wendy's ($WEN), for instance, have both seen great stock performance in the TTM. Second, there's the fast casual space. Competition here is fast and furious covering all manner of ethnicities and varieties. Chipotle ($CMG) and Panera Bread are probably the two best known representatives of this category. The former has gotten SMOKED and the latter got taken private. Generally speaking, there'll be some shakeout here, but the category as a whole has been holding its own. Third, there's the fine dining space. This is a tough space to play in but there are clear cut winners and losers (Le Cirque, see below): not a lot of chains fall in to this category. And, finally, there is the casual dining category. Here is where there's been a ton of shakeout. This past week, for instance, Ruby Tuesday Inc. ($RT) - the ubiquitous casual dining restaurant loosely associated with bad New Jersey strip malls - got bailed out...uh, taken private by NRD Capital at a fraction of its once $30/share price. (There was some assumed debt, too, to be fair). Moreover, Romano's Macaroni Grill filed for chapter 11 bankruptcy. In RMG's bankruptcy papers, the company's Chief Restructuring Officer said the following, "The Debtors’ operations and financial performance have been adversely affected by a number of economic factors, but perhaps most notably by an overall downturn for the casual dining industry. The preferences of such customers have shifted to cheaper, faster alternatives. On the other end of the spectrum, there is a trend among younger customers to spend their disposable income at non-chain “experience-driven” restaurants, even if slightly more expensive." No. Bueno. See below for a more in-depth (and slightly repetitive summary) of this particular bankruptcy filing. 

Unfortunately, the restaurant world received some other (slightly under-the-radar) bad news this past week: UberEATSUber's food delivery service, reportedly generated 10% of the company's total global bookings in Q2 - which, extrapolated, equates to $3b in gross sales for the year. That's a lot of food delivery to a lot of people sitting at home doing the "Netflix-and-chill" thing instead of the eat-microwaved-mozzarella-sticks-at-the-local-Ruby-Tuesday-thing. Of course, this is attributable to Softbank and other venture capitalists who are subsidizing this money-losing endeavor: UberEATS is unprofitable in 75% of the cities it services. On the other hand, do you know what IS profitable? Facebook ($FB). Yeah, Facebook is profitable. And Facebook is going after this space too; it released its plans to get into the online food ordering business earlier this week. And many suspect that this may be a precursor to a foray into food delivery as well. Why? Perhaps Mark Zuckerberg saw Cowen's prediction that US food delivery would grow 79% in the next several years. Delivery or not, anything that helps make online food ordering easier and more mainstream is an obvious headwind to the casual dining spots. Given that this area is already troubled and many casual dining spots have already fallen victim to bankruptcy, there don't seem to be many indications of a near-term reversal of fortune. Headwinds for the casual dining space correlate to tailwinds for restructuring professionals. Sick? Yeah. Sad? Sure. But true. 

Platforms

The retail disruption plot thickens.

Facebook doesn't break out numbers for Instagram, but there are increasing signs that it is becoming a beast for driving retail sales. Yep, Instagram

As we foreshadowed last week, we find the continued evolution of digital platform-based retail interesting. This week, Bloomberg highlighted how Instagram is "kill[ing] the retail store," noting how more and more entrepreneurs rely on the platform to sell their wares. Brick-and-mortar is merely a complementary channel, used mainly to create brand awareness and otherwise create an aura of scarcity and, well, "cool." Choice quote: "We make sure that our products are sold out quickly through retailers...[w]e create rarity, and then - boom! - we have waves of clientele coming to our website directly, no middleman necessary." No. Middleman. Necessary. Explains a lot, doesn't it?

It is a bit ironic, though. Because the middleman is increasingly the digital platform rather than the brick-and-mortar retailer. And Instagram will eventually figure out a way to monetize the fact that it maximizes "discovery."

In the same vein, other retailers are increasingly using WhatsApp (Net-a-Porter) and iMessage (Coach) as sales channels, highlighting that "conversational commerce" drives higher volume. Indeed, other brands like PatagoniaEverlane and Coach are abandoning their own (expensive-to-maintain relative to value added) native apps, opting to explore further the potential of leveraging the aforementioned platforms as well as others, like Facebook Messenger and WeChat. Which is to say that these platforms are becoming more and more meaningful in the overall retail story and it is not just Amazon eating the world - a somewhat lazy and partially inaccurate narrative too often relied upon by restructuring professionals.

A Look Forward

Right before the holidays, Benedict Evans of the venture capital firm Andreesen Horowitz released a fascinating presentation called "Mobile is Eating the World." It's a long presentation - roughly 31 minutes - but well worth reviewing if you have the time. We here at PETITION think there are a lot of nuggets within it relevant to the restructuring industry. After all, technological advancement and disruption help create the industry's client pipeline. Here is a brief summary with some editorial mixed in:

Overview

  • We are halfway to connecting everybody. There are 5.5 billion people over 14 years old, close to 5 billion people with mobile phones, and about 2.5 billion smartphones. The latter number is quickly headed to 5 billion.
  • Mobile has accelerated past the PC, which is now flat-lining at around 1.5 billion units.
  • Each new technology follows an S-curve (creation-to-deployment) and is then passed by a new technology. Mobile is transitioning now from creation to deployment. 
  • With this transition comes a new kind of scale. Google, Apple, Facebook and Amazon ("GAFA") have 3x the scale ($450b annual revenue) that Microsoft and Intel had in their heyday ($150b annual revenue). Microsoft saw 14x growth when it was dominating tech in the 90s and subject to mass regulatory scrutiny; GAFA's growth is 10x that now. 
  • In 1995, Microsoft was not even the biggest company on the stock exchange. Now Microsoft and GAFA are the top five companies on the exchange. 
  • This size drives more capex: $1b of capex in 2000 vs. $30b of capex in 2015. Tech has so much more scale now: GAFA are giants of the ENTIRE economy, not just tech. 
  • Which has implications: Apple is the 10th largest retailer in the world with $53b in revenue across e-commerce and 500 stores. Netflix has the fourth largest entertainment production budget in the world. Amazon has the sixth - even though its content is just a feature to drive its core product: Prime. These "tech" companies, therefore, are fundamentally impinging upon other industries. Another example: Google, Amazon and Apple are now making custom chips for their own products rather than sourcing externally from the likes of Intel. 

New Ways to Compete - Artificial Intelligence & Machine Learning

  • The scale of 5 billion mobile users and the scale of GAFA are leading to new ways to grow and compete.
  • And machine learning is steroids. As just two examples of the rapid progress in machine learning, image recognition has gone from a 28% error rate to 7% and speech recognition from a 26% error rate to 4%. This is all enabled by mass data and more powerful computing power. 
  • And so everything in tech is being refocused from mobile to mobile+AI, particularly with the realization that there are cameras everywhere, capturing images that serve as data that are now more intepretable than ever.
  • GAFA is rushing to build the engineering and cloud storage systems to enable optimization of this data. 
  • Meanwhile, technology design is removing friction, questions and administration which, in turn, changes choices. Think Amazon Echo. So, better design and frictionless decision-making is feeding more and more data.
  • All of this gives GAFA the power to (further) change other industries...

Example 1: E-commerce

  • Everything the internet did to media will happen to retail, where there'll be a breakup of old bundles and aggregators (albums, magazines, newspaper, store, shopping district, mall). And so now we consume in different ways.
  • So far ecommerce mostly just gives consumers stuff we already knew we wanted.
  • E-commerce is 10-12% of US retail revenue, with Amazon representing at least 2-6% of that: but it mostly just gives you what you already know you want. Despite this limitation, Amazon is now the fourth largest apparel retailer in the USA: not online, OVERALL. Walmart, Macy's, TJ, Amazon, Gap, Kohls, Target, L Brands, Nordstrom, JC Penney (by '15 revenue). And those reading PETITION regularly know how well some of these names are faring - or NOT. 
  • The internet lets you buy, but it doesn't let you shop. No real suggestion or discovery.
  • To fill this gap, the first response to this is advertising and marketing which is $1 trillion a year, $500mm is ads (digital and Google ads).
  • But now we ask the Amazon Echo to buy more soap and this means we may never make a brand decision again. This disintermediates the ad agency, Walmart and P&G, etc, and changes the whole chain of how something gets to you, the consumer.
  • Meanwhile, new businesses can get something to you with way less investment.
  • Machine learning can give you "scalable curation" based on the data that you feed it.
  • Today you have to go to a store to know what you'd like without seeing it. Now you can use machine learning to give this to you.
  • Data is working through retailing: supply chain and logistics moved to advertising and digital metrics and then demand based on data, social, etc. Walmart used logistics to change what retail looked like. Amazon now doing that with AI. $20b retail opportunity potentially disrupted. 

Example 2: Cars

  • Cars are becoming like phones with all of the important aspects becoming commoditized and the key being the software.
  • Removing the engine and transmission destabilizes the car industry and its suppliers - but it doesn't change how cars are used much.
  • Autonomy, however, changes what cars are and changes cities.
  • Electric is about the battery cost curve. Complex proprietary gasoline engines and transmissions disappear and replaced by simple commodity batteries and motors, 10x fewer moving parts: all aspects of auto manufacturing and energy use are implicated by this development. 
  • Scale, design and brand still matter but the real value moves up the stack into the software and move to autonomy. Leading tech companies now spend as much on capex as car OEMs. 
  • Where are we now on the 1-5 autonomy scale: we are at Level 3. Level 5 is 5-10 years away. Batteries and sensors increasingly are commodities. The key is the software and the AI-powered data to feed it.
  • Once you have that and take the steering wheel and engine out you have totally new types of vehicles and new uses. Obvious impacts: oil production and safety (1.25mm annual road deaths). Second order effects: what happens to engine servicing industry, machine tooling industry, storage, gas stations, gasoline taxes, municipal parking revenues, police forces? What happens if there's no parking or congestion? What happens to housing, logistics, commercial real estate, trucking, ownership of cars, insurance? 
  • And what incumbent companies and municipalities file for bankruptcy as a consequence? This is not science fiction: society will soon need to address these questions...