Four more predictions for 2017
Last week a reader told me that six predictions for 2017 weren't enough and that I owed him four more, so here they are.
Prediction #7 - Not the demise of Bitcoin, but finally an acceptance of what the crypto currency is (and isn't). My son Cole, who is 12 (and now taller than me), was for awhile a Bitcoin miner. We bought a used Ant Miner last year on eBay, equipped it with a proper power supply and set it going 24/7 in the Man Cave, where most boyish things happen around here. The rig was incredibly loud and - after the first electric bill arrived - totally uneconomic. We were paying twice as much for electrons as Cole was receiving in Bitcoins for his labor. Anyone with a robust solar installation want to buy an Ant Miner?
Then a few weeks ago Bitcoin prices started to rise again and I saw Bitcoin stories with headlines like Too Big to Fail. Yet what goes up seems to inevitably come down because Bitcoin prices crashed yet again a few days ago. This led me to a realization that I think is going to become popular: Bitcoin is an excellent transfer currency but as a longer term store of value it sucks and that isn't likely to change.
Bitcoin is a great idea, blockchain is an even better idea, but since neither is backed by the full faith and credit of, well, anyone, a Bitcoin will always be a sorry substitute for a dollar or a yen. The price of Bitcoins will rise as folks in China find the need to use them to get money out of that country. But when their money finally is out of the China it is inevitably converted straight into dollars and the Bitcoin crashes as a result. So there may be some cyclical arbitrage opportunity in Bitcoins, timing the market to take advantage of the suckers, but as a true currency, Bitcoin will probably never cut it.
This says nothing about technical merit, mind you. What matters here is psychology and behavior. It's the "full faith and credit" thing. Without it Bitcoin can't be trusted to be any more than a short-term monetary value mule.
And we've seen this effect before. PayPal would love if we'd leave our nominally dollar-denominated savings deposited in PayPal and storied in the form of, I guess PayPals or whatever you'd call them. But most people don't carry a PayPal balance of any note, either. PayPal's recent policy about this has changed a bit and I think that, too, is a psychology experiment. It used to take three business days to get PayPal money into your bank account but that time just switched to one business day. Much better, but I doubt that anything technically changed in their system. Rather PayPal probably figured out that the best way to get people to keep at least a small balance in PayPal wasn't to make it difficult to take money out but to make it easier. If you can get it in a day, well then why even bother to move the money? You'll just end up needing it to buy something with, anyway.
Prediction #8 - Apple Video. According to the Wall $treet Journal Apple is adding some original video content to its Apple Music streaming service. I think this presages a new - yet to be announced - Apple video service.
Apple appears to be doing a modified version of Amazon's Prime strategy. Subscribe to Prime and, in addition to two-day shipping, you get thousands of hours of video to stream. Subscribe to Apple Music and you'll (eventually) get thousands of hours of video. Or not"
Netflix and Amazon Prime each have about five times as many subscribers as Apple Music, so that's the target. If Apple reaches 100 million subscribers (from the current 20 million) that will mean $1 billion in revenue per month with some amount of that available to support video. But not very much, actually, if we remember Apple likes high margin businesses and they are already paying the musicians from that same $10. So this addition of original video programming to Apple Music is unlikely to change it into a Netflix competitor despite what the Wall $treet Journal has to say. More likely it's a marketing tool. Throw a little video into Apple Music and use that to boost subscribers and prepare the world for the real service which I predict will be called Apple Video.
Apple Video will cost another $10 ($10 just for video on top of $10 for music if it is a combined product, which I frankly doubt) if they go head-to-head with Netflix or $20+ more if they decide to add live network content and compete with the new OTT cable providers. My guess is that Apple will offer both types of services. Netflix now has a $6 billion budget for video of all kinds (original and licensed) so Apple will have to spend the same to compete. Apple can afford to spend that kind of money with confidence that the audience will eventually grow revenue.
So in terms of business impact on the video production (originals) and movie industries we can see an additional $6 billion in revenue from Apple having two impacts over the next couple of years. It will grow the business but also push prices higher because this is $6 billion in additional demand. Notice I don't include television revenue in this number because that's OTT revenue from essentially carrying existing networks like broadcast, HBO, etc. It's a different pool of money that will eventually be about the same size - another $6 billion if Apple is successful. And why shouldn't they be successful? They have the money, have the style, have 20 million Music subscribers and 200 million credit card numbers. There will be multiple OTT success stories and Apple is well positioned to be one of those.
Half of my audience wonders what this means for Apple shares? Well 100 million subscribers at $20+ per month is at least $24 billion per year and definitely a business worth Apple's time. Say they are able to maintain their current margins of about 38 percent that means an extra $9 billion in profit per year. At Apple's historic P/E ratio of about 13 that should add $118 billion in market cap, which is interesting because that's more than Netflix is worth today. THAT's why it makes more sense for Apple to build rather than just buy Netflix, though there's an extra risk in doing so. An extra $118 billion in market cap would take the stock, currently at $122, to $144. That's not Earth-shaking but it IS progress and solid growth almost without regard to what happens with the rest of the market, which could be key over the next couple years of market uncertainty.
Prediction #9 - The rise of inter-cloud services. We're in our second consecutive Year of the Cloud with this one bigger than the last and every cloud provider business plan is pretty much the same: use my cloud, it can do everything you need to do. Every cloud is a silo so if you choose Amazon's cloud that means you pretty much aren't choosing Google's or Microsoft's.
But why would you want to choose Google or Microsoft if Amazon was already doing so well? It's that eggs and baskets thing, again. While there are efficiencies to be gained by choosing a cloud provider and sticking to that choice, what happens when there is a big service outage? You and your customers are screwed.
I'm beginning to think all these cloud monopolies aren't natural and are likely to fail over time. This is not to say that the companies or the clouds, themselves, will cease to exist. What I mean is that a new class of startups is coming that will undermine cloud solitude in order to benefit cloud service and security overall.
Maybe it's a backup service from one cloud to another in a few seconds. Maybe it's just capacity planning and failover, but I think startups will be showing us how to link databases and the code between genetically dissimilar clouds just to keep everything working in times of stress. It's inevitable and 2017 is the year this will happen.
Prediction #10 - Nobody wins the Google Lunar X-Prize. Just yesterday the X-Prize Foundation announced that there are five teams still left in the running for the Google Lunar X-Prize (GLXP), which is scheduled to be finished one way or another by the end of this calendar year. There were by my calculations, only two GLXP teams that had an even remote chance of winning - SpaceIL from Israel and the Part-time Scientists from Germany. Well the Part-time Scientists didn't make this week's short list and that's the only real news. Maybe their backer, Audi, didn't want to pay the big bucks for a Falcon 9 launch, I simply don't know. But the departure of the Germans was a surprise to me.
To win, a team has to have both a viable launch and a viable lander. At the moment it doesn't appear to me that any team has both. Some, like Moon Express, actually have neither. Their ride to space isn't tested and if they have a lander nobody I know has actually seen it. The Indian and Japanese teams seem to have a viable launch but no finished rovers to carry on that launch. And poor SpaceIL, which had both a lander and a launcher in SpaceX, seems to have recently lost their launch through no fault of theirs. It is possible the Israelis will find another launch in time but far from guaranteed.
What's happening with SpaceIL is their Falcon 9 launch slot was reclaimed by Spaceflight, the company that aggregates and resells excess launch capacity, so this doesn't directly have anything to do with SpaceX, itself. One explanation is that Spaceflight found more lucrative passengers for that launch but I don't know if that's the real reason. SpaceIL required a large fraction of the mission's launch capacity, not because they are so large, but rather because they required the F9 upper stage to inject them into a high elliptical orbit (thus limiting mass available for payloads into Low Earth Orbit). Spaceflight has told at least one person that they were just not confident that the SpaceIl lander design could tolerate the launch. It sounds weird but that's one story. It makes SpaceIL unhappy, but I don't think that they have too many options, though Spaceflight says they are still looking for SpaceIL another 2017 launch.
These secondary launch contracts are pretty vague, giving Spaceflight lots of flexibility in how to satisfy the launch contract in other ways. At some point if Spaceflight does not provide the launch by then, it would have to return the payment, but that is a while away,So I'm predicting nobody makes it to the Moon this year. And Google, which is sick and embarrassed by this whole mess, has made it clear that at the end of 2017 the GLXP will disappear forever, so get over it.
Of course this reads nothing like this week's many GLXP news stories on the subject. Alternative facts? Nope, Im just trying to be a realistic prognosticator.
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