27 April 2016

Dr. Gordon Was Right

As mass production has to be accompanied by mass consumption; mass consumption, in turn, implies a distribution of wealth -- not of existing wealth, but of wealth as it is currently produced -- to provide men with buying power equal to the amount of goods and services offered by the nation's economic machinery.
-- Marriner Eccles
This quote is part of the permanent preamble to one version of these endeavors. Today's essay was going to deal with the Death of Apple, but, of course, Apple isn't dead and a more interesting bit of reporting passed by my eyeballs.

To wit, this piece by Randall Stross on who's to blame for the Theranos fiasco. In a nutshell, the real quants figure out the snake oil, while the fools did not.
Part of the company's appeal was the familiar origin myth of Theranos's founder, Elizabeth Holmes, who, like Bill Gates and Mark Zuckerberg before her, dropped out of college in order to found her company.

That might impress some social media investors, but in life sciences, everyone puts in years of formal study just to earn a seat at the table. For example, at MPM Capital, a venture firm that invests in life sciences, almost every one of its 20 investing directors and partners has either a Ph.D. or M.D., and one has both. Even the general counsel has a Ph.D. in cell, molecular and developmental biology.

Real quants are difficult to flummox: the scientific method matters in science, but not so much in web driven social networking apps. There's a reason dropouts can get rich doing the obvious: their limited vision makes the obvious appear unique. Real science doesn't give a rat's ass about such playthings.

So, back to Apple. I, proudly, was/am in the orbit of Dr. Gordon's book, and have mused about the relevance of his conclusions (mine, too, and long before I read the book). One phrase that he repeats, in various forms, throughout the book is, "it could only happen once". My standard example is the periodic table; in three ways. First, humans don't invent elements (molecules, yes), we merely find them. Second, once we have found all of them, we have hit a wall of infinite depth and infinite density. They ain't no mo, Billy Bob. And, third, as we found new elements, we devised new devices. The transistor wouldn't be possible before the discovery of germanium: "Historically the first decade of semiconductor electronics was based entirely on germanium." Without new elements to find, the momentum to make new devices ebbs. We are in that perpetual future.

The same is true of iPhone. Not the first smartphone, but Apple had cornered the supply market of cap touch screens, so they had that sort of smartphone to themselves for a couple of years. A natural monopoly, commercially created. Also note that iPhone was the first, and only, product that moved Apple's revenue/profit needle. Ever. It can only happen once. The TAM is satisfied. Eccles must be grinning from ear to ear.

Some, perhaps most, of Apple zealots keep bleating about how Watch will be the next iPhone, what with all of these (not yet specified, of course) whiz-bang new sensors. Most of them health related. Tim and Elizabeth are getting married. There is no way FDA gives Tim a blank check to sell health devices. Not going to happen, not least because the top of the wrist is just about the worst place on the body to read internal data. QED.

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