a16z Podcast - 16 Minutes on the News #8: Apple Camera, Services; Wearables - Where are We

Episode Date: September 16, 2019

with @benedictevans @vijaypande and @smc90 This is episode #8 of our news show, 16 Minutes, where we quickly cover recent headlines of the week, the a16z way -- why they're in the news; why they matter from our vantage point in tech -- and share our experts' views on these trends. This week we cover, with the following a16z experts: Apple's latest event announcing new products and services across mobile, TV, and gaming; where is (and isn't) innovation happening, and what's next -- with a16z's Benedict Evans; wearables and health trackers such as Fitbit supplying services to the government of Singapore, and what it means for the hype vs. reality of the current trends of wearables (and "the quantified self"); going beyond counting steps to clinical applications and detecting comorbid conditions; strong vs. weak technologies and how to pay beyond fee-for-service to fee-for-value; and where does this all fit in a sensor-ified future? -- with a16z bio general partner Vijay Pande; ...hosted by Sonal Chokshi. The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments for which the issuer has not provided permission for a16z to disclose publicly as well as unannounced investments in publicly traded digital assets) is available at https://a16z.com/investments/. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see https://a16z.com/disclosures for additional important information.

Hi, everyone. Welcome to the A6 and Z podcast. I'm Sonal, and I'm here with this week's segment of 16 minutes, our new show where we cover recent headlines, the A6 and Z way, why they're in the news, why they matter from our vantage point in tech. This week we cover two topics, the trend of wearables given recent news well beyond Jesse Apple Watch, and we also quickly cover recent Apple event announcements and what they mean for mobile TV and so on. But first, if you're liking this new show, I wanted to let you know that you can subscribe to 16 minutes separately wherever you like to get your podcasts. So you can have all eight episodes so far, conveniently right there to listen to in the app of your choice. Also, a heads up that in a

couple of weeks, we will no longer publish 16 minutes here along with the regular A6 and Z podcast. So be sure to go and subscribe now if you want this as a separate weekly show. Thank you for listening. Okay, so the first segment of 16 minutes is on the news coming out of Apple's event this week. Let me invite our A6 and Z expert, Benedict Evans, to talk to us about what your quick take on all this is? Well, Apple has a big event this time of year, every year for over a decade, on what new iPhone is, plus some other things. And so we have new iPhones, and we have also some information about some of the services that they're launching, kind of into the realm of diminishing returns as we look at new iPhones. It's kind of more interesting to think about

where they're going with some of their services. We've had smartphones now, or multi-type smartphones as we understand them now, for something over a decade. And there's lots of great phones on the market now, and they keep getting better, but it becomes kind of increasingly boring. The new one is pretty much the same as the old one. All the obvious easy innovation has kind of happened, and there's still a few things that get done. But mostly we were kind of where PCs were 10, 15 years ago. The big place where you really can still see innovation is camera, and so Apple spent most of the time talking about cameras. And so we're still seeing kind of dramatic improvement sort of every year or two. And Apple and Google have been leaprocking

each other every year with sort of portrait mode and night mode and so on. I think the interest thing looking at that and there's a sort of telling phrase that Apple used was camera system is that this is really computational photography. So you have multiple sensors, you have the GPU, a lot of software, a lot of machine learning going on. And so it's not that there's an image sensor that's capturing an image, it's that the computer is looking at a bunch of input and generating an image for you. So you get the kind of people sort of looking at these announcements saying, ha, ha, ha, they've got lots of sensors. It's like Gillette, which is kind of a dumb reaction because actually what you're seeing here is instead of having one big sensor

in a big piece of glass, which is what you get on an actual camera. you're getting something a similar or in some cases better result by using many small sensors with also things like the gyroscope and the image and tilt sensor and so on to work out what a good image would be. I think the other side of the story

and the thing that's more interesting to talk about is all the services that Apple is building around the iPhone. And so you see that both with little bits of hardware like home pods, air pods, watch and so on and with the credit card, the subscription game service, the TV service, some of them are hardware, some of them are software, some of them are free, some of them pay, like iMessage is free.

But what they all do is drive kind of retention and repurchase of iPhones. Some of them drive high margin money, some of them drive low margin money, some of them are free. But what they're all fundamentally doing is a $7, $900 phone purchase every year, two years, three years. And so you have all these sort of supporting effects. So I was kind of sitting and looking at the event. There were kind of two things where we got really kind of new information. One of them was a subscription game service, which is, I think, $5 a month. This is Apple Arcade.

Yeah, this is the Apple Arcade, where they've rounded up something like 100 games from independent developers. And then the other thing is the, what's it called, the TV product? Apple TV Plus. I loved your tweet about how you said, what is the Apple take on this? Like, there's a clear Apple take for card. There's a clear Apple take on the watch. But, like, what is the clear Apple take on TV? Yeah, exactly.

There's something interesting if you look at, like, the Arcade or Apple News or the credit card, where you have, this is kind of a sensibility here, that you have kind of a trusted experience. So you get Apple Arcade. Now you know the games don't have weird advertising and you can trust them with your children. You get the Apple card, it doesn't have weird fees, it doesn't have weird overages,

and it kind of tries to help you build kind of more healthy attitude to your money. So there's a kind of a building narrative here about what it is to be an Apple customer and what the Apple brand promises, which is less about like, is the hardware reliable, and more is it safe,

is it a trusted internet experience? And so I thought that's kind of interesting as Apple shifting how they see the brand promise of using Apple products. The TV thing is interesting for the opposite direction because there really isn't any of that. They just went to LA. They gave a bunch of LA people some money. LA people made them TV shows. Now they're going to put TV shows on the iPhone and the iPad.

Like, okay, they're giving it to you for free for a year with every new iPhone purchase. So it's like its retention and some marketing value there. But it's kind of like saying, well, you get free pizza for a year with an iPhone. There's nothing Apple about that. There's no software experience, there's no engineering. There's not anything that they're actually doing to making it different, where even for the credit card, like they're doing different stuff to what other credit card companies do.

I was writing in a blog post about this. I kind of looked this up that it's been reported that Apple's initial budget for content for Apple TV Plus is $6 billion. The operating cash flow in 2006 was $5 billion, more or less. They announced the original Apple TV hardware device in 2006. And so Apple is like orders of magnitude bigger than they were when they first started trying to do television. But at the same time, they haven't iTunesed this.

They haven't napped at it. And I think it's kind of interesting to look at this as like the failure of the tech industry to get into television because the tech industry has been talking about changing TV for 20 years. They haven't like come in and change the TV experience, which is what a lot of people were hoping for.

And so it's kind of interesting to look at the evolution of the maturity of the product they're spending what would have been like the entire cash flow of the business to do what's now basically kind of an incremental marketing retention business around the side of the iPhone. So if we come back to the watch then, it's kind of interesting because it's like the opposite of TV because it's doing really hardcore difficult mechanical technology, software, machine learning, engineering.

Very few other companies that could make a product like the watch. They are shipping this new screen technology that allows the screen to be almost always. on. I mean, it goes dark a little bit or it turns from a white background to a dark background. The watch is like the exemplar of the integration of hardware, software, semiconductor design and everything else that Apple does better than anyone else and it's very hard for a more modular company to do.

Okay, Benedict, so bottom line it for me. How should we think about this week's recent announcement in the larger context of what's going on with Apple and all the trends you just mentioned? Well, phones have happened. Phones are boring. Apple and other people keep making great phones. but what next? That's actually not what's important anymore. And it's interesting to see Apple iterating around that product and building kind of accessories and optimization and execution

around the iPhone. The things you do around that as a way of supporting that business, meanwhile, of course, we kind of sit and think, well, what is the next product that is going to come into this world? And everyone from Google to Facebook to Apple have other projects that are going on. Okay, great. Thank you for joining this segment of 60 Minutes, Benedict. Thank you. Okay, so the next segment this week is on the news that Fitness Tracker Company Fitbit won a contract with the government of Singapore as part of the Live Healthy initiative. It's also interesting because Apple was reportedly, according to the CNBC article by Chrissy Farr, one of those vying for this contract, and not only do they have the global lead on the smartwatch market, but they actually announced this week that the latest edition has improved health monitoring and you can also access emergency calling there without a phone in hand, which arguably makes it a life-saving device. But the bigger picture here is really about the overall trend of wearables in health care.

What's hype, what's real, where are we? To help us put all this in context, let me invite our expert, A6 and Z bio general partner, VJ Ponday. Welcome, Vijay. Hi, great to be here. So let's talk about this news. Let me quickly summarize some of the more salient details. The head of Singapore's health promotion board is partnering with tech and health companies, which is why the residents there can now register for FitBits.

It's the same plan that they actually have for employers. You get the device, which you can wear on your wrist, or even on a clip like inside your bra strap for free, but you have to commit to a service that also offers coaching and other stuff. And it tracks everything from calories burn and heart rate to sleep stages. To me, this is interesting because Singapore has a population of 5.6 million, and they think this could reach at least one million of those people. So that's the specifics.

There's a lot of interesting aspects of this. So first off, Singapore is just a great place to try out new technology. The nature of the healthcare system being this integrated system, and it being a sovereign state but not huge means that they can really push innovation the way other people can't. I agree. And by the way, Singapore has a long history

of experimentation in general. Yes. And so they're a very natural sort of leading indicator for where other people may go. And so, you know, if you looked at the way they're thinking about this, they really want Singaporeans to adopt

a healthy living and to affect behavior change. And, you know, one of our essential theses that we think about is that tech is a great way to change behavior. And so now the question is, what's the right thing? And it's common to, like,

think about things like 10,000 steps, there's really not a lot of basis in 10,000 being a magic number that comes from marketing literature more than clinical literature. And it's nice because it's simple and it's easy to compete with. But it really is a very little medical basis for that number or that metric to be the thing to look at. Well, quite frankly, there's been a lot of hype about wearables. People have been talking about, oh my God, people are going to do this, you're going to get data from this and that. And the reality is there's no good way of surfacing the data from wearables. It's honestly really early adopters where the concept of the quantified self comes in. It's about taking empirical tracking and data gathering tools to better reason about what

works and doesn't work in our bodies to help us solve problems. That trend has been around for years, but hasn't really gone mainstream or gotten widespread adoption. I think the real advantage that we're starting to see is that these new devices are moving way beyond step counting into much more clinically relevant measurable. That is part of the difference between quantified self and earlier attempts than what we have now. We actually have the ability now to measure a lot of different things. And to imagine that on millions of people with longitudinal data like, you know, every hour, every minute, that's a data set that really is unheard of. And just to really concretely make real what longitudinal means, because that term gets thrown about a lot, what that really means is that

you're essentially setting a person's baseline for themselves at an individual level, because right now those things are normed on things that are not baseline to say, me, sonal, child. or UVJ plan. That's right. So if I have repeated measures over a long period of time, I can compare like 10 years from now what it should be relative to my own personal baseline. Without any information, all you can do is compare it to the population and pick population averages.

But people are so variable that having this type of data on the individual is really invaluable to really understanding how the individual is doing. Are they getting better? Are they getting worse? And especially are there some more severe changes that can be detected. And then let's go back to why wearables, why now? What are the factors or key industry shifts that make you think it may be more ready now versus before? Yeah, I think there's going to be a lot of different ways to get at that.

So gamification is a very natural one, I think. Maybe a good example outside of wearables is something like the Peloton. Uh-huh. The bike. Yeah, so you could like get a bike anywhere. But the reason why the Peloton is so powerful is that it enables behavior change. A, it's a feeling of like you're being this class and you've got this coach sort of trainer sort of on you. But also you're seeing everyone else's statistics.

And a little bit of competition often drives people. And, you know, there's other different ways. You can imagine also various insurance companies could have discounts. If you're going to save, like, you know, a couple hundred dollars or insurance, maybe then actually that'll change your perspective. A second wind would be compliance. What do you mean by that? From a medical point of view, we're talking about adherence to a doctor's wish, whether

this would be compliance to taking a drug or some behavior. If you talk to doctors, actually a lot of them will say, hey, you know, it's nice to think about fancy new cures, but I wish people would just do what I ask. I wish that people would just take the medicine they ask or just do what they ask in terms of eating better and exercising. And you think about one of the greatest challenges that are facing this country and the world is something like type 2 diabetes. I think about preventing that kind of the way we thought about sanitation a hundred years ago. So no one should die from not having sewers. No one should die from type 2 diabetes.

And so what does this new sanitation look like? What does this new infrastructure look like? Apple set up the watch to be a platform. And so we are starting to see companies come in and create health apps on that platform. So a great example is one of our portfolio companies, Cardiogram, that actually has an app that not only can detect atrial fibrillation, but the ability to measure the nature of your heart actually opens the door to not just heart-related things, but any sort of comorbidities. Their previews studied demonstrated that the Apple Watch can actually predict type 2 diabetes, hypertension, and sleep apnea. And actually, medically, this makes sense because there is a connection to all these things.

And so once we start being able to go beyond steps, now we're getting actually into a really interesting area. But it's really kind of amazing that this device that's sitting on your wrist was sort of a platform. And the app ecosystem takes those components and figures out interesting things to do. They were wise enough to put enough sensors on it to see, okay, people, let's see what you can do.

So you mentioned sensors. So let's talk about the significance of that here. Well, you know, I think the key significance is that this is all about measurement, right? This is about getting this data that we could not get any other way. So I'm going to still have you convince me harder, though, because data is also the hurdle over which people never seem to get past the early adopter wearables hype to the reality of mass adoption. What do you think it's going to take to really take it from data, not just for hobbyists, to the next step of data for diagnostics, and then even a step further to potentially therapeutics being designed in this world? This is where actually machine learning will play a very natural role. So either you can connect to their medical records, as you probably could in Singapore, then you'd have millions.

and millions of label data points where you have sort of inputs from sensors and the connection to what this means medically. But also, there's a lot of interesting things that you can do with semi-supervised where you have a bunch of unlabel data, but a few data points with labels. You spike in a few healthcare records for some people. And basically, you can understand the landscape by having all these data points, and especially a lot of the rare cases. That's actually really fascinating because I think that is one of the biggest differences in terms of answering and thinking about the question of what's different now. versus before with the first waves of hype around wearables, is that machine learning has come

of age. Oh, dramatically. In order to deal with all the data, finally. Yeah, absolutely. I think the next level from compliance would be towards prevention. So this is, can the wearable identify issues before you would start to have symptoms? Now, the pros of this is that, you know, if you have a serious issue, an ability to detect that early, is huge.

And actually, there are many, many people that are either pre-diabetic or have type two diabetes that don't realize it. And so getting that type of information is key. Now, the concern that everyone's going to have is that will there be false positives? I was about to say it's like type two errors because you're essentially creating a false, you have it when you don't. Now, of course, I would much rather have that than not find out. Well, it all depends on like what is the result of that false positive. If the result of that positive is behavior change, if the result is that next time you have a conversation when the doctor, you bring these things up, that's not necessarily bad.

I think as long as the false positive leads to something that does not put a burden on the health care system. then even those are not necessarily a bad thing. So then I have a question about who pays for all this. So how does this work? So in the case of the government of Singapore, they're asking for a commitment from users to do a subscription, which is part of FitBits move into subscription and services and their way of monetizing beyond just a device itself,

which is probably smart for them from a software strategy point of view. But how does this work in terms of, are insurers supposed to pay? Are health care employers supposed to pay? Are individuals supposed to pay? Is the government supposed to pay? Yeah. So one of the nightmares of the healthcare systems,

and I think especially in the U.S. is just who is paying for this and the sometimes misalignment between the payers and the patients. And so, you know, you can imagine a couple different things. One could be realigning payer and patient where the patient wants to pay for this if it's like $100 or $200,

then the price will undoubtedly go down over time. And actually, it's interesting because the Singapore core news comes right in front of news that Apple Watch Series 3 is now $199. I get that the low cost makes it more ubiquitous and more widely available,

but I really don't still see how it really pushes wearables forward to the reality where it could be. There's one aspect of this, which may be seen as chicken and egg, which is that so much of the current health care system is shaped more for treatment than for diagnosis and prevention. For that to change, there has to be a couple different forces. We're already seeing the financial forces there in terms of fee for value instead of service.

But now what I think wearables can do is that they can be a key part of the tipping point to have something tangible to point to such that we have the data we need and that we're not burdening the health care system with sending people in to get tons of physicals or tons of measurements. Dixon has talked about this thesis of strong versus weak technologies, that every technology comes in two forms, a strong form and a weak form, and they often come together.

And generally, we as innovators, prefer the strong form because it's the most direct. But the reality of tech adoption is there needs to be a weak form or what I would argue in some cases is a hybrid phase. And what you're really saying with that, which I love, is that the healthcare system is so complex. We can't actually solve this big complex puzzle from the top. We might be able to use this as a wedge

in to drive it forward. Yeah, a remarkably low cost was that can connect one technology to the other. I think as the whole system in the U.S. moves from fee for service to fee for value, then actually the payers or combined payer providers or at-risk providers will see the financial benefits of having this. Because for many, many cases catching things early, like catching pre-diabetes over diabetes or diabetes over situations where people are starting to have real issues with insulin and where it gets really quite serious catching that.

earlier actually could have a huge impact on the patient's health as well as on trying to make sure that you're not having really expensive treatments down the road. Okay, so last question. How does this fit into the future of the integrated picture for wearables? It's probably not that far from now where your day will seem very similar, but what you're learning is going to be radically different. So you know, you wake up, you go to the bathroom, your toilet will have, you know, who knows, DNA reader on it such that you can learn about all the different things that in your urine. From a medical geeking out point of view, this is super exciting because this is something that maybe you measure once a year. And to measure that once a day is intriguing. And then

you go onto all the other sensors that are around you. Maybe your body, maybe you've just got on the shower, it's looking for different moles. And you go through your day. It seems that you actually had a pretty sedentary day today. And this is your third sedentary day in a row. And you were at Baskin-Robbins. When all these things are connected, it's all the small things. that are really the secret here. Because for many things, there's not magic. There's just how do you motivate people? And that is so hard in general.

And hopefully will be much, much easier with tech. So bottom line it for me, Vijay, what's the big takeaway on the news from Fitbit and Apple and the context of wearables and where we're going with health care? I think the takeaway is that the Singapore government seeing the value of this, and that I think they are very much going to be leading indicators to others. And actually, there are already insurance companies

that are subsidizing or paying for, Apple watches as well. And so we're going to see more and more of this because the cost really isn't that high. And so this will be something that I think will become just a part of our lives. Thank you for joining 16 minutes. Yeah, thank you. All right, everyone, thank you for listening to this week's episode of 16 minutes. As a reminder, none of this is investment advice or intended for investors. Please be sure to see A6NZ.com slash disclosures for important information. Also, the show notes often include links to the articles cited or other relevant background. You can find those at 660.com slash 16 minutes. Thank you.