Tag: Apple

Tesla vs. Clayton Christensen’s Idea of Tech Disruption

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Batteries Published on January 26th, 2019 | by Guest Contributor
Tesla vs. Clayton Christensen’s Idea of Tech DisruptionTwitterLinkedInFacebookJanuary 26th, 2019 by Guest Contributor
Originally published on EVANNEX.
By Charles Morris
The words “innovation” and “disruption” have been casually tossed around in the press so much that, like “awesome,” they’ve lost most of their meaning for the average reader. However, there’s a whole community of people who study these phenomena in minute detail, and Dr. Clayton Christensen is one of their prophets. Recently, a doctrinal difference between Christensen and Elon Musk has catalyzed a lively theological debate.
Two iconic figures in the realm of business disruption, Elon Musk and Dr. Clayton Christensen (Images: Wired UK / Nieman Reports)To simplify for the layman, Dr. Christensen is an exponent of “low-end disruption,” whereas Tesla is an object lesson in “high-end disruption,” the concept that innovation can begin at the high end of a market and later trickle down to the mainstream. In December, Elon Musk tweeted, “Clayton is wrong. New tech is always expensive. Tech disruption occurs at *high end*, eg computers & cell phones. It takes many iterations & vast economies of scale to achieve mass market affordability.”
Far from being offended, Dr. Christensen replied, “We’re all rooting for you!” and invited Musk to join him for a chat on innovation.
Jay Gerhart, a practitioner of disruptive innovation theory and “a huge fan of both of these brilliant men,” set out to reconcile their conflicting positions in an article published in Medium.
Apparently the current debate was sparked by an article in TechCrunch in which Chandrasekar Iyer of the Clayton Christensen Institute argued that Tesla’s entry into China represents a “sustaining innovation” (as opposed to a “disruptive innovation”), and that Tesla “will enter an established market to compete along existing measures of performance, like acceleration, style and luxury.”
Elon Musk argues that Christensen has it backwards when it comes to disruption in the tech sector. (Twitter: Elon Musk)As Gerhart points out, many have written about the phenomenon of high-end disruption, citing Uber, Tesla, Apple, Garmin, and Dyson as examples of transformative technologies and business models that started at the high end of the market and worked their way down. However, Shaye Roseman of the Harvard Business School recently argued that high-end disruption is “unlikely to occur,” because struggles for the high ground favor deep-pocketed incumbents, and it’s difficult to move down-market once you start at the top.
Much of the disagreement among these theologians may have more to do with terminology than with real-world results. As Gerhart puts it, “I find many debates these days to be framed a bit too black and white. Dr. Christensen’s theory has certainly sparked decades of debate since its introduction more than twenty years ago [and] the digital era has introduced new, complex dynamics.” In a 2015 article, Dr. Christensen argued that Tesla should be classified as a “sustaining innovation” rather than a “high-end disruption.” But could it be that the distinction is not so clear-cut? “Is it possible that under specific circumstances, a sustaining innovation could have characteristics that have a transformative impact on incumbents?” Gerhart asks.
Gerhart believes that the uniqueness of Tesla’s business model (and of its CEO) may enable it to have a transformative effect on the automotive industry while still fitting the definition of a sustaining innovation. He points out that Tesla’s highly integrated approach, which has many similarities to that of Apple, gives it a significant near-term advantage over incumbents that are struggling to manage the transition to electrification.
Will the legacy automakers rise to the challenge? Ford, VW and others are currently making the right noises, but it remains to be seen whether the promises in their press releases will lead to volume production of compelling electric vehicles. Gerhart suggests that automakers may need to set up separate divisions to compete effectively with Tesla.

Touching on an experience at BMW, Christensen discusses some of the disruption dilemmas facing companies (YouTube: Implement Consulting Group)
Regardless of which side you take in the sectarian schism in the religion of disruption, there’s one thing everyone can agree on: “This will be a fascinating market to watch over the next few years.”

About the AuthorGuest Contributor is many, many people. We publish a number of guest posts from experts in a large variety of fields. This is our contributor account for those special people. 😀

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Tesla downgrade by RBC means more analysts on Wall Street have ‘sell’ ratings than ‘buy’ on stock

Robyn Beck | Pool | Reuters
Tesla founder Elon Musk speaks at the unveiling event by “The Boring Company” for the test tunnel of a proposed underground transportation network across Los Angeles County, in Hawthorne, California, December 18, 2018.

Tesla was downgraded to underperform by RBC Capital, which said that the electric car maker has finally started to give some straight talk to investors about its future growth, but many are still not listening because they are still too enthralled by the company's founder and CEO Elon Musk.

Analyst Joseph Spak writes:

“It's not that we don't believe Tesla can grow over time, our model shows solid LT growth. But the current valuation already considers overly lofty expectations. For instance, let's assume 1mm [Model 3] units @$55k ASP, 12 percent EBIT margins, no interest/equity raise all by 2025. This is undoubtedly solid earnings, but at a more 'mature' 15x P/E, the discounted back value is ~$195, meaning even in an optimistic case at least 1/3rd of today's price is an 'Elon premium'.”

Tesla shares fell 1.5 percent in premarket trading Wednesday following the call. Through Tuesday, the stock was down 10 percent on the year to $298.92.

“The company seems to be more tactful with messaging which is a long-term positive, but means downward pressure to growth expectations – which in our view are too high to justify current levels, let alone to add to positions,” wrote Spak.

In the latest round of cost-cutting measures, Tesla said last week that it would cut 7 percent of its workforce and discontinue production of some other models to focus on the Model 3. Musk also said that the company likely achieved a “tiny profit” in the fourth quarter.

“For years, Tesla sold the dream of transportation disruption and fantastic growth. This served the stock well turning Tesla into a top 6 (at times top 3) valuable auto OEM despite delivering a fraction of units of others and nary a profit,” wrote Spak. “A stock should of course discount future cash flows and the market took the promises of Tesla and their future growth potential to justify lofty valuations while Tesla took capital needed to support their endeavors. But the rubber appears to be hitting the road as the realities of Tesla becoming a volume player, the challenges to scale and deliver high volume at high ASPs/margins are coming to a head.”

More buys than sells

RBC lowed its price target to $245 from $290. With Spak's rating change to underperform (the equivalent of a sell), there are now more analysts on Wall Street that say sell Tesla, than buy it. Eight analysts say “buy,” seven say “hold” and nine now say “sell,” according to TipRanks.com. It's rare for a stock as popular as Tesla to have a majority of analysts that say sell. The negative rating is still relatively rare, with most analysts typically using a “hold” rating to voice their displeasure with a stock. For comparison, Apple has zero sell ratings, according to TipRanks.

“Whether its cutting the price of their lineup by $2k/unit, admission the federal tax credit expiring will hurt, acknowledgment that Tesla can't sell at $35k Model 3 profitably and costs need to come down, or language around full-self driving – we'd classify recent commentary and actions by the company as more realistic,” stated the RBC note. “This is likely to cause a review of model assumptions leading to negative expectation revisions.”

— With reporting by Michael Bloom

Apple’s dismissal of 200 self-driving car employees points to a shift in its AI strategy

Bloomberg | Getty Images
John Giannandrea, senior vice president of artificial intelligence and machine learning strategy at Apple, speaks at the TechCrunch Disrupt 2017.

It's not often you hear about layoffs at Apple.

So it came as a surprise Wednesday when CNBC learned that Apple was removing 200 employees from its self-driving car unit. Apple confirmed the staffing change, but reading between the lines of a spokesperson's statement, it sounds like the move is the latest in the company's broader goal to improve its artificial intelligence and machine learning capabilities as it faces increased competition from rivals Google and Amazon.

“As the team focuses their work on several key areas for 2019, some groups are being moved to projects in other parts of the company, where they will support machine learning and other initiatives, across all of Apple,” the company spokesperson said in a statement to CNBC Wednesday.

Self-driving car technology may still be an important initiative at Apple. But reading between the lines, it looks like it's taking a back seat a Apple beefs up its general AI staff.

“I think they're making the decision that, at least in the near term, it's better to have these people doing AI in other projects,” said Gene Munster, a venture capitalist and analyst at Loup Ventures.

Apple's self-driving car project, called Titan internally, started out with the desire to create an Apple-branded electric car, The Wall Street Journal reported in 2015. But over the last few years, Apple has scaled back its ambition and lost leaders and other employees in the process. Today, the unit mostly explores the underlying technology that makes self-driving cars possible. CEO Tim Cook has repeatedly called self-driving “the mother of all AI projects.”

Since Apple started its self-driving division, the consumer AI space has exploded through the rise of digital assistants like Amazon Alexa and Google Assistant and devices like Amazon's Echo. Apple's own digital Assistant, Siri, had a head start when it launched on the iPhone 4S back in 2011, but has not kept up with the competition.

To address the shortfall, Applehired Google's head of AI John Giannandrea away from the search giant in April. Within a few months, Apple had reorganized its entire AI and machine learning teams under Giannandrea, the company announced to TechCrunch. And just last month, Giannandrea was promoted to Apple's executive team as vice president of machine learning and artificial intelligence strategy.

Self-driving may still be an important piece to Apple's AI research. The company said in its statement Wednesday: “We continue to believe there is a huge opportunity with autonomous systems, that Apple has unique capabilities to contribute, and that this is the most ambitious machine learning project ever.”

But as far as products go, competition in self-driving and electric vehicles has grown dramatically in the last four years.

Waymo, Alphabet's self-driving car company, recently opened up its self-driving car service to the public in Phoenix, Ariz., and is widely considered to be the leaders in self driving. Legacy car companies like GM working on self-driving technology. And it's not just Tesla making electric cars. Porsche, Audi, Mercedes and other legacy car companies have all announced electric vehicles. It's hard to imagine how Apple would stand out.

“The sense that I had is they're not as far along as I had hoped,” Munster said of Apple's decision to remove the 200 employees out of its car division. “But they still have initiative there.”

Giannandrea's rapid rise at Apple is the biggest signal yet that Apple intends to invest a lot of time, money and talent in improving AI. Plus, according to leaked comments from Cook at a recent company all-hands meeting reported by Bloomberg, Apple plans to continue hiring in AI “at a strong pace” even as it slows down hiring in other divisions.

In short, we're seeing Apple eliminate jobs in self-driving and increase the number of people working more broadly on AI.

It may already be paying off. Late last year, a study from Munster's company, Loup Ventures, showed Siri vastly improved its ability to correctly answer a series of 800 questions. The Loup study said Siri answered 74.6 percent of the questions correctly, up 22 percentage points from just nine months earlier. By comparison, Google Assistant answered 87.9 percent of the questions correctly. Alexa got 72.5 percent of the questions right.

It's not just about getting questions right, though. The messier problem for Apple is training its AI while convincing users that it's keeping their data secure.

Google trains its AI systems in part using the massive amounts of public data available on YouTube and the Google search engine. (It's also started using a program that strives to protect users' data.)

But Apple has taken a hard stance against unfettered data collection, and promotes its concern over user privacy as a reason to buy its products. In a speech in Brussels last year, Cook called the privacy practices of companies like Google “surveillance,” for example. It also put up a giant ad about its privacy stance in in Las Vegas during CES earlier this month.

So Apple will have to continue to improve its AI while sticking to its goal of keeping people's personal information private.

“I think it's very clear Apple is a believer in AI and most of the products will be very subtle about how AI is used,” Munster said.

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