Entering the software economy
Jeff: Well, if you’re six, 12 months into it, things that I look for… Now, let’s say you’ve got a non-tech company acquiring a tech company or even a large tech company acquiring a small tech company. When you enter the software economy, there are a lot of things that are different. One of them is talent, the way people think, the types of people that you hire, the culture of these software economy companies. And the great sign is how many of the key people are staying around, and more importantly, what their roles are in the company.
So when you see companies acquired and the executives from the acquired companies start getting promoted and taking on larger roles in the acquiring organization, that’s hugely a sign that the cultures are aligning. The things that the acquired company brings to the table are valued by the acquirer, the cultures are integrating. The benefits, even if they take longer because of integration of products and technology and channels and markets, might take a little longer. But if you see the talent integrating in that way, I’d say that’s a pretty good sign. Because software is an intangible IP and it’s very much tied to the people who build it and maintain it. If you have talent drains due to culture, compensation, or other things after an acquisition, that’s usually the leading indicator that the thesis is going to go up in smoke. So that’s the first thing I look for.
Now, in a private equity deal you don’t quite see that, because the company is pretty much the company. In some cases, the only thing that changes is the board of directors, especially if a company was well run and a private equity firm wants to keep it that way, there may not be a lot of change and things may just go on as normal. The only thing that changes is the shareholders. But when it’s an operating company being acquired, talent is a good place to look for leading indicators.
Laurel: With a growing number of companies attracted to the technology landscape as you described, it seems like a crowded market. So how can a company differentiate itself to stay competitive and be discerning when looking for investments?
Jeff: Yeah. So I think getting those theses right. Just being a holding company and buying something is probably not the best approach, although there are holding company models out there. Doubling down on the strategy and the M&A, some people might call it an M&A thesis or the integration thesis. So let’s take examples. Vertical integration: If you’re going to vertically integrate or acquire a supplier, that could have significant synergy, could have significant differentiation. And if you take the time to put that strategy out, find the right companies to acquire that fit the thesis, and make sure you fund the integration. Integration is not just a bunch of rows on spreadsheets, but it’s actually getting on the ground, in the weeds, figuring out the operating models, people, the business processes, the tools that are needed to successfully integrate to see your thesis through. Those can be differentiating and those can be game changers for companies both in the marketplace and on the P&L.
Laurel: And you mentioned this earlier, which is the unknown-risk, high-reward aspect of acquiring technology companies, but the new capabilities and talents is something that a new company can offer. So what are the most common obstacles that companies face then?
Jeff: I touched on this before, it’ll be a little redundant, but I would say the first is you’re coming into the software economy, it’s new to you. Companies can go from zero to 100 pretty quickly, but they can go from 100 to zero. The landscape is littered with companies that were high-flyers, leaders in their space, that are now gone and out of business. Were basically acquired in fire sales and somebody’s running out the maintenance long tail on some of these companies. So you’ve seen that in old-school desktop publishing, you’ve seen that in old-school CRM and ERP, you’ve seen that in various vertical applications serving vertical businesses. All those sectors have had once-dominant players that didn’t innovate, maybe lost their key talent, maybe had an upside-down balance sheet, were over-leveraged, and basically disappeared and went off the map as quick as they came on.
Again, you can go from not being a company to being the high-flyer leader in the space of five, six, seven years and just as quickly, possibly more quickly, go to zero. So it’s really important that folks acquiring these companies are investing in them, understand that risk, and realize that sometimes drastic things have to be done to keep these companies growing and high-flying, even after you think they’ve reached their apex.
The Download: AI films, and the threat of microplastics
The Frost nails its uncanny, disconcerting vibe in its first few shots. Vast icy mountains, a makeshift camp of military-style tents, a group of people huddled around a fire, barking dogs. It’s familiar stuff, yet weird enough to plant a growing seed of dread. There’s something wrong here.
Welcome to the unsettling world of AI moviemaking. The Frost is a 12-minute movie from Detroit-based video creation company Waymark in which every shot is generated by an image-making AI. It’s one of the most impressive—and bizarre—examples yet of this strange new genre. Read the full story, and take an exclusive look at the movie.
—Will Douglas Heaven
Microplastics are everywhere. What does that mean for our immune systems?
Microplastics are pretty much everywhere you look. These tiny pieces of plastic pollution, less than five millimeters across, have been found in human blood, breast milk, and placentas. They’re even in our drinking water and the air we breathe.
Given their ubiquity, it’s worth considering what we know about microplastics. What are they doing to us?
The short answer is: we don’t really know. But scientists have begun to build a picture of their potential effects from early studies in animals and clumps of cells, and new research suggests that they could affect not only the health of our body tissues, but our immune systems more generally. Read the full story.
Microplastics are everywhere. What does that mean for our immune systems?
Here, bits of plastic can end up collecting various types of bacteria, which cling to their surfaces. Seabirds that ingest them not only end up with a stomach full of plastic—which can end up starving them—but also get introduced to types of bacteria that they wouldn’t encounter otherwise. It seems to disturb their gut microbiomes.
There are similar concerns for humans. These tiny bits of plastic, floating and flying all over the world, could act as a “Trojan horse,” introducing harmful drug-resistant bacteria and their genes, as some researchers put it.
It’s a deeply unsettling thought. As research plows on, hopefully we’ll learn not only what microplastics are doing to us, but how we might tackle the problem.
Read more from Tech Review’s archive
It is too simplistic to say we should ban all plastic. But we could do with revolutionizing the way we recycle it, as my colleague Casey Crownhart pointed out in an article published last year.
We can use sewage to track the rise of antimicrobial-resistant bacteria, as I wrote in a previous edition of the Checkup. At this point, we need all the help we can get …
… which is partly why scientists are also exploring the possibility of using tiny viruses to treat drug-resistant bacterial infections. Phages were discovered around 100 years ago and are due a comeback!
Our immune systems are incredibly complicated. And sex matters: there are important differences between the immune systems of men and women, as Sandeep Ravindran wrote in this feature, which ran in our magazine issue on gender.
Welcome to the new surreal. How AI-generated video is changing film.
Fast and cheap
Artists are often the first to experiment with new technology. But the immediate future of generative video is being shaped by the advertising industry. Waymark made The Frost to explore how generative AI could be built into its products. The company makes video creation tools for businesses looking for a fast and cheap way to make commercials. Waymark is one of several startups, alongside firms such as Softcube and Vedia AI, that offer bespoke video ads for clients with just a few clicks.
Waymark’s current tech, launched at the start of the year, pulls together several different AI techniques, including large language models, image recognition, and speech synthesis, to generate a video ad on the fly. Waymark also drew on its large data set of non-AI-generated commercials created for previous customers. “We have hundreds of thousands of videos,” says CEO Alex Persky-Stern. “We’ve pulled the best of those and trained it on what a good video looks like.”
To use Waymark’s tool, which it offers as part of a tiered subscription service starting at $25 a month, users supply the web address or social media accounts for their business, and it goes off and gathers all the text and images it can find. It then uses that data to generate a commercial, using OpenAI’s GPT-3 to write a script that is read aloud by a synthesized voice over selected images that highlight the business. A slick minute-long commercial can be generated in seconds. Users can edit the result if they wish, tweaking the script, editing images, choosing a different voice, and so on. Waymark says that more than 100,000 people have used its tool so far.
The trouble is that not every business has a website or images to draw from, says Parker. “An accountant or a therapist might have no assets at all,” he says.
Waymark’s next idea is to use generative AI to create images and video for businesses that don’t yet have any—or don’t want to use the ones they have. “That’s the thrust behind making The Frost,” says Parker. “Create a world, a vibe.”
The Frost has a vibe, for sure. But it is also janky. “It’s not a perfect medium yet by any means,” says Rubin. “It was a bit of a struggle to get certain things from DALL-E, like emotional responses in faces. But at other times, it delighted us. We’d be like, ‘Oh my God, this is magic happening before our eyes.’”
This hit-and-miss process will improve as the technology gets better. DALL-E 2, which Waymark used to make The Frost, was released just a year ago. Video generation tools that generate short clips have only been around for a few months.
The most revolutionary aspect of the technology is being able to generate new shots whenever you want them, says Rubin: “With 15 minutes of trial and error, you get that shot you wanted that fits perfectly into a sequence.” He remembers cutting the film together and needing particular shots, like a close-up of a boot on a mountainside. With DALL-E, he could just call it up. “It’s mind-blowing,” he says. “That’s when it started to be a real eye-opening experience as a filmmaker.”