Ten interesting things we read this week

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At Ambit, we spend a lot of time reading articles that cover a wide gamut of topics, ranging from zeitgeist to futuristic, and encapsulate them in our weekly ‘Ten Interesting Things’ product. Some of the most fascinating topics covered this week are Finance (Rising risks in leveraged loans), Career (Women detectives of Delhi), Business (Trade war is putting world’s smartphone makers in danger), Science (Mystifying results when put 5 DNA ancestry kits to test), Society (When girls in world’s largest slums start coding and building apps), Media (Liberty Media to become the most powerful music company?), and Lifestyle (Why 15-hour workweek never happened) among others.
 
Here are the ten most interesting pieces that we read this week, ended January 25, 2019.
 

1) How Microsoft CEO Satya Nadella fueled a humble comeback [Source: fortune.com]
Satya Nadella, just shy of five years into his tenure as Microsoft’s CEO, is well aware of the world’s view of his company’s rejuvenation—and he refuses to gloat out loud. “When you have major franchises that run out steam,” he says, referring to Microsoft’s once-dominant Windows software, “to reinvent yourself is hard work. I’m always looking for inspiration” from companies that have done it. Peers like Apple and Amazon share relatively little with the world until the day they’re ready to sell it. Microsoft, by contrast, offers glimpses of seemingly every idea that might be its next big thing, from “magic window” two-way display technology to quantum computing to its HoloLens “mixed-reality” platform.

To its great good fortune, Microsoft several years ago hit on a replacement to its Windows franchise, the multi-faceted Azure cloud-services business that is No. 2 to Amazon’s market-leading product. Azure, in turn, is the center of Microsoft’s “intelligent edge” strategy: Every potential hit device and service leverages and feeds Azure, the company’s growth engine. Nadella has pulled off the seemingly impossible in making Microsoft the feel-good company of the tech industry. Gone are the days of Steve Ballmer, when devices by competitors were four-letter words in Redmond, Wash. Microsoft now plays nice whenever possible.

Microsoft faces plenty of challenges. The track record of its smaller bets is poor. It sees a future of “seamless” computing but doesn’t have a position in the critical smartphone market. A global economic slowdown would hurt it along with everyone else. And yet, in a physical and metaphorical sign of its rebirth, Microsoft is tearing up huge swaths of its suburban Seattle campus to build new buildings, underground garages, and eco-friendly links to public transit. But it’s tough to remember anymore when Microsoft was the most hated company in tech or the flattest of doormats either. Other companies could do a lot worse than humble, quirky, and confident.  

2) Debt machine: Are risks piling up in leveraged loans? [Source: Financial Times]
The successful Instagram account of beauty company Anastasia Beverly Hills is more than a marketing tool for the cosmetics business owned by Romanian-born billionaire Anastasia Soare. The social media account was also listed as one of the company’s “general intangible” assets in documents for a $650m loan to fund a partial buyout by private equity firm TPG Capital. Anastasia’s company’s loan is indicative of a market that has eviscerated traditional investor protections and made looser lending standards common. Looser lending standards are less important while the economy is robust and the likelihood of companies defaulting is low. But concerns over slowing growth are mounting, and a flash of market turbulence sent leveraged loan prices sliding in December.

“If we have a downturn in the economy, there are a lot of firms that will go bankrupt, I think, because of this debt,” Janet Yellen, the former chair of the Federal Reserve, warned last year. “It would probably worsen a downturn.” But the combination of rampant investor demand and companies willing to take on more debt has led to a gradual deterioration in lending standards. For a third of all loans issued in 2018, leverage levels crept above six times, according to LCD, exceeding guidance put out by the Office of the Comptroller of the Currency in 2013, an independent bureau of the US Treasury. Of the top 20 private equity-sponsored loan deals in 2018 approximately 80% contained a loophole that could see loan investors’ claim on collateral diluted, according to Covenant Review, a credit research group.

Christina Padgett, senior vice-president at Moody’s, warned last year that a “combination of aggressive financial policies, deteriorating debt cushions and a greater number of less creditworthy firms accessing the institutional loan market” was creating credit risks. But some lawyers say they will still try to keep the balance tipped towards borrowers, especially when it comes to loosening lender protections further. “Our job is to make sure that our clients have the maximum amount of flexibility to execute [their deals],” says Jason Kanner, a partner at law firm Kirkland & Ellis. “We’ll come up with new stuff.”

3) The women detectives of Delhi [Source: Livemint]
When you come across this word ‘Detective’, what comes to your mind? A man spying on someone to gain information? Yes, that’s right. But, this piece throws light on three women detectives in India: 1) Akriti Khatri: owns Venus Detectives, a pan-India investigative service she has been running since 2011; 2) Taralika Lahiri: runs her own independent agency, National Detectives and Corporate Consultants, and has been in the field for the last 30 years; and the youngest of them all 3) Tanya Puri: CEO of Lady Detectives India, which offers investigating services across the country.

Being detective for a lady is easier now than when Taralika got into this career. She tells how she was the only on-field detective among 15 men working in a firm. She had to work hard to prove herself and other investigators didn’t appreciate her authority. Talking about why women are the preferred choice for being a detective, Akriti says, “Being a female, people trust you easily." You might pause to disagree with Khatri here, but in India, when it comes to weighing in on whether an unknown man or woman would raise a greater degree of suspicion, the common perception swerves towards the former.

According to Tanya, more and more young women are showing interest in this field—she receives at least six-seven resumes every week. “Times are changing. Women are equally capable of doing a good job as investigators. My team is proof of that and I’m quite proud of them." Tanya refers to her tight-knit tribe of women investigators as her “Girl Squad".

4) The trade war is putting the World’s smartphone makers in danger [Source: Bloomberg Quint]
 On trade war between China and the USA, Apple CEO Tim Cook had said, “China only wins if the U.S. wins, and the U.S. only wins if China wins. And the world only wins if China and the U.S. win.” He wasn’t worried about it, but just after the market closed on January 2, Cook had a different message. For the first time in 15 years, Apple Inc. cut its revenue projections. The CEO explained that the Trump administration’s trade policies had hurt demand for iPhones in China. The following day, Apple lost 10% of its market value.
 
If there was a lesson for Apple investors, it was one that their counterparts in China already know well: There’s no escaping geopolitics. Huawei Technologies Co. and ZTE Corp., the big Chinese phone and equipment manufacturers, have been under intense pressure from the Trump administration, which is seeking to limit China’s control of fifth-generation, or 5G, wireless networks. The fear is that the Chinese government would force these big companies to include back doors in their equipment, a notion that the Trump administration has used to lobby allies against granting contracts to Huawei or ZTE.

It’s still not clear how the diplomatic dispute between these countries will be resolved, or what bearing it might have on Huawei’s long-term health or the demand for Apple’s products in China. America’s power can be gauged by the crippling of ZTE, only to be revived by Mr. Donald Trump. So, while China is preparing to be less dependent on American technology, the same is true for America.

5) Twins get some 'mystifying' results when they put 5 DNA ancestry kits to the test [Source: cbc.ca]
Last spring, Marketplace host Charlsie Agro and her twin sister, Carly, bought home kits from AncestryDNA, MyHeritage, 23andMe, FamilyTreeDNA and Living DNA, and mailed samples of their DNA to each company for analysis. And the results didn’t match! In most cases, the results from the same company traced each sister's ancestry to the same parts of the world — albeit by varying percentages. "The fact that they present different results for you and your sister, I find very mystifying," said Dr. Mark Gerstein, a computational biologist at Yale University. Marketplace sent the results from all five companies to Gerstein's team for analysis. He says any results the Agro twins received from the same DNA testing company should have been identical. And there's a simple reason for that: The raw data collected from both sisters' DNA is nearly exactly the same.

In order to determine someone's ancestry, companies like 23andMe compare a DNA sample to what is commonly referred to as a reference panel. A reference panel is made up of a select number of DNA samples, from previous customers who have taken the test and/or from publicly available DNA databases. Dr. Simon Gravel, a population geneticist with McGill University who is also part of the 1000 Genomes Project, says ancestry companies will take 700,000 or so of your DNA segments and use an algorithm to compare your segments to those in their reference panel. "They're going to match it to different parts of the world," he said. "In the end, there's going to be some overall of these [reference panel] contributions where your DNA matched better, and that's going to be their estimate of how much ancestry you have."

So, why is there such a difference? There are a variety of factors that can affect the accuracy of results from an ancestry company, Dr. Gravel says, but of particular importance is the size and quality of its reference panel. The larger and more representative it is, the more accurate the results, he says. "If you have fewer people that you can compare to, then you make more shortcuts," he said. Gravel also says the tests tend to be more accurate for people with European ancestry, as more people with that particular background have been tested. The biggest DNA ancestry companies have tested millions of people. MyHeritage, for example, says it expects sales of well over $100 million this year. So, whatever your ancestry results, don't get too attached to them. They could change.

6) What happens when girls in one of the world's largest slums start coding and building apps [Source: Quartz India]
Dharavi Diary, a non-profit organisation run by documentary filmmaker Nawneet Ranjan, is allowing children to learn coding and build smartphone apps. If you enter Naya Nagar in Mumbai’s Dharavi area, you’ll come across a room full of books, laptops, and maps. That’s where all the teaching is done. Home to nearly a million people, Dharavi, where Danny Boyle filmed the Oscar-winning movie Slumdog Millionaire, holds immense untapped potential within its tin-roof and plastic-sheet shanties. Its informal economy, including over 4,000 leather manufacturing units, records an estimated $1 billion in annual turnover, according to the World Economic Forum. But it is also a hive of illiteracy and destitution.

For the children there, Dharavi Diary is more than just an after-school academic programme. Ranjan teaches them, mainly girls, English, Math, computer applications like MS Powerpoint and Excel, and basic coding. In fact, using the open-source developing tool MIT App Inventor, some girls have even built mobile apps to tackle problems like sexual harassment, water scarcity, and lack of education. Ranjan says, “When you understand the process of creation, you care more, which is completely missing in our education system. Through this (project), I get to inculcate an attitude of questioning the status quo.”
 
There’s a reason why Ranjan focuses on girls. They get a raw deal in India. The lack of girls’ toilets and menstruation woes keep them out of classrooms. “Domestic duties, especially in the lower-income group households, mean that girls have to stay back and cook, run errands, or take care of younger siblings,” a 2014 report by Save the Children notes. Also, getting the project up and running burnt a hole in Ranjan’s pocket. But now, many have come forward in helping Ranjan and his noble cause. Today, over 200 boys and girls aged between eight and 21 visit the Naya Nagar centre daily after school. That’s a long way from the 15 girls in 2014, though girls still form 60% of the attendees. To cut down on rent costs, Ranjan plans to use a van loaded with hands-on learning tools.


7) Is Liberty Media about to become the most powerful company in music? [Source: rollingstone.com ]
According to the New York Post, Denver-based Liberty Media Corp. is seeking to acquire a 35% stake in iHeartMedia, owner of radio giant iHeartRadio. iHeart, which owns more than 850 U.S. broadcast brands, claims to have the largest reach of any radio or television outlet in America. The firm, which fell into bankruptcy last year, reaches a quarter of a billion Americans every single month. Liberty Media chief executive Greg Maffei had recently said that there’s zero chance that Apple will buy iHeart. Why? Because, Liberty already owns $660 million of iHeart debt, and will automatically end up with around 5% of the company if, as expected, iHeart shakes off the shackles of bankruptcy next month. Meanwhile, an initial $1.16 billion approach from Liberty for 40% of iHeart last summer was rebuffed by the latter’s debt holders.

Liberty’s existing portfolio includes its majority holding (71%) in satellite radio giant SiriusXM, in addition to Sirius’ soon-to-be ownership of streaming-music platform Pandora. Sirius and Pandora jointly reach a monthly U.S.-based audience of more than 100 million people — via 34 million subscribers to Sirius and 69 million active listeners on Pandora. Sirius expects to have generated $5.73 billion in revenues last year; at Pandora, that number should top $1.5 billion. Also, Liberty owns a 34% stake in Live Nation, the globe’s biggest concert promoter and venue owner, which also happens to be the parent of the world’s largest ticketing company, Ticketmaster. Liberty is also a small investor in Saavn — the Indian Spotify rival that recently merged with local rival JioMusic to form $1 billion-valued platform JioSaavn and that, in addition to offering a vast catalog of music, also signs and develops artists, just like a record label.

Liberty Media isn’t stopping there, either. Adding to its potential involvement in the five aforementioned billion-plus entertainment companies (SiriusXM, Live Nation, Pandora, iHeart and JioSaavn), Liberty is also potentially on the hunt for some truly industry-shaking new assets. The first is the most talked-about deal in the global music business this year: Up to 50% of the biggest recorded-music company on Earth, Universal Music Group (which also owns giant music publisher UMPG), will be sold by the end of 2019. Liberty Media has been mooted as one of the early front-runners for UMG, alongside Chinese media giant Tencent. If Liberty snares only one or two minority stakes in iHeart, Universal and/or CAA this year, it could potentially cover most steps of music’s modern value chain — recording, publishing, broadcast, streaming, ticketing, merchandise, touring and brand partnerships — under one roof.

8)  How voting-machine lobbyists undermine the democratic process [Source: New Yorker]
Tampering voting machines is the rising issue world over. There are some who consider hand-marked ballots to be the “most reliable record of voter intent.” The practice of democracy begins with casting votes; its integrity depends on the inclusivity of the franchise and the accurate recording of its will. Georgia turns out to be a prime example of how voting-system venders, in partnership with elected officials, can jeopardize the democratic process by influencing municipalities to buy proprietary, inscrutable voting devices that are infinitely less secure than paper-ballot systems that cost three times less.

In 2006, a US bill requiring a verifiable paper record of each ballot, introduced in the Georgia legislature at the urging of election-integrity advocates, failed after the state’s elections director, Kathy Rogers, opposed it. Rogers, of course, later went to work for Election Systems & Software (E.S. & S.), the largest manufacturer of voting machines in the country. Election-integrity advocates sued in response, challenging the legality of the state’s voting equipment. In Delaware, the Voting Equipment Selection Task Force voted to replace its aging touch-screen machines with a variant of the ExpressVote system. When Jennifer Hill, at Common Cause Delaware, a government-accountability group, obtained all the bids from a public-records request, she found that “the Department of Elections had pretty much tailored the request for proposal in a way that eliminated venders whose primary business was to sell paper-ballot systems.”

In Delaware and Georgia, voting equipment is purchased and deployed statewide. But, in most states, these decisions are made by counties, which oversee elections. The ExpressVote machines use what are known as ballot-marking devices. Once a vote is cast on the touch screen, the machine prints out a card that summarizes the voter’s choice, in both plain English and in the form of a bar code. After the voter reviews the card, it is returned to the machine, which records the information symbolized by the bar code. Paper ballots, it should be noted, are not a perfect solution, as New York City voters found out in November, when their two-page ballots jammed the scanners, leading to long lines and wait times. But they are inexpensive, accountable, and intuitive.

9) After 25 years studying innovation, here is what I have learned [Source: LinkedIn] 
In this piece, Clayton Christensen talks about innovation. He feels that the best answers to the enormous problems we are struggling with always starts with asking the right question. When he wrote his first book (Innovator’s Dilemma) 25 years ago, he asked himself why do great firms fail, especially at the hand of smaller and less resourced upstarts. The answer: Disruptive innovations. The Innovator’s Dilemma has helped entrepreneurs, managers, and investors understand how these upstarts could eventually upend their market. He shares some of the most important answers he has found over the years of teaching to life’s most challenging question.

1) Not all innovation is created equal: According to the definition used Innovator’s Dilemma, from an economic development standpoint, there are primarily three types of innovation: market-creating, sustaining, and efficiency. When we understand that there are different types of innovations, we begin to see how each impacts both a company and an economy differently. 2) Data is not the phenomenon: What does data really tell us? Data, metrics, and statistics are not the phenomena of many of the things we seek to understand. Data simply represents the phenomena. But substituting data for the phenomenon without truly understanding what is going on underneath that data can lead to devastating outcomes.

3) Management can be a noble profession: One of the theories that gives great insight on the question — "How can I be sure I find happiness in my career?" — is that the most powerful motivator in our lives isn’t money; it’s the opportunity to learn, grow in responsibilities, contribute to others, and be recognized for achievements. Management is about waking up every day and helping people become better people so they can do better work and live better lives. 4) Don’t reserve your best self only for your career: Your decisions about where and how you allocate your resources ultimately shape your life’s strategy. 5) God does not hire accounts: In essence, because human beings have finite minds, we need to aggregate. And so, every year, we aggregate sales, costs, and figure out earnings. But God is different. Because he has an infinite mind, he does not need to aggregate above the level of an individual. Solving our toughest problems may not be as simple as asking better questions, but it’s certainly the right way to start.   

10) Why the 15-hour workweek never happened [Source: Medium]
Weekly work hours in the United States have hardly budged from the average of 48 in Keynes’ day. What’s more, the rich—who should have the most time for leisure—are working harder than ever. What happened? Why did Keynes’ prediction fail? Why aren’t we all, at least in the Western world, working 15-hour weeks?

While the author doesn’t have complete answers to these questions, he feels these questions reveal something interesting about human nature, the good life, and the ways we relate to money. We are more concerned about status symbol and culture. It’s like, if he is a millionaire, I want to be a billionaire. So, if it’s true that most of our disposable income goes toward competitive consumption and status signaling, then consider this question: Is it possible to give up the status game and work less than 15 hours a week?

The author also gives an example of Japanese schools where girls wear short skirts, even when it’s freezing cold in December! Why? Because they don’t want to be ostracized by their friends. Many people don’t realize how much of their time (and, therefore, their lives) is driven by status considerations. It’s worth asking yourself the following question: How much of what I do is done because I care about status? And how could my life be different if I cared a little bit less?