Day 1. Mobile World Congress Day 1: Artificial Intelligence, Blockchains and Chatbots Dominate the Conversation. February 28, 2017

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1 Mobile World Congress Day 1: Artificial Intelligence, Blockchains and Chatbots Dominate the Conversation Day 1 1) This week, the Fung Global Retail & Technology team is in Barcelona attending the 2017 Mobile World Conference. 2) Artificial Intelligence (AI) seems to be everywhere at MWC: mobile operators, Telefónica and Softbank, talked about making big bets on AI, and Olay provided more insights on its AI-powered beauty application. 3) Blockchains and chatbots will drive some of the biggest changes in the years to come by redefining the rules of transactions and communication. 4) The successful e-commerce formula that has prevailed is the sum of content, community and marketplace: Houzz, Polyvore, TicTail. Mobile, the Next Element The opening keynote address of the 2017 Mobile World Congress featured CEOs from the world s leading operators, including Masayoshi Son, Founder, Chairman and CEO of Softbank Group. During the keynote, they discussed the challenges and opportunities in the mobile industry, and shared insights into how the operator community can continue to play a central role in supporting global economic growth and social capital. Telefónica s CEO, José María Álvarez-Pallete López, talked extensively about platforms as the model of businesses going forward. According to him, Telefónica is transitioning to a business that is made up of interconnected platforms. Currently, the company operates three platforms: its physical infrastructure, its product and services, and a third platform that incorporates its operations and IT infrastructure. Now, the company is about to launch a fourth platform, Aura a smart layer on top of the other three platforms that will connect all information, interact with external data as part of a bigger ecosystem and serve as the company s interface for the consumer. Aura will empower users with transparency and choice, which Pallete López believes is what the future of the industry will look like. 1

2 Masayoshi Son of Softbank delivered a keynote which touched on the philosophical question about the role of AI over the next 30 years. Son believes that we will see Singularity in the next 30 years, the point at which AI will become more intelligent than humans. In Son s words, AI will have an IQ of 10,000, and even if the implications of this are still unknown, we know for sure that a world with AI will be ever more connected. According to Son, network operators will see 1 trillion IoT subscribers in the next 10 years, a trend that motivated Softbank s acquisition of chip-manufacturer ARM. In addition, there will be over 2,000 satellites launched by OneWeb, a company Softbank invested in, which will enable a fiber-like connection between earth and space. Lastly, Son commented that security is and will be a pressing issue as more devices connect to the internet. Olay: A Beauty Company on an AI Mission With the launch of the Olay Skin Advisor, Olay is looking to leverage the power of AI to transform the way women shop for beauty products. At MWC, we attended a panel organized by Olay, which discussed the current trends in AI and its future potential. The panel was moderated by Haile Owusu of Mashable and featured Dr. Frauke Neuser, principal scientist at Olay, Dr. Paul Matts, a research fellow at P&G, Andy Lapin, Chief Architect at Kelley Blue Book, Thomas Bradley, Head of Developer Technology (EMEA, Russia & India) at Nvidia, and Martin Garner, Senior Vice President at CCS Insight. The panelists discussed the broader definition of AI and its application when it comes to deriving insights from large volumes of data. In the case of beauty companies, Dr. Neuser commented that most women still defer to the in-store experience to buy beauty products, where they can test products and get advice from a trained professional. However, shopping for beauty products has become increasingly more complex with more brands and products to choose from. This means that one-third of women leave the store without finding what they are looking for and 60% of beauty shoppers have in their cabinet at home the so called skincare graveyard of products they bought but don t use. The promise AI has is that it can solve some of these real pain-points for consumers. Source: Fung Global Retail & Technology 2

3 What is the Olay Skin Advisor? The Olay Skin Advisor is a web-based app that analyzes the user s skin type and makes personalized recommendations on a beauty regimen and products. How it works is the user uploads a selfie and answers a set of questions designed by beauty scientists to help the algorithm determine the visible skin age. The app then recommends products based on its findings. The app s technology was trained on more than 50,000 faces and will continue to learn every time a new selfie is processed. We also visited 4YFN (4 Years From Now), which is the fastest-growing digital startup event. The name comes from the premise that the show features companies that will eventually make the main floor of MWC in four years. This is also the fourth year the event has been organized in parallel with MWC, and this year, features 18,000 square meters of exhibition space, housing promising global startups. 4YFN runs a conference program, which, on the first day, included keynotes from Dov Moran, the inventor of the USB memory stick, Harper Reed from Paypal and Terry von Bibra from Alibaba, and the sessions focused on the future of digital technologies and startup pitches. The Disruptive Impact of Blockchains Blockchains were covered by both the 4YFN and the MWC conference programs. Brock Pierce, Managing Partner and Chairman of Blockchain Capital, discussed his view on the opportunities that blockchain technologies present for entrepreneurs and corporates. In his view, blockchain technology is probably the most important technology after the Internet, as it will democratize access to financial services to a large demographic in the currently underserved developing and emerging markets. Furthermore, blockchains and, more specifically, the tokens used to transact on blockchain infrastructure, are likely to revolutionize the way businesses get started and how they raise capital. In 2016, there were 64 ICOs (Initial Token Offerings), which raised over $103 million, and, in some cases, funding rounds were raised in minutes for example, Golem raised $8.5 million by selling tokens in 19 minutes and SingularDTV raised $7.7 million in 17 minutes. The Future of Chatbots is Voice John Pulver delivered a session on chatbots and the future of communication. Pulver is the Internet pioneer who is most famous for the Pulver Order, which is a ruling by the Federal Communications Commission (FCC) regarding Internet Protocol (IP). The order ruled that computer-to-computer VoIP is not a telecommunications service and so is not subject to traditional voice telecommunications regulation. He commented that 63% of people engage with companies through text or messaging and out of those interactions, 50% are handled by bots. For Pulver, the future belongs to the further automation of these interactions. However, the evolution he is expecting is that rather than using text, people will move on to use voice to converse with machines. In fact, he commented that Gen Z will see the move back to voice communication from the current textual norm, and that AI technology, such as Amazon s virtual assistant Alexa, will play a big role in that. E-Commerce = Content, Community, Marketplace Uri Levanon, Founder and CEO of Haste Media, delivered a practical guide to the evolution of the e-commerce business model that incorporates content, community and commerce. He looked at examples such as Houzz, Polyvore and TicTail which all leverage the power of content and communities to drive traffic and engagement, which lead to monetization. One example for a successful engagement strategy is the now-global platform for interior design, Houzz, which generates 25 million monthly unique views. 3

4 According to Levanon, successful e-commerce businesses fall along the trifecta, which is defined as the content, community and marketplace segments of the business model. Source: Fung Global Retail & Technology He further pointed out that there are plenty of opportunities to create businesses following this model, and highlighted examples such as Goop and Brit + Co, which were created by Gwyneth Paltrow and Brit Morin, respectively. Both businesses offer users lifestyle guidelines through an authentic voice, lots of content, curated brands and, eventually, private ones. Continuing on the entrepreneurial theme, we saw pitches from a number of promising startups: Reply.ai: A platform to build and manage your conversational strategy. The company builds chatbots that allow companies to have 1:1 interaction with the consumer. Bitrefill: A service that allows prepaid card refills. The technology supports over 140 countries for international mobile recharging by leveraging the Bitcoin infrastructure. OpenBack: A technology that manages how mobile app notifications are pushed to the user, redefining the app customer experience. SplitFy: A service that allows users in Spain to make peer-to-peer money transfers such as splitting bills. Sentio: Developed the Superbook, a Universal Laptop Shell for Android, which transforms the android smartphone into a full PC. The first day of MWC ended with a keynote from Reed Hastings, CEO of Netflix, who discussed Netflix s transition to a global company with content developed and distributed across the world. We will be continuing our coverage on the most exciting products, technologies and startups over the course of MWC

5 Deborah Weinswig, CPA Managing Director Fung Global Retail & Technology New York: Hong Kong: China: Kiril Popov Senior Analyst Simic Chan Senior Research Associate Hong Kong: 8th Floor, LiFung Tower 888 Cheung Sha Wan Road, Kowloon Hong Kong Tel: London: Marylebone Road London, NW1 6JQ United Kingdom Tel: 44 (0) New York: 1359 Broadway, 9th Floor New York, NY Tel: FungGlobalRetailTech.com 5