The Coming Logistics Revolution
Featuring Josh Wolfe
Published on: April 23rd, 2019 • Duration: 14 minutesWill Star Trek-style “replicators” soon become a part of ordinary life? Josh Wolfe of Lux Capital and Michael Green of Thiel Macro discuss the blurring lines between the physical and digital worlds. The combination of 3D printing and digital imaging technology could change the world of logistics as we know it. This video is excerpted from a piece published on Real Vision on July 20, 2018.
MIKE GREEN: Josh, it's been almost 18 months since we sat down last.
JOSH WOLFE: Feels like it was yesterday.
MIKE GREEN: It really does. You were absolutely one of the best interviews that we ever had on Real Vision. People were just incredibly excited to hear you talk about basically anything. I want to push you on a couple of topics. One, you've said for the longest time that matter matters. That was one of the primary philosophies that you had at Lux. And explain what that means just quickly.
JOSH WOLFE: Well, one part of it is science, and one part of it is a little bit of sanctimonious righteousness. But matter that matters, meaning we were investing in things that were basically derived from breakthroughs in physics, and chemistry, and material science. Thinking about the atoms when you had a world that was dominated by investor interest and flow of capital and talent into things that were bits, the 0s and 1s of our digital economy. The internet optical networking. And the sanctimonious part of this and the righteous part was we always said that we were funding stuff that really had impact. And it wasn't Angry Birds and virtual pigs, and we can debate whether that in some way has some merit for society. But funding something like, nuclear waste cleanup and high tech based on physics that can go save a $40 million population by removing all the radioactivity from the Fukushima disaster was to us, you know, sanctimonious and righteous as it may be, more meaningful, and add more matter.
And I think when we're funding entrepreneurs, anytime anybody comes in and says, we want to change the world, I generally think that it's BS. But when they come in and say like, I want to go do this thing and it has the byproduct, almost accidentally that they did it, it just feels super meaningful for them. So above the money that they're making, it's just a great way to attract the right people.
MIKE GREEN: And so this is an area that feels like it is becoming incredibly timely.
JOSH WOLFE: The physical world.
MIKE GREEN: The physical world is becoming timely. And you and I have talked a little bit about this. But part of what seems to be happening is that the processing power of the technology is actually not progressing to the point that we've moved from the relatively simple manipulation of virtual world, right? So you know, the creation of a world in which anything is possible, a Second Life, for example, where we recreate something in low resolution mode. From a technology standpoint, that's been possible for an extended period of time.
But now, we're actually moving to a point where we're starting to see the technology progressed to the point that you're manipulating things in the real world.
JOSH WOLFE: Yeah. So let's look at both of those. The blurring between bits and atoms-- again between the 0s and 1s, and then the physical output of those is totally happening in a rapid way. So you can take the physical world around us, and say, how are we digitizing that. Well, you're doing 3D scanning. It used to be the 3D scanners required very sophisticated lasers. And then it turned out that there was a byproduct of video games-- and I'm sure we'll talk about this phenomenon, but lots of interesting things happen from these adjacent possibilities.
And if you have a Microsoft Kinect and you're playing Xbox, or your kids were, that was a depth sensor. And that 3D depth sensing camera suddenly was able to do rooms, and it got repurposed. And it got cheap, and so it became available, and it was the sort of combinatorial fodder for new entrepreneurs to take this and come up with new businesses. So we can rapidly scan the inner spaces of physical spaces and digitize them.
And so 3D scanning is really important technology. But the flip side of it, which was 3D printing. Now that you've got a simulacrum of the physical world in a digital file, a CAD file, computer automated design, you had the rise of firms like Adobe and Autodesk, where basically selling subscription services to creatives who can design things in the digital world, in bit space. But now we go back to atoms or what we might call meatspace. Now you can take that CAD model and actually physically print it and it comes out of a printer.
Now the printers that we used to have in the 3D printing world were pretty crappy. They printed white, strong, and flexible, which was basically nylon 2,200. It was a resin, it was plastic. And now we have ceramics, and metals, and hybrid materials, in a really sophisticated way that are no longer just the trinkets that you might see in somebody's office. But now, you can actually do large scale industrial printing. And so the idea of going from digital to physical and from physical to digital is increasingly becoming totally seamless.
MIKE GREEN: So this is actually one of the things that crosses over to my world from a macro standpoint, because I look at a lot of the trade dispute discussions with China. And I think there's very much a perception-- although people are starting to talk about this, that China's hand might be actually quite weak in this-- so they've done a phenomenal job of specializing in the use of relatively cheap human capital to build stuff.
Whether it's those plastic trinkets, et cetera. My favorite statistic that I recently uncovered in China is, what would you guess the single most-- China's single largest share of US and global exports in any one item is?
JOSH WOLFE: I would think toys.
MIKE GREEN: It's close. Its umbrellas.
JOSH WOLFE: Umbrellas.
MIKE GREEN: 85% of the world's umbrellas and 95% of the US imports of umbrellas.
JOSH WOLFE: Which is brilliant, by the way, because my kids, they never lose their toys, I'm always losing my umbrellas.
MIKE GREEN: So it's very easily--
JOSH WOLFE: Replacement value.
MIKE GREEN: The replacement value is high. Although it's now dropped to the point that it's absurd. We can get quality umbrellas for very, very low prices, right? But a lot of that-- nobody is attempting to 3D printing umbrella for fairly obvious reasons. It's got complex machinery to it, it's relatively simple in terms of context, but a lot of moving parts relative to a bunch of other stuff. But if we have to replace all the umbrellas we import with 3D printed variance, it seems like that's not going to be all that hard.
JOSH WOLFE: It's not. So think about it this way. Injection molding is basically the technology where you're going to make a master. And to spend the money to make the master, you have to know that you're going to have a volume that you're going to print of whatever good it is. The base for an umbrella, some toy, some plastic widget, whatever it is. And typically, that's to the order of about 100,000 units.
And so if you only know that you can print 1,000 or something or 500 or something or 10,000 of something, it doesn't make sense. You need to have sort of large scale volume to be able to produce from a master.
With 3D printing, if you're now just sending instead of a file, which then is the master for injection molding, and then you're having a factory spin this stuff up, and you're using cheap labor to assemble this, at a sophisticated 3D printers today, you can have fully assembled moving parts that all the sophistication of the complexity basically goes into the software design of the CAD level instead of human assembly. But now, you can print one of something, or 10 of something, or hundreds of something, and you totally change the economics of manufacturing.
And to your point about global trade flows, this is a really big deal. I mean, over the next decade, you will see billions of dollars-- and then I think eventually, it will be trillions of dollars. But over the next decade, billions of dollars that would have been caught in a port, or in a container ship, or sitting waiting for tariffs to be paid because this is being imported and exported, and it's just going to be digital files that are crossing the ocean.
And instead of shifting into the low cost labor and industrialized base in China, or Laos, or Vietnam, or Cambodia, you're going to see it shipped to maybe a part of Brooklyn, where there happens to be a bunch of very sophisticated industrial 3D printers that are able to print the 1,000 batch lot that otherwise never could have been done in China.
MIKE GREEN: And this crosses over into what people affectionately, refer to Star Trek world, right? You're talking about replicating this, effectively.
JOSH WOLFE: Totally. I mean, you saw that on the Enterprise, they would press a button, and the morning coffee cup would basically be conjured, right? And so now, you're basically pressing a button in your coffee cup can be conjured. You still need the coffee, that's not quite printable yet. But yeah, the cups are-- there was somebody at one of our companies, Shapeways, that just as a fanciful thing, decided that they were going to create, produce, and print a coffee mug a day. And they got ever more elaborate and evolved into this very complex almost non-drinkable forms. But you're only limited by your imagination.
And today, the technology-- and this is actually a really crazy thing-- there are tools like something called generative design. This to me is one of the most important areas of technology that I want my kids to understand. In the '80s, I remember my mother, she wanted me to learn golf and Japanese, because those were like the language of business, and I didn't do either. And today, it's Mandarin and coding. And all I know is that in 10 years, it'll be something totally different, right? That parents are prescribing that just won't really matter.
Generative design is a not well understood application of technology, where I basically say, Mike, I need a hinge for a door, and it's got to go from this to this angle. And do you have that in stock in here, and you're going to say no. Well now, I can actually go to the computer program, and it can generate mathematically, it can evolve, looking at all the different possibility spaces, and looking at the constraints, and the weight, and the price that I'm willing to pay, and the material design. And the computer program will basically evolve the part. And then you can print that.
So what that means is that we're going to basically be putting in the problem-- the computer is going to be designing the thing that normally would look like these platonic solids and geometric shape. And the world is going to start to look more like HR Giger and this sort of flowy architecture as opposed to the rigid structures that we have. And I think that's also going to be profound just in design, and architecture, and building, and product making.
MIKE GREEN: Well, I mean, that's a classic challenge, right? I mean, why are houses built the way they're built? Because right angles are very easy for unskilled laborers to measure.
JOSH WOLFE: And two by fours are easy to produce and consistent. Absolutely.
MIKE GREEN: And so all that begins to change in the world that you think is relatively narrow.
JOSH WOLFE: And not only in your head, but I think you're starting to see it in small forms. This hinge is an example. There's a part for BMW that's being made by one of our companies up in Boston called Desktop Metal, which produces 3D printed metal. And it looks like it's out of an Alien movie. It looks like Gaudi would have designed it. I mean, it's organic, it's flowing, which makes sense, right? I mean, mother nature and evolution designed all kinds of complex structures, but they don't look anything like these right angle platonic solids.
MIKE GREEN: And this is-- I mean, people forget, this is part of the way in which architecture has developed-- skyrises, skyscrapers which are all around us. Are a byproduct of new innovations in metal, right? The introduction of metal frames.
JOSH WOLFE: Rebar.
MIKE GREEN: And Rebar, et cetera, right? All of that change gave capability, the simultaneous development of elevators, made it possible for people to move up and change the structure of our cities. And so you're seeing this dynamic of matter matters in this intersection of the digital and physical world. Now coming together, again, you think this is really about to change. You think this is important.
JOSH WOLFE: Well, you hit on something important, too. Because not only can the materials matter, but computers matter, right? And the ability to use computers to search through the possibility space of new materials, combinatorial possibilities and chemistry-- that's something that really hasn't existed in the past decade or so.
So the ability to find the next implication-- you go back to The Graduate, right, I've got one word for you-- plastics, right? So it's going to be all kinds of new polymers, and it's going to be composite materials. And things that are going to have interesting strength properties combined with interesting thermal properties. And that's going to play a role in semiconductors.
I mean, if you take something like indium tin oxide, a complex combination of materials. What is it? It's transparent glass that we use-- this didn't exist 20 years ago. All of our phones, all of our iPads, all of our touch screens, you have clear, transparent conductive material that you can touch and tap, and it's basically sending a signal to a computer that you can look through. I mean, that would seem like magic 30 years ago. And that's only because of innovations in materials.
So I think in 10, 20 years-- I mean, the new possibilities that we're going to derive from new material combinations, much of which are computationally discovered, is going to be enormous.
MIKE GREEN: So how do you think about the process of unseating the incumbent in that? Because a skyscraper takes an extraordinary amount of permitting, it takes an extraordinary amount of accumulated wealth to build in the first place. Is it a disadvantage for major built cities to face this sort of regeneration?
JOSH WOLFE: Oh, I think-- so different materials are going to have different properties for different time frames. It's almost like Stewart Brand's pace layers of how these things are going to change. I mean, buildings are here for-- it's almost like Lindy effect, right? They're here for 30 years, they're going to be here for 30 more years.
I think is going to be in smaller things. It's going to be like touch screens we're going to see the new materials. It's going to be in some new capability, some new toy, some conductive flexible electronics that you see that you're wearing on your body. I don't think that the threat really in building materials is going to be the big huge one. I think it's going to be small manufacturing processes, new products that didn't exist before. Apparel, textiles, things where smaller scale can end up having a big impact.