Dust in the Light

Everyone in Madison knew to avoid Badger Road.

It was 1996, and the city was celebrating being christened the best place to live in America by Money Magazine:

Money Magazine declares Madison the best city in America

This year, Madison (and the rest of Dane County) earns the No. 1 position among the 300 biggest U.S. metropolitan areas in our 1996 Best Places to Live in America ranking. It snagged the top spot because apparently someone forgot to tell the folks in Madison that life is supposed to be full of trade-offs. The 390,300 residents of Dane County, 80 miles west of Milwaukee in south-central Wisconsin, have a vibrant economy with plentiful jobs, superb health care and a range of cultural activities usually associated with cities twice as big. Yet this mid-size metro area also offers up a low crime rate and palpable friendliness you might assume are available only in, say, Andy Griffith’s Mayberry. The news that the great Dane County is top dog this year probably won’t surprise the region’s residents. More than 90% of Madisonians rated their quality of life good or very good in a recent survey. Since the cosmopolitan Madison area — the city accounts for about half the county’s population — is surrounded by Wisconsin’s everpresent dairy farms, it seems only right to toast 1996’s No. 1 big cheese with a wedge of aged Wisconsin cheddar.

Still, despite the excellent quality of life, most everyone had, at one time or another, been made aware that the neighborhoods around South Park Street were “dangerous”; that wasn’t such a big deal, though, because no one you knew ever went there.

Madison’s Crescent

In 2016, a blogger named Lew Blank observed that the racial distribution of Madison neighborhoods formed a crescent:

When you look at Madison’s Racial Dot Map, you notice a pattern. The bottom and right sides of the map hold the majority of the black and hispanic population. It forms a curve almost – starting in the South Side, crossing along the east side of Lake Monona, and ending at the Northeast Side. I dub this curve-like chain of black and hispanic neighborhoods “The Crescent”.

Non-white neighborhoods in Madison form a crescent

This crescent was also seen in poverty indicators:

Shown below is a map of every single school in Madison with above average usage of free/reduced lunch programs:

Schools with kids in poverty are in the crescent

That’s right. 23 out of 23 schools in Madison that have above average usage of free/reduced lunch programs all fall along the Crescent.

The deal is, the children who need free/reduced lunch are poor, obviously. So does that mean that the poorest neighborhoods of Madison fall along the Crescent? Unfortunately, that’s exactly what it means.

In Madison, a black child is 13 times more likely than a white child to be born into poverty – an insanely high disparity.

Black children in Madison are much more likely to be born into poverty

So, Madison’s black and hispanic neighborhoods (the ones on the Crescent) are its poorest neighborhoods, and Madison’s white neighborhoods (the ones not on the Crescent) are its wealthiest neighborhoods.

Unsurprisingly, the crescent was also seen in educational outcomes:

It’s clear, then, that schools in the Crescent of poor black/hispanic neighborhoods would be expected to have below-average academic success. And unfortunately, the map below of all Madison schools with below-average reading proficiency rates indicates that this is exactly the case.

Schools in the crescent have worse performance

Believe it or not, 24 out of 24 schools with below-average reading proficiency rates fall along the Crescent.

And, of course, crime; I personally added the red box to Blank’s final map to indicate the Badger Road area I mentioned above:

The map below of the addresses of incarcerated Madisonians shows that incarceration in Madison tends to be clustered around the Crescent.

Incarceration rates in Madison are worse in the crescent

There was one map that Blank was missing though: the notorious Home Owners’ Loan Corporation map. The Home Owners’ Loan Corporation was a federal agency formed as part of President Franklin D. Roosevelt’s New Deal; its purpose was to refinance home mortgages, but as part of the process, the Corporation mapped out U.S. neighborhoods by risk, and by risk, HOLC all-too-frequently meant percentage of non-white people, particularly African Americans. Here was the map of Madison (laid on top of a current map in order to deliver the a north-is-up perspective):

The crescent matches Madison red-lining

Once you see the crescent, you can’t unsee it. And, relatedly, you can’t escape the impact on Madison. In 2018 African Americans made up 7% of the population but 43% of arrests and 46% of Dane County Jail inmates; African American students were 18% of the school district, but received 57% of suspensions; 10 percent of African American students received an “advanced” or “proficient” score on the math portion of Wisconsin’s standardized testing, while 61% of white students did the same (the proportions were similar for all subjects). Meanwhile the average house price in the Burr Oaks neighborhood (which includes Badger Road) is $145,300; the Madison average is $300,967.

The pattern is even worse in Milwaukee, Wisconsin’s largest city, and the most segregated city in the country; small wonder that Wisconsin ranks so highly when it comes to the disparity between black and white median household income:

Wisconsin has amongst the worst disparity between black and white median income

And poverty rates:

Wisconsin has amongst the worst disparity between black and white poverty rates

And, as the paper from which these charts are drawn puts it:

Racial disparities in rewards and returns (opportunity, compensation, security) are matched by racial disparities in punishment…Five (WI, IA, MN, IL, NE) of the ten worst-performing states, ranked by the ratio between black and white rates, are in the Midwest. Such disparities, glaring in their own right, also have profound impacts on individuals, families and communities. Incarceration short circuits equal citizenship—the right to vote, educational and employment opportunities, access to housing—in deep and lasting ways.

Wisconsin has amongst the worst disparity and black and white incarceration rates

The one state competing with Wisconsin for the highest measurements of disparity is the neighbor to the west: Minnesota.

Minneapolis and George Floyd

While red-lining helped shape segregation in many cities, Minneapolis was pre-emptive about its discrimination; beginning in the 1910s Minneapolis real estate deeds started to include “Covenants” that explicitly excluded African Americans. A team from the University of Minnesota has been researching real estate deeds to uncover these covenants, and created this striking time-lapse of their spread:

Racial covenants were ruled unconstitutional by the Supreme Court in 1948, but the effect remains; compare the racial covenant map to the racial dot map Blank referenced above — the blue (which is white people) adheres to the blue of racial covenants:

A map of racial covenants closely matches a map of Minneapolis' population

That red cross, meanwhile, is the location of the homicide of George Floyd, in the decidedly non-blue portion of the map. “Homicide” was the word used by the Hennepin County Medical Examiner, which ruled that Floyd’s cause of death was “Cardiopulmonary arrest complicating law enforcement subdual, restraint, and neck compression”; it is up to prosecutors and a jury to decide if that homicide constitutes murder.

The rest of the country did not take so long: nearly all have seen the video of Minneapolis police officer Derek Chauvin with his knee on Floyd’s neck for 8 minutes and 46 seconds, even as Floyd first complains he cannot breath, and then, for the final two minutes and 53 seconds, falls silent.

Dust in the Air

The first version of the Hennepin County Medical Examiner’s autopsy, at least the part quoted in the criminal complaint against Chauvin, read a bit differently:

The Hennepin County Medical Examiner (ME) conducted Mr. Floyd’s autopsy on May 26, 2020. The full report of the ME is pending but the ME has made the following preliminary findings. The autopsy revealed no physical findings that support a diagnosis of traumatic asphyxia or strangulation. Mr. Floyd had underlying health conditions including coronary artery disease and hypertensive heart disease. The combined effects of Mr. Floyd being restrained by the police, his underlying health conditions and any potential intoxicants in his system likely contributed to his death.

The underlying health conditions and intoxicants are still in the final report; what has changed is their relative prominence in explaining Floyd’s death. One suspects that in a different world — say, the world that was Minneapolis for most of the 20th century — said underlying health conditions and intoxicants would have been held to be the cause of death, not “Other significant conditions.” Perhaps there would be a two paragraph story in the Star Tribune on page A17, or more likely Floyd’s death would have disappeared into a police filing cabinet, a non-event as far as most of Minneapolis was concerned. At best there would be a murmur to avoid that sketchy Powderhorn neighborhood, a rarely-visited barely-remembered exception to Minneapolis’ status as one of the best cities in America.

Those who knew Floyd or witnessed his death would know better, of course. They would, as Kareem Abdul-Jabbar wrote in the Los Angeles Times, shout “Not @#$%! again!” Abdul-Jabbar explains:

African Americans have been living in a burning building for many years, choking on the smoke as the flames burn closer and closer. Racism in America is like dust in the air. It seems invisible — even if you’re choking on it — until you let the sun in. Then you see it’s everywhere. As long as we keep shining that light, we have a chance of cleaning it wherever it lands. But we have to stay vigilant, because it’s always still in the air.

What made the Floyd story different than all of the surely similar examples that went before it is the Internet, specifically the combination of cameras on smartphones and social networks. The former means any incident can be recorded on a whim; the latter means that said recording can be spread worldwide instantly. That is exactly what happened with the Floyd homicide: the initial video was captured on a smartphone and posted on Facebook, triggering a level of attention to the Floyd case that in all likelihood changed the nature of the autopsy and led to the pressing of charges against Chauvin — a chance, in Abdul-Jabbar’s words, of cleaning at least one spec of that omnipresent dust.

Trump’s Tweets

Notably, this is not why Facebook is in the news this week; yesterday hundreds of employees staged a virtual walkout to protest the fact that the company committed, in their mind, a sin of omission: not deleting posts from President Trump. Those posts are copies of Trump tweets, three of which Twitter modified in some way last week. The first two were Trump allegations that voting by mail had a high risk of fraud; Twitter attached a “Get the facts” label that led to a page disputing Trump’s claim.

The more serious intervention came early Friday morning, when Twitter obscured a Trump tweet because it, in their determination, “violated the Twitter Rules about glorifying violence.”

Twitter obscured a Trump tweet

Twitter — at least as far as citing its rules is concerned — apparently objected to the phrase “when the looting starts, the shooting starts,” which is associated with a brutal segregationist police chief from Miami; Trump claimed to not know the saying’s history, but honestly, arguing about that phrase feels like a distraction from Trump’s all-capitalization use of the descriptor “thugs”, a word with significant racial undertones. That certainly seemed to be what the protesting Facebook employees picked up on; from the New York Times:

“The hateful rhetoric advocating violence against black demonstrators by the US President does not warrant defense under the guise of freedom of expression,” one Facebook employee wrote in an internal message board, according to a copy of the text viewed by The New York Times. The employee added: “Along with Black employees in the company, and all persons with a moral conscience, I am calling for Mark to immediately take down the President’s post advocating violence, murder and imminent threat against Black people.” The Times agreed to withhold the employee’s name.

What is notable about that New York Times story is that it reproduces the post (and tweet!) that the employees want taken down:

The New York Times published the post and tweets many want banned

So did the story I linked to above about that Miami police chief, and countless other publications. Indeed, it seems rather obvious that Twitter’s action — and those objecting to Facebook’s lack of action — ensured that Trump’s tweet would be far more widely read than it might have been otherwise.

It is not clear that this is a bad thing. Trump’s tweet is abominable, but sadly, of a piece with far too many presidents. The Associated Press wrote in 2019:

Throughout American history, presidents have uttered comments, issued decisions and made public and private moves that critics said were racist, either at the time or in later generations. The presidents did so both before taking office and during their time in the White House…

This extends far beyond the founding fathers, most of whom owned slaves, to the 20th century:

The Virginia-born Woodrow Wilson worked to keep blacks out of Princeton University while serving as that school’s president…

Democrat Lyndon Johnson assumed the presidency in 1963 after the assassination of John F. Kennedy and sought to push a civil rights bill amid demonstrations by African Americans…But according to tapes of his private conversations, Johnson routinely used racist epithets to describe African Americans and some blacks he appointed to key positions.

His successor, Republican Richard Nixon, also regularly used racist epithets while in office in private conversations…As with Johnson, many of Nixon’s remarks were unknown to the general public until tapes of White House conversations were released decades later. Recently the Nixon Presidential Library released an October 1971 phone conversation between Nixon and then California Gov. Ronald Reagan, another future president…Reagan, in venting his frustration with United Nations delegates who voted against the U.S., dropped some racist language.

The part about secret tapes is notable: much of this racism — this dust in the air — was in darkened rooms, unseen by the public. Trump, if nothing else, has no need for secret tapes: we have his very public Twitter account, and all indications, particularly in terms of pre-COVID polling, suggest that it massively weakened his reelection bid.

The president’s threats, meanwhile, continue: yesterday Trump demanded governors around the country crack down on the looting that has in several cities followed peaceful protests, saying he would call in the military otherwise. That certainly seems to be, in broad strokes, in line with the tweet Twitter hid — does it matter that Trump stated his position on a conference call and in the Rose Garden instead of a tweet?

In fact, that is what is so striking about the demands that Facebook act on this particular post (beyond the extremely problematic prospect of an unaccountable figure like Zuckerberg unilaterally deciding what is and is not acceptable political speech): the preponderance of evidence suggests that these demands have nothing to do with misinformation, but rather reality. The United States really does have a president named Donald Trump who uses extremely problematic terms — in all caps! — for African Americans and quotes segregationist police chiefs, and social media, for better or worse, is ultimately a reflection of humanity. Facebook deleting Trump’s post won’t change that fact, but it will, at least for a moment, turn out the lights, hiding the dust.

A Gargantuan Force

It is hard to be optimistic about anything at this moment in time. My regular refrain from the beginning of the coronavirus crisis is that the most likely outcome will be the acceleration of trends that were already happening. That is particularly scary given what I wrote back when Stratechery started in 2013, in a post called Friction:

Count me with those who believe the Internet is on par with the industrial revolution, the full impact of which stretched over centuries. And it wasn’t all good. Like today, the industrial revolution included a period of time that saw many lose their jobs and a massive surge in inequality. It also lifted millions of others out of sustenance farming. Then again, it also propagated slavery, particularly in North America. The industrial revolution led to new monetary systems, and it created robber barons. Modern democracies sprouted from the industrial revolution, and so did fascism and communism. The quality of life of millions and millions was unimaginably improved, and millions and millions died in two unimaginably terrible wars.

Another comparison point is the printing press, which I wrote about last year in the context of Facebook:

Just as important, though, particularly in terms of the impact on society, is the drastic reduction in fixed costs. Not only can existing publishers reach anyone, anyone can become a publisher. Moreover, they don’t even need a publication: social media gives everyone the means to broadcast to the entire world. Read again Zuckerberg’s description of the Fifth Estate:

People having the power to express themselves at scale is a new kind of force in the world — a Fifth Estate alongside the other power structures of society. People no longer have to rely on traditional gatekeepers in politics or media to make their voices heard, and that has important consequences.

It is difficult to overstate how much of an understatement that is. I just recounted how the printing press effectively overthrew the First Estate, leading to the establishment of nation-states and the creation and empowerment of a new nobility. The implication of overthrowing the Second Estate, via the empowerment of commoners, is almost too radical to imagine.

And yet, look again at this past week: a century of institutionalized racism in Minneapolis was not necessarily overthrown, but certainly overwhelmed in the case of George Floyd, because of a post on Facebook. Both peaceful protests and wanton destruction and looting were likely organized on social media. Video of both were circulated around the world via ubiquitous smartphone cameras on said social networks. The Internet is an amoral force — it can effect both positive and negative outcomes — but what cannot be underestimated is how gargantuan a force it is.

To that end, while there is much to fear, there is room for hope as well. I am grateful that I can no longer unsee Madison’s crescent, thanks to a blog post. I am angered by the video of Floyd’s death, and appalled at the dust in the air that yes, I was privileged enough to avoid without a second thought. And no matter what upheaval lies ahead, I am certain that the light that illuminates that dust so brightly can never be put away. There are no more gatekeepers, oftentimes for worse, but also for better.

Platforms in an Aggregator World

In the month since I wrote The Anti-Amazon Alliance, there has been two significant announcements from two of the principals in that alliance:

  • Shopify announced the Shop app
  • Facebook announced Facebook Shops

Many have argued that these announcements are related to each other: Shopify needs to build a customer-facing application in order to take-on Facebook, and the announcement of Facebook Shops is why. My takeaway is the opposite: the inevitability of Facebook Shops — thanks in part to a surprising culprit — is precisely why Shopify should not spend much time on end-user acquisition.

The Anti-Amazon Alliance Redux

In The Anti-Amazon Alliance I noted that brick-and-mortar retail served two functions: discovery and distribution. On the Internet, though, those functions have been split between two different value chains: Facebook is the top-of-funnel for discovery, while Amazon dominates search-driven distribution; the genesis of that article was driven by the news that Google was re-focusing Google Shopping away from pay-to-play to being a search engine that listed products from anyone, thus joining the Anti-Amazon Alliance.

One of the most important companies in making both of the non-Amazon value-chains work is Shopify, which is a platform, not an Aggregator. Google and Facebook may collect the customers, but it is Shopify (and WooCommerce, its open-source competitor) that provides the infrastructure for merchants to actually sell things online; Shopify is also working to help merchants get the things they sell into customers hands with the Shopify Fulfillment Network, which I wrote about in Shopify and the Power of Platforms. At last week’s Reunite Conference the company announced that it now owned-and-operated seven warehouses across the U.S., has built an R&D center to improve warehouse operations, and has incorporated 6 River Systems in the form of “Chuck” robots to help with order fulfillment.

One particularly clever component of the Shopify Fulfillment Network is that the same templates a merchant uses to customize their website also translate seamlessly to custom packaging; when you receive a package from a Shopify merchant — the goal is two days, anywhere in the world — it appears as if it came from that merchant, not from Shopify. That’s part and parcel of being a platform: you win when those on your platform win, even if customers never even know you exist.

This is also why I didn’t agree with Shopify’s decision to rebrand their Arrive tracking app as the Shop app: it demotes merchants relative to Shopify itself (and the attempt to maintain some sort of brand prominence confuses the user experience).

Facebook Shops

Those that disagreed with my opinion on the Shop App generally cited Facebook and the fact that the social network is capturing an increasing amount of value from the direct-to-consumer space. I wrote about why this is happening earlier this year in Email Addresses and Razor Blades:

The problem is that in the process of depending on Google and Facebook for marketing, the DTC companies gave up their planned integration in the value chain, and the associated profits, to Facebook and Google:

A drawing of Actual DTC Value Chain

The actual integrated players — Google and Facebook — integrate customers and research and development to dominate marketing; DTC may have online retail operations, but that is a modularized — and thus commoditized — part of the value chain (and meanwhile, Amazon was in the process of integrating retail and logistics).

However, suggesting that Shopify take responsibility for directly acquiring customers (as opposed to building tools to help merchants do so) is not only out of step with Shopify’s position in the value chain, but there is also no particularly good reason to believe that Shopify will be any better at this than their merchants. What Facebook is capable of in terms of customer acquisition is not trivial — that is precisely why they are able to charge a premium for it.

What is more concerning for Shopify — at least at first glance — is the possibility of Facebook backwards integrating, a la Facebook Shops. From the Facebook Newsroom:

Facebook Shops make it easy for businesses to set up a single online store for customers to access on both Facebook and Instagram. Creating a Facebook Shop is free and simple. Businesses can choose the products they want to feature from their catalog and then customize the look and feel of their shop with a cover image and accent colors that showcase their brand. This means any seller, no matter their size or budget, can bring their business online and connect with customers wherever and whenever it’s convenient for them.

People can find Facebook Shops on a business’ Facebook Page or Instagram profile, or discover them through stories or ads. From there, you can browse the full collection, save products you’re interested in and place an order — either on the business’ website or without leaving the app if the business has enabled checkout in the US.

And just like when you’re in a physical store and need to ask someone for help, in Facebook Shops you’ll be able to message a business through WhatsApp, Messenger or Instagram Direct to ask questions, get support, track deliveries and more. And in the future, you’ll be able to view a business’ shop and make purchases right within a chat in WhatsApp, Messenger or Instagram Direct.

Bad news for Shopify, right? Except note the last paragraph:

We’re also working more closely with partners like Shopify, BigCommerce, WooCommerce, ChannelAdvisor, CedCommerce, Cafe24, Tienda Nube and Feedonomics to give small businesses the support they need. These organizations offer powerful tools to help entrepreneurs start and run their businesses and move online. Now they’ll help small businesses build and grow their Facebook Shops and use our other commerce tools.

While Shopify did write a blog post about Facebook Shops, the partnership merited a mere 18 seconds in the Reunited Keynote; this doesn’t feel like something Shopify is super thrilled about, and for understandable reasons.1

Shopify’s Business Model

Shopify’s original business model is labeled “Subscription Solutions”; merchants pay a subscription fee to use the Shopify platform — the price ranges from $29 to $299 per month — and can use the payment provider of their choice. When Shopify IPO’d Subscription Solutions was 60% of their $67 million in quarterly revenue.

Over the last five years, though, “Merchant Solutions” — which are a percentage of transactions, usually from using Shopify Payments — has been the primary growth driver. Last quarter it was Merchant Solutions that was 60% of Shopify’s $470 million in quarterly revenue.

This shift in Shopify’s business model is almost certainly why the company appears to be uncomfortable with this evolution of their “partnership” with Facebook. Sure, Facebook Shop integration will be a feature of Shopify’s Subscription Solutions, but Shopify will be locked out of sales made via Facebook Checkout, which means no Merchant Solutions revenue, and by extension, no participating in the upside of its merchants’ growth.

What makes this a particularly bitter pill to swallow for Shopify is that Facebook’s move is really good for those merchants (and a far better solution than the overly complicated Instagram Shopping beta that didn’t integrate with outside services). At this point I’m going to assume that those of you who have bought a product from an Instagram ad outnumber those of you who haven’t,2 and the truth is that it is a pretty janky experience tediously filling in all of your shipping and billing details. Sometimes it is easier to just abandon your purchase for that item you had no idea existed 30 seconds ago.

Facebook Checkout, on the other hand, would mean a purchase that is completed in seconds, not minutes. After all, if anyone knows who you are, it is Facebook!3 That is going to mean a lot more conversions on Facebook and Instagram ads in particular — and Shopify isn’t going to see an incremental cent.

Firefighters and Arsonists

It is very important to note that Facebook is setting itself up as the solution for a problem it played a major role in creating. To examine iOS specifically, Apple provides a user-friendly solution to the payment problem: Apple Pay. Apple Pay, though, is limited to Safari and SFSafariViewController objects; the latter is the most straightforward way for developers to add a browser to their application — it looks like Safari, and has a button in the lower-right corner to load the page in Safari.

Compare and contrast an SFSafariViewController webview (in this case, from Twitter’s app) to what you get in Instagram:

iOS's built-in browser versus Instagram's browser

What Instagram4 has done is basically build their own browser within Instagram. It still uses iOS’s WebKit engine — that is an iOS requirement, which means that Chrome uses WebKit as well — but it is not otherwise controlled by Apple. And that, Apple has decreed, means no Apple Pay, which means that the purchase experience is worse in Instagram and Facebook than it could have been had either Facebook used SFSafariViewController or if Apple relaxed its policies around Apple Pay.

Notably, both Facebook and Apple are motivated by opposite sides of the same coin: Facebook uses its own browser because that allows it to capture far more data than they could from SFSafariViewController; Apple, meanwhile, puts a sandbox around SFSafariViewController for the purpose of keeping user data away from 3rd party developers, and incentivizes usage by both making SFSafariViewController far easier to use and also including benefits like Apple Pay integration.

The conclusion I am sure many of you have already arrived at is to be grateful for Apple’s policies and irritated at Facebook’s. After all, Apple is just looking out for the user, and Facebook is looking to exploit them, right?

In fact, it’s a bit more complicated than that, and cookies are a good example. Remember that a whole bunch of those Instagram advertisements are from Shopify merchants, all of whose websites are hosted on the same infrastructure. Image if Shopify could set a cookie when a user made a purchase on one website, and then when the user visited another Shopify website they were already logged in with all of their payment information ready to go. Notably, Shopify has built this infrastructure — it’s called Shop Pay — but you have to log in on every distinct Shopify website.

The reason for this rigamarole is that for the last three years Apple has been leading the charge towards the elimination of 3rd-party cookies of the sort I just described. There are good reasons for this, specifically the elimination of 3rd-party trackers primarily loaded by advertisements. There are, though, real casualties along the way, including Shopify and its merchants.

I wrote about these tradeoffs last year in Privacy Fundamentalism:

Technology can be used for both good things and bad things, but in the haste to highlight the bad, it is easy to be oblivious to the good. Manjoo, for example, works for the New York Times, which makes most of its revenue from subscriptions; given that, I’m going to assume they do not object to my including 3rd-party resources on Stratechery that support my own subscription business?

This applies to every part of my stack: because information is so easily spread across the Internet via infrastructure maintained by countless companies for their own positive economic outcome, I can write this Article from my home and you can read it in yours. That this isn’t even surprising is a testament to the degree to which we take the Internet for granted: any site in the world is accessible by anyone from anywhere, because the Internet makes moving data free and easy.

This, unfortunately, better described the world of 2017 than the world of 2020. Yes, websites are still freely accessible, and thank goodness for that, but it is ever more difficult for those websites to be supported by critical infrastructure like Shopify (or, in my case, Stripe and WordPress). Privacy is a good thing, but so is entrepreneurship and competition; maximizing one without any consideration of the others leads to unintended outcomes.

Facebook Shops is a perfect example: it is going to succeed because it is good for Shopify’s merchants, but the reason it is good for Shopify’s merchants is because Facebook and Apple effectively teamed up to make it impossible for Shopify to fix the payment problem on their own.

This makes me sad: the part of the Internet that fills me with the most optimism are platforms like Shopify and Stripe and Substack that make it possible for individual entrepreneurs to try and build their own businesses with world-class tools at their disposal; making it hard to utilize those tools primarily benefits established companies and apps.5

Shopify’s Platform Prospects

This is the harsh reality for Shopify and anyone else competing in a value chain with an Aggregator: you are not going to beat Facebook at their own game, particularly given the technical limitations increasingly facing infrastructure providers. At the end of the day overcoming Facebook’s skill at acquiring customers must be the responsibility of the merchants themselves: what works — and what will always work, as long as the web exists — is creating something so compelling that people will go to you directly, and yes, fill out a payment form.

This, though, is why I remain so excited about the Shopify Fulfillment Network. I’m not completely sold on Shopify’s approach — I thought it might make more sense to try and create a common interface for merchants to interact with independent 3PL providers, as opposed to building out Shopify own logistics service (but I could very well be wrong about this) — but I absolutely endorse the company making massive investments in this space.

First, this is a service that no merchant can build on its own; it is a perfect example of how a platform can create something for an ecosystem that would not exist otherwise. Moreover, this is specifically what is needed to fulfill the promise I laid out last year, of Shopify as an Amazon competitor, not because users choose to go to Shopify, but because they have no reason to know that Shopify exists.

Second, this is a service that Facebook Shops is going to make more valuable, not less: all of those merchants increasing sales thanks to Facebook Checkout still need to ship their things, and there is zero chance that Facebook ever integrates into the real world.

Third, this is a service no one else is going to build. Yes, it is very difficult to build fulfillment centers and develop robots and employ lots of workers, but within that difficulty is an escape from competition, i.e. a far more reliable way to make sustainable profits in the long run.

I am also bullish about Shopify moving into banking and financial services; yes, there is certainly more competition here with the likes of Stripe — another Shopify partner6, but this is another area where taking on the sorts of risks that an Aggregator never would (and never should) makes sense for a platform provider.

A Reason to Build

In my response to Marc Andreessen’s It’s Time to Build essay, I suggested three different ways the tech industry could make more of a difference in the world of atoms, not just bits; the second was as follows:

Second, invest in real-world companies that differentiate investment in hardware with software. This hardware could be machines for factories, or factories themselves; it could be new types of transportation, or defense systems. The possibilties, at least once you let go of the requirement for 90% gross margins, are endless.

That reminded me of these two “warnings” in Shopify’s most recent earnings report:

  • Our expectation is that the gross margin percentage of merchant solutions will decline in the short term as we develop Shopify Fulfillment Network and 6 River Systems Inc. (“6RS”).
  • Our expectation is that the continued growth of merchant solutions may cause a decline in our overall gross margin percentage.

In short, building fulfillment centers and developing robots and employing lots of workers isn’t great for margins. It is, though, at least in the ultra-competitive markets that Shopify operates in, good for building a moat. This is certainly something that Amazon discovered long ago; I wrote in 2018 in Amazon Go and the Future:7

This willingness to spend is what truly differentiates Amazon, and the payoffs are tremendous. I mentioned telecom companies in passing above: their economic power flows directly from massive amounts of capital spending; said power is limited by a lack of differentiation. Amazon, though, having started with a software-based horizontal model and network-based differentiation, has not only started to build out its vertical stack but has spent massive amounts of money to do so. That spending is painful in the short-term — which is why most software companies avoid it — but it provides a massive moat.

In this view, the upside of building in the real world is rooted in just how difficult it is; given that we have reached The End of the Beginning, it may be the highest upside available.

  1. This paragraph originally said that Shopify didn’t write a blog post; I apologize for the error []
  2. Please don’t tell me if you haven’t 🤣 []
  3. In all seriousness, the company was honest that they will use Facebook Shop behavior for ad targeting, which lends credence to their promise to keep purchase methods private. []
  4. And Facebook, but not WhatsApp, which simply loads links in Safari []
  5. This, by the way, suggests that Substack was smart to keep everyone on the same domain; I generally believe that you should always have your own domain, but the truth is that Apple’s overzealous cookie policy has increasingly made that a liability []
  6. Interestingly, the wording in Shopify’s annual report about their relationship has shifted in the last year, although not dramatically []
  7. That article, by the way, wrongly predicted that Amazon would not license Amazon Go, and also mischaracterized Marx’s view of automation. The latter hurts more. []

Chips and Geopolitics

The debate around who belongs on the Mount Rushmore of tech would be a long one; what is certain is that Morris Chang should be on the list. He certainly leads the way in terms of impact relative to name recognition.

Integration and Modularization

Clayton Christensen, in 2003’s The Innovator’s Solution, explained how the natural course of industries was from interdependent architectures to modular ones:

Customers will not buy your product unless it solves an important problem for them. But what constitutes a “solution” differs across the two circumstances in Figure 5-1: whether products are not good enough or are more than good enough. The advantage, we have found, goes to integration when products are not good enough, and to outsourcing — or specialization and dis-integration when products are more than good enough.

The left side of Figure 5-1 indicates that when there is a performance gap — when product functionality and reliability are not yet good enough to address the needs of customers in a given tier of the market — companies must compete by making the best possible products. In the race to do this, firms that build their products around proprietary, interdependent architectures enjoy an important competitive advantage against competitors whose product architectures are modular, because the standardization inherent in modularity takes too many degrees of design freedom away from engineers, and they cannot not optimize performance.

This makes intuitive sense: optimizing everything results in better performance, at the cost of long-term reliability and flexibility. Sure, long-term reliability and flexibility are nice-to-have, but they are lesser priorities. Once that top priority is met, though, these secondary priorities come to the forefront.

Overshooting does not mean that customers will no longer pay for improvements. It just means that the type of improvement for which they will pay a premium price will change. Once their requirements for functionality and reliability have been met, customers begin to redefine what is not good enough. What becomes not good enough is that customers can’t get exactly what they want exactly when they need it, as conveniently as possible. Customers become willing to pay premium prices for improved performance along this new trajectory of innovation in speed, convenience, and customization. When this happens, we say that the basis of competition in a tier of the market has changed.

This is a big problem for firms that are dominant in a market undergoing this transition; after all, the reason said firms are dominant is because they are the highest performing, which is to say that they are highly integrated, and to unwind said integration is usually untenable for both business model and more deep-rooted cultural reasons. That opens the door for new entrants:

The pressure of competing along this new trajectory of improvement forces a gradual evolution in product architecture, as depicted in Figure 5-1 — away from the interdependent, proprietary architectures that had the advantage in the not-good-enough era toward modular designs in the era of performance surplus. Modular architectures help companies to compete on the dimensions that matter in the lower-right portions of the disruption diagram. Companies can introduce new products faster because they can upgrade individual subsystems without having to redesign everything. Although standard interfaces invariably force compromises in system performance, firms have the slack to trade away some performance with these customers because functionality is more than good enough.

Modularity has a profound impact on industry structure because it enables independent, nonintegrated organizations to sell, buy, and assemble components and subsystems. Whereas in the interdependent world you had to make all of the key elements of the system in order to make any of them, in a modular world you can prosper by outsourcing or by supplying just one element. Ultimately, the specifications for modular interfaces will coalesce as industry standards. When that happens, companies can mix and match components from best-of-breed suppliers in order to respond conveniently to the specific needs of individual customers.

Taiwan Semiconductor Manufacturing Company (TSMC), the company Chang founded in 1987, is arguably the single best example of the process Christensen described.

Intel and TSMC

Intel invented the microprocessor in 1971, and for decades to come, it was not good enough. The 4-bit Intel 4004 was followed by the 8-bit Intel 8008, and then the Intel 8080. Then, in 1978, came the Intel 8086, a 16-bit processor that was backwards compatible with programs written for the 8080 and 8008. That was followed by the Intel 80286, and in 1985, the 32-bit Intel 80386. It was the 80386 that defined the baseline x86 instruction set that undergirds modern processors in most laptops, desktops, and servers, but x86 has its roots in the 8008. Intel, by integrating design, manufacture, and software from the 1970s, would go on to define and dominate the processor market for decades.

It would take a very long time for this integrated approach to overshoot the market. Intel’s 80386 was succeeded by the 80486, then the Pentium, and every release made computers so much faster that use cases unimaginable only one or two years prior suddenly seemed within reach, if only Intel could continue its rate of improvement. And, to the company’s credit — and with a solid push from AMD into a 64-bit variant that retained backwards compatibility to the 80386 — Intel did just that.

Still, Intel made general purpose processors; processors that were created for a specific task would be much faster, at least in theory, but it was hard to get started: Chang, then a long-time executive at Texas Instruments, observed in the 1980s that it cost $50~$100 million dollars to start a new chip company, primarily because of the cost of manufacturing. You could contract production from Intel or Texas Instruments or Motorola, but it wasn’t reliable — and they were also your competitor!

A few years later, in 1987, Chang was invited home to Taiwan, and asked to put together a business plan for a new government initiative to create a semiconductor industry. Chang explained in an interview with the Computer History Museum that he didn’t have much to work with:

I paused to try to examine what we have got in Taiwan. And my conclusion was that [we had] very little. We had no strength in research and development, or very little anyway. We had no strength in circuit design, IC product design. We had little strength in sales and marketing, and we had almost no strength in intellectual property. The only possible strength that Taiwan had, and even that was a potential one, not an obvious one, was semiconductor manufacturing, wafer manufacturing. And so what kind of company would you create to fit that strength and avoid all the other weaknesses? The answer was pure-play foundry…

In choosing the pure-play foundry mode, I managed to exploit, perhaps, the only strength that Taiwan had, and managed to avoid a lot of the other weaknesses. Now, however, there was one problem with the pure-play foundry model and it could be a fatal problem which was, “Where’s the market?”

What happened is exactly what Christensen would describe several years later: TSMC created the market by “enabl[ing] independent, nonintegrated organizations to sell, buy, and assemble components and subsystems.” Specifically, Chang made it possible for chip designers to start their own companies:

When I was at TI and General Instrument, I saw a lot of IC [Integrated Circuit] designers wanting to leave and set up their own business, but the only thing, or the biggest thing that stopped them from leaving those companies was that they couldn’t raise enough money to form their own company. Because at that time, it was thought that every company needed manufacturing, needed wafer manufacturing, and that was the most capital intensive part of a semiconductor company, of an IC company. And I saw all those people wanting to leave, but being stopped by the lack of ability to raise a lot of money to build a wafer fab. So I thought that maybe TSMC, a pure-play foundry, could remedy that. And as a result of us being able to remedy that then those designers would successfully form their own companies, and they will become our customers, and they will constitute a stable and growing market for us.

It worked. Graphics processors were an early example: Nvidia was started in 1993 with only $20 million, and never owned its own fab.1 Qualcomm, after losing millions manufacturing its earliest designs, spun off its chip-making unit in 2001 to concentrate on design, and Apple started building its own chips without a fab a decade later. Today there are thousands of chip designers in all kinds of niches creating specialized chips for everything from appliances to fighter jets, and none of them have their own foundry.

There was one other thing that happened along the way: as I detailed in 2018’s Intel and the Danger of Integration, TSMC eventually surpassed Intel in not just flexibility but also pure performance:

In time, though, TSMC got better, in large part because it had no choice: soon its manufacturing capabilities were only one step behind industry standards, and within a decade had caught-up (although Intel remained ahead of everyone). Meanwhile, the fact that TSMC existed created the conditions for an explosion in “fabless” chip companies that focused on nothing but design…the increased business let TSMC invest even more in its manufacturing capabilities.

In short, TSMC is the best chipmaker in the world, no matter what vector of performance you care about. And with that came an entirely new class of problems, not just for TSMC, but also Taiwan.

Geopolitical Concerns

The international status of Taiwan is, as they say, complicated. So, for that matter, are U.S.-China relations. These two things can and do overlap to make entirely new, even more complicated complications.

Geography is much more straightforward:

A map of the Pacific

Taiwan, you will note, is just off the coast of China. South Korea, home to Samsung, which also makes the highest end chips, although mostly for its own use, is just as close. The United States, meanwhile, is on the other side of the Pacific Ocean. There are advanced foundries in Oregon, New Mexico, and Arizona, but they are operated by Intel, and Intel makes chips for its own integrated use cases only.

The reason this matters is because chips matter for many use cases outside of PCs and servers — Intel’s focus — which is to say that TSMC matters. Nearly every piece of equipment these days, military or otherwise, has a processor inside. Some of these don’t require particularly high performance, and can be manufactured by fabs built years ago all over the U.S. and across the world; others, though, require the most advanced processes, which means they must be manufactured in Taiwan by TSMC.

This is a big problem if you are a U.S. military planner. Your job is not to figure out if there will ever be a war between the U.S. and China, but to plan for an eventuality you hope never occurs. And in that planning the fact that TSMC’s foundries — and Samsung’s — are within easy reach of Chinese missiles is a major issue.

China, meanwhile, is investing heavily in catching up, although Semiconductor Manufacturing International Corporation (SMIC), its Shanghai-based champion, only just started manufacturing on a 14nm process, years after TSMC, Samsung, and Intel. In the long run, though, the U.S. faced a scenario where China had its own chip supplier, even as it threatened the U.S.’s chip supply chain.

TSMC’s Announcement

This was the context for last week’s announcement that TSMC is building a fab in the United States. From the Wall Street Journal:

Taiwan Semiconductor Manufacturing Co., the world’s largest contract manufacturer of silicon chips, said Friday it would spend $12 billion to build a chip factory in Arizona, as U.S. concerns grow about dependence on Asia for the critical technology. TSMC said the project, disclosed earlier Thursday by The Wall Street Journal, has the support of the federal government and the state of Arizona. It comes as the Trump administration has sought to jump-start development of new chip factories in the U.S. due to rising fears about the U.S.’s heavy reliance on Taiwan, China and South Korea to produce microelectronics and other key technologies.

TSMC made the decision to go ahead with the project at a board meeting on Tuesday in Taiwan, according to people familiar with the matter, adding that both the State and Commerce Departments are involved in the plans. Construction will begin next year with production targeted for 2024, the company said in a statement. TSMC’s new plant would make chips branded as having 5-nanometer transistors, the tiniest, fastest and most power-efficient ones manufactured today. TSMC just started rolling out 5-nanometer chips at a factory in Taiwan in recent months. TSMC said the plant would make 20,000 wafers a month, making it a relatively small facility for a company that made more than 12 million wafers last year alone. TSMC’s Fab 18 in Taiwan, which currently produces its 5-nanometer chips, was targeted for 100,000 wafers a month when it broke ground in 2018.

First off, while this announcement has superficial similarities to the star-crossed Foxconn factory in Wisconsin, that project reeked of political theater from the start, and, more pertinently, never made much sense for anyone involved. The current outcome — empty innovation centers and a still-unfinished factory that has already been re-purposed — was frankly the default outcome.

This TSMC project is different for several reasons. First, you don’t halfway build a foundry; TSMC is either in for billions, or they’re in for nothing. Second, it seems clear that the federal government is contributing significantly to the cost. And third, that is exactly what the federal government should do, because the national security implications are real.

This does raise the question about just how committed TSMC is to this project. As the Wall Street Journal notes, the Arizona fab is quite small, relatively speaking, and while 5-nanometer chips are top-of-the-line today, they won’t be in 2024, when the fab opens. Moreover, it is worth noting that TSMC has a fab in Washington that it opened in 1998; it still operates, but TSMC didn’t make any additional investments in the U.S. until now.

I think, though, that this is an overly pessimistic reading of this news, at least from a U.S. perspective. First off, of course TSMC is going to start small, and with technology it has already figured out how to build. It is one thing to build a massive “gigafab” next door to the ones you have already built in Taiwan, even as your best employees, who have pushed TSMC to the top over the last thirty years, figure out the next processing node; it is quite another to attempt something similar across the ocean.

What is a much bigger deal, though, is that the Taiwan of 2020 is not last in line when it comes to processor technology, but first, and the government — which retains a significant ownership stake in TSMC — has been committed to keeping TSMC’s best technology in Taiwan. That this move is happening at all suggests the sort of momentous choice not simply on TSMC’s part but also Taiwan’s that is hard to undo: when it comes to the U.S. and China, ambiguously sitting in the middle, selling to both, was no longer an option.

Lessons for Tech

There are three big lessons for tech specifically and America broadly in this news.

First, while we learned in 2016 that technology was inseparable from domestic politics, the lesson in 2020 should be that technology is inseparable from geopolitics. It is chips that gave Silicon Valley its name, and everything about this chip decision is about geopolitics, not economics.

Second, at some point every tech company is going to have to make a choice between the U.S. and China. It is tempting to blame the tension between the two countries on Trump, but the truth is that China, particularly under Xi Jinping, has been significantly hardening its rhetoric and actions since before Trump was elected, and has been committed to not just catching but surpassing the U.S. in technology for years. There is a fundamental clash of values between the West and China, and it is clear that China is interested in exporting theirs. At some point everyone will be stuck in the middle, like TSMC, and Switzerland won’t be an option.

Third, Intel, much like Compaq, is an allegory for where the U.S. seems to have lost its way. Locked in an endless pursuit of efficiency and shareholder value, the U.S. gave up its flexibility and resiliency in favor of top-end performance. Intel is one of the most advanced chip makers in the world, but it turns out that capability is far too constrained to its own needs to be of general applicability. Worse, to the extent Intel was willing to become a contract manufacturer, it wanted the federal government to pay for it, the better to satisfy shareholders. The government, rightly, in my mind, chose an operator that was actually used to operating in the world as it is, not once was.

At the same time, TSMC’s justifiable carefulness in building a U.S. fab gives Intel an opportunity. Back in 2013, in one of the first Stratechery articles, I urged the company to embrace manufacturing and give up its integration, margins be damned. Intel specifically, and the U.S. generally, would be in far better shape had they acted then. As the saying goes, though, the second best time to start is now — and that applies not only to Intel, which should spend the money to get into contract manufacturing on its own, but also to the U.S. The world has changed, and it’s time to act accordingly.

  1. The very first Nvidia chips were manufactured by SGS-Thomson Microelectronics, but have been manufactured by TSMC from the original GeForce on []

Dithering and Open Versus Free

The big news, in case you haven’t yet heard: John Gruber and I have launched a new podcast called Dithering:


Dithering costs $5/month or $50/year. If you’re a Stratechery subscriber, it costs $3/month or $30/year to add it as a bundle.1

Dithering covers some of the same topics as Stratechery — the Dithering web page has a descriptive lists of topics — but in the conversational style that many of you have enjoyed on my appearances on Gruber’s The Talk Show podcast, or in the Daily Update Interview I did with Gruber last Thursday.2 Expect less in-depth analysis than a typical Stratechery post, and more back-and-forth, with the occassional foray into non-tech topics. All in fifteen minutes, exactly. It’s perfect for your dishwashing commute!

That time limit is certainly a challenge (that is why we recorded 20 episodes before we launched — the entire back catalog is available to subscribers), but we really wanted to experiment with what a podcast might be. We purposely don’t have show notes or much of a web page, and we have created evocative cover art embedded in each episode’s MP3, because the canonical version of Dithering is in your podcast player. This is as pure a podcast as can be — and that means open, even if it isn’t free.

Open != Free

I’m used to dealing with the seeming contradiction between open and free: back in 2014 I started selling an email I called the Daily Update. There was no special app required, and while Daily Updates were archived on the web, I took care to not shove a paywall in your face; if you wanted more content from me you could pay for more, and I would send you an email over the open SMTP protocol, that landed in the email client you already used.

This combination of open and for-pay turned out to be extraordinarily powerful: even as closed but free feeds like Facebook were turning into pay-to-play for publishers, email remained the only feed that everyone checked every day that didn’t have a gatekeeper, which made it the best possible means of delivering the value proposition I was charging for — a proposition I most clearly defined in 2017’s The Local News Business Model:

It is very important to clearly define what a subscriptions means. First, it’s not a donation: it is asking a customer to pay money for a product. What, then, is the product? It is not, in fact, any one article (a point that is missed by the misguided focus on micro-transactions). Rather, a subscriber is paying for the regular delivery of well-defined value.

The importance of this distinction stems directly from the economics involved: the marginal cost of any one Stratechery article is $0. After all, it is simply text on a screen, a few bits flipped in a costless arrangement. It makes about as much sense to sell those bit-flipping configurations as it does to sell, say, an MP3, costlessly copied.

So you need to sell something different.

In the case of MP3s, what the music industry finally learned — after years of kicking and screaming about how terribly unfair it was that people “stole” their music, which didn’t actually make sense because digital goods are non-rivalrous — is that they should sell convenience. If streaming music is free on a marginal cost basis, why not deliver all of the music to all of the customers for a monthly fee?

This is the same idea behind nearly every large consumer-facing web service: Netflix, YouTube, Facebook, Google, etc. are all predicated on the idea that content is free to deliver, and consumers should have access to as much as possible. Of course how they monetize that convenience differs: Netflix has subscriptions, while Google, YouTube, and Facebook deliver ads (the latter two also leverage the fact that content is free to create). None of them, though, sells discrete digital goods. It just doesn’t make sense.

Aggregators Versus Publishers

This model is pretty good for consumers: they get access to an abundance of content for a set price. It’s great for the Aggregators: because they have so many consumers, the suppliers of content are forced to accede to the Aggregator’s terms, even as Aggregators are best placed to serve advertisers. That is another way of saying that it is the individual content maker that is getting the short end of the stick:

  • On Spotify, individual artists make fractions of a cent per play, and their payout is based on their share of all Spotify plays; if you have a super-fan that listens to nothing but your songs, you still only get a few pennies.
  • On Netflix, show creators are getting bigger payments up front, but in return they are giving up residuals and international rights; Netflix owns all of the upside.
  • YouTube is actually one of the more creator-friendly Aggregators: what you earn is pretty closely tied to how many views you achieve. That, though, means a hamster wheel lifestyle of constantly churning out content and begging for subscribers, even as it requires ever more views to achieve the same amount of money. And, of course, YouTube could de-monetize you at any time, for any reason.
  • Google helps consumers find content, but because (all of the) consumers start with search, so do advertisers; Facebook lets consumers make content, and then favors it over professionally produced links.

It is important to note that, the constant griping of traditional gatekeepers notwithstanding, Aggregators are by definition good for most content creators; after all, everyone is now a content creator, whereas previously publishing was reserved for those who had access to physical assets like printing presses, recording studios, or broadcast towers. That means most people are publishing for the first time (with effects both good and bad).

It also means that traditional publishers face more competition for attention, and, as long as they rely on Aggregators, an inherently unstable source of income: one big song, show, video, or article can make some money, but without an ongoing connection and commitment from the consumer to the content creator, it is increasingly impossible to make a living.

Subscriptions and Open Protocols

This is why subscriptions — “paying for the regular delivery of well-defined value” — are so important. I defined every part of that phrase:

  • Paying: A subscription is an ongoing commitment to the production of content, not a one-off payment for one piece of content that catches the eye.
  • Regular Delivery: A subscriber does not need to depend on the random discovery of content; said content can be delivered to the subscriber directly, whether that be email, a bookmark, or an app.
  • Well-defined Value: A subscriber needs to know what they are paying for, and it needs to be worth it.

This runs in the opposite direction of a Spotify-type model, even as it takes advantage of the same foundation of zero marginal costs. If an email is an artifact of hard work creating something people are interested in, the open ecosystem of HTTP and SMTP drives the costs of delivering that artifact to zero. There is no massive streaming infrastructure to build, nor endless data centers in the cloud — this can all be rented for not much money at all — which means that the cost structure of an independent creator can be dramatically lower than any traditional publisher, even as their addressable market is the same size.

HTTP and SMTP, though, are not the only open protocols available to publishers: RSS is another, and it is the foundation of the podcast ecosystem. Most don’t understand that podcasts are not hosted by Apple, but rather that iTunes is a directory of RSS feeds hosted on servers all over the Internet. When you add a podcast to your podcast player, you are simply adding an RSS feed that includes information about the show, and a link for where to download new episodes.

This, if you squint, looks a lot like email: create something that listeners find valuable on an ongoing basis, and deliver it into a feed they already check, i.e. their existing podcast player. That is Dithering: while you have to pay to get a feed customized to you, that feed can be put in your favorite podcast app, which means Dithering fits in with the existing open ecosystem, instead of trying to supplant it.

Well, almost all podcast apps: Spotify is an exception.3

Spotify’s Facebook Play

Podcasting, as I wrote last year, looks a lot like the early web; iTunes is the Yahoo directory, and advertising is punching the monkey:

The current state of podcast advertising is a situation not so different from the early web: how many people remember this?

The old "punch the monkey" display ad

These ads were elaborate affiliate marketing schemes; you really could get a free iPod if you signed up for several credit cards, a Netflix account, subscription video courses, you get the idea. What all of these marketers had in common was an anticipation that new customers would have large lifetime values, justifying large payouts to whatever dodgy companies managed to sign them up.

The parallels to podcasting should be obvious: why is Squarespace on seemingly every podcast? Because customers paying monthly for a website have huge lifetime values. Sure, they may only set up the website once, but they are likely to maintain it for a very long time, particularly if they grabbed a “free” domain along the way. This makes the hassle of coordinating ad reads and sponsorship codes across a plethora of podcasts worth the trouble; it’s the same story with other prominent podcast sponsors like ZipRecruiter or SimpliSafe.

Some are content with this state of affairs, and I understand the sentiment: the early web, annoying banner ads notwithstanding, was in many respects a nicer place as well, and some folks even made money. The problem, though, is it didn’t last: once Google and Facebook figured out that the best way to advertise was to aggregate users and deliver targeted ads, the open web withered; it is only in the last few years that, thanks to email, independent publishing is making a return.

I strongly believe that podcasting is approaching a similar precipice; I wrote a year ago that Spotify wants to be the podcast Aggregator:

What I think Spotify senses, though, is that while podcasts, at least in theory, solve many of their business model problems, Spotify is also uniquely positioned to solve the problems of many podcasters/suppliers. To wit:

  • Increasing advertising revenue for the entire industry requires a centralized player that can leverage a large userbase. Spotify is still a distant second to Apple in podcasts, but they are growing fast. Just as importantly, Spotify already has a strongly growing advertising business — again, larger than the entire podcast market — that it can extend to podcasts.
  • The open nature of podcasts means it is very difficult to monetize users directly; Spotify, though, has already built an entire infrastructure around monetizing users directly. Podcasts exclusive to Spotify can likely make meaningful money from Spotify subscribers that still gives Spotify far higher margin than music.

Spotify CEO Daniel Ek made clear that this was the goal after the company acquired The Ringer; from the Q1 2020 earnings call:

When we look at the overall opportunity, it is pretty clear that we haven’t added Internet-level monetization yet to audio. So, all the things that you’ve come to expect in video and display in terms of measurability, in terms of just targeting, a lot of that is lacking in podcasts today. And you’ve seen it time and time again. As you add those capabilities, you generally can raise CPMs across the board, because advertisers feel more certain about the results that they’re getting. And if we do that, that’s going to be a tremendous benefit for all the podcasting creators, but it’s also going to be a tremendous benefit for Spotify.

This is why Spotify adjusted its accounting last quarter to recognize the cost of its owned-and-operated podcast production as an expense for its advertising business; the company isn’t primarily focused on acquiring paying subscribers, although that is a nice side effect of increased engagement on Spotify. The real goal is to intermediate podcasters and listeners and take over podcast advertising just like Facebook and Google took over web advertising.

That, though, is bad for openness — indeed, Spotify isn’t open at all. You can’t simply add an RSS feed to Spotify, as you can most other podcast players. Rather, podcasters have to submit their feeds to Spotify and agree to the service’s terms of service, which can be changed at any time at Spotify’s sole discretion. Sure, the terms are relatively benign today; they could include the right to insert advertising tomorrow. Even if that doesn’t happen, though, Spotify still is not open: they can take down your content or choose not to play it, just as Facebook could not show your page unless you were willing to pay-to-play.

This is where, as I noted when I launched the Daily Update podcast, it is important to distinguish between my role as analyst, podcaster, and publisher:

Analyst Ben says it is a good idea for Spotify to try and be the Facebook of podcasting…Writer/Podcaster Ben certainly sees the allure: having my podcast available to Spotify’s 271 million monthly active users would be great; for that matter, having this Daily Update read by everyone I could reach on Facebook would be great as well. I’ve already put in the work, why not reach everyone? Indeed, were I supported by advertising, that would be the imperative.

Publisher Ben, though, remembers that my business model is predicated on a higher average revenue per user (thanks to subscriptions), not a higher number of users; that means making tradeoffs, and foregoing wide reach is one of them. That, by extension, means not agreeing to Spotify’s terms for Exponent, and accepting that leveraging RSS to have per-subscriber feeds makes having the Daily Update Podcast on Spotify literally impossible. More broadly, owning my own destiny as a publisher means avoiding Aggregators and connecting directly with customers.

Dithering is another effort driven by Publishers Ben and John; if we are to maintain a thriving podcast ecosystem that is open, we must figure out monetization, and from my perspective, that means subscriptions. The fact that Spotify won’t even allow Dithering to be played on their app only increases the urgency: if the choice is free and closed versus for-pay and open I will always push for the latter — three times a week, 15 minutes per episode.

Some additional notes on Dithering and the service powering it:

  • Yes, there are several companies building out paid podcasting services. None of them had all of the features I wanted, including full control over hosting, the ability to create bundles, and customized feeds based on subscription status; to paraphrase Alan Kay, I’m serious about figuring out how paid podcasts might be a sustainable business not only for me but for the entire ecosystem, and that meant building my own software to maximize experimentation.

  • My good friends at Model Rocket did most of the actual work on the podcast service; they are, if I may use the term, rock stars, and you haven’t heard the last of our collaboration. Brad Ellis (who designed the Stratechery logo), created Dithering’s look-and-feel in collaboration with Gruber.

  • The Stratechery + Dithering bundle originally launched with both podcasts on the same feed; I think there is tremendous potential in this approach, but a positive user experience would require podcast players to adopt a new standard we proposed. That seems unlikely given that…

  • It is frustrating the degree to which many players don’t abide by the current podcast standard. Few apps, for example, respect the <itunes:image> tag, which shows per-episode artwork in the feed (and Apple’s own Podcasts app doesn’t even show MP3 artwork).

  • To that end, last night we pushed a new update that splits Stratechery and Dithering into two feeds, even if you subscribe to the bundle. Visit the podcast management page to add the independent Dithering feed.

Finally, Stratechery and the Daily Update are not going anywhere. Indeed, I am more inspired than ever — building something is nice in that way. Also, don’t miss Gruber’s post about Dithering, and note that both Exponent and The Talk Show remain as free podcasts. Free is fine! — but we should not forget that open is more important.

  1. Unfortunately due to the limitations of our membership software, we can’t offer monthly subscriptions to annual subscribers; if you are an annual subscriber and add on Dithering, and realize you don’t like it, we will refund you your remaining 11 months []
  2. That interview is free-to-listen-to even if you aren’t a Daily Update subscriber; create an account and add a Stratchery feed here. []
  3. And, to be fair, Google Podcasts and Stitcher; this analysis applies to them as well []

The Anti-Amazon Alliance

The nonsensical tie-in has long been one of my favorite PR genres, and the coronavirus crisis has created a whole host of examples; Casey Newton posted a particularly egregious one:

Using a current news event as cover is hardly limited to bad PR pitches;1 look no further than this announcement from Google, which used the coronavirus crisis to frame a major change in Google Shopping:

The retail sector has faced many threats over the years, which have only intensified during the coronavirus pandemic. With physical stores shuttered, digital commerce has become a lifeline for retailers. And as consumers increasingly shop online, they’re searching not just for essentials but also things like toys, apparel, and home goods. While this presents an opportunity for struggling businesses to reconnect with consumers, many cannot afford to do so at scale.

In light of these challenges, we’re advancing our plans to make it free for merchants to sell on Google. Beginning next week, search results on the Google Shopping tab will consist primarily of free listings, helping merchants better connect with consumers, regardless of whether they advertise on Google. With hundreds of millions of shopping searches on Google each day, we know that many retailers have the items people need in stock and ready to ship, but are less discoverable online.

For retailers, this change means free exposure to millions of people who come to Google every day for their shopping needs. For shoppers, it means more products from more stores, discoverable through the Google Shopping tab. For advertisers, this means paid campaigns can now be augmented with free listings. If you’re an existing user of Merchant Center and Shopping ads, you don’t have to do anything to take advantage of the free listings, and for new users of Merchant Center, we’ll continue working to streamline the onboarding process over the coming weeks and months.

This has nothing to do with the coronavirus: what this change really means is the biggest missing piece in the Anti-Amazon Alliance is now all-in.

Swiffer and Shelf Space

The concept of a Purchase Funnel was first published in 1925 in Edward Strong’s The Psychology of Selling and Advertising; Strong credited E. St. Elmo Lewis for originally formulating the idea:

Many changes in selling procedure have of necessity been made in the past fifteen years. Among them is the growing recognition of the buyer’s point of view. The development of the famous slogan — “attention, interest, desire, action, satisfaction” — illustrates this. In 1898 E. St. Elmo Lewis used the slogan, “Attract attention, maintain interest, create desire,” in a course he was giving in advertising in Philadelphia. He writes that he obtained the idea from reading the psychology of William James. Later on he added to the formula, “get action.” About 1907, A.F. Sheldon made the further addition of “permanent satisfaction” as essential to the slogan. Very few in 1907 felt the need for the last phrase, but on every hand today is heard the necessity for rendering service, of securing the goodwill of the buyer, of selling him what he needs, of establishing permanent satisfaction

These changes have taken place so gradually that many salesmen and advertisers have failed to appreciate their inherent relationship to each other or their significance. Many have not seen, that honest service to a buyer in terms of his needs so that he will feel goodwill, and be permanently satisfied, means that the buyer’s interests must be dominant, not the seller’s. And fewer still have seen that the easist way, and in fact the only way, to guarantee that this will be achieved is for the seller to present his proposition from the buyer’s point of view.

The AIDA model, as the purchase funnel is also known, is exactly as Lewis described it; I always understood it best in terms of problem-solving:

  • Attention: make the buyer aware of a problem they have
  • Interest: the buyer becomes interested in solving their problem
  • Desire: the buyer becomes interested in your solution to their problem
  • Action: the buyer acquires your solution

A classic example of this model compressed into a single commercial is the roll-out campaign for the Swiffer mop:

The entire funnel is in this ad:

  • Attention: Traditional cleaning methods stir up dirt
  • Interest: Dirt needs to be removed, not just moved
  • Desire: Swiffer cloths collect dirt and can be thrown away
  • Action: Find Swiffer in the household cleaning aisle

The aisle reference is critical: shelf space was long the linchpin for large consumer packaged goods companies: Swiffer had widespread distribution the moment it launched because P&G could leverage its other popular products when it came to negotiations with retailers. And, of course, simply being on shelves increases the chances customers discover you on their own, or recognize you after repeated exposure in advertising: shelf space provided both distribution and discovery.

Facebook and Discovery

That commerical, I should note, is actually not the best example of how the marketing funnel normally worked for P&G and its ilk; while it included Interest, Desire, and Action, it was mostly about Attention: over the months and years to come P&G would run many more campaigns across media of all types, from TV to coupons to end-caps in retailers, all with the goal of making Swiffer into a habitual purchase. The fact that that commercial compressed all parts of the funnel into 45 seconds was, though, helpful for explaining the AIDA framework!

It was also a sign of things to come: one of the hallmarks of the Internet is that the entire funnel is often compressed into a single Facebook ad that you might only see for a fraction of a second; perhaps something will catch your eye, and you will swipe to see more, and if you are intrigued, you can complete the purchase right then and there. You might even forget about your purchase right up until a mysterious package shows up at your door a few days later.

The reason this works is the sheer scale of Facebook; there are so many people scrolling through so many feeds and swiping through so many stories that the advertising game is basically the inverse of what worked before: instead of carefully planning a multi-pronged advertising campaign to over time move people down a funnel to a purchase decision in front of a stocked shelf, advertisers iterate their targeting criteria and ad content over time to convert customers immediately.

Facebook — experiments with Instagram checkout notwithstanding — is only one piece of the e-commerce stack that makes this possible:

  • Facebook helps find the customers
  • Shopify or WooCommerce build the storefronts
  • Stripe or PayPal handle payments
  • Third-party logistics providers package and ship the goods
  • USPS, Fedex, and UPS deliver the actual packages

To put it another way, Facebook provides the digital shelves for customers to find what they didn’t know they wanted, and the rest of the ecosystem fills in the pieces.

Amazon the Integrator

When the Internet digitizes what used to be analog assets, we often find out that jobs that were once done together end up in radically different places. The classic example are newspapers: they carried both editorial and advertisements, but it turns out that was simply a function of who owned printing presses and delivery trucks; once the Internet came along advertisers, which cared about reaching customers, not supporting journalists, switched to Facebook and Google, which had aggregated the former and commoditized the latter.

So it is with shelves: when the supply was constrained by physical space, they were extremely valuable for not just discovery but also distribution, but once the Internet made shelf space effectively infinite, it shouldn’t be a surprise that the solutions to discovery and distribution developed differently.

As I just noted, the answer to the former has been Facebook; the answer to the latter, though, is search. I first wrote about this transition six years ago in How Technology is Changing the World (P&G Edition):

That’s great for Amazon, but not so great for P&G: remember, dominating shelf space was a core part of their strategy, and while I’m no mathematician, I’m pretty sure dominating an infinite resource is a losing proposition. What matters now is dominating search. That is the primary way people arrive at product pages like this:

There are two big challenges when it comes to winning search:

  • Because search is initiated by the customer, you want that customer to not just recognize your brand (which is all that is necessary in a physical store), but to recall your brand (and enter it in the search box). This is a much stiffer challenge and makes the amount of time and money you need to spend on a brand that much greater.
  • If prospective customers do not search for your brand name but instead search for a generic term like “laundry detergent” then you need to be at the top of the search results. And, the best way to be at the top is to be the best-seller. In other words, having lots of products in the same space can work against you because you are diluting your own sales and thus hurting your search results.

The way to deal with both challenges is the same way you break through the noise: you put more focus on fewer brands.

The challenge for P&G and basically everyone else in the retail space is that there is no bigger brand than Amazon itself. According to eMarketer earlier this year, 49% of Internet shoppers start their searches on Amazon, and only 22% on Google; Amazon’s share is far higher for Prime subscribers, which include over half of U.S. households.

This means that Amazon has effectively integrated the entire e-commerce stack when it comes to the distribution of goods consumers are explicitly searching for:

  • Customers come to Amazon directly
  • Searches on Amazon lead to Amazon product pages or 3rd-party merchant listings that look identical to Amazon product pages
  • Amazon handles payments
  • Amazon packages and ships the goods
  • Amazon increasingly delivers the actual packages

Given this level of integration, it is hardly a surprise that Amazon has for several years been moving into selling its own products as well; not only does it have customers and search, it has data on what people want. Notably, as the Wall Street Journal reported last week, Amazon is allegedly gathering that data from not just its own sales but also those of 3rd-party merchants:

The online retailing giant has long asserted, including to Congress, that when it makes and sells its own products, it doesn’t use information it collects from the site’s individual third-party sellers—data those sellers view as proprietary. Yet interviews with more than 20 former employees of Amazon’s private-label business and documents reviewed by The Wall Street Journal reveal that employees did just that. Such information can help Amazon decide how to price an item, which features to copy or whether to enter a product segment based on its earning potential, according to people familiar with the practice, including a current employee and some former employees who participated in it.

This is, to be clear, a major problem for Amazon, first and foremost because the company has long insisted it does no such thing, and told Congress the same; as John Gruber put it on Daring Fireball, “Amazon isn’t hurting for revenue (especially now), but they are hurting for trust.”

What is truly surprising about this news, though, is that Amazon ever made such a promise in the first place, and, to be honest, that I believed them. On one hand, the reasoning is obvious: making Amazon.com into a platform lets Amazon offer many more items and get paid to do so, as opposed to carrying huge amounts of inventory on which it must expend working capital.

The problem is that the gravitational pull of an integrated offering like Amazon.com is nearly impossible to resist; witness how Windows once spoiled Microsoft services, and Android Google services. Perhaps it was too much to expect Amazon to be any different — or, to put it another way, maybe Amazon always was an integrator, just at a far grander scale.

The Anti-Amazon Alliance

The antidote to an integrator is modularization; that is why I wrote last year that Shopify, not Walmart, was Amazon’s true competitor. From Shopify and the Power of Platforms:

At first glance, Shopify isn’t an Amazon competitor at all: after all, there is nothing to buy on Shopify.com. And yet, there were 218 million people that bought products from Shopify without even knowing the company existed.

The difference is that Shopify is a platform: instead of interfacing with customers directly, 820,000 3rd-party merchants sit on top of Shopify and are responsible for acquiring all of those customers on their own.

A drawing of The Shopify Platform

This means they have to stand out not in a search result on Amazon.com, or simply offer the lowest price, but rather earn customers’ attention through differentiated product, social media advertising, etc. Many, to be sure, will fail at this: Shopify does not break out merchant churn specifically, but it is almost certainly extremely high. That, though, is the point. Unlike Walmart, currently weighing whether to spend additional billions after the billions it has already spent trying to attack Amazon head-on, with a binary outcome of success or failure, Shopify is massively diversified. That is the beauty of being a platform: you succeed (or fail) in the aggregate.

I sort of skated over that customer acquisition piece, mentioning the sort of discovery that Facebook advertising enables in passing. The big missing piece, though, has been that other shelf functionality — distribution. How do you find the specific thing that you want whereever it might be on the Shopify platform, or WooCommerce or Walmart.com or anywhere else on the Internet?

The answer is not to go to Shopify.com, which, as I noted, no customer knows about; rather the solution is the most powerful search engine on earth — Google. What Google’s announcement unlocks is the same sort of modular stack for distribution that already exists for discovery:

  • Google helps find the products on 3rd-party e-commerce sites
  • Shopify or WooCommerce build the storefronts (or big box retailers like Walmart)
  • Stripe or PayPal handle payments
  • Third-party logistics providers package and ship the goods
  • USPS, Fedex, and UPS deliver the actual packages

This stack existed before, but inserting an additional payment layer into product discovery made product discovery worse (by limiting the number of products and retailers), hurting the entire ecosystem. Unsurprisingly, Shopify and WooCommerce are partnering with Google to make it easy for small retailers to get into Google’s results, and I wouldn’t be surprised if Google is working with larger retailers as well.

This cooperation is also evidence of Amazon’s growing clout: one of the reasons why Google made Shopping pay-to-play back in 2012 was because the company deemed that the best way to get real-time data for Google Shopping; retailers paying to be featured would be motivated to give Google quality data. Today, though, additional motivation is unnecessary: everyone in commerce is, whether they realize it or not, in the Anti-Amazon Alliance, and that provides plenty of motivation.

The Market Responds

The regulatory angle on this is a surprising one. Start with Google: another reason to go with a pay-to-play model is that it made Google Shopping quite explicitly into something other than a shopping comparison service. That, though, didn’t stop the European Commission from handing down an ill-advised decision that said that Google was guilty of crowding out other shopping comparison services anyways. There is definitely a sense that Google is “damned if they do and damned if they don’t” when it comes to providing anything other than ten blue links.

Moreover, the existence of Amazon and its clear clout in the market rather strongly suggests the European Commission missed the point: market control comes from aggregating customers; Google can’t anymore restrict competition from sites that depend on Google than a car can restrict competition from a trailer it is towing. Winning online is not about functionality, but about what app or website customers open of their own volition. In the case of shopping, that website is increasingly Amazon, and now it is Google that is partnering with others in response.

At the same time, as Benedict Evans detailed last December, Amazon — including 3rd-party merchant sales — accounted for about 6% of U.S. retail sales; to put that in context Walmart accounts for 9%. Yes, e-commerce is growing as a whole even as Amazon increases its share — especially now — but to expect current growth rates to maintain forever is rarely correct, particularly when physical goods (i.e. with marginal costs) are involved.

I would also note that Walmart, like all major retailers, sells private label goods, and unquestionably depends on sales data to decide on what to make, and how much; Amazon should be able to do the same. At the same time, what makes Amazon’s alleged snooping problematic is the fact that it is looking at 3rd-party merchants for which it claims it is only an agent, not retailer.

That, though, points to an obvious market-based response: 3rd-party merchants, particularly those with differentiated products and brands, should seek to leave Amazon’s platform sooner-rather-than-later. It is hard to be in the Anti-Amazon Alliance if you are asking Amazon to find you your customers, stock your inventory, package your products, and deliver your goods; there are alternatives and — now that Google is all-in — the only limitation is a merchant’s ability to acquire and keep customers in a world where their products are as easy to buy as bad PR pitches are easy to find.

I wrote a follow-up to this article in this Daily Update.

  1. It’s also inaccurate: BASIC is approaching its 56th anniversary []

How Tech Can Build

It was, at first glance, hard to understand how anyone could be upset at the idea that It’s Time to Build. That’s the title of a recent essay by Marc Andreessen, and of course I agree; I expressed the same sort of frustration Andreessen opens with last month in Compaq and Coronavirus:

There has been divergence between countries that acted and countries that talked. Taiwan, where I live, is perhaps the best example of the former…The contrast with Western countries is stark: to the extent government officials across the Western world were discussing the coronavirus a month ago, it was to express support for China or insist that life carry on as before; I already praised the role Twitter played in sounding the alarm — often in the face of downplaying from the media — but even that was, by definition, talk. What does not appear to have happened anywhere across the West is any sort of meaningful action until it was far too late…

The first problem of being a society of talk, not action, is the inability to even consider hard work as a solution; the second is a blindness to the real trade-offs at play. The third, though, is the most sinister of all: if talk is all that matters, then policing talk becomes an end to itself.

“Action” is a different word than “build”, but, at least from my perspective, they express the same sentiment: bend the world to our will, instead of simply accepting our fate. In that light Andreessen’s article was meaningful not for the examples of what might be built, but rather for arguing for the action of building as an end goal in and of itself.

Andreessen and Me

Andreessen, who today is perhaps more well-known for his eponymous venture capital firm Andreessen Horowitz, is first-and-foremost a living legend for having created Mosaic, the first web browser that supported graphics; Mosaic became the basis for Netscape’s Navigator, whose 1995 IPO kicked off the dot-com era.

An irony of Andreessen’s claim to fame, though, is that while it provided access to information from anywhere by anyone, perhaps the most important impact on Andreessen was getting him out of the Midwest and to Silicon Valley. That, at least, was a theory put forward in a fascinating 2015 profile in the New Yorker:

One afternoon, as we sat at his baronial dining table, he made an agonized but sincere effort to discuss his blue-collar childhood without mentioning his nuclear family. “I really identified with Charles Schulz in the David Michaelis biography of him, ‘Schulz and Peanuts,’ ” he said. I was struck by the parallels between Andreessen and both “Peanuts” — in which Charlie Brown has a massive bald head and the parents are kept offstage — and its creator. Charles Schulz, who grew up in Minnesota, was socially awkward, hated being embraced, and loathed his mother’s Norwegian relatives, a farming family. Andreessen went on, “Ninety-six per cent of the people who grow up like he and I did, in the Midwest, just stay there, but the ones who leave” — the cartoonist, too, moved to California — “become intensely interested in the future. In Schulz’s last ten years, he really focussed on Rerun, Linus’s younger brother—the youngest and most optimistic character.”

I can, given my own childhood in small-town Wisconsin and current residence in a country so far West it is called East, relate to Andreessen in this regard. For me, the Internet was a way out, first to learn, and then to live abroad, and now, a way to make a living. I know it gives me a positive bias towards technology; I’m not convinced it is wholly unearned, but an easier way out should always be viewed with some amount of suspicion.

Software Eats the World

This perspective led to Andreessen’s most famous essay, 2011’s Why Software Is Eating The World:

My own theory is that we are in the middle of a dramatic and broad technological and economic shift in which software companies are poised to take over large swathes of the economy. More and more major businesses and industries are being run on software and delivered as online services — from movies to agriculture to national defense. Many of the winners are Silicon Valley-style entrepreneurial technology companies that are invading and overturning established industry structures. Over the next 10 years, I expect many more industries to be disrupted by software, with new world-beating Silicon Valley companies doing the disruption in more cases than not.

Why is this happening now?

Six decades into the computer revolution, four decades since the invention of the microprocessor, and two decades into the rise of the modern Internet, all of the technology required to transform industries through software finally works and can be widely delivered at global scale. Over two billion people now use the broadband Internet, up from perhaps 50 million a decade ago, when I was at Netscape, the company I co-founded. In the next 10 years, I expect at least five billion people worldwide to own smartphones, giving every individual with such a phone instant access to the full power of the Internet, every moment of every day.

On the back end, software programming tools and Internet-based services make it easy to launch new global software-powered start-ups in many industries—without the need to invest in new infrastructure and train new employees. In 2000, when my partner Ben Horowitz was CEO of the first cloud computing company, Loudcloud, the cost of a customer running a basic Internet application was approximately $150,000 a month. Running that same application today in Amazon’s cloud costs about $1,500 a month.

With lower start-up costs and a vastly expanded market for online services, the result is a global economy that for the first time will be fully digitally wired — the dream of every cyber-visionary of the early 1990s, finally delivered, a full generation later.

Andreessen was right, which was good for him for lots of reasons. First, it’s good to be right generally, and even better to write the defining piece of an era.

Second, software is, as I have discussed previously, perfectly suited to venture capital: it has significant capital costs, and mostly zero marginal costs, which means there is a big need for up-front investment combined with unlimited upside. In other words, if software is eating the world, then it is the venture capitalists who are among the best positioned to get fat, at least in theory (that noted, one would have likely been better off investing in the Big 5 tech companies in 2011 — for reasons I discussed last week — than in Andreessen Horowitz’s funds).

Third, in Andreessen’s vision, Silicon Valley was doing the disrupting from, well, Silicon Valley, which had always been the plan. Andreessen told Wired in 2012 that when it came to Andreessen Horowitz (Chris Anderson, the interviewer, is in bold):

Our vision was to be a throwback: a Silicon Valley venture capital firm. We were going to be a single-office firm, focusing primarily on companies in the US and then, within that, primarily companies in Silicon Valley. And — this is the crucial thing — we’re only going to invest in companies based on computer science, no matter what sector their business is in. We are looking to invest in what we call primary technology companies.

Give me an example.

Airbnb—the startup that lets you rent out your home or a room in your home. Ten years ago you would never have said you could build Airbnb, which is looking to transform real estate with a new primary technology. But now the market’s big enough…everything inside of how Airbnb runs has much more in common with Facebook or Google or Microsoft or Oracle than with any real estate company. What makes Airbnb function is its software engine, which matches customers to properties, sets prices, flags potential problems. It’s a tech company — a company where, if the developers all quit tomorrow, you’d have to shut the company down. To us, that’s a good thing.

I’m probably a little bit elitist in this, but I think a “primary technology” would need to involve, you know, some fundamental new insight in code, some proprietary set of algorithms.

Oh, I agree. I think Airbnb is building a software technology that is equivalent in complexity, power, and importance to an operating system. It’s just applied to a sector of the economy instead. This is the basic insight: Software is eating the world. The Internet has now spread to the size and scope where it has become economically viable to build huge companies in single domains, where their basic, world-changing innovation is entirely in the code.

Software eating the world, with zero marginal costs, all from Silicon Valley.

It’s Time to Build

This, as far as I can tell, is where the disconnect for some comes with It’s Time to Build.1 The sort of building Andreessen calls for is very much in the real world, costs real money both up-front and on a marginal basis, and would surely make the most sense anywhere but Silicon Valley. From the essay:

Why do we not have these things? Medical equipment and financial conduits involve no rocket science whatsoever. At least therapies and vaccines are hard! Making masks and transferring money are not hard. We could have these things but we chose not to — specifically we chose not to have the mechanisms, the factories, the systems to make these things. We chose not to *build*.

You don’t just see this smug complacency, this satisfaction with the status quo and the unwillingness to build, in the pandemic, or in healthcare generally. You see it throughout Western life, and specifically throughout American life.

You see it in housing and the physical footprint of our cities. We can’t build nearly enough housing in our cities with surging economic potential — which results in crazily skyrocketing housing prices in places like San Francisco, making it nearly impossible for regular people to move in and take the jobs of the future. We also can’t build the cities themselves anymore. When the producers of HBO’s “Westworld” wanted to portray the American city of the future, they didn’t film in Seattle or Los Angeles or Austin — they went to Singapore. We should have gleaming skyscrapers and spectacular living environments in all our best cities at levels way beyond what we have now; where are they?

You see it in education…manufacturing…transportation…

The point about Singapore — Asia broadly — could be made about every point that followed. And that includes the response to the coronavirus.

Andreessen then states what he sees as the problems:

The problem is desire. We need to want these things. The problem is inertia. We need to want these things more than we want to prevent these things. The problem is regulatory capture. We need to want new companies to build these things, even if incumbents don’t like it, even if only to force the incumbents to build these things. And the problem is will. We need to build these things.

This leads to the core question about Silicon Valley and its relationship to Andreessen’s essay: has tech — specifically the software-centric tech that Andreessen has done more than anyone to proselytize — been the primary source of American innovation because it represented the future? Or has it been the future because it was the only space where innovation was possible, because of things like inertia and regulatory capture in the real world?

I can’t speak for Andreessen, but having observed him for many years I would guess the answer was mostly the former: Andreessen’s entire career, from Mosaic to Loudcloud to Ning, has been about creating space online, obviating the constraints of the real world, which wasn’t worth much anyways. From that Wired interview:

Think about Borders, the bookstore chain. Amazon drove Borders out of business, and the vast majority of Borders employees are not qualified to work at Amazon. That’s an actual, full-on problem. But should Amazon have been prevented from doing that? In my view, no. Because it’s so much better to live in a world where that happened, it’s so much better to live in a world where Amazon is ascendant. I told you that my childhood bookstore was something you had to drive an hour to get to. But it was a Waldenbooks, and it was, like, 800 square feet, and it sold almost nothing that you would actually want to read. It’s such a better world where we have Amazon, where everything is universally available. They’re a force for human progress and culture and economics in a way that Borders never was.

Human progress in this view is solely online.

What Tech Must Do

I agree with Andreessen that much of the software revolution is inevitable; I also agree that tech’s seeming exclusivity on innovation has also been about the online space being the one place without the inertia and regulatory capture Andreessen decries. If you are talented and ambitious, what better place to be?

What I also sense in Andreessen’s essay, though, is the acknowledgment that tech too has chosen the easier path. Instead of fighting inertia or regulatory capture, it has been easier to retreat to Silicon Valley, justify the massive costs of doing so by pursuing infinite-upside outcomes predicated on zero marginal costs, which means relying almost exclusively on software as the means of innovation. To put it another way, where did Andreessen’s personal preferences end and his vision begin? Note this paragraph:

Building isn’t easy, or we’d already be doing all this. We need to demand more of our political leaders, of our CEOs, our entrepreneurs, our investors. We need to demand more of our culture, of our society. And we need to demand more from one another. We’re all necessary, and we can all contribute, to building.

What it means to ask more of one another, at least in tech, is right there in the overlap between preferences and vision.

First, tech should embrace and accelerate distributed work. It makes tech more accessible to more people. It seeds more parts of the country with potential entrepreneurs. It dramatically decreases the cost of living for employees. It creates the conditions for more stable companies that can take on less risky yet still necessary opportunities that may throw off a nice dividend instead of an IPO. And, critically, it gives tech companies a weapon to wield against overbearing regulation, because companies can always pick up and leave.

Second, invest in real-world companies that differentiate investment in hardware with software. This hardware could be machines for factories, or factories themselves; it could be new types of transportation, or defense systems. The possibilties, at least once you let go of the requirement for 90% gross margins, are endless.

Third — and related to both of the above — figure out an investing model that is suited to outcomes that have a higher likelihood of success along with a lower upside. This is truly the most important piece — and where Andreessen, given his position, can make the most impact. Andreessen Horowitz has thought more about how to change venture capital than anyone else, but the fundamental constraint has remained the assumption of high costs, high risk, and grand slam outcomes. We should keep that model, but surely there is room for another?

I do believe that It’s Time to Build stands alone: the point is not the details, or the author, but the sentiment. The changes that are necessary in America must go beyond one venture capitalist, or even the entire tech industry. The idea that too much regulation has made tech the only place where innovation is possible is one that must be grappled with, and fixed.

And yet, Andreessen himself said that we need to demand more from one another. We need to figure out how to fix Wisconsin, not flee from it. We need to figure out how to build real businesses that build real things, not virtualize everything. And we need to start fighting for not just infinite upside, but the sort of minute changes in cities, states, and nations that will make it possible to build the future.

  1. I see no point in bothering with those who appear to hate technology, and particularly Andreessen, as a lifestyle. []

The NBA and Microsoft

From a Microsoft press release:

The National Basketball Association (NBA) and Microsoft today announced a new multi-year collaboration, which will transform the way in which fans experience the NBA. As part of the collaboration, Microsoft will become the Official Artificial Intelligence Partner and an Official Cloud and Laptop Partner for the NBA, Women’s National Basketball Association (WNBA), NBA G League, and USA Basketball, beginning with the 2020-21 NBA season.

Microsoft and NBA Digital — co-managed by the NBA and Turner Sports — will create a new, innovative direct-to-consumer platform on Microsoft Azure that will use machine learning and artificial intelligence to deliver next generation, personalized game broadcasts and other content offerings as well as integrate the NBA’s various products and services from across its business. The platform will re-imagine how fans engage with the NBA from their devices by customizing and localizing experiences for the NBA’s global fanbase, which includes the 1.8 billion social media followers across all league, team and player accounts.

Beyond delivering live and on-demand game broadcasts through Microsoft Azure, the NBA’s vast array of data sources and extensive historical video archive will be surfaced to fans through state-of-the-art machine learning, cognitive search and advanced data analytics solutions. This will create a more personalized fan experience that tailors the content to the preferences of the fan, rewards participation, and provides more insights and analysis than ever before. Additionally, this platform will enable the NBA to uncover unique insights and add new dimensions to the game for fans, coaches and broadcasters. The companies will also explore additional ways technology can be used to enhance the NBA’s business and game operations.

As part of the collaboration, Microsoft will become the entitlement partner of the NBA Draft Combine beginning next season and an associate partner of future marquee events, including NBA All-Star, MGM Resorts NBA Summer League and WNBA All-Star.

The logic for the NBA in this deal is clear:

  • First, in my experience Turner has dropped the ball in terms of the NBA’s digital experience, particularly League Pass. Microsoft should dramatically improve the experience for the NBA’s digital customers. [UPDATE: I mostly watch International League Pass, which I now understand was not managed by Turner; my apologies for Turner for the mistake]
  • Second, the NBA is, in some respects, no different from a movie or television studio: it produces content and then sells it to the highest bidder, usually delineated by geography. Digital, though, makes it possible to own the customer relationship directly, a la Netflix. Or perhaps Disney+ is the better example, given how differentiated the NBA’s content is; this deal is clearly working towards that goal.
  • Third, that last paragraph from the press release is an important one: it seems likely that the NBA is going to make out well in this deal from a marketing perspective, even if this partnership is underwhelming.

The Microsoft angle is equally interesting, and like many tech deals, has much higher risk/reward:

  • There are significant technical barriers to achieving what this deal entails. Microsoft is going to spend a lot of time and money on a relatively small business.
  • Microsoft, at the same time, is uniquely suited to solving these challenges: what stands out to me in the conversation below is the talk of Xbox, a division that failed to achieve Steve Ballmer’s goal of a universal “three-screens-and-a-cloud”, and has instead become a fine enough gaming option; its technologies, though, could really make this effort sing.
  • If Microsoft pulls this off, the potential to re-use the technology developed for the NBA, not only for other sports leagues, but for media entities of all types, could potentially be massive.

There are other angles to this as well: one thing that intrigues me is the potential for channel conflict on the NBA side. It seems a bit far-fetched to think that the NBA seeking to own the customer relationship is good for TNT or ESPN, or that the latter will help the former achieve this goal. And yet TNT and ESPN pay the NBA’s bills. This will be a project worth watching for many months to come.

An Interview with Adam Silver and Satya Nadella

In the run-up to this announcement I was able to spend a few minutes with NBA Commissioner Adam Silver and Microsoft CEO Satya Nadella. A lightly edited transcript is available to Daily Update subscribers.

A podcast of the interview, though, is available for free via the Stratechery Podcast service. Here is how to listen:

If, in the future, you would like to listen to Daily Update podcasts as well — and I hope you do! — simply visit the link in your show notes or the Daily Update Subscription Management page and subscribe. Your feed will be updated immediately with Daily Update episodes (you don’t need to add it again).

Listen to Free Weekly Articles in Your Podcast Player

While Stratechery is supported by subscriptions to the Daily Update, there has long been the option to receive free Weekly Articles via email. In a similar vein, I am happy to announce that the Daily Update Podcast has now been expanded to Stratechery Podcasts: you can receive just the free Weekly Article in your podcast player if you so choose.

Here is how to listen:

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Coronavirus Clarity

Apple and Google, who last Friday jointly | announced new capabilities for contact tracing coronavirus carriers at scale, released a new statement yesterday clarifying that no government would tell them what to do. Or, to put it in the gentler terms conveyed by CNBC:

Apple and Google, normally arch-rivals, announced on Friday that they teamed up to build technology that enables public health agencies to write contact-tracing apps. The partnership is being closely watched: The two Silicon Valley giants are responsible for the two dominant mobile operating systems globally, iOS and Android, which together run almost 100% of smartphones sold, according to data from Statcounter…The fact that the apps work best when a lot of people use them have raised fears that governments could force citizens to use them. But representatives from both companies insist they won’t allow the technology to become mandatory…

The way the system is envisioned, when someone tests positive for Covid-19, local public health agencies will verify the test, then use these apps to notify anybody who may have been within 10 or 15 feet of them in the past few weeks. The identity of the person who tested positive would never be revealed to the companies or to other users; their identity would be tracked using scrambled codes on phones that are unlocked only when they test positive. Only public health authorities will be allowed access these APIs, the companies said. The two companies have drawn a line in the sand in one area: Governments will not be able to require its citizens to use contact-tracing software built with these APIs — users will have to opt-in to the system, senior representatives said on Monday.

The reality that tech companies, particularly the big five (Apple, Microsoft, Google, Amazon, and Facebook), effectively set the rules for their respective domains has been apparent for some time. You see this in debates about what content to police on Facebook or YouTube, what apps to allow and what rules to apply to them on iOS and Android, and the increasing essentiality of AWS and Azure to enterprise. What is critical to understand about this dominance is why it arises, why current laws and regulations don’t seem to matter, and what signal it is that actually drives big company decision-making.

Scale and Zero Marginal Costs

Tech, from the very beginning of Silicon Valley, has been about scale in a way few other industries have ever been: silicon, the core element in computer chips, is basically free, which meant the implication of zero marginal costs — and relatedly, the importance of investing in massive fixed costs — has been at the core of business from the time of Fairchild Semiconductor. From The Intel Trinity by Michael Malone:

What Noyce explained and Sherman Fairchild eventually believed was that by using silicon as the substrate, the base for its transistors, the new company was tapping into the most elemental of substances. Fire, earth, water, and air had, analogously, been seen as the elements of the universe by the pre-Socratic Greek philosophers. Noyce told Fairchild that these basic substance — essentially sand and metal wire — would make the material cost of the next generation of transistors essentially zero, that the race would shift to fabrication, and that Fairchild could win that race. Moreover, Noyce explained, these new cheap but powerful transistors would make consumer products and appliances so inexpensive that it would soon be cheaper to toss out and replace them with a more powerful version than to repair them.

This single paragraph remains the most important lens with which to understand technology. Consider the big 5:

  • Apple certainly incurs marginal costs when it comes to manufacturing devices, but those devices are sold with massively larger margins than Apple’s competitors thanks to software differentiation; software has huge fixed costs and zero marginal costs. That differentiation created the App Store platform, where developers differentiate Apple’s devices on Apple’s behalf without Apple having to pay them; in fact, Apple takes 30% of their revenue.
  • Microsoft built its empire on software: Windows created the same sort of platform as iOS, while Azure is first-and-foremost about spending an overwhelming amount of money on hardware and then charging companies to rent it (followed by software differentiation with platform services); Office, meanwhile, has shifted from the very profitable model of writing software and then duplicating it endlessly for license fees to the extremely profitable model of writing software and then renting it endlessly for subscription payments.
  • Google spends massively on software, data centers, and data collection to create virtuous cycles where users access its servers to gain access to 3rd-party content, whether that be web pages, videos, or ad-supported content, which incentivizes suppliers to create even more content that Google can leverage to make itself better and more valuable to users.
  • AWS is the same model as Azure; Amazon.com has invested massive amounts of money on logistic capabilities — with huge marginal costs, to be clear, which has always made Amazon unique — to create an indispensable platform for suppliers and 3rd-party merchants.
  • Facebook, like Google, spends massively on software, data centers, and data collection to create virtuous cycles where users access its servers to gain access to third-party content, but the real star of the show is first-party content that is exclusive to Facebook — making it incredibly valuable — and yet free to obtain.

None of the activities I just detailed are illegal by any traditional reading of antitrust law (some of Google’s activities and Apple’s App Store policies come closest). The core problem are the returns to scale inherent in a world of zero marginal costs — first in the case of chips, and then in the case of software — that result in bigger companies becoming more attractive to both users and suppliers the larger they become, not less.

Understanding Versus Approval

Facebook, earlier this year, took this reality to its logical conclusion, at least as far as its battered image in the media was concerned. CEO Mark Zuckerberg, on the company’s earnings call in January, said:

We’re also focused on communicating more clearly what we stand for. One critique of our approach for much of the last decade was that because we wanted to be liked, we didn’t always communicate our views as clearly because we were worried about offending people. So this led to some positive but shallow sentiment towards us and towards the company. And my goal for this next decade isn’t to be liked, but to be understood. Because in order to be trusted, people need to know what you stand for.

So we’re going to focus more on communicating our principles, whether that’s standing up for giving people a voice against those who would censor people who don’t agree with them, standing up for letting people build their own communities against those who say that the new types of communities forming on social media are dividing us, standing up for encryption against those who say that privacy mostly helps bad people, standing up for giving small businesses more opportunity and sophisticated tools against those who say that targeted advertising is a problem, or standing up for serving every person in the world against those who say that you have to pay a premium in order to really be served.

These positions aren’t always going to be popular, but I think it’s important for us to take these debates head-on. I know that there are a lot of people who agree with these principles, and there are a whole lot more who are open to them and want to see these arguments get made. So expect more of that this year.

The social network, for once, was ahead of the curve, as the coronavirus showed just how critical it was to allow the free flow of information, something I detailed in Zero Trust Information:

The implication of the Internet making everyone a publisher is that there is far more misinformation on an absolute basis, but that also suggests there is far more valuable information that was not previously available:

A drawing of The Implication of More Information

It is hard to think of a better example than the last two months and the spread of COVID-19. From January on there has been extensive information about SARS-CoV-2 and COVID-19 shared on Twitter in particular, including supporting blog posts, and links to medical papers published at astounding speed, often in defiance of traditional media. In addition multiple experts including epidemiologists and public health officials have been offering up their opinions directly.

Moreover, particularly in the last several weeks, that burgeoning network has been sounding the alarm about the crisis hitting the U.S. Indeed, it is only because of Twitter that we knew that the crisis had long since started (to return to the distribution illustration, in terms of impact the skew goes in the opposite direction of the volume).

The Problem With Experts

If I can turn solipsistic for a moment, while preparing that piece, I warned a friend that it would be controversial, and he couldn’t understand why. In fact, though, I turned out to be right: lots of members of the traditional media didn’t like the piece at all, not because I attacked the traditional media — which I mostly didn’t, and in fact relied on its reporting, as I consistently do on Stratechery — but because I dared to suggest that a world without gatekeepers had upside, not just downside.

I went further two weeks ago in Unmasking Twitter, arguing that the media’s overreliance on experts was precisely why social media should not be censored:

It sure seems like multiple health authorities — the experts Twitter is going to rely on — have told us that masks “are known to be ineffective”: is Twitter going to delete the many, many, many tweets — some of which informed this article — arguing the opposite?

The answer, obviously, is that Twitter won’t, because this is another example of where Twitter has been a welcome antidote to “experts”; what is striking, though, is how explicitly this shows that Twitter’s policy is a bad idea, not just because it allows countries like China to indirectly influence its editorial decisions, but also because it limits the search for truth.

Interestingly, this self-reflective piece by Peter Kafka, appears to agree with at least the first part of that argument:

As we head into the next phase of the pandemic, and as the stakes mount, it’s worth looking back to ask how the media could have done better as the virus broke out of China and headed to the US. Why didn’t we see this coming sooner? And once we did, why didn’t we sound the alarm with more vigor?

If you read the stories from that period, not just the headlines, you’ll find that most of the information holding the pieces together comes from authoritative sources you’d want reporters to turn to: experts at institutions like the World Health Organization, the CDC, and academics with real domain knowledge.

The problem, in many cases, was that that information was wrong, or at least incomplete. Which raises the hard question for journalists scrutinizing our performance in recent months: How do we cover a story where neither we nor the experts we turn to know what isn’t yet known? And how do we warn Americans about the full range of potential risks in the world without ringing alarm bells so constantly that they’ll tune us out?

What is striking about Kafka’s assessment — which to be clear, should be applauded for its self-awareness and honesty — is the degree to which it effectively accepts the premise that journalists ought not think for themselves, but rather rely on experts.

But when it came to grappling with a new disease they knew nothing about, journalists most often turned to experts and institutions for information, and relayed what those experts and institutions told them to their audience.

Again, I appreciate the honesty; it backs up my argument in Unmasking Twitter that this reflected the traditional role the media played:

In the analog world, politicians and experts needed the media to reach the general population; debates happened between experts, and the media reported their conclusions. Today, though, politicians and experts can go direct to people — note that I used nothing but tweets from experts above. That should be freeing for the media in particular, to not see Twitter as opposition, but rather as a source to challenge experts and authority figures, and make sure they are telling the truth and re-visiting their assumptions.

This, notably, is another area where the biggest tech companies are far ahead.

The Waning of East Coast Media

Yesterday the New York Times wrote an article entitled, The East Coast, Always in the Spotlight, Owes a Debt to the West:

The ongoing effort of three West Coast states to come to the aid of more hard-hit parts of the nation has emerged as the most powerful indication to date that the early intervention of West Coast governors and mayors might have mitigated, at least for now, the medical catastrophe that has befallen New York and parts of the Midwest and South.

Their aggressive imposition of stay-at-home orders has stood in contrast to the relatively slower actions in New York and elsewhere, and drawn widespread praise from epidemiologists. As of Saturday afternoon, there had been 8,627 Covid-19 related deaths in New York, compared with 598 in California, 483 in Washington and 48 in Oregon. New York had 44 deaths per 100,000 people. California had two.

But these accomplishments have been largely obscured by the political attention and praise directed to New York, and particularly its governor, Andrew M. Cuomo. His daily briefings — informed and reassuring — have drawn millions of viewers and mostly flattering media commentary…

This disparity in perception reflects a longstanding dynamic in America politics: The concentration of media and commentators in Washington and New York has often meant that what happens in the West is overlooked or minimized. It is a function of the time difference — the three Pacific states are three hours behind New York — and the sheer physical distance. Jerry Brown, the former governor of California, a Democrat, found that his own attempts to run for president were complicated by the state where he worked and lived.

Jerry Brown ran for President in 1976, 1980, and 1992; this analysis was likely correct then — before the Internet. What seems more likely, now, though, is that this article takes a dose of my previous solipsism and doubles down: the New York Times may not pay particular attention to the West, but that is not necessarily reflective of the rest of the world.

Critically, it is not reflective of tech companies: what has been increasingly whitewashed in the story of California and Washington’s success in battling the coronavirus1 is the role tech companies played: the first work-from-home orders started around March 1st, and within a week nearly all tech companies had closed their doors; local governments followed another week later.

This action by local governments was, to be clear, before the rest of the country, and without question saved thousands of lives; it should not be forgotten, though, that executives who listened not to the media but primarily to social and non-traditional media were the furthest ahead of the curve. In other words, it increasingly doesn’t matter who or what the media covers, or when: success comes from independent thought and judgment.

Coronavirus Clarity

This gets at why the biggest news to come out of Apple and Google’s announcement is, well, the lack of it. Specifically, we have a situation where two dominant companies — a clear oligopoly — are creating a means to track civilians, and there is no pushback. Moreover, it is baldly obvious that the only obstacle to this being involuntary is not the government, but rather Apple and Google. What is especially noteworthy is that the coronavirus crisis is the one time we might actually wish for central authorities to overcome privacy concerns, but these companies — at least for now — won’t do it.

This is, in other words, the instantiation of Zuckerberg’s declaration that Facebook — and, apparently, tech broadly — would henceforth seek understanding, not necessarily approval. Apple and Google are leaning into their dominant position, not obscuring it or minimizing it. And, because it is about the coronavirus, we all accept it.

It is, in fact, a perfect example of what I wrote about last week:

At the same time, I think there is a general rule of thumb that will hold true: the coronavirus crisis will not so much foment drastic changes as it will accelerate trends that were already happening. Changes that might have taken 10 or 15 years, simply because of the stickiness of the status quo, may now happen in far less time.

This seems likely to be the case when it comes to tech dominance, or at least the acceptance thereof. The truth is we have been living in a world where tech answers to no one, including the media, but we have all — both tech and the media — pretended otherwise. Those days seem over.

The truth, though, is that this is, unequivocally, a good thing. To have pretended otherwise — for Facebook to have curried favor, or Apple to pretend like it didn’t have market power — was a convenient lie for everyone involved. The media was able to feel powerful, and tech companies were able to consolidate their position without true accountability.

What we desperately need is a new conversation that deals with the world as it will be and increasingly is, not as we delude ourselves into what once was and wish still were. Tech companies are powerful, but antitrust laws, formulated for oil and railroad companies, don’t really apply. East coast media may dominate traditional channels, but those channels are just one of many on social media, all commoditized in personalized feeds. Centralized governments, predicated on leveraging scale, may be no match for either hyperscale tech companies or, on the flipside, the micro companies that are unlocked by the existence of platforms.

I don’t have all of the answers here, although I think new national legislative approaches, built on the assumption of zero marginal costs, in conjunction with a dramatic reduction in local regulatory red-tape, gets at what better approaches might look like. Figuring out those approaches, though, means clarity about where we actually are; for that, it turns out, a virus, so difficult to understand, is tremendously helpful.

  1. Above-and-beyond the whitewashing about what happened in the San Francisco Bay Area []