The Exchanges

Q So you have a model where you release, like, uh, you know, one article a week that I think is free to the world, the four articles a week to, to kind of paying content. How did you arrive at that? Was that business model driven? Like, did you, how did you come up with that model of, uh, making a living?

A So I mentioned when I started that trajectory, I started with the goal of making money. And, and well, in the first couple of months, I started figuring, you know, kind of figuring out what the public schedules would be, but quickly arrived at, I'm going to only do one or two articles a week. Uh, and the goal of it was the reason I didn't want to write every day at the beginning, even though I was trying to build an audience was, Is that in the long run, I knew I wanted to have a subscription offering and I want that subscription offering to be get more as opposed to, and it's a very subtle distinction, but I think, you know, paywalls to that day, like the only really person who had done the one, the one person blog sort of paywall thing was Andrew Sullivan. And he went from this, you know, he, he was publishing like crazy with an advertising based model, which, which The incentives are that you should publish more, not less, and they just kind of threw a paywall up, and it worked because he had such fervent fans and such a large audience, but he never sort of adjusted his editorial strategy. He just kept pumping stuff out, and that's part of the reason why he burned out, whereas, whereas I had the sort of luxury of starting with the knowledge of the business model I wanted to have in the future, and I, I always wanted to be a I'm going to deliver this product consistently for …

AI assessment note: “I knew I wanted to have a subscription offering and I want that subscription offering to be get more”

Q And where do you think that, that lands? Is it just the seesaw between bundling and unbundling indefinitely, or is it?

A No, no, I, no, I think we're in the middle of a huge transition and probably will have, uh, more stability going forward. I think, you know, the long run for, for TV, for example, the long run is likely that there's, uh, The traditional bundle becomes basically all about sports because sports is better live. Sports is, is, Is advertising driven. And so the business model on that side is going to be different. It's going to be very expensive. You're going to pay like a lot of money to get not that many channels that are mostly all sports. And it's going to become an accidental sports panel for people that only want sports. Uh, and it's kind of back into that. You have Netflix and you're probably gonna have like Disney Fox, for example, and maybe one or two other services like, like that are like Amazon prime. But the goal there is Amazon. It's not to be entertainment, but on itself. And what's going to happen is people are going to end up paying about the same amount of money every month they do for content today. There should be paying different people. And, and I, and I think that that's going to be the case. This idea that there's going to be this, this, you know, you're going to suddenly be paying 15 dollars a month for all the entertainment you want is a fantasy. That's not going to happen. What's going to happen is you'll be paying different people than you paid before. Ye…

AI assessment note: “I think we're in the middle of a huge transition and probably will have, uh, more stability”

Q Do you think that's sticky, or do you think that they'll, they'll be these, like, Google came out of nowhere to where they are today, and you know, like, do you think?

A Yes, because there, there, there, you, there's multiple virtuous cycles going on. So in the case of Google, you have, uh, you, they have a data network advantage, which is, the more people search, the more data and results they get on what searches work, what searches don't, people's preferences, it makes the search results better. So, so there, there's, there's one network effect there. Where the more people that use Google, the better Google gets. And if you had two search engines, and they had, they started out with identical technology, and one at 51% share, one at 41% share. The 51% share would grow and would improve just because they have a data advantage. So that's number one. Number two is you get a two-sided network effect where the more users, the users come to a platform initially because it has a great user experience or it fits their specific need. And those users give that, that aggregator power over suppliers. So the suppliers will come onto their platform on the aggregator's terms. You can see this with, with Google, with Facebook, with Netflix for example, where, where, where they go there to get access to the customers and that makes the offering more attractive To end users such that they get more users, and you get more users, now you have more power over suppliers. More attractive platform.

AI assessment note: “Yes, because there, there, there, you, there's multiple virtuous cycles going on.”

Q Um, it's kind of interesting. I mean, it's like a super unique take on business in the sense that you're hitting on the intersection kind of between technology, media, business strategy, but also like you're hitting on undercurrents of psychology and behavior to a degree. I mean, your, your insights are pretty consistently incredible. What is it about to you? What does Stratechery mean? Um,

A That's a good question. Uh, I mean, I think the way I describe it, as you kind of noted, is the, the sort of strategy and business of technology, and I've kind of appended, you know, and its sort of impact on society. I think one of the great things about writing about technology is it kind of gives you a license to write about almost everything, because technology is impacting everything, whether that be, I mean, clearly we've seen in the context of politics, uh, you know, I wrote about Zuckerberg being in, in Washington, D.C. this week, but, you know, I've written other articles about, you know, how the structural changes that Facebook has imposed on the media, which is inextricably linked to the power of political parties, is what enabled the lives of Trump, for example, right? And, and, you know, that was very, that was very much a, in my wheelhouse of what I read about, but it was, it was also a deeply sort of like political, you know, piece, not a partisan piece, but just kind of like a political science more sort of piece. And, So that's definitely kind of a cool thing about being where I'm at. And I think just kind of backing up broadly, I've used to techery as sort of my personal intellectual journal in many respects of trying to understand the world and how it works. And I start from technology. I start with technology lens, but again, just the nature of the industry,…

AI assessment note: “I've used to techery as sort of my personal intellectual journal in many respects”

Q How much pressure do you have to agree with things you've already written about versus going the world's changed or something is different and I was wrong. Like when's the last time you came out and were like, I was completely wrong. I blew this. And how was that meant?

A All the time. I did, I did it a couple weeks ago. Um, and actually it turned out, I think I was probably right, but, uh, but the, no, I do it all the time. And I, I think a strong commitment to that is, Is, is critical and key to, to what I do. Like, so it's key in a few areas. So, so one, it's very free. A friend of mine once said, uh, I love to be right, which is why I always say when I'm wrong, because that's the fastest and shortest way to be right. You know, as opposed to sort of like, double down it. So, so one, if you want to be right, like, admit you're wrong. Uh, number two, I write with a fairly sort of authoritative tone and voice, just because that's better writing in general. And also I'm saying what I think, but you know, the cliche is, Strong opinions weekly held is exactly what I abide by. Like I, I I'm going to pursue what I believe to be true and I'm going to always be testing the assumptions and underlying it. And again, this is where the sort of having a systematic sort of view of the world is very beneficial because It's, it's sort of my innate nature to always be challenging the assumptions that are underlying something as opposed to just looking at the sort of outcomes. And then the other end, you know, it aligns with my business model. Like people are paying me money because they think what I read is, what I write is worth reading. And from that perspect…

AI assessment note: “All the time. I did, I did it a couple weeks ago.”

Q What would you teach an MBA strategy class for internet strategy? If you came in to, to give a lecture on internet strategy, what would be the core ideas of that sort of lecture?

A I think the, the, the most important takeaway would be, I'm sure I can do case studies about different industries and companies, but I think the, the more important thing is, is the examining the implications of changing assumptions. Like what, what happens when you start with Start with zero marginal costs. And, and I would probably want to go through different industries and show how when you change the assumptions, The implication for that business and what is attractive completely changes. Like, like, take, like, CPG companies, like, uh, consumer packaged goods, which is a huge focus at Kellogg, where I went to, went to school. Um, and the, these sort of companies, they were predicated, the single most important thing to understand about a CPG company is that their, their most important, uh, sort of strategic tool was shelf space. Like, if you control shelf space, then what you do, you, then you, you do R&D to get, like, sort of, they invest a lot in R&D, To get marginally better products, and then they would run a bunch of TV advertising, reaching the lowest common denominator, and they'd go to the store, and it would be a brand extension where they'd be next to the Tide detergent, because, oh, if a grocery store owner, if you want Tide detergent, you better carry this brand extension next to it, and then they would be there, and you'd buy it, and that's how they would dri…

AI assessment note: “the more important thing is, is the examining the implications of changing assumptions.”

Q Do people take your, uh, paid for stuff and then make it free, but in their own words?

A Oh, absolutely. All the time. I mean, that's, that's something you just have to get over and, and accept that's, that's going to happen. I mean, there's, uh, you'll, you'll see it show up in, in other columns or opinion pieces a day or two later. And, and, you know, not, not always, but sometimes more with some pieces than others. And, you know, I think, At some point, it's a little frustrating at first, but what I quickly realized was what's kind of my goal here. Like my, my goal here, and it sounds cliche, but my goal is not to make money or, or, or get rich or it might be, I wanted, obviously I wanted to, to make a living and to, you know, be, have a good provision for, for, for my family. But at the end of the day, like this is stuff that I care about and I'm passionate about and the, the opportunity for, To literally spend every day thinking and writing about stuff that I'm really fascinated and interested about is a tremendous privilege. And so to the extent that I am influencing other people to also write similar things that, that I've written in similar lines, that's actually a tremendous, that's a tremendous outcome because it shows that, you know, you can never have You know, the, the brilliance of the business model is the way it scales on the backend, right? The amount of work I do for one subscribers, the amount of work I do for a hundred subscribers, but the way t…

AI assessment note: “Oh, absolutely. All the time. I mean, that's, that's something you just have to get over”

Q Completely agree with that, that line of reasoning. How do you filter what you read? Like, the information that goes in, you said you wake up, you kind of read the headlines, uh, like, what is it, what are your trusted sources, if you're other people's trusted sources?

A Yeah, so I very much, I started sort of, like, first principles, by which I, in the case of content, by which I mean, like, just news. Like, and so I, I read, uh, like, I, so I wake up, I open up TechMeme, like, just, like, where are the, where are the headlines of the day? And when I'm reading something, I try to get into, like, original sources as much as possible. Um, sometimes, if something comes up, I will try to find, like, more opinion and analysis people that have written about it, more just because I find a useful way, it's like a knife sharper, where it prompts me to think, Through my own sort of view, but, but, uh, usually by and large, I form my opinions directly from the sort of the, the core content. And so people are like, oh, who are the writers you read or whatever. Usually if I read other writers, it's more as a happenstance of researching a particular topic that what I actually read on a day to day basis is just news. Like, like what is actually happening? And in, in, you know, in, and then in the context of writing a daily update, I I will do extensive amounts of research. Like, I mean, my typical day, I end with, like, a 150 browser tabs of Fin, right? I have an iMac with 40 gigabytes of RAM because I have so many browsers, surely for handling browser tabs.

AI assessment note: “I open up TechMeme... I try to get into, like, original sources as much as possible.”

Q I mean, it is becoming harder, but is it, is it insurmountable now that the person in their garage could compete with Google? Like, is that data advantage cumulative? For Google, and Facebook, and Amazon, in the sense that, like, the longer it goes on, the harder it will be to effectively compete with them?

A Well, it was impossible for someone in their garage to compete with Microsoft, and I think that's what people don't appreciate about these sort of dominant players in these sort of epochs, is they are tied to the paradigm of, of the moment, and Their, their sort of upheaval and downfall will come not from someone being in a garage alone. It will come from someone being in a garage who latches onto the next paradigm shift that makes it impossible for, you know, the powers that be to compete. I mean, the issue with, with Microsoft was, you know, mobile or two issues. One, The internet sort of, you know, it changed the layer of lock-in, if that makes sense, where it didn't matter if you were on the Windows API or not, because everything was within a browser window. It actually mattered what was the first site people went to the browser window, which was Google. And sort of the, the layer of the chokehold kind of moved up. In the case of mobile, the, the mic should have the right business model. The business model was either you own the device and sell the device like Apple did, or you, you give the, you give the, the software for free, building this massive sort of network effect, Uh, and, and then you have another means of monetizing it, which, which Google and Android did, and Microsoft was stuck with a licensing business model that just didn't make sense, that didn't work, and …

AI assessment note: “It will come from someone being in a garage who latches onto the next paradigm shift”

Q How do you see like tech influencing, uh, payments? So like Stripe came along, but I mean, Visa and MasterCard and where that's going.

A I mean, I think the people, the thing that people forget about Visa and MasterCard is, um, uh, they're incredibly convenient. I mean, the, the, the reason why they credit cards are everywhere is because they solved a real pain problem. And they, and anything that, that wants to replace them Has to not just be a little bit better. It has to be massively better and massively better in multiple directions. And again, the, you know, I, I am well aware of, of how expensive credit cards are. It's my largest expense by, by a lot. Uh, but at the same time, it's not going to ever not support credit cards because they cost a lot. Like the, the, the payoff inconvenience for being customers to be able to sign up from anywhere over the world is, is well worth it. And, and, And so, you know, I think we'll probably have the credit card with us for, uh, a lot longer than some of the proponents of alternative payment methods might think.

AI assessment note: “we'll probably have the credit card with us for, uh, a lot longer”

Q Was it, was it an escape in Wisconsin or like, was it a mechanism for you to kind of like zone out of the reality that you were living or was it something else that was just like completely engaging?

A Yeah, I had a happy childhood. I wasn't, I wasn't one of those like, I just want, you know, I just got to sort of get out of here sort of thing. You know, I, I generally had, had a happy childhood. No, no big complaints. Uh, it was, I just was genuinely interested in it. Like I, I just found this stuff fascinating. And yeah, You know, and like when I was in high school was sort of the, when the, when the World Wide Web came out and then, you know, my first year of college was, was sort of the dot-com bubble really starting to take off like crazy. And, uh, you know, and all the, like we would, you know, I, I actually had a little business in the dorms, you know, putting computers together and selling them because you could get like all the pieces on like valueact.com or something like that, or something value mart or something. You could buy, I remember you could buy Intel Processors for like a quarter of the price because all the stupid dot com bubble stuff. And so I would buy all this stuff and put it together and sell it to get, to get, uh, spending money. But so, you know, it was just, There's an aspect of, you know, the, the, my age was just, you know, there, there's a really interesting article I've linked to a few times, uh, just on Twitter about the, it's called the Oregon trail generation. And the idea is there's this sort of really distinct group of people around kind …

AI assessment note: “I had a happy childhood... I just was genuinely interested in it.”

Q But that's a prototypical example of a CBG company, right? Like, how would you tangibly, other than reduce brand extensions and invest in brand, like, how is the internet changing that business in your eyes?

A I think you, I think you just, I think you just said it. I think the internet has a barbell effect, where there are returns to the biggest and returns to the smallest. And if you're stuck in the middle, it's just a very dangerous sort of, Sort of place to be. And so, uh, if, if I were Heinz, I would double down on, on Heinz and, and the Heinz brand, and, and I would seek to dominate even further all the traditional distribution channels that, that I do, whether that be restaurants, whether that be, uh, schools or, you know, all this sort of like the B to B sort of selling space, because that's going to be a space where being big and bringing to barrier assets is going to be much more impactful than the sort of consumer space where it's getting more challenging. So, so if I were, so that, that would be another aspect of what I would do. And, um, and you know, and, and, and I think that that's probably, Relatively consistent advice, but, but, you know, it's certainly, it's going to be, I think Heinz is probably a better shape than a lot of folks, to be honest, because, you know, did you read that New York article about trying to invent new kinds of ketchup?

AI assessment note: “the internet has a barbell effect, where there are returns to the biggest”

Q Talk to me about how VC is shaping kind of this space. I mean, we, we have things that have never really happened before. We have private companies that are allegedly valued at like sixty billion dollars. Uh, we have companies staying private longer. We have companies willing to sustain losses, uh, longer in order to try and compete with these companies. How is that all playing out?

A Well, I would say there's, there's two points. One, I think VC is inextricably tied to technology. And the reason is that the nature of technology is massive upfront investment followed by basically zero marginal costs and, and, and huge amounts of scale. If you write a piece of software, it, it takes a lot of time, a lot of money, but once that software is written, it can be reproduced infinitely. And you know, the same thing with like chips, which is where VC really started was, it was in chip production. Like chips are made out of sand, right? For all kinds and purposes there, the marginal cost is nothing. Astronomical amounts of fixed costs upfront. And so VC is, is, VC is the financial equivalent of software. It is, uh, is, is the, the mechanism by which to put a lot of money in upfront such that you can earn, you know, uncapped returns on the backend. So, so it's always been a key component of technology. You can't pull them apart. Uh, that said, VC has been fundamentally shifted. I think like, like AWS has been a huge factor here, where it used to be you needed funding to build something, to get something off the ground. So you, you, you would have to get funding with a PowerPoint just to even do, do anything. Whereas now, because you had to buy servers, like even if you wanted to do it in your spare time, you still had to get a server, right? Now you can walk up to Amaz…

AI assessment note: “VC is the financial equivalent of software. It is, uh, is, is the, the mechanism”

Q That begs the question, like, what regulations would you look at enacting if you were in government to give the little guy kind of a chance, but more so to not further embed these or entrench these larger tech companies?

A Well, I mean, it's, it's very, there, there's, there's two ways to argue this. So, so one is that, uh, These companies need to be broken up, or they need to be, like, like, maybe, like, Google or Facebook needs to be separated, so there's more competition in the ad market, would be one, one argument. Uh, another argument, though, on the flip side is, maybe they actually should be heavily regulated, and such that we, we have, Sort of stable platforms and foundations on which the future can be built. And you think about something like, like AT&T, right? AT&T, like the, it was, phone service was costly and didn't evolve very much, but the, it was a stable sort of base that, that, that other stuff could, could be built on. And, uh, I'm not, I'm not totally sure to be honest. It's something I've been wrestling about, about a lot about what should this sort of Regulatory response be to these platforms because there's an aspect of the, the, the, the implication of aggregation theory is that to be large and to be dominant is the, is the natural state of affairs because of these feedback loops. Like the, the end state for an aggregator is to be, to win it all, to take it all. And if I think that the future is, uh, I use it on the exponent podcast, this jungle analogy where you're going to have the huge trees, that tower of everything, and then a huge amount of like undergrowth and like …

AI assessment note: “one is that... These companies need to be broken up... another argument... heavily regulated”

Q Where did you develop the ability to pull apart the business model?

A Yeah, I mean, it's one of those things where, you know, I showed up at business school, and certainly business school gave me a lot of the language to do this, but it was, it was almost like a, wow, I'm actually really good at this stuff. Like, this, this comes very easy and, and naturally to me, and, you know, business school, I think, was a lot more about giving me the language and specifics to, to, to, to understand this stuff. Just in general, I'm a very, very extremely, to the extreme, very systematic thinker. Where I see things in systems and the way they interconnect and how, you know, one thing over here will connect the other thing over there, you know, all the way down the chain. And whereas, you know, I, I'm, I'm not a great detail person, right? When it gets into like get zooming all the way down and getting to specific in the specifics, like I'm not great at that, which is why, you know, I think. Working in corporate America, you know, it was challenging because on one hand I could see where to go, what we needed to do, but I didn't know how to communicate that well. Cause I was a young whippersnapper that thought I knew everything. And on the flip side, you know, when, when you're young and just implementing stuff, you have to take care of all the little stuff. And that's just, you know, that's a pain. If you, I'm a strong believer that anyone, their strengths are…

AI assessment note: “business school gave me a lot of the language to do this”

Q It's a fascinating approach. So you, you never have writer's block because you always have this list. Is that list ever empty?

A Well, I think the, uh, I think the most common misconception people have about what I do, especially given the amount of things I write about is, um, it's not like every day you're starting from nothing and kind of scratching together an opinion on stuff that goes on. Like, I have a view of the world. I have, uh, you know, I The way I think that things work is sort of like mental model in my head of, and, and so things happen. I kind of pass them through that model and, and most of the time they fit the model and that's, it's easy to read about it. Like I, it's pretty easy to see what's going on here. Sometimes they don't. And usually that means there's something else going on. There's like, oh, maybe something else is going to happen soon or, uh, or sometimes I'm wrong. And when I'm wrong is arguably the most interesting and the spur of, of a lot of weekly articles where It's really sort of modifying the model, like expanding and better articulating my sort of view of the world. And so I think from my perspective, uh, it's, it's less the coming up with opinions that is difficult and more the, Trying to keep a very strong sort of, uh, guard up against like confirmation bias where, where things happen and, oh, that, that, that fits my view of the world. I'm, that, that must be true. Whereas making sure you always take the time to go back and say, wait, let me double check, make …

AI assessment note: “most common misconception people have about what I do, especially given the amount of things”