Stratechery by Ben Thompson
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Stratechery by Ben Thompson stratechery.com To what extent are new companies, particularly those in new spaces, pushed versus pulled into existence? Last week I wrote about how Tesla is a Meme Company: It turned out, though, that TSLA was itself a meme, one about a car company, but also sustainability, and most of all, about Elon Musk himself. Issuing more stock was not diluting existing shareholders; it was extending the opportunity to propagate the TSLA meme to that many more people, and while Musk’s haters multiplied, so did his fans. The Internet, after all, is about abundance, not scarcity. The end result is that instead of infrastructure leading to a movement, a movement, via the stock market, funded the building out of infrastructure. Electrification of personal vehicles would have happened at some point; it seems fair to argue that Musk accelerated the timeline significantly. Clubhouse, meanwhile, Silicon Valley’s hottest consumer startup, feels like the opposite case: in retrospect its emergence feels like it was inevitable — if anything, the question is what took so long for audio to follow the same path as text, images, and video. Step 1: Democratization The grandaddy of independent publishing on the Internet was the blog: suddenly anyone could publish their thoughts to the entire world! This was representative of the Internet’s most obvious impact on media of all types: democratization. Distributing text no longer required a printing press, but simply blogging software: 1/86 Distributing images no longer required screen-printing, but simply a website: Distributing video no longer required a broadcast license, but simply a server: Distributing audio no longer required a radio tower, but simply an MP3: Businesses soon sprang up to make this process easier: Blogger for blogging, Flickr for photo-sharing, YouTube for video, and iTunes for podcasting (although, in a quirk of history, Apple never actually provided centralized hosting for podcasts, only a directory). Now you didn’t even need to have your own website or any particular expertise: simply pick a username and password and you were a publisher. Step 2: Aggregation Making anyone into a publisher resulted in an explosion of content; this shifted value to entities able to help consumers find what they were interested in. In text the big winner was Google, which indexed pre-existing publications, independent blogs, and everything in-between. The big winner in photos, meanwhile, ended up being Instagram: users “came for the tool and stayed for the network”, as Chris Dixon memorably put it: 2/86 Instagram’s initial hook was the innovative photo filters. At the time some other apps like Hipstamatic had filters but you had to pay for them. Instagram also made it easy to share your photos on other networks like Facebook and Twitter. But you could also share on Instagram’s network, which of course became the preferred way to use Instagram over time. The Internet creates a far tighter feedback loop between content creation and consumption than analog media; Instagram leveraged this loop to become the dominant photo network. YouTube accomplished a similar feat, although the relative difficulty in creating video meant that the ratio of viewers to creators was much more extreme than in the case of photo-sharing. That, though, is exactly what made YouTube so dominant: creators knew that that was where all of their would-be viewers were. Spotify is trying to do something similar for audio, particularly podcasts. I wrote in a Daily Update after the streaming service signed Joe Rogan to an exclusive contract: Spotify, meanwhile, has its eyes on an absolute maxima — a podcast industry that monetizes at a rate befitting its share of attention — but as I have explained, that will only be possible with a Facebook-like model that dynamically matches advertisers and listeners in real-time, as they are streaming a podcast…This, by extension, means that Spotify needs a much larger share of the market, so that they can start generating advertising payouts that are better than the current stunted model, thus convincing podcasters to give up their current ads and use Spotify’s platform to monetize instead. In this view the motivation for the Rogan deal is obvious: Spotify doesn’t just want to capture new listeners, it wants to actively take them from Apple and other podcast players. And, if it can take a sufficient number, the company surely believes it can create a superior monetization mechanism such that the rest of the podcast creator market shifts to Spotify out of self interest. Capture enough of the audience and the creators will follow. Step 3: Transformation Still, even with the explosion of content resulting from democratizing publishing, what was actually published was roughly analogous to what might have been published in the pre-Internet world. A blog post was just an article; an Instagram post was just a photo; a YouTube video was just a TV episode; a podcast was just radio show. The final step was transformation: creating something entirely new that was simply not possible previously. Start with text: Twitter is not discrete articles but a stream of thoughts, 280 characters long. It was the stream that was uniquely enabled by the Internet: there is no real world analogy to being able to ingest the thoughts of hundreds or thousands of people from all over the world in real-time, and to have the diet be different for every person. 3/86 What is interesting is the effect this transformation had on blogging; Twitter all but killed it, for three reasons: First, Twitter was even more accessible than blogging ever was. Just type out your thoughts, no matter how half-formed they may be, and hit tweet. Second, because blogging was so distributed and imperfectly aggregated it was hard to build an audience; Twitter, on the other hand, combined creation and consumption like any other social network, which dramatically increased the reward and motivation for posting your thoughts there instead of on your blog. Third, Twitter, thanks to the way it combined a wide variety of creators in an easily- consumable stream, was just a lot more interesting than most blogs; this completed a virtuous cycle, as more consumers led to more creators which led to more consumers. Instagram, meanwhile, had always had that transformational feed, which carried the service to its first 500 million users; it was Stories, though, that re-ignited growth: Stories — which Instagram audaciously copied from Snapchat — combined the customized nature of the feed with the ephemerality inherent in digital’s abundance; the problem with posting what you had for lunch was not that it was boring, but that no one wanted it to stick around forever. 4/86 This too appears to have reduced usage of what came before; while Facebook has never disclosed Stories usage relative to feed viewing, that chart above is from this August 2018 Article about Facebook’s Story Problem — and Opportunity, where I observed: While more people may use Instagram because of Stories, some significant number of people view Stories instead of the Instagram News Feed, or both in place of the Facebook News Feed. In the long run that is fine by Facebook — better to have users on your properties than not — but the very same user not viewing the News Feed, particularly the Facebook News Feed, may simply not be as valuable, at least for now. The opportunity came from the fact that dramatically increasing inventory would surely lead to significant growth in the long run, which is exactly what has happened. It didn’t matter that Stories were not nearly as well-composed as pictures in the Instagram feed; in fact, that made them even more valuable, because Stories were easier to both produce and consume. TikTok is doing the same thing with video; in this case the transformative technology is its algorithm. I explained in The TikTok War: All of this explains what makes TikTok such a breakthrough product. First, humans like video. Second, TikTok’s video creation tools were far more accessible and inspiring for non- professional videographers. The crucial missing piece, though, is that TikTok isn’t really a social network… ByteDance’s 2016 launch of Douyin — the Chinese version of TikTok — revealed another, even more important benefit to relying purely on the algorithm: by expanding the library of available video from those made by your network to any video made by anyone on the service, Douyin/TikTok leverages the sheer scale of user-generated content to generate far more compelling content than professionals could ever generate, and relies on its algorithms to ensure that users are only seeing the cream of the crop. YouTube has invested heavily in its own algorithm to keep you on the site, but its level of immersion is still gated by its history of serving discrete videos from individual creators; TikTok, on the other hand, drops you into a stream of videos that quickly blur together into a haze of engagement and virality. 5/86 There is nothing like it in the real world. Podcasts and Blogs What is striking about audio is how stunted its development is relative to other mediums. Yes, podcasts are popular, but the infrastructure and business model surrounding podcasts is stuck somewhere in the mid-2000’s, a point I made in 2019 in Spotify’s Podcast Aggregation Play: The current state of podcast advertising is a situation not so different from the early web: how many people remember this? 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.