Four Weddings And A Funeral

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Summary

A weak DOJ and accretion of market cap for the biggest tech players make 2020 a year for high-profile acquisitions (weddings) and one spectacular failure (a funeral).
Big tech has no choice but to enter the fields of healthcare and education.
They need to add more than half a trillion dollars to their top-line incomes over next 5 years. This will result in them entering new markets, and coming for each other.

We witness border skirmishes between big tech firms on a regular basis. This year, one or more will erupt into a shooting war. Just as most wars are not a function of ideology but economics, the armies of search, handsets, and performative posts will begin landing paratroopers behind enemy lines and initiate heavy equipment assaults. Yes, I watch too much History Channel.

Wars also make strange bedfellows. For a hot minute (four years) we fought side by side with the USSR. Upon our collective victory, they promptly became our adversary. A weak DOJ and accretion of market cap for the biggest players make 2020 a year for high-profile acquisitions (weddings) and one spectacular failure (a funeral).

As I’ve written, big tech has no choice but to enter the fields of healthcare and education. These are the only two sectors, other than government, that offer the margin dollars required to sate investors’ growth expectations. Google (GOOG) (GOOGL) and Facebook (FB) could wipe out the entire radio industry, and they’d still wake up hungry for more profits within 24-36 months based on investors’ expectations.

Every big tech firm must implicitly, or explicitly, assure investors there is a reasonable chance their stock will double in the next five years. Otherwise investors will buy Zoom (ZM), Lemonade (LMND) (which filed to go public this week), or another “disruptive” firm. Big tech is running up against staggering appetites, like Brad Pitt being forced to feed off humans, as rats just can’t sate his thirst. Remember that movie? Pale and a bad haircut ...

And. Still. Dreamy.

Anyway, the Four plus Microsoft (MSFT) need to add more than half a trillion dollars to their top-line incomes over the next five years. This will result in them entering new markets, and coming for each other.

Some scenarios — four weddings and a funeral:

Apple acquires DuckDuckGo or launches its own search engine.

The entire world is bifurcating into Android or iOS. Android users are the masses who trade privacy for value. iOS are the wealthy who enjoy the luxury of privacy and status signalling by shelling over one month’s household income in Hungary in exchange for $443 in sensors and chipsets (what it costs to make an iPhone). Even social platforms are distilling to red-state (Android) and blue-state (iOS).

So, Apple (AAPL) will likely divorce from Google, where they receive $12 billion a year for making Google the default search for iOS, and leverage their ownership of the rails in the best neighborhoods. Apple will not be able to monetize search to nearly the same extent as Google, since it can’t make Tim look stupid (“Privacy is a fundamental human right”). Still, they control the tracks, and just as they can get us to watch Murphy Brown at $15 million per episode (i.e., The Morning Show), they’ll be able to shove a search engine that’s 80% as good as Google down our throats. They own the rails.

Twitter acquires media properties in move to subscription model.

Mark Zuckerberg has now become the world’s most visible oligarch, leveraging his proximity to power (Trump) for corrupt economic gain. Facebook, despite their claims to be neutral and not wanting to be “the arbiter of the truth,” is turning red (GOP). Facebook will be the Android of the world, offering a free service in exchange for molesting your privacy. Also, depressing your teens, perverting elections, sowing hate, etc., etc., etc. Btw, Facebook has demonstrated real comfort with being an arbiter, it’s the truth they are allergic to. Specifically, the arbiter of truth for Facebook is … whoever is willing to pay to determine our truths.

Question is ... who will be the iOS (blue/Dem) of social? The opportunity to go blue, and capture a smaller but more valuable audience, is Twitter’s (TWTR). Their labeling @therealdonaldtrump’s tweets as lies renders them the MSNBC of social. Their opportunity is to acquire distressed media properties, go vertical, and move to a subscription model. Subscription fees should be based on the number of followers. If @kyliejenner can garner $430,000 per promoted tweet, she’ll pay $10,000 a month to maintain her revenue stream, and @karaswisher (1.3 million followers) would pay $250 a month. Verified accounts with <2000 followers would remain free to maintain critical mass.

If Twitter had a full-time CEO, he or she would have come to this conclusion in half the time. Twitter doesn’t have the scale to compete on an ad model, and their ad tools are substandard. However, they are unwittingly starching their hat blue and could acquire several of the remaining independent media properties (Lee, McClatchy, Condé Nast, Hearst, etc.) or assets from them to buttress the subscription offering.

The B2B market alone would be huge, as Twitter has replaced PR, news agencies, and IR firms. What firm wouldn’t pay $2,000 a month to announce their new SAAS/diet/keto/hemp product? Twitter could take a 40% hit to top-line revenue over the short term, and triple their stock in the next 24 months as they move to subscription.

The subscription model also has a free gift with purchase — identity. People are less awful when their name and reputation are attached. Ad-supported platforms are incentivized to allow bots and Russian interference, and to provide more oxygen to ideas that lack merit but are incendiary. Rage equals engagement, which translates to more Nissan ads. Remember that time when Netflix (NFLX) or LinkedIn really pissed you off? That was Twitter or Facebook.

Also, Twitter has the added benefit of being shi**y at advertising. Specifically, a move to a subscription model would mean forfeiture of dramatically less revenue than Facebook, which monetizes users at twice the rate of Twitter. They could also hold on to much of their ad revenue during the transition phase, or even settle on a hybrid model that cleans up 90% of the carcinogens.

Microsoft/LinkedIn launches a microblogging platform.

If Twitter doesn’t do this, Microsoft should launch their own microblogging platform as a sub-brand of LinkedIn. If there is any doubt that media is nicotine (addictive) but advertising is the s**t that gives us cancer (tobacco), compare and contrast the most successful media firms of the last decade: Google, Facebook, Netflix, and LinkedIn. Two are tearing at the fabric of society, the other two... are not. The difference? Facebook and Google run on rage (ad model); Netflix and LinkedIn are powered on a subscription model (note: approximately 20% of LinkedIn revs come from advertising).

LinkedIn is much of the great taste of Twitter, an interesting feed full of connections and discovery, without the calories — bots pumping TSLA, death/rape threats, and antivaxers. LinkedIn is the social media platform we are all hoping Facebook and Twitter would become.

NFLX/SPOT/SONO

The two mob families of subscription media merge and control video and music. Gangster. They acquire Sonos (SONO) (with the sweat off their Tiger brow at $1.3 billion) and establish a vertical beachhead of devices in the wealthiest homes in America.

The funeral: Quibi

In February, I predicted Quibi would be the unicorn that lost the most value in 2020, and would be stillborn. Media analyst @richlightshed wrote a thoughtful, and detailed, response on why I was wrong about Quibi and the streaming wars. Also, a senior exec at the firm called and asked me not to bad-mouth them before their launch, as it was bad form. A fair point, and I’ve been (for me) quiet on the issue.

Ok, no más. It (Quibi) is over. Jesus, that was easy.

Last week a reporter called and asked why I was so confident pre launch that it would fail. The answer is obvious, and ageist. To my knowledge, there’s never been a successful media-tech firm founded by people in their sixties. The young brain is crazy, creative, and willing to work 80 hours a week, as young people think they’ll live forever. People in their sixties are not blessed/cursed with any of these things, which makes them decent leaders, great mentors, and shi**y entrepreneurs.

In addition, the strategy never made any sense, and the firm showed up to a howitzer fight with a squirt gun ($1.75 billion in funding, vs. SVODs who deploy the defense budgets of Australia, Canada, and the UK).

What happens next? The firm is likely now pursuing assisted suicide, as I believe Ms. Whitman and Mr. Katzenberg find the pain of tech failure unbearable. They (again, speculating) are shopping the firm to bigger media platforms so they can pull a Masa Son and save face by blaming their conflation of luck and talent on Covid-19. The firm will be sold for less than the cash on hand, as it’s worth less than zero, having built a business that just eats cash and has no assets — the IP reverts to the creators after four years.

“I attribute everything that has gone wrong to coronavirus.”
— Jeffrey Katzenberg, New York Times 5/11/20

Quibi will be a case study in the hubris of successful boomers and the invasion of Los Angeles by Bay Area tech firms. It will also be confirmation that while software is eating the world, the world of start-ups belongs to a younger generation. Frustrated boomers can take solace, as the government, elected and funded by boomers, still enjoys a staggering transfer of wealth from a younger, more multiracial generation to an older, whiter generation (Social Security, mortgage interest and capital gains tax deductions, PPP, CARES Act, police, prisons, etc.). But I digress.

Stay Thirsty, My Friends

How do we stay crazy and young? How do we demonstrate the fearlessness of young artists, activists, agents of change, and tech founders? I don’t know. I find myself, as I read the above at 1am on Friday, fearful that my arguments are pedestrian, that my words might upset people I care about... or anger people more powerful than me. Everything but the last part of the last sentence is true.

Two things, I believe, keep me crazy/young: Atheism and alcohol. A recognition of the finite nature of life is my superpower. It gives me the courage to love, and write, unconditionally. And then... I drink.

Original Post

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

This article was written by

Scott Galloway

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Scott Galloway is a Professor of Marketing at the NYU Stern School of Business where he teaches brand strategy and digital marketing. In 2012, Professor Galloway was named “One of the World’s 50 Best Business School Professors” by Poets & Quants. He is also the founder of Red Envelope and Prophet Brand Strategy. Scott was elected to the World Economic Forum’s Global Leaders of Tomorrow and has served on the boards of directors of Eddie Bauer (Nasdaq: EBHI), The New York Times Company (NYSE: NYT), Urban Outfitters, and UC Berkeley’s Haas School of Business. He received a B.A. from UCLA and an M.B.A. from UC Berkeley.

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@RockyRod -- What the heck are you saying?

If what you're attempting to articulate (it's unclear) is that my age and retired status mean I'm somehow more susceptible to tech manipulation, I suggest that you drop off social media for a week and take a walk through protest-land. As you do so, observe young people on their phones. Ask them what they are viewing on these devices. Then talk to them about what their beliefs are.

You'll find that the social media content viewed by these youngsters sync pretty much perfectly with their beliefs. Because that's what social media tech firms excel at -- driving social conformity, confirming priors, and ensuring you're exposed to uncomfortable ideas outside your ideological bubble as rarely as possible. The last thing these firms want is to encourage critical thinking. That might drive you off the platform! (God forbid you pick up a book...)

Most retired folks have the advantage of growing up in an era when critical thinking was taught in schools and required in the workplace. Our brains developed through engagement with the world and other people, not molded by social media algos. Our longer attentions spans were shaped by endeavors that required patience rather than immediate gratification.

Doesn't mean oldsters can't be manipulated by social media. Anyone can be, if you let it carry you away. But we have a lot more capacity for resisting the collectivization of the Borg because we were raised not only to think more independently, but to live more independently. (And yes, that's a criticism of the vast horde of millenials who are still bankrolled by their Boomer parents. You know who you are.)

Guys like @Scott Galloway recognize all of this. Like I said, he's a brilliant guy, and he's old enough to understand that freedom of expression is a core American value that makes the United States the most free nation on earth. But he's also very ambitious, and he plays to the Progressive crowd because that's where his market lies. It's fashionable among Progressives to demonize FB for giving R politicians a platform and to demand they be censored, so that's what @Scott Galloway does.

Which is more than a little bit shameful. He and I are both old enough to remember times when the demand for censorship was directed at left wing thinkers. The First Amendment saved them, and that made America a better place.

How quickly America's leftists forget where they came from.

Just like all tech, it is easy to say a given idea, however, very difficult to do it. Apple tried to just make competitive mapping to compete with Google but it did horribly and they then canned it and used Google again. Likewise, DuckDuckGo is a good alternative to Google if you are looking for academic information or general stuff, however, I would not use it for daily stuff. People use it for anonymity mostly which is not the direction Apple wants to go to, especially if they are money hungry. Apple will risk their whole hardware base forcing users to an inferior search engine. One doesn't think of DuchDuckGo as inferior simply because you don't use it all the time for everything. It is inferior, but decent. That said, ts privacy policy is stellar.

Likewise, Microsoft will have a hard time making a competing social media business. For one thing there is a trust issue. Microsoft is about as trendy and dependable as getting Office as a birthday present. And Microsoft is about as good as staying up to date as Facebook's Executive is at being politically in tune with anything. It has only taken it decades to revamp office into something better and it has moved it into the cloud by literally forcing it on users. As for non-cloud licensing, its pricing is so messed up even its vendors have a hard time dealing with it. No, Microsoft can only deal where it has a reasonable chance at being a monopoly and as far from users demands as possible.

Google has many places to grow but anywhere is still too small of a pond. That said, it will still be around and their browsing business will only grow due to Covid. If anything Google is an amoeba which keeps growing but realizes it will fill up the petri dish soon if it can't get out.

Which leads me to Twitter which is like a starved bird in a cage. Twitter has always had a hard time monetizing itself and has grown by feeding off of Trump's media blasts. That said, it is clearly giving it trouble given his growing unpopularity and divisive messages. If rage drives twitter if it can't grow profit these days it isn't going to fare that well in the future. Twitter knows it needs a subscription or another dependable and growing revenue stream. It just hasn't been able to get one with its business model. Maybe they should buy talk radio stations and stream to divergent groups. This is the problem with their base, it is not a community as much as it is people shouting into the dark looking for only those who agree with them. It is not a healthy base at all, and one that doesn't like being monetized and is likely to hate Twitter as much as it hates what it hates. Raging customers don't make a good client base, just ask your local bar owner.

If anything Twitter needs to attract young positive people and keep attracting and holding them. It needs to grow a new demographic fast before they become a tech has been. This means trying to do better at engaging education which is what everyone is always trying to do since Apple gave away free computers to schools to get kids addicted to their hardware. It is a hard road they must take, but a road they must take and win more than doing anything else. Back to basics Twitter.