0:00:02 – Hi, this is Frank Chen.
0:00:04 Welcome to the A16Z podcast.
0:00:07 Today’s episode is titled Three Ways Startups Are Coming
0:00:11 for Established Fintech Companies and What to Do About It.
0:00:13 It originated as a YouTube video.
0:00:18 You can watch all of our videos at youtube.com/a16zvideos.
0:00:19 Hope you enjoy.
0:00:22 – Well, hi, welcome to the A16Z YouTube channel.
0:00:24 I’m Frank Chen, and today I am here
0:00:27 with one of our general partners, Alex Rampel.
0:00:29 I’m super excited that Alex is here.
0:00:32 So first fact, we both have sons named Cameron.
0:00:33 – We do.
0:00:34 – So affinity there.
0:00:36 And then two, one of the things
0:00:38 that I really appreciate about Alex,
0:00:39 and you can sort of see this
0:00:41 from his young chess playing days,
0:00:46 is he understands fintech and incentives
0:00:48 and pricing backwards and forwards.
0:00:52 And so fintech has this hidden infrastructure
0:00:54 on how do credit card transactions work?
0:00:56 How do bonds get sold?
0:00:58 How are insurance policies priced?
0:01:02 And there’s deep economic theory behind all of these
0:01:04 and Alex understands them all.
0:01:05 So you’re gonna have a fun time
0:01:08 as Alex takes you through his encyclopedia of knowledge
0:01:10 of how these things are put together.
0:01:12 And so excited to have you.
0:01:13 – Yeah, it’s great to be here.
0:01:15 – So what I wanted to talk to you about is
0:01:19 I’m gonna pretend to be in the seat of a,
0:01:21 let’s call it an incumbent fintech company, right?
0:01:26 So I’m a product manager and visa or a Geico.
0:01:30 And I am looking in my rear view mirror
0:01:33 and there are startups in the rear view mirror.
0:01:35 And I’m very nervous that the startup
0:01:39 in the rear view mirror, exactly as the mirror says,
0:01:41 objects in mirror maybe closer than they appear,
0:01:44 is like, wow, they are catching up to me faster
0:01:45 than I really want.
0:01:49 And so I wanna understand like, what are startups doing?
0:01:53 Like how would they mount an attack on me, the incumbent?
0:01:56 And we’re gonna talk about sort of wedges they can use.
0:01:58 And then that’s sort of the first half,
0:02:00 like how are they coming after me?
0:02:02 And then the second half, let’s talk about like,
0:02:03 and what should I do about it?
0:02:05 So that’s sort of the premise for our,
0:02:09 so why don’t we start with the attacks?
0:02:11 Like how would a startup come for me?
0:02:14 And one way they come for me is they come
0:02:16 after my best customers.
0:02:19 – Well, so this is the interesting thing
0:02:21 about financial services in general,
0:02:25 because there’s a sharp television hanging on the wall.
0:02:27 And Sharp knows that they make more money
0:02:30 every time they sell an incremental television.
0:02:33 So more customers equals more money, cause, effect.
0:02:35 And the interesting thing is that for many kinds
0:02:37 of financial services, that is not true.
0:02:39 Because what you’re really trying to do
0:02:41 is assemble a risk pool.
0:02:43 And the best example of this is insurance.
0:02:45 So what is car insurance?
0:02:48 Car insurance has good drivers, okay drivers,
0:02:50 and bad drivers.
0:02:53 And effectively, your good drivers and your okay drivers
0:02:56 are paying you every month to subsidize the bad drivers.
0:02:57 So the same thing goes for health insurance.
0:02:58 You have people that are always sick,
0:03:00 you have people that are always healthy.
0:03:02 And if you are an insurance company
0:03:05 that only provided insurance for very, very sick people,
0:03:07 or if you’re a car insurance company
0:03:10 that only ensures people that get into accidents every day,
0:03:13 there’s no economic model to sustain that.
0:03:16 You actually have to accumulate the good customers
0:03:18 and use them to pay for the bad customers.
0:03:20 And the interesting thing about this is that
0:03:22 from the perspective of the good customer,
0:03:24 it’s not fair.
0:03:26 And I’m not talking morally or philosophically,
0:03:30 but just from a capitalist or economic viewpoint,
0:03:32 it’s like, okay, I want life insurance
0:03:35 and I eat five donuts a day.
0:03:35 I just had a donut today.
0:03:36 I don’t eat five a day.
0:03:40 But I have one donut every Friday as you can testify.
0:03:43 And then I have a friend who goes to the gym five times a day,
0:03:45 never eats a donut.
0:03:47 That guy’s probably gonna live longer than me.
0:03:50 Hopefully not, but probabilistically,
0:03:53 he’s probably going to have a better time than I am
0:03:54 in terms of life expectancy.
0:03:57 So why is it that we both pay the same rate?
0:04:00 And that just seems unfair to him.
0:04:03 It seems great to me because he’s subsidizing me.
0:04:05 – Yep, Jim Guy, subsidizing donut guy.
0:04:06 – Exactly, exactly.
0:04:08 And that seems unfair.
0:04:11 And then the startups can sometimes exploit
0:04:13 that psychological unfairness,
0:04:15 like that feeling of unfairness.
0:04:16 So, and it kind of does two things
0:04:19 because from the big company perspective,
0:04:20 if you were to take away,
0:04:22 think of it as a normal distribution.
0:04:24 So most people are in the middle
0:04:26 and they’re just gonna live whatever
0:04:30 to the average of 79.6 years or whatever it is right now.
0:04:31 Some people are gonna live forever.
0:04:34 They’re the ones that have the olive oil go to the gym
0:04:36 and do whatever it is that they do
0:04:38 that makes them live a long time, great genes.
0:04:40 And then some people are gonna die early.
0:04:43 And from the perspective of the startup,
0:04:44 if you can get all of the people
0:04:47 that are going to live much, much longer,
0:04:49 you’re going to be more profitable.
0:04:50 The same thing for car insurance.
0:04:52 If you can get all the people on the good end
0:04:55 of that distribution curve, you’re going to make money.
0:04:57 And then the nice thing is that
0:04:59 if you’re starting a brand new company and saying,
0:05:01 “Hey, I give you a loan if you can’t get a loan.
0:05:02 “Who’s gonna sign up for that?
0:05:04 “People who might be bad.”
0:05:05 If I say, “I’m gonna give you insurance
0:05:07 “if you can’t get insurance.
0:05:08 “Who’s gonna sign up for that?
0:05:10 “The people that are eating all the donuts.”
0:05:11 And that might not be very good.
0:05:15 So it actually has this nice kind of symbiosis
0:05:17 between if you do it correctly,
0:05:19 you get positive selection bias
0:05:22 and that you establish a new criteria.
0:05:24 Part of that new criteria is based on data,
0:05:26 but part of it is based on psychology.
0:05:28 The psychology is I’m treated unfairly.
0:05:30 I want to be treated more fairly.
0:05:32 That yields a lower price for people
0:05:35 for a pretty demand elastic product.
0:05:37 So I say, “I can get life insurance at half the rate
0:05:38 “because I’m going to the gym.
0:05:39 “That sounds great.
0:05:40 “That sounds fair.”
0:05:41 But to answer your question,
0:05:44 what the incumbent might be left with
0:05:47 is not half of the number of customers.
0:05:48 Like that could be the case.
0:05:50 It could be half the number of customers,
0:05:51 but it could be half the customers
0:05:54 and all of them are entirely unprofitable.
0:05:55 – Right, they took all the profits.
0:05:57 They didn’t have to take all your customers.
0:05:58 They just had to take the good ones.
0:06:00 – Right, so actually, if you just take,
0:06:03 and the funny thing is that because it’s not like
0:06:05 I want to get, “Oh, Geico has X million customers.
0:06:07 “I want X plus one million customers.”
0:06:08 You actually might want one tenth
0:06:10 as many customers as Geico.
0:06:12 Because if you can just get the good ones,
0:06:15 I mean, what if you give people a 50% discount,
0:06:17 not a 15% discount, like Geico always advertises about,
0:06:20 but a 50% discount on their car insurance,
0:06:23 and these are the absolute best drivers in the country,
0:06:26 how many claims do you have to pay out on the best drivers?
0:06:30 You might have to pay out nothing, literally nothing.
0:06:31 And if you have to pay out nothing,
0:06:33 and there are all these mandatory loss ratios
0:06:34 for different insurance industries,
0:06:35 so I don’t want to get into that.
0:06:39 But imagine that unregulated, you can pay out nothing.
0:06:42 Consumers feel like they’re treated very fairly.
0:06:44 They’re rewarded for better behavior.
0:06:48 This begets positive selection and not adverse selection,
0:06:51 then you’re going to have the most profitable lending company
0:06:53 or insurance company in the world,
0:06:55 because it really is a unique industry
0:06:57 where more customers is actually worse
0:07:00 than less but more profitable customers
0:07:03 because each incremental customer is like a coin flip
0:07:04 of profit or loss.
0:07:07 Might generate profit, might generate loss.
0:07:09 And that’s not true for the vast majority of industries.
0:07:11 Like Ford never sells a car saying,
0:07:13 “Maybe we’ll lose money on this customer.”
0:07:14 – Right, right.
0:07:17 They just like, “I need everybody to buy a Ford F-150.”
0:07:20 And if you don’t buy an F-150, I need you to buy.
0:07:22 There’s other thing that said, the expedition or whatever.
0:07:24 – They might lose money on the marginal customer
0:07:26 until they hit their fixed costs.
0:07:28 But they’re never going to have a coin flip
0:07:29 of when they sell the car.
0:07:31 Hmm, maybe we shouldn’t have sold that car,
0:07:33 but that’s what every insurance company has
0:07:34 when they underwrite a policy.
0:07:37 And that’s what every bank has when they underwrite a loan.
0:07:39 – Yeah, so auto insurance companies need to find people
0:07:41 like me, I have this old Prius, right?
0:07:45 First, it’s hugely reliable car.
0:07:47 And then I drive like a grandma
0:07:49 because I’m optimizing for fuel efficiency.
0:07:52 So I rarely go above 65.
0:07:54 And so really safe, I’ve never filed a claim.
0:07:57 They need more customers like me.
0:07:58 And that’s what drives the profits.
0:07:59 – Yes.
0:08:00 – ‘Cause there’s no payouts.
0:08:01 – Well, not only does it drive the profits,
0:08:05 it actually subsidizes the losses.
0:08:08 Because there are a lot of people who are the inverse of you
0:08:09 and you’re paying for those people
0:08:11 and the transfer mechanism is through GEICO.
0:08:12 – Yeah.
0:08:16 I saw an ad in my Facebook feed recently
0:08:17 for HealthIQ and I think they’re doing something
0:08:18 like this too, right?
0:08:20 So the, I think the proposition was,
0:08:22 hey, can you run on my own in less than nine minutes?
0:08:24 Can you bench press your own weight or something like that?
0:08:27 There’s all these like, oh, healthy people.
0:08:29 And is that the mechanism they’re exploiting?
0:08:30 – It’s exactly that.
0:08:32 I would say the first company to probably do this
0:08:36 on a widespread basis in FinTech land was SoFi.
0:08:38 And SoFi said, hey, you’re really smart.
0:08:39 They actually coined this term.
0:08:40 They called it the Henry.
0:08:42 High earning, not rich yet.
0:08:44 Because if you look at how student loans work,
0:08:46 it’s like everybody gets the same price
0:08:48 on their student loan, right?
0:08:49 It doesn’t matter what your major is.
0:08:54 It doesn’t matter what your employment prospects think.
0:08:56 What your employment prospects are,
0:08:57 everybody gets the same rate.
0:09:00 You get this rate, you get this rate, you get this rate.
0:09:01 Because a lot of it is effectively underwritten
0:09:02 by the US government.
0:09:04 And that’s not, so think about it again
0:09:07 from the twin pillars of psychology.
0:09:09 Where, I mean, psychology of the borrower.
0:09:12 Like how come I’m paying the same rate
0:09:14 as that person who’s going to default?
0:09:15 That’s just not fair.
0:09:17 I’m never going to default.
0:09:20 In fact, I’m gonna pay back my student loans early.
0:09:22 So that helped.
0:09:24 And then again, positive selection
0:09:26 versus adverse selection because,
0:09:29 and actually refinance has this concept in general.
0:09:30 Because I would say, if you’re planning
0:09:33 on declaring bankruptcy, or if you’re saying,
0:09:36 I’m going to, I’m gonna join Occupy Wall Street
0:09:38 and never pay back my loans and I hate capitalism,
0:09:40 why would you go refinance?
0:09:41 It just doesn’t make sense.
0:09:42 – Right.
0:09:44 – Because you’re just gonna default.
0:09:44 – Right.
0:09:46 – So if you raise your hand, and actually it’s interesting,
0:09:48 even on the other side, there are a lot of companies
0:09:50 in what I would call the debt settlement space.
0:09:52 And this is something that most people don’t know about.
0:09:55 But if you listen to like some interesting talk radio,
0:09:58 you’ll hear all these ads for debt settlement.
0:09:59 And what is debt settlement?
0:10:01 It’s saying, hey, do you have too much debt?
0:10:05 If you call us, we will negotiate on your behalf
0:10:08 and pay off your debts, and then you just owe us.
0:10:10 And you kind of need this intermediary layer
0:10:13 because imagine that you owe $10,000 to Capital One
0:10:15 and you can’t pay it back.
0:10:16 You call it Capital One.
0:10:18 It says, press one for your balance.
0:10:20 Press two to get a new card mail to you.
0:10:22 Press three if you don’t want to pay us the full amount
0:10:23 and want to pay us less.
0:10:26 Everybody’s gonna push through, right?
0:10:27 – This is why they don’t offer that option.
0:10:29 – They don’t offer that option, nor will they ever.
0:10:34 However, on talk radio, and this is very big in the Midwest,
0:10:37 like you’ll hear, you know, Freedom Financial.
0:10:39 Go call Freedom Financial and we will settle
0:10:40 your debts for you.
0:10:42 So they call Capital One and say, look,
0:10:43 Alex can’t pay you back.
0:10:45 We’ll pay you $2,000 right now,
0:10:47 and then you’re gonna get rid of the loan.
0:10:48 And you’re like, well, we’re not happy
0:10:50 taking 20 cents on the dollar,
0:10:52 but it’s better than zero cents on the dollar, fine.
0:10:53 We’ll take it.
0:10:57 And then you owe Freedom Financial the 20 cents.
0:11:00 But why do they feel comfortable underwriting that?
0:11:03 Because you rose your hand, you said,
0:11:05 I want to get out of debt.
0:11:08 And that’s positive selection bias right there.
0:11:10 Because people who are just deadbeats,
0:11:12 because behind every credit score,
0:11:13 if you think about how that works,
0:11:15 it’s willingness and ability to repay.
0:11:18 And the psychological trait of the willingness
0:11:20 is in many cases as important
0:11:22 as the financial constraint of the ability.
0:11:25 Because if I owe a million dollars to somebody,
0:11:28 and I only make $100 a year,
0:11:29 it doesn’t matter how honest I am,
0:11:31 I can never pay that back.
0:11:33 It doesn’t matter how long I’m gonna live 10,000 years
0:11:34 and I guess I could pay it back.
0:11:36 But otherwise I can’t pay that back.
0:11:38 But the willingness to repay is interesting.
0:11:40 And that’s very important.
0:11:42 And that’s again, this kind of psychological trait
0:11:45 that’s captured in this idea of positive selection.
0:11:46 So what does SoFi do?
0:11:48 They kind of again hit this twin pillar,
0:11:52 which is I want to only get the good customers,
0:11:55 I’m going to reprice them and steal them
0:11:58 from the giant pool that again, normal distribution,
0:12:00 these are the losers, these are the whatever’s,
0:12:03 and these are the people that you have no risk on whatsoever.
0:12:06 Let’s steal all of these people over here.
0:12:07 And it makes them feel good.
0:12:09 It’s a better marketing message.
0:12:11 At least it’s differentiated.
0:12:13 How do you compete with everybody?
0:12:14 It’s like, hey, we’re just like Chase,
0:12:17 but smaller and a startup and not profitable
0:12:20 and you probably shouldn’t trust us, bad marketing message.
0:12:22 Good marketing message is you’re getting ripped off.
0:12:26 We’re going to price you fairly, come to us.
0:12:29 So if I did this for lending.
0:12:30 – And what a health IQ do?
0:12:32 – So a health IQ did this for health,
0:12:33 really for life insurance.
0:12:35 So they started off with a health quiz
0:12:38 because I mean, it seems almost self-evident
0:12:40 that healthy people are health,
0:12:42 I mean, it’s a tautology,
0:12:44 like healthy people are healthier than not healthy people,
0:12:47 but can you actually prove this
0:12:48 from a life expectancy perspective?
0:12:50 So they started off with just recording data
0:12:53 and then building a mortality table.
0:12:56 And it turned out that what I would assume
0:12:59 is a prima facie case turned out to actually be correct,
0:13:01 which is these healthier people do live longer
0:13:03 than not healthy people.
0:13:06 And then they turn that into both a positive selection
0:13:07 advertising campaign,
0:13:09 which differentiated them from a brand perspective,
0:13:12 but also left them more profitable.
0:13:13 So what they do is they say, yeah,
0:13:16 can you run a nine or an eight minute mile?
0:13:19 Can you do these things to prove
0:13:21 that you’re better than everybody else?
0:13:22 And why is that important?
0:13:24 Well, from their own balance sheet
0:13:25 or profitability perspective,
0:13:27 they want to get these good customers
0:13:30 versus a brand new life insurance company
0:13:32 that said, hey, life insurance takes too long to get,
0:13:34 it’s a big pain and it’s expensive,
0:13:36 we’ll underwrite you on the spot in one minute,
0:13:39 no blood test, that’s gonna be adverse selection.
0:13:42 That’s like, ooh, I think I’m gonna die soon.
0:13:44 I want to get, everybody rejected me for life insurance,
0:13:45 I’m going to that company.
0:13:48 As opposed to here, they’re only getting the customers
0:13:50 that kind of hit,
0:13:52 that think they’re gonna hit the underwriting standard,
0:13:53 which is great.
0:13:55 They think it’s fair.
0:13:57 So it’s a differentiator from a brand perspective.
0:14:00 And then it turns out that, again,
0:14:02 each marginal customer in insurance
0:14:03 is kind of a coin flip.
0:14:05 They’re getting a weighted coin
0:14:06 because they’re only getting people
0:14:09 on the far right side of this normal distribution.
0:14:14 – So wedge number one is exploit psychology, right?
0:14:16 Positive selection rather than negative selection
0:14:18 and what you’ll end up with
0:14:20 because of this sort of unique dynamic
0:14:21 of the FinTech industry
0:14:24 is you’ll end up with the most profitable customers.
0:14:25 What’s wedge number two?
0:14:27 We’re gonna talk about sort of new data sources
0:14:29 and what startups can do
0:14:31 to sort of price their products smarter than incumbents.
0:14:36 – Right, so imagine that you have a group of 100 people
0:14:38 and of the 100 people,
0:14:40 half of them are not going to pay you back.
0:14:43 So think of this as the old combinatorics problem
0:14:44 of bins and balls.
0:14:46 So you’ve got this giant ball pit,
0:14:48 you scoop up 100 balls in your bin
0:14:50 and half of them are going to be bad,
0:14:53 half of them are going to be good.
0:14:56 So what’s a fair rate of interest if you’re a lender,
0:14:59 that you have to charge this whole bin
0:15:01 if half of them are going to default
0:15:03 and you assume that you can’t lose money?
0:15:05 The answer is going to be 100%.
0:15:08 – Oh right, because half of them you have to make up
0:15:09 for all the deadbeats.
0:15:10 – So half of them, you lose all of your money,
0:15:12 half of them you double your monies,
0:15:13 you’re back to square one.
0:15:14 – Now you’re even.
0:15:15 – Now you’re even.
0:15:18 So the problem is that that’s not good
0:15:19 because well in the United States
0:15:21 you can’t charge 100% interest.
0:15:24 It’s called usury, there are other parts of the world,
0:15:28 again, illegal, step one, Europe, so that’s a problem.
0:15:32 But what if you can use different data sources to,
0:15:36 again, it’s not positive versus adverse selection
0:15:38 as in some of the insurance companies,
0:15:41 but it’s saying can I collect more forms of data
0:15:43 so that instead of saying the only way
0:15:45 that I can make my operation work
0:15:46 is to charge an interest rate
0:15:49 which actually turns out to be illegal,
0:15:51 can I come up with more data sources
0:15:53 that effectively, even though discrimination
0:15:55 sounds like a terrible word,
0:15:57 and it’s normally used in that construct,
0:15:59 if you discriminate against criminals that’s fine.
0:16:01 I mean some of the people that try to take advantage
0:16:04 of lenders are actual organized crime.
0:16:05 You don’t want them in your bin,
0:16:06 you want to throw them out.
0:16:09 How do you take more data sources
0:16:11 and actually start measuring this?
0:16:12 And the interesting thing here,
0:16:13 and it’s somewhat unfortunate,
0:16:17 but you have a giant market failure happening
0:16:18 in many different regions of the world
0:16:19 because in the United States,
0:16:21 like the top interest rate that you can charge,
0:16:22 it’s regulated on a state by state basis,
0:16:25 but Utah has a 36% usury cap,
0:16:28 so a lot of people export that cap.
0:16:30 That’s a lot less than 100% that I was mentioning.
0:16:32 And there are lots of ways of kind of gaming that system
0:16:34 and you charge late fees and you charge this fee,
0:16:36 so it actually might end up looking more like 100
0:16:39 or 200%, but so you can charge more than 36%.
0:16:42 And then you actually can’t use certain types of data
0:16:44 if they are prone to having an adverse impact.
0:16:46 So if you think about how machine learning works,
0:16:47 I always kind of describe it
0:16:50 somewhat oversimplistically as linear algebra,
0:16:53 where I have, here’s every user that I’ve ever seen,
0:16:55 here’s every attribute that I’ve ever measured,
0:16:57 and what I’m looking for is like strange correlations
0:16:59 that I can’t even explain.
0:17:01 So I’m gonna ask you,
0:17:02 I’m not even gonna ask you a lot of these things,
0:17:04 it’s like, how long did you fill out this field for
0:17:06 on my loan application?
0:17:08 Did you enter all caps or not all caps?
0:17:09 Just all of these different things.
0:17:11 – Did you take the slider on how much do you want
0:17:12 and jam it all the way to the right?
0:17:13 – Right, all of these things.
0:17:16 – I can ask you, do you have a pet or not?
0:17:16 That might be interesting.
0:17:18 I don’t know if that’s a leading indicator
0:17:20 of default or not, but I wanna collect
0:17:21 all these different variables,
0:17:22 and then at the end of the day,
0:17:24 I’m going to see default or not default.
0:17:26 That’s the output, and then I’m going to see
0:17:27 what’s correlated with that.
0:17:29 And it’s a little bit of this, it’s a little bit of that,
0:17:31 I can’t explain it, but the computer can’t.
0:17:33 Now the problem is that in the United States,
0:17:35 you actually can’t do this,
0:17:37 because it might have an adverse impact.
0:17:39 And what does an adverse impact mean?
0:17:42 There actually was outright and terrible discrimination
0:17:44 in lending in the United States,
0:17:46 where there’s unfortunately terrible discrimination
0:17:47 in many things in the United States,
0:17:50 but lending was one of several or one of many.
0:17:54 So imagine that I said, are you married or not?
0:17:57 Oh, you’re not married, I’m not gonna make you alone.
0:17:59 Well, that’s illegal now.
0:18:00 Are you this race?
0:18:01 Oh, I’m not going to make you alone.
0:18:02 Well, that’s illegal now.
0:18:03 So what did people do to get around,
0:18:06 the people that were actual racists,
0:18:08 or actual, like maybe they weren’t racist
0:18:09 or discriminatory at heart,
0:18:11 but they were picking up on cues.
0:18:13 They’d say, oh, what part of town do you live in?
0:18:15 Well, you live on that part of town.
0:18:19 Well, that’s like 100% correlated with this race,
0:18:20 or this gender, or this, that.
0:18:22 I’m not going to make you alone.
0:18:23 So the law was strengthened,
0:18:26 so there’s a law called Fair Lending in the United States.
0:18:27 And then one of the components of it
0:18:30 is this idea of called adverse impact.
0:18:31 And it’s different than adverse selection.
0:18:34 It’s saying, I don’t care what you said you did
0:18:38 for why you rejected Frank for a loan.
0:18:41 If it turns out that everybody in your reject pile
0:18:45 has a disproportionate gender ratio, race ratio,
0:18:46 something like that,
0:18:49 I’m going to assume that you’re underwriting standards
0:18:50 or having an adverse impact.
0:18:53 So you as a bank couldn’t say,
0:18:55 hey, look, I asked him if he had cats.
0:18:58 And I’m using that to make the loan decision.
0:18:59 If it turned out that having cats
0:19:04 was correlated with being in particular race,
0:19:09 they couldn’t use the cat’s answer to deny you a loan.
0:19:10 – Correct, because that was,
0:19:12 and in all fairness to the law,
0:19:15 this is what people use with your geography.
0:19:16 What zip code do you live in?
0:19:18 Oh, you live in that zip code?
0:19:21 100%, you were a member of this particular race,
0:19:23 and the intent all along was to discriminate
0:19:25 against people of that particular race.
0:19:28 But now instead of using loan officers that use,
0:19:30 God knows what to decide.
0:19:31 Do I want to make you the loan or not?
0:19:33 You’re using a computer, you can look at the code.
0:19:35 So I think there is a lot of,
0:19:38 there are some anachronistic laws
0:19:39 that have to catch up here,
0:19:42 but let’s take an area outside of the US
0:19:44 to answer your question,
0:19:47 where perhaps you don’t have interest rate caps,
0:19:49 because the thing that a lot of people say,
0:19:51 oh, 200% interest is terrible.
0:19:55 500%, that sounds awful, you should go to jail for that.
0:19:56 But what does APR mean?
0:19:59 APR stands for annual percentage rate.
0:20:01 And what if I’m giving you a four day loan?
0:20:04 So I say, okay, I’m gonna loan you $9 right now.
0:20:07 You don’t look very trustworthy.
0:20:09 I want you to pay me back $10 on Monday.
0:20:11 – Yeah, that doesn’t sound so bad.
0:20:13 – Yeah, it’s like, you’re gonna pay me a dollar.
0:20:16 But what is that on an APR basis?
0:20:19 That’s like 9,000% made that up.
0:20:20 But it’s probably about that, right?
0:20:23 Because it’s 10% every four days, or every three days,
0:20:25 10% every three days, and that cumulates.
0:20:28 Like that’s a lot of money or a lot of interest
0:20:31 on an APR basis, but it’s the wrong metric
0:20:33 because effectively it’s like trying to figure out
0:20:37 what your marathon time is based on your 100 meter dash.
0:20:40 Like the winning marathon time would be an hour.
0:20:41 And that’s not true.
0:20:42 We know that nobody can run on that,
0:20:44 two hour marathon right now.
0:20:45 Yeah, so maybe Angela can.
0:20:46 – Maybe Angela.
0:20:50 – So there’s a company that we invested in called Branch.
0:20:52 And what they’re doing is they just collect
0:20:54 every form of data possible.
0:20:57 And they look for these strange correlations.
0:21:00 And the interest rates on an APR basis might be high,
0:21:02 but they’re really charging like a dollar.
0:21:04 – And these are small loans, right?
0:21:05 – Very, very small loans.
0:21:07 So I loan you, and actually the other interesting,
0:21:09 like one of the nice data points
0:21:11 that they’re accumulating over time
0:21:15 that is a really interesting idea, I think.
0:21:16 It’s not new.
0:21:18 In fact, it’s almost back to the future old
0:21:19 where they loan you a dollar.
0:21:20 If you pay it back, they loan you $2.
0:21:22 If you pay it back, they loan you $4.
0:21:24 If you pay it back, they loan you $10.
0:21:26 And they ladder up your credit
0:21:29 and they keep that information proprietary to them.
0:21:33 Because induction turns out to be a pretty good formula
0:21:36 for figuring out not so much the ability to repay,
0:21:37 but the willingness to repay.
0:21:40 You’ve established a pattern of willingness to repay,
0:21:43 but they also look at where were you today.
0:21:46 And again, you provide all this information
0:21:47 in order for them to crunch this,
0:21:49 in order for them to give you a loan
0:21:50 at ideally a lower rate.
0:21:51 Because the more information,
0:21:53 because it’s kind of twin pillars, right?
0:21:55 The less information we have,
0:21:57 the higher the rate that we have to charge.
0:21:58 Not because we’re evil,
0:22:00 but because otherwise you’re gonna have a market failure.
0:22:01 Like you have in lots of-
0:22:02 – You have the bin ball problem, right?
0:22:03 – Exactly. – Because you have no idea
0:22:04 how many deadbeats.
0:22:05 – Exactly.
0:22:07 And if I don’t have any idea,
0:22:08 I either have to charge a high rate
0:22:10 or not charge anything at all.
0:22:11 And not charge anything at all
0:22:13 doesn’t mean like everybody gets a 0% loan.
0:22:14 It means I don’t make any loans.
0:22:16 And like both of those are bad outcomes.
0:22:19 The better outcome is you accumulate more data
0:22:21 and you figure out here are the good people,
0:22:23 let me not accept the bad people.
0:22:25 Because again, the way that the good people
0:22:27 end up paying more money
0:22:29 is if the company starts accepting more bad people
0:22:32 because it goes back to what I said at the beginning,
0:22:35 which is more customers in this unique industry
0:22:38 often is bad if you don’t understand
0:22:40 how to select them correctly.
0:22:42 And for many of these new fangled lending
0:22:43 and insurance companies,
0:22:46 the default customer is going to be adversely selected
0:22:47 because if you’re a new lender
0:22:49 and you have no underwriting standards,
0:22:53 you’re basically advertising free money never pays back.
0:22:54 And those are the people that will be attracted to you,
0:22:57 both the criminals and the non criminals in droves.
0:23:01 – Yeah, so this is sort of startup attack wedge number two,
0:23:03 which is I’m going to generate a new data source
0:23:06 that allows me to price my product in a way
0:23:09 or reach a customer that a traditional company
0:23:11 would never even try or they don’t have the data source
0:23:13 or they have the bid and ball problem.
0:23:16 So what are the types of data that branch went to go get
0:23:17 to try to figure out,
0:23:19 should I give you a loan of a dollar or two?
0:23:21 – Well, the other type of data,
0:23:23 so branch was somewhat unique
0:23:27 in that they said we’re going to get data from your phone.
0:23:29 And it seems odd.
0:23:33 He’s like most lenders in the developed world
0:23:35 or not developed versus undeveloped,
0:23:37 it’s really like with developed credit infrastructure.
0:23:39 – Yeah, if there’s a credit bureau.
0:23:41 – They look up your credit report, if it’s good,
0:23:43 they make you a loan, if it’s bad, they don’t make you a loan.
0:23:45 It’s actually not that hard.
0:23:47 And there are all sorts of nuances that you can layer on top,
0:23:49 but this is how it’s been working for a long time
0:23:51 in the United States as an example.
0:23:55 Whereas there, it was like, okay, where did you work today?
0:23:57 Did it look like you worked today?
0:23:59 So it was stuff like that
0:24:01 and even like how many apps do you have on your phone?
0:24:04 Like weird stuff that you would never assume
0:24:07 actually has any kind of indication
0:24:09 of willingness or ability to repay,
0:24:10 but in many cases it does.
0:24:12 Like are you gambling?
0:24:14 Well, if you have a gambling app on your phone,
0:24:17 you’re probably gambling, maybe that’s good.
0:24:18 Yeah, maybe it’s bad.
0:24:20 It’s actually not making human judgments.
0:24:21 And it’s also not looking at any one
0:24:24 of these unique variables as a unique variable.
0:24:26 It’s looking at them in concert
0:24:29 and then correlating them with these outcomes
0:24:31 or really observing the outcomes
0:24:33 and then linking them back to all of these different inputs.
0:24:35 – Yeah, I remember talking to the team
0:24:38 when I was researching my last machine learning presentation
0:24:41 and the fascinating things that I found were
0:24:45 if you’ve got more texts than you sent,
0:24:46 you were more credit worthy.
0:24:47 If you had the gambling app,
0:24:49 you were more credit worthy rather than less,
0:24:52 which is not kind of what you would expect.
0:24:54 If you burned through your battery,
0:24:56 you were more likely to default, right?
0:24:59 So like all of these things where human alone officers
0:25:02 would never really guess,
0:25:03 and they probably would guess the wrong way.
0:25:05 – Right, because many of them are counterintuitive.
0:25:08 And then many of them are not, they’re not unilateral.
0:25:10 Like so it’s not just, I mean, I don’t know,
0:25:12 but it’s not just the battery thing,
0:25:14 it’s the battery thing with this, with that, with that.
0:25:15 – It’s the combinations.
0:25:17 – And it’s like humans can only really observe
0:25:20 three dimensions plus time, so I guess four,
0:25:23 and these are 9,000 dimensional problems.
0:25:25 So it’s just, it’s much, much more challenging
0:25:27 for humans to really grok.
0:25:28 – Yeah, got it.
0:25:31 So that’s the sort of the second category of attack,
0:25:33 which is you generate a new data source
0:25:36 and then that allows you to price or find customers
0:25:38 in sort of a more cost effective way.
0:25:40 Let’s talk about the third,
0:25:45 which is around sort of fundamentally changing behavior.
0:25:47 So why don’t you talk about,
0:25:49 maybe Ernie is a good example of this?
0:25:52 – Yeah, so if you assume that humans are static,
0:25:55 so they’re born, both of our cameras were born,
0:25:58 and their DNA is set upon birth.
0:25:59 Maybe it changes a little bit with some mutations
0:26:01 from some gamma rays here and there,
0:26:03 but it’s set upon birth,
0:26:05 and then human behavior never changes.
0:26:06 And that’s one way of looking at things.
0:26:08 And then you think about adverse selection
0:26:09 versus positive selection.
0:26:11 Good drivers are always good drivers.
0:26:12 Bad drivers are always bad drivers.
0:26:14 Let’s just get the good drivers.
0:26:16 So the other category,
0:26:17 and it’s not to say that these other two groups
0:26:18 don’t do this,
0:26:20 but if I look at a company like Ernie,
0:26:24 most payday lenders are reviled
0:26:25 because they charge high fees,
0:26:29 they don’t educate their borrower very well.
0:26:31 Now it actually provides a valuable service
0:26:33 because if I’m getting paid next Friday,
0:26:36 but my rent is due today and I don’t have money,
0:26:37 do I want to get evicted?
0:26:41 No, I want to get paid right now,
0:26:43 and the only person that does this is the payday lender,
0:26:46 but the payday lender is competing with other payday lenders
0:26:49 for advertising in the local newspaper or something,
0:26:51 and if they’re able to rip me off more,
0:26:52 not because they’re evil,
0:26:55 but because they have to afford the advertising spot,
0:26:56 they’re now ascended to do so.
0:26:59 So it’s just, it’s a vicious cycle.
0:27:00 So let’s talk about Ernan.
0:27:02 So what Ernan does is they say,
0:27:05 okay, we know that you’ve worked this long.
0:27:09 So again, new data source because the phone’s in your pocket
0:27:12 and you work at Starbucks and you’re getting paid hourly
0:27:13 and we’ve seen the phone in your pocket
0:27:16 or in your locker in the Starbucks office
0:27:19 and you’re by the barista counter for eight hours.
0:27:21 So you worked, we saw your last paycheck,
0:27:22 hit your bank account,
0:27:24 we know that that’s where you work,
0:27:25 we’re not taking your word for it,
0:27:27 we have real-time streaming information about this,
0:27:33 and now we will give you your money whenever you want.
0:27:35 Not money that you haven’t earned yet,
0:27:36 but money that you have earned,
0:27:38 but you actually haven’t gotten paid for yet.
0:27:41 And then you can tip us, there’s no cost.
0:27:44 If you want, you can get us– – No interest, no fee, no–
0:27:45 – If you want to pay us nothing, that’s fine.
0:27:47 I mean, we would appreciate if you pay us something
0:27:49 because obviously we’re providing valuable service for you.
0:27:52 And then you can even give tips for your friends,
0:27:54 there’s this community that’s really emerged
0:27:55 of people on Ernan.
0:27:57 And actually, if you look back at different business model,
0:28:00 but this idea of microfinance in general,
0:28:04 so if you think about Mohammed Yunus and what he did,
0:28:07 this idea of can you encourage people
0:28:11 to pay back loans using social pressure.
0:28:13 So again, not adverse selection versus positive selection,
0:28:16 but actually trying to force everybody
0:28:18 down positive behavior.
0:28:20 – Let’s get the community to encourage repayment.
0:28:24 – Right, because then saying,
0:28:27 or let’s get the community to encourage people
0:28:29 actually driving safely.
0:28:33 Because there’s underwriting at the time of admission,
0:28:36 there’s underwriting based on ongoing behavior.
0:28:38 So like many of the car insurance companies
0:28:41 that are brand new are saying we will re-underwrite you.
0:28:44 Like, yeah, if you drive like Frank when you signed up,
0:28:48 great, but now you switched into like race car driver mode
0:28:49 and you were trying to hack us,
0:28:52 but we’re actually monitoring your speedometer at all times.
0:28:53 So guess what?
0:28:54 You got a higher rate now.
0:28:57 So that might encourage you to drive safely.
0:29:00 If I’m Frank and I drive safely in my Prius,
0:29:03 but then I decide and then I got a really good rate
0:29:05 on my car insurance as a result.
0:29:07 And now I’m like, aha, I game the system.
0:29:10 Now I’m going to drive like a maniac.
0:29:12 Well, the nice thing is that you can make
0:29:14 underwriting dynamic and you can say, all right,
0:29:17 we’re actually going to re-underwrite you every day.
0:29:18 So we had the positive selection
0:29:20 to try to attract the Franks.
0:29:24 We have the continuous evaluation to try to encourage
0:29:27 the right behavior post Frank sign up
0:29:30 and also to stop the gamification of it’s like,
0:29:33 I’m gonna pretend to be safe and then be like a maniac.
0:29:35 But then how do you actually get?
0:29:38 What if Frank was a bad driver initially,
0:29:42 doesn’t fall into my positive selection loop,
0:29:47 but I still want to try to make Frank a better driver.
0:29:48 – If I could turn him into a good driver,
0:29:49 he’d be profitable.
0:29:52 – Right, so because that’s the flaw
0:29:55 with kind of wedge one and wedge two
0:29:57 of like creaming the crop, really wedge one,
0:29:58 which is we’re going to cream the crop.
0:29:59 We’re going to do what SoFi did.
0:30:00 We’re going to do with health IQ.
0:30:03 I mean, it’s a great strategy,
0:30:07 but the rest, again, if you assume that it’s all nature
0:30:08 and there’s no nurture,
0:30:10 then perhaps there’s nothing you can do.
0:30:13 But if you can actually try to nurture better behavior,
0:30:17 you actually see better, you do see better behavior
0:30:19 and then the profitability goes up.
0:30:21 So, and the interesting thing there
0:30:24 is that you’re still finding mispriced customers,
0:30:26 but you’re actually helping turn them
0:30:28 into correctly priced customers.
0:30:31 So somebody like a bank would turn away that customer
0:30:33 and say, we don’t want them
0:30:37 because they have a 500 FICO, which is really bad.
0:30:39 And then you have to figure out,
0:30:42 and as with all of the new startups
0:30:43 that are saying we only want the best customers,
0:30:46 we want to leave the banks with the bad customers,
0:30:48 but it’s kind of the twin pillars of
0:30:52 can you identify something that’s below that credit score
0:30:54 or below that driving score or something,
0:30:56 and then can you encourage positive change?
0:30:58 And if you can, then you can start actually
0:31:02 creaming the crop of the bottom half of the customers,
0:31:02 right, not even the bottom half.
0:31:04 It’s the customers that are just neglected
0:31:06 because nobody wants to underwrite them.
0:31:09 And then you do that, you take them on
0:31:12 because you have a secret to change their behavior.
0:31:14 – Right, you’re seeing a lot of companies
0:31:18 that sort of are using behavioral economics research
0:31:22 to figure out how do I nudge people into better behavior.
0:31:23 And so this would be an example
0:31:26 of how you’re trying to change behavior
0:31:28 to get the profitable customer.
0:31:31 – Right, so there is one company
0:31:33 in the lending space a while ago called Vouch.
0:31:35 I think ultimately it didn’t work,
0:31:38 but when you apply for a loan,
0:31:41 it actually kind of taps your social network
0:31:44 and it requires that they do a reference for you.
0:31:45 Either a reference in terms of like,
0:31:49 yes, Frank is a good customer, you can trust him.
0:31:52 And even kind of a co-commit.
0:31:56 So I’m getting a loan for $1,000 and you say,
0:31:59 yeah, Alex is okay, or I’m saying Frank is okay.
0:32:01 And if he doesn’t pay you back,
0:32:05 I will put $100 in, because that’s how confident I am.
0:32:07 And it’s not all 1,000, but it’s 100.
0:32:11 And then you’re my friend, I go bowling with you.
0:32:13 We go take our cameras out together.
0:32:16 And if you don’t pay back this $1,000
0:32:19 to this kind of faceless, large, evil corporate entity,
0:32:21 not really, but if you don’t pay that back,
0:32:23 I’m on the hook for a hundred bucks.
0:32:25 I’m not going bowling with you anymore.
0:32:27 So there are other things that are really interesting
0:32:30 to try to encourage the correct form of behavior.
0:32:33 And actually, part of it is just making it personal.
0:32:35 Like this was the whole Eunice theory,
0:32:37 which is if you are kind of held accountable
0:32:41 by your peers, that is so much more powerful
0:32:44 than getting a collections call from Citibank.
0:32:46 Like you’re like, ooh, that’s the collections never,
0:32:48 iPhone block, done.
0:32:50 But how am I going to block my friends out?
0:32:53 If Alex calls me and says you really got to pay
0:32:55 that loan back, otherwise I’m out a hundred bucks, right?
0:32:56 That’s much more powerful.
0:32:58 I mean, this has worked great for a lot of health
0:32:59 in a different domain, right?
0:33:03 Which is if you are trying to get a pre-diabetic patient,
0:33:06 not to get diabetes, the most effective thing to do
0:33:08 is lose something like six or 7% of your body mass.
0:33:11 And the way they do it is they get you into a group.
0:33:14 They mail everybody a scale.
0:33:16 Everybody sees your weight in the morning, right?
0:33:18 Like that’s a powerful motivator.
0:33:20 – Yeah, I mean, this stuff, psychology is very powerful.
0:33:24 So there are a lot of tricks that you can use here.
0:33:27 And if you understand the impact of them,
0:33:29 you actually have to reassess your entire branding
0:33:31 and customer acquisition strategy, right?
0:33:32 – Right, right.
0:33:35 All right, so remember I opened up pretending
0:33:38 to be the product manager at Visa.
0:33:41 And now we’ve gone through all of these three categories
0:33:42 of how the startups are coming for me.
0:33:45 And like, I’m starting to sweat here, right?
0:33:47 They can come get my best customers.
0:33:48 They can generate new data sources
0:33:50 that like I would have a hard time doing.
0:33:53 They can actually even go after sort of worse customers,
0:33:54 change their behavior,
0:33:56 turn them into profitable customers.
0:33:57 I’m scared now.
0:33:59 Like what in the world should I do?
0:34:02 Like you’re in my seat, you’re the head of innovation
0:34:04 or head of strategy or head of digital
0:34:06 at one of these big FinTech companies.
0:34:10 What should I do with respect to startups?
0:34:11 – Well, I think it’s actually very hard
0:34:13 for a company that’s trying to be all things
0:34:15 to all customers.
0:34:16 Because if you look at what SoFi is,
0:34:18 look at SoFi’s brand.
0:34:20 Brand is, you know, we are the high,
0:34:21 like if you’re great, you’re good enough for us.
0:34:22 – If you’re Henry, right?
0:34:24 – If you’re a Henry, you’re good enough for us.
0:34:25 Health like you.
0:34:27 If you’re healthy, you’re good enough for us.
0:34:30 So on that sector of the curve,
0:34:33 how does GEICO say, hey, if you’re a good driver,
0:34:35 go to this special part of GEICO.
0:34:37 If you’re a regular driver, you still save 15%.
0:34:40 If you’re a bad driver and you had a DUI,
0:34:41 well, we can cover you over here.
0:34:46 It’s just, it’s lost in this kind of giant GEICO,
0:34:48 you know, GEICO marketing message.
0:34:52 So in many cases, it actually helps to have sub-brands
0:34:55 and divide this up, which is somewhat anathema
0:34:56 to a lot of companies that want to say,
0:34:59 how do we get as much efficiency and synergy as possible?
0:35:01 We’re gonna have one overarching brand.
0:35:03 And, you know, one of my favorite examples
0:35:04 of this kind of different industry,
0:35:07 but the highest end of the highest end of jewelry
0:35:08 is Tiffany and Co.
0:35:10 Or one of the highest end of the highest end.
0:35:13 And for a long time, it was owned by Avon.
0:35:14 – No, really?
0:35:15 – You know, the Avon lady, Avon.
0:35:19 So, and if Avon bought Tiffany, which they did,
0:35:20 and they said, okay,
0:35:23 we’re gonna rebrand Tiffany and Co as Avon,
0:35:25 like that doesn’t work.
0:35:27 Like you’re not gonna get, you know,
0:35:30 80% gross margins on whatever they sell at Tiffany and Co.
0:35:33 – Prefisted Avon’s just doesn’t have quite the right ring.
0:35:34 – It doesn’t work.
0:35:36 And then for Avon to say, okay, you know,
0:35:39 the door-to-door salesperson or sales lady
0:35:41 with the pink Cadillac that’s going around,
0:35:45 like we’re now going to have her push $2,000 bracelets
0:35:48 as opposed to the normal $10 fare,
0:35:49 like that’s not gonna work either.
0:35:51 But it actually can make sense
0:35:54 if you want to just appeal to more customers,
0:35:55 you have different brands
0:35:57 and you don’t wanna all suck them together.
0:35:59 So you can imagine instead of having, you know,
0:36:01 Geico could be your generic brand,
0:36:03 but then you could have,
0:36:04 I think I mentioned this to you once before,
0:36:05 a friend of mine is Mormon,
0:36:07 doesn’t drink alcohol,
0:36:10 and says we should have Mormon insurance for cars
0:36:11 because it’s just totally unfair.
0:36:13 Again, going back to the psychology point,
0:36:16 like why is it that I’m paying for the drunk idiot
0:36:17 that goes through the stop sign,
0:36:20 I don’t drink, I can prove that, I will never drink,
0:36:21 I have a million friends just like me
0:36:22 that will never drink,
0:36:23 we should all get car insurance,
0:36:25 we should all get a 40% lower rate.
0:36:28 Do they think of Geico when they go there?
0:36:29 Maybe they could,
0:36:32 but it could be like Mormon car insurance,
0:36:33 or something, I’m not good at branding,
0:36:35 but you could have a separate brand
0:36:37 for all of these separate subgroups
0:36:40 and have the same underlying infrastructure
0:36:41 behind all of them,
0:36:44 but again, part of this is just how do you brand
0:36:45 and how do you market effectively?
0:36:48 Because if you look at the efficacy of health IQ ads,
0:36:50 or the efficacy of SOFI ads,
0:36:51 they’re so much higher,
0:36:53 because again, you have this large group of people,
0:36:56 or in many cases small but valuable groups of people,
0:36:58 that feel like they’re being treated unfairly.
0:37:01 So yeah, Geico is save 15% on auto insurance,
0:37:03 click here.
0:37:08 Mormon car insurance advertised to LDS members in Utah,
0:37:11 shooting fish in a barrel,
0:37:13 that’s gonna have a dramatically higher click rate,
0:37:14 and then many of these products
0:37:16 are also very demand elastic.
0:37:19 So I’m not saying save 15% on car insurance,
0:37:22 I’m saying save 80% on car insurance,
0:37:24 it’s very easy to do, click here,
0:37:26 positive selection bias,
0:37:28 that’s gonna work better than like Geico,
0:37:30 but we also have something for Mormons too.
0:37:31 – Right, yeah.
0:37:34 The goal is to find the LDSers and the hyper-myelors
0:37:36 who are really safe, et cetera, et cetera, right?
0:37:38 And so it’s very counterintuitive,
0:37:39 because if you’re at a big company,
0:37:40 you’re thinking scale,
0:37:42 how do I get the next increment
0:37:44 of revenue growth or profit,
0:37:46 and you’re saying actually go the other way,
0:37:48 don’t try to make your single brand bigger,
0:37:50 try to think about a dozen sub-brands,
0:37:54 each going after sort of the perfect market for them.
0:37:57 How do you positively select into a sub-market?
0:37:59 – Well the other side effect of this is that,
0:38:02 part of the asymmetric warfare
0:38:03 that some of the startups have,
0:38:05 is that if you wanted to kill Geico,
0:38:08 you wouldn’t steal 100% of their customers.
0:38:10 I mean if you did that, that would almost be too obvious,
0:38:12 you’d steal 20% of their customers,
0:38:14 but only the good ones.
0:38:17 So imagine that Geico could actually devolve or evolve,
0:38:19 depending on your point of view, into 10 sub-brands.
0:38:21 There’s no more Geico,
0:38:24 but it’s just like the 10 sub-brands basically select
0:38:25 for the right types of customers,
0:38:29 or even help judge and improve behavior
0:38:31 from other subsets of customers,
0:38:35 and then expel the 30% that are just bad news.
0:38:38 And if you can expel the 30% that are bad news,
0:38:41 you might say okay, well all of this dis-sinergy
0:38:43 of going from one brand into 10 sub-brands,
0:38:45 well that was idiotic.
0:38:46 Because now I have fewer customers,
0:38:47 but actually no it isn’t.
0:38:49 Because you might have fewer customers,
0:38:50 but it’s not like selling widgets.
0:38:52 You’re selling probabilistic widgets,
0:38:55 where in many cases you have negative gross margin
0:38:57 when you sell a widget.
0:38:58 So it’s important to figure out,
0:39:02 how do I get the good ones, keep the good ones,
0:39:04 and then get rid of the bad ones.
0:39:06 – Yeah, so that’s one strategy,
0:39:10 which is sort of sub-brands and sort of customer segmentation.
0:39:13 What if I’ve been told by main management team,
0:39:16 go find a bunch of startups to work with, right?
0:39:18 Sort of somehow figure out a marketing
0:39:23 or co-selling relationship so that we can start experimenting
0:39:24 with some of these new models,
0:39:26 and we can keep an eye on the startup community
0:39:29 so that maybe we can put ourselves in the best place
0:39:31 to buy them if it turns out working.
0:39:33 Is there a way to do that?
0:39:34 – Well there are many ways to do that.
0:39:37 Probably the easiest way that is often counterintuitive
0:39:39 for a lot of big companies is I call this
0:39:41 the turn down traffic strategy.
0:39:44 So Chase turns down a lot of people for loans,
0:39:47 either because, again, it’s the bin and ball problem
0:39:50 where it’s like, well, you might be good, you might be bad.
0:39:51 Sometimes it’s not even that.
0:39:52 It’s like, we think you’re good,
0:39:56 but we just can’t profitably underwrite a $400 loan.
0:39:58 But Chase has all the traffic.
0:39:59 So what is turn down traffic?
0:40:02 It’s saying, okay, we rejected you.
0:40:04 Hey, here’s a friend that you might like.
0:40:05 So this is not cream of the crop.
0:40:08 This is the bottom tier on the ingestion point
0:40:12 for a big financial institution saying we don’t want you,
0:40:14 which kind of is kind of a mean thing to say.
0:40:17 A way to ameliorate that potentially is saying
0:40:19 we don’t want you because we’re not smart enough to,
0:40:22 hey, sorry, we’re working on it.
0:40:23 All our systems are down.
0:40:25 But here’s a great startup that does.
0:40:27 Now why would you send customers to a startup?
0:40:29 Well, the number one thing,
0:40:32 that Geico spends $1.2 billion a year on advertising.
0:40:34 It’s really hard to compete with that from a,
0:40:37 so if I could not spend a dollar of advertising
0:40:42 but give 90% of my net income to Geico as a startup,
0:40:43 I still might make that trade.
0:40:44 I mean, we don’t always like this
0:40:45 because we wanna see do you have
0:40:47 your own acquisition strategies,
0:40:49 your own acquisition channels,
0:40:51 you’re not dependent on the big company.
0:40:52 But from the big company’s perspective,
0:40:55 turn down traffic is often brilliant.
0:40:57 Because it’s saying here’s somebody
0:40:59 that knows how to underwrite better than we do
0:41:01 or more profitably than we do,
0:41:03 we’re going to send our customers,
0:41:05 otherwise what happens?
0:41:07 And this is what I think Amazon got right
0:41:10 in an era where everybody else got this wrong.
0:41:12 Amazon said, okay, you’re on Amazon’s website
0:41:14 and you’re looking at the Harry Potter book.
0:41:17 And then right next to our Harry Potter book
0:41:20 is an ad for Barnes & Noble for the Harry Potter book.
0:41:21 Barnes & Noble is like, this is amazing.
0:41:23 We can buy ads on Amazon’s website.
0:41:24 They’re so stupid.
0:41:26 We’re buying ads and stealing their customers.
0:41:29 But every time you click on that Barnes & Noble ad,
0:41:31 Amazon made a dollar and it’s 100% gross margin.
0:41:32 They share that with nobody.
0:41:33 There’s no cogs on that.
0:41:36 And then they can use that dollar of pure profit
0:41:39 to lower their cost of their Harry Potter book.
0:41:41 Which actually made more people wanna go to Harry Potter,
0:41:43 we’ll go to Amazon to look for Harry Potter
0:41:45 than go to Barnes & Noble that said,
0:41:47 we’re locking you within our walls.
0:41:49 It’s like a casino with no clocks.
0:41:50 And we’re gonna pump oxygen in.
0:41:53 So because what a lot of big companies don’t get
0:41:54 is that Google is just one click away.
0:41:57 Like why give all the excess profits to Google?
0:42:00 When I go to Chase, I get turned down for a loan.
0:42:01 And then I go back to Google and I say,
0:42:03 where else can I get a loan?
0:42:05 Well, Chase should be sending you there.
0:42:06 And actually they’re starting to do this.
0:42:08 So that’s one strategy that I think has a lot of legs.
0:42:09 – Yeah, so turn down traffic.
0:42:10 That’s super interesting.
0:42:13 Look, you spent all the money to bring them to your site
0:42:15 and otherwise you would have just lost them.
0:42:17 That sort of sunk cost.
0:42:19 So you get something out of it.
0:42:20 That’s fantastic.
0:42:22 Well, why don’t we finish this segment out?
0:42:24 I wanna do a lightning round with you.
0:42:26 Which is I want sort of instant advice
0:42:27 for somebody in this seat.
0:42:29 I’m an executive visa or a geico.
0:42:31 And so I’m gonna name a category
0:42:34 and you sort of just have how to deal with startups
0:42:35 and you can react to it.
0:42:38 All right, so category one is
0:42:41 you should always invest super early
0:42:43 as early as you can into a startup.
0:42:45 – So again, remember adverse selection
0:42:46 versus positive selection.
0:42:48 So I would say the competence.
0:42:50 So this is what you have to get right,
0:42:53 which is if you take nine weeks to make a decision
0:42:55 and like, you know, we’ll decide within a day
0:42:56 or if Sequoia or Benchmark
0:42:58 or some other great venture capital firm
0:42:59 will decide within a day.
0:43:01 Like you’re not going to get good deals
0:43:02 if you take nine weeks.
0:43:05 So it can be very, very important to invest early,
0:43:07 but like the best things always seem overpriced.
0:43:09 Like this is something that we’ve learned
0:43:10 and it’s the same thing
0:43:12 with underwriting your own customers,
0:43:14 which is like if something’s too good to be true,
0:43:15 it probably is.
0:43:17 So some of the best things are actually very expensive.
0:43:18 Yeah.
0:43:19 All right.
0:43:21 – Just given those dynamics,
0:43:22 just wait for the later rounds.
0:43:24 Let all the venture guys take all the risk
0:43:26 and then like you plow in late.
0:43:28 That should be my strategy.
0:43:29 – I think in general,
0:43:30 that’s probably a better strategy.
0:43:31 But again, saying like,
0:43:33 ooh, we’re getting a great deal on this one.
0:43:34 That’s probably,
0:43:37 then you know that you’re the adverse selection
0:43:40 a source of capital as opposed to, okay,
0:43:41 here’s something I can’t believe
0:43:43 we’re paying this much money for it.
0:43:44 We have to fight our way in.
0:43:46 There are 10 other people that want it.
0:43:48 You probably know you’re on to a good customer,
0:43:50 if you will, or a good investment.
0:43:54 – All right, partner with as many possible startups
0:43:56 as you can, ’cause you don’t know who’s gonna win.
0:43:58 So let’s open up a marketplace.
0:44:01 Let’s 100 startups that I have either turned on
0:44:03 traffic relationships or something.
0:44:05 – I think that actually that does make sense.
0:44:08 I mean, there should be some kind of gating item
0:44:10 to make sure like maybe not a hundred.
0:44:14 But how do we stay close to different models
0:44:14 that are working well?
0:44:17 Because the main advantage that the incumbents have,
0:44:20 again, depends on like lending or insurance,
0:44:23 but it’s typically something around cost of capital
0:44:25 and something around distribution.
0:44:27 So if you have both of those
0:44:29 and you’re not using it to the fullest extent,
0:44:30 like you turned down a lot of customers,
0:44:33 like you should try to find an intelligent way
0:44:36 of using this and using that’s your unique thing,
0:44:38 like venture capital firms don’t have that.
0:44:40 I can’t fund somebody and send them
0:44:43 a million customers tomorrow, but Geico could.
0:44:45 So, but you can’t do that a hundred times.
0:44:48 You can probably do that some sub-segment of times
0:44:51 according to how much additional traffic
0:44:53 or whatever it is that the unique advantage
0:44:55 that you want to bring to bear.
0:44:58 All right, now on M&A strategy.
0:45:02 M&A strategy one, buy super early
0:45:05 before it’s proven to work
0:45:07 because presumably the prices are lower.
0:45:12 So M&A strategy early, focus on early stage companies.
0:45:14 – I’m a big fan of what Facebook’s done with M&A
0:45:15 and I encourage everybody
0:45:16 and pretty much every other industry to do this.
0:45:18 So Facebook has two formats for M&A.
0:45:22 One is we buy the existential threat that could kill us
0:45:24 and we price it probabilistically.
0:45:28 So surrender 1% of our market cap to buy Instagram.
0:45:29 That was way overpricable.
0:45:31 – Everybody said that.
0:45:32 – Wow, there you go.
0:45:33 – There’s a one in a hundred chance
0:45:35 that this is gonna be bigger than Facebook.
0:45:38 We should probably surrender 1% of our market cap.
0:45:41 WhatsApp, 7% chance or whatever it was.
0:45:43 I think it was 7% of Facebook’s fully diluted market cap
0:45:45 was spent on WhatsApp.
0:45:47 These were brilliant acquisitions.
0:45:48 Oculus, I mean Oculus hasn’t turned out
0:45:50 the same way that WhatsApp has perhaps,
0:45:51 but like same idea.
0:45:52 This could be the new platform.
0:45:54 If we don’t buy this and Apple does,
0:45:57 we are subject to their random whims and fancies.
0:45:58 So that’s category one.
0:46:01 Category two, and this is super counterintuitive
0:46:02 for a lot of companies,
0:46:04 buy the guys that failed trying.
0:46:09 Because they had the courage and the tenacity
0:46:12 to try to go and build something new
0:46:14 and that’s what you want in your company as well.
0:46:17 And then this is the most counterintuitive part.
0:46:18 Is like take the person that failed
0:46:21 and put them in charge of the person that was successful.
0:46:23 And that’s the part that, that’s breaking glass.
0:46:26 – For a big company, that’s so hard.
0:46:28 You reward your execs on success, not on failure.
0:46:30 – Right, but in many cases it’s like you have a big company
0:46:33 that’s been trying to build this thing for 10 years.
0:46:35 And if they build it, they will get one billion customers.
0:46:37 Because they have, or I’m making that up,
0:46:38 they have the distribution.
0:46:40 Then you have the startup that actually built the thing
0:46:41 in like a week.
0:46:43 And they built it for a million dollars.
0:46:45 And that would take the big company like a billion dollars
0:46:47 in 10 years to do.
0:46:48 But like, oh, the company failed.
0:46:50 Oh, that’s a bad company.
0:46:51 These are bad managers.
0:46:53 But actually you want to take them and put them in charge.
0:46:55 And the joke that I would always make is like,
0:46:59 if Amtrak buys Tesla, the worst thing that Amtrak could do,
0:47:01 because Amtrak is probably more profitable
0:47:02 than Tesla at this point.
0:47:04 But if Amtrak were to buy Tesla,
0:47:06 the worst thing they could do is say, okay,
0:47:09 all of you Tesla bozos, you work for us.
0:47:12 But the whole point of a lot of this other form of M&A
0:47:14 is you’re really trying to buy products
0:47:16 that you can push into your distribution.
0:47:19 And you’re trying to buy talent that wrote the products,
0:47:20 that built the products, that understand that.
0:47:22 And the only thing that they needed,
0:47:25 the only gap between them and actual huge success
0:47:27 is distribution, which these big companies have in droves.
0:47:30 – Yeah, so that makes perfect sense.
0:47:32 Maybe just a piece of advice
0:47:34 on how to actually make that happen.
0:47:36 ‘Cause you have this dynamic where you’re a big company,
0:47:39 you just bought a failing startup, right?
0:47:41 You have all of the execs inside
0:47:43 that have earned bonuses consistently over a year
0:47:45 for awesome performance, right?
0:47:46 You’ve rewarded success.
0:47:47 And now you’re gonna say,
0:47:50 I’m gonna take this guy that kind of failed.
0:47:52 And like, you work for them.
0:47:53 – Right.
0:47:55 – Like, oh, that’s hard to do inside a big company.
0:47:56 – It’s very hard.
0:47:58 But I mean, in some cases, you just wanna do it early.
0:48:00 I mean, I think it actually, where it works best
0:48:02 is where you say, we need this product.
0:48:03 – Yeah.
0:48:03 – We need this product to exist.
0:48:04 We don’t have it right now.
0:48:06 We haven’t spent eight years trying.
0:48:10 Rather than saying, let’s go assemble a team
0:48:11 and I’m gonna rely on like something
0:48:12 that’s just not in our core DNA,
0:48:14 here’s how we’re gonna go shopping.
0:48:16 We’re not gonna go shopping and value this.
0:48:18 And again, we don’t, this is not a self-serving comment
0:48:20 because if somebody buys one of our failing companies
0:48:22 for $10 million and we have a billion dollar fund,
0:48:23 it doesn’t matter, right?
0:48:26 Like we want the companies that actually beat the incumbents.
0:48:28 But the incumbents, the way that they can actually do great
0:48:30 is to adopt more of this Facebook mentality.
0:48:35 And like, the key thing is that many of these acquisitions,
0:48:36 these kind of aqua hire,
0:48:39 that’s the portmanteau of acquire and hire,
0:48:41 these aqua hire acquisitions that Facebook made,
0:48:45 these people now run big swaths of Facebook.
0:48:47 So I agree, it’s hard to do
0:48:49 if you already have a leader in place.
0:48:50 In that case, it just requires
0:48:52 a very strong-willed leadership team
0:48:55 and an actual overt strategy that this is what we do.
0:48:57 It becomes easier if it’s like, okay,
0:48:58 we’re trying to do this new thing
0:49:00 rather than assemble our own team
0:49:01 and they don’t know what they’re doing
0:49:02 but they’re well-intentioned.
0:49:05 Let’s go buy a company, but let’s buy a company
0:49:06 that hasn’t already done the thing,
0:49:10 but a company that tried and failed to do the thing.
0:49:12 But we’re pretty sure that these are the best triers
0:49:14 and failures in the business.
0:49:17 That’s the hard thing to really measure
0:49:19 because most people are used to measuring outcomes
0:49:20 and not process.
0:49:23 And the key thing to make this strategy work
0:49:26 is you actually want to over-allocate on process
0:49:28 and you want to wait outcome to almost zero
0:49:30 because you’re buying the outcomes that were in fact zero.
0:49:34 – Yeah, the mark is about to interview
0:49:37 Andy Duke, the thinking in bets, right?
0:49:39 And this is sort of the essential thinking in bets motion,
0:49:41 right, which is don’t confuse a bad outcome
0:49:45 with sort of a bad bet, right, right, exactly, awesome.
0:49:46 Well, thank you so much, Alex,
0:49:48 for coming in and sharing your thoughts.
0:49:50 For those of you in YouTube land,
0:49:52 please like and subscribe.
0:49:54 And for the comments thread on this,
0:49:57 I’d love to get your input on what you thought
0:50:01 of Alex’s idea that what you really should do
0:50:03 is not go after more customers,
0:50:07 but instead go after only the best customers.
0:50:09 So what are examples that you’ve been trying
0:50:11 in your own startup where you’re trying
0:50:14 to implement that idea?
0:50:16 So see you next time.
0:50:18 Go ahead and subscribe to the channel if you like it
0:50:20 and see you next episode.

0:00:04 >> Hi, everyone. Welcome to the A6NZ Podcast. I’m Sonal.
0:00:06 So I’m super-duper excited today,
0:00:07 even way more than usual,
0:00:10 because this episode is all about podcasting.
0:00:12 For newer listeners, we actually did an episode
0:00:15 called “A Podcast About Podcasts” about four years ago,
0:00:18 which you can find on our website, A6NZ.com.
0:00:21 But today, we’re focusing this podcast about podcasting,
0:00:23 since the podcasting ecosystem has
0:00:25 evolved and changed quite a bit since then.
0:00:26 By the way, I had hoped that Roman Mars,
0:00:27 who was on that episode,
0:00:29 would join us again, but he lost his voice,
0:00:30 so couldn’t.
0:00:33 Our special guest today is Nick Kwa, who writes “Hot Pod,”
0:00:35 a newsletter that I’ve been following since very early on
0:00:37 and has grown to be a go-to source
0:00:39 all about the podcasting industry,
0:00:41 with analysis insights and more.
0:00:45 He also publishes and contributes to Vulture on similar topics.
0:00:46 Also joining us for this episode
0:00:49 is A6NZ General Partner Connie Chan,
0:00:51 who covers consumer, the future of media,
0:00:54 and Gen Z social, as well as trends from China,
0:00:56 and has observed the podcasting phenomenon there
0:00:59 and shares ideas on what more platforms can do here,
0:01:01 and the three of us do a hallway-style jam,
0:01:04 taking a longer pulse check on where we are right now
0:01:06 in the podcasting industry.
0:01:08 Speaking of, since we do mention some companies,
0:01:09 please note that the content here
0:01:11 is for informational purposes only,
0:01:14 should not be taken as legal business tax
0:01:15 or investment advice,
0:01:18 or be used to evaluate any investment or security,
0:01:20 and is not directed at any investors
0:01:23 or potential investors in any A6NZ fund.
0:01:27 For more details, please also see a6nz.com/disclosures.
0:01:29 So we begin with the latest stats on the industry,
0:01:31 touching on structural factors and more
0:01:33 for about the first 15 minutes.
0:01:35 Then we do a bunch of lightning round style takes
0:01:38 on how other content and entertainment models
0:01:40 may or may not apply to podcasting
0:01:41 for about the next 30 minutes.
0:01:44 And finally, we go into monetization platforms,
0:01:45 analytics, and more,
0:01:47 which we also touch on throughout the episode,
0:01:49 including impacts on creators.
0:01:52 And we end on recent news and moves in the space,
0:01:54 such as Spotify, Gimlet,
0:01:56 how to think about terrestrial radio, and more.
0:01:59 But we begin by defining a podcast,
0:02:01 which seems obvious, but isn’t,
0:02:03 and is a rather existential question.
0:02:05 So guys, what is a podcast?
0:02:07 – So, I mean, the real interesting thing here is,
0:02:10 we’re in the midst of a really interesting moment of change,
0:02:11 and there is internal conflict
0:02:14 within the podcast community about that question.
0:02:17 So historically, it’s been largely tethered
0:02:18 to the notion of the RSS feed.
0:02:23 It’s basically an audio file or a medium of distribution
0:02:26 that largely happens through the technology
0:02:28 that was carried over from blogging.
0:02:31 And now with the entrance of Spotify
0:02:33 and Pandora stepping up,
0:02:36 and Google beginning to do whatever they’re going to do
0:02:37 on the search engine side.
0:02:39 – And Apple already is an entrenched player as well.
0:02:41 – Yeah, absolutely, I heard media.
0:02:46 And Luminary just announced their big 100 million fundraise
0:02:49 and the fact that it gonna launch in July a couple days ago.
0:02:50 – With a lot of exclusive content, right?
0:02:53 So how does exclusive podcasts fit in
0:02:54 with the old definition?
0:02:56 – Especially with the Luminary announcement
0:02:57 that was like a strong pushback
0:03:00 from parts of the community that’s been around for a while
0:03:04 and generally folks who really believe in the open ecosystem.
0:03:06 And so we have a situation in which like,
0:03:08 the technical definition is not
0:03:10 the popular definition anymore.
0:03:11 And if we go from the perspective
0:03:15 of what the ordinary consumer thinks of a podcast,
0:03:17 that is, it becomes a cultural question,
0:03:18 not a technical question.
0:03:20 – Which by the way, I wanna say parallels
0:03:22 the history of the web,
0:03:24 because this to me reminds me very much of early blogging.
0:03:25 – Absolutely.
0:03:27 – And debates about what is a blog,
0:03:29 what is an article, what is a website.
0:03:32 And there was this almost religious existential debate
0:03:33 between the early kind of,
0:03:35 in fact, some of the same people,
0:03:36 because Dave Weiner,
0:03:36 one of the people who invented–
0:03:39 – Who also was important to the development podcast thing.
0:03:40 – Right, he’s exactly.
0:03:42 He’s, but I think he was technically the first person
0:03:45 to do a podcast like in 2003 or something,
0:03:47 or one of the early people.
0:03:49 And he’s also been to specify the RSS feed,
0:03:51 which drives the pipes
0:03:53 and plumbing and ecosystem of podcasting.
0:03:56 But today, users don’t even think of podcasts that way.
0:03:59 It’s like, if it’s just recorded audio of people talking,
0:04:01 oftentimes we’ll just call that a podcast.
0:04:03 – Yeah, one of my favorite things
0:04:05 when people always call our videos podcasts.
0:04:06 – I mean, that’s a holdover, right?
0:04:08 Like Joe Rogan still does that.
0:04:11 There’s a lot of people who still do all video, audio,
0:04:12 and still call it a podcast.
0:04:14 I mean, the way I see it is that the tension
0:04:17 has always been between people who see podcasting
0:04:19 as the future of blogging
0:04:22 and people who see the podcasting as the future of radio.
0:04:25 And we’ve seen that tension cross many, many times.
0:04:28 And I think we’re in a place where that no longer matters
0:04:31 because ultimately the mass consumer will lead
0:04:32 as where do you want to go?
0:04:34 – Yes, and like the web, the analogy that I would draw
0:04:38 is to the advent of the graphical user interface
0:04:41 and how browsing, computing, et cetera.
0:04:42 There’s always a phase in every technology
0:04:44 where there’s a gooey phase
0:04:45 where once you have an interface
0:04:47 that’s user friendly and easy to navigate.
0:04:50 And what’s interesting about this is that we’re in the phase
0:04:53 where the listening has become easy to navigate.
0:04:54 – And more accessible.
0:04:55 – More accessible.
0:04:57 – Through various kinds of hardware too.
0:04:59 For example, listening to podcasts on their drive to work
0:05:02 because the cars are enabled with podcasts.
0:05:04 – Right, like the smartphone connected cars essentially.
0:05:06 – Or AirPods making it so easy
0:05:08 to listen to something while multitasking.
0:05:10 – And in that sense, podcasts are different
0:05:12 than audio books obviously just for the sake of definition.
0:05:15 – But I would say like you can argue over time
0:05:16 that even that definition may blur.
0:05:18 – Of audio books and podcasts.
0:05:20 – Right, like one day a podcast might just be thought of
0:05:22 as like a self-published audio book.
0:05:24 – I have long believed that audio books
0:05:26 should be central to the conversation as well,
0:05:27 especially a couple of years ago
0:05:30 when Audible built sort of an original programming team
0:05:33 that took after podcasts out programming.
0:05:35 And in fact, the matter is that these are all distributors
0:05:37 and platforms of the same kind of good.
0:05:40 It’s just that we think of them and we class them differently
0:05:41 and they also sort of are products
0:05:43 of different economic systems.
0:05:44 – I do want to add to this mix though
0:05:46 that I would not confuse music into this.
0:05:49 And the reason is first of all, from a creator perspective,
0:05:53 every tool until now has been very music creator centric
0:05:55 for podcast editing, creation, et cetera.
0:05:59 And so there’s a really bad structural legacy effect
0:06:00 of equating podcasting.
0:06:01 I mean, we’re essentially bootstrapping tools
0:06:03 tailored for music for podcasting.
0:06:07 So the new wave of podcast native tools is really important.
0:06:09 Full disclosure, we’re investors in Descript
0:06:11 and it democratizes the editing of podcasting
0:06:14 because you can essentially edit audio like a word doc.
0:06:15 But the main point here is that
0:06:18 I do think music should be treated very differently
0:06:19 than podcasting. – I completely agree.
0:06:21 I got to me like it’s audio with spoken word.
0:06:23 – Yep, versus sunk.
0:06:26 So I guess what we’re agreeing on
0:06:28 just to recap the definition of podcasting.
0:06:32 It is audio, it could potentially blur into including books
0:06:35 if not in a content perspective, then to Nick’s point,
0:06:40 then even in a distribution and business model perspective.
0:06:42 But we agree that music should be treated differently.
0:06:45 – And the common denominator here is spoken word.
0:06:47 – That was actually the infinite dial study
0:06:49 which is sort of an annual survey
0:06:51 conducted by Edison Research.
0:06:53 They just announced their latest results
0:06:54 earlier this afternoon.
0:06:56 The most interesting thing is that there were increases
0:06:58 in both audiobooks and podcasting.
0:07:02 So podcasting had a significantly like large leap this year,
0:07:05 but on audiobooks, like after a couple of years
0:07:09 of largely being flat, it’s been increased again.
0:07:11 And I think that’s a sort of really interesting question
0:07:13 because I can’t quite think of a structural reason
0:07:14 why that would be the case,
0:07:16 other than sort of like tethered effect.
0:07:17 – In addition to that,
0:07:19 you have all kinds of really easy to set up
0:07:20 wireless speakers at home.
0:07:24 They also make it more easy to consume this kind of content.
0:07:26 – It reminds me of like what people say
0:07:28 about the Kindle and romance novels.
0:07:30 It helped sales increase
0:07:33 because it made people like more willing to buy it
0:07:35 and consume it because then nobody would judge them.
0:07:37 – Oh, the judgment side, interesting.
0:07:38 For me, it’s actually ease of access
0:07:40 because I used to be really embarrassed
0:07:42 and admit this publicly.
0:07:46 I used to subscribe to the Harlequin Romance on Demand service
0:07:48 where you’d get like the books a month
0:07:51 and you’d pay like $11 or I can’t remember what it was.
0:07:54 ‘Cause I’ve always been a huge reader of romance novels
0:07:56 as a very nice lightweight thing to do.
0:07:58 But what’s the analogy to podcasting?
0:07:59 What’s the connection?
0:08:00 – To me, I think it’s more ease of access
0:08:02 around better hardware.
0:08:03 – On demand, get it quickly.
0:08:04 So speaking of the data and you mentioned
0:08:07 that the Edison research study came out today
0:08:08 and that’s sort of the definitive
0:08:10 and longest running survey of digital media
0:08:12 consumer behavior in America at least.
0:08:15 But I hear a lot of mixed messages.
0:08:16 I see like people cite this stat
0:08:18 and that stat out of context.
0:08:20 So why don’t we just do a quick pulse check
0:08:21 on what are the key stats?
0:08:22 And Nick, maybe you could recap for us
0:08:25 what the key stats or big trends to know are here.
0:08:27 – So I think there are a couple of big takeaways here.
0:08:29 One is when it comes to the familiarity
0:08:30 of the notion of podcasting
0:08:33 and this doesn’t mean people who heard the word
0:08:34 actually know what it is.
0:08:38 It’s officially hit 70% of all Americans.
0:08:40 And when it comes to the number of people
0:08:42 who’ve actually tried out podcasting,
0:08:43 maybe they didn’t stick around a bit
0:08:44 but they just tried it at least.
0:08:46 It’s gone over 50%.
0:08:49 So about an estimate of 144 million Americans.
0:08:51 Retention rates are sort of like really interesting.
0:08:53 Like monthly podcast listening has also went up.
0:08:56 It’s now 32% of all Americans up from 26 from last year.
0:08:57 That’s a pretty big leap.
0:08:58 – I mean, just that’s one third.
0:08:59 That’s a lot.
0:09:00 – Yeah.
0:09:01 And there’s also a really interesting slide in here
0:09:04 attributing some of the increase to Spotify.
0:09:06 There is a stat here that shows
0:09:09 amongst Spotify listeners between the ages of 12 to 24,
0:09:12 monthly podcast listening went up to 53%.
0:09:15 And so there’s a lot going on.
0:09:17 I think currently it’s such a moment of flux.
0:09:21 It’s a little unclear what the structural pillars are anymore.
0:09:22 And I think there’s one of those things
0:09:24 where we’re just gonna have to like look back
0:09:25 at this moment and figure out where we turn.
0:09:28 – So what’s a high level recap on that summary of the stats?
0:09:30 – The high level is that this past year
0:09:31 has seen an unprecedented growth.
0:09:33 For the longest time podcast growth
0:09:35 has been steadily and slow.
0:09:37 And now it feels like it’s taken some sort of a leap.
0:09:40 And so I feel like this past year has been the moment
0:09:44 where it’s tipped into some form of mainstream.
0:09:45 – That’s fantastic.
0:09:47 So potentially a quote inflection point
0:09:49 as people like to say in the business.
0:09:51 – The usage of podcasts and the consumption of it
0:09:55 has risen dramatically in the last year or two.
0:09:57 But what always shocks me is that the revenue
0:10:01 that podcasts generate is still such a small amount
0:10:04 given how many hours people are spending
0:10:05 consuming this kind of content.
0:10:08 – So there is a study out there from the IAB
0:10:11 that caveat being it was funded and financed
0:10:13 by a constellation of podcast companies
0:10:17 that puts the number at around 600 million plus plus
0:10:18 this past last year.
0:10:20 And it’s projected to keep growing of course.
0:10:22 Monetization is a serious issue.
0:10:24 And it largely has to do with the fact
0:10:26 that podcasting is a technology
0:10:29 hasn’t quite caught up to how the rest of the internet
0:10:31 kind of works in terms of dynamic insertion.
0:10:33 And it doesn’t allow like heavy increases
0:10:36 in inventory and swap outs in inventory
0:10:38 in a way that a lot of advertisers are now accustomed
0:10:41 to getting from marketplaces like Facebook.
0:10:44 – And then even that like from an advertiser standpoint
0:10:46 you’re paying per download
0:10:50 ’cause you aren’t getting like these per listen metrics back.
0:10:52 So from the advertising standpoint
0:10:55 it’s still really hard for them to measure the ROI
0:10:57 from sponsoring a podcast.
0:10:59 – Yeah, and that’s why historically we’ve seen
0:11:01 a bunch of the activity among advertising
0:11:03 from direct response advertisers
0:11:06 because they have a secondary metric of conversions
0:11:08 under promo codes and whatnot.
0:11:10 And what they’re able to find is that
0:11:12 the conversion rates are good.
0:11:13 But when it comes to something like a brand advertiser
0:11:16 or an advertiser that needs to lay an impression
0:11:19 on a consumer over a five, 10 year period
0:11:20 they need to know that they’re hitting
0:11:22 the people that they’re hitting.
0:11:23 There are a lot of movements right now
0:11:26 towards standardizing what even a listen means.
0:11:28 And this will become increasingly complicated
0:11:30 as Spotify and Pandora.
0:11:31 – Everywhere.
0:11:32 I mean, right now you don’t know if it’s a,
0:11:33 is it a download?
0:11:34 Is it a click?
0:11:35 Is it open?
0:11:36 Is it a fee?
0:11:37 I mean, who the fuck knows.
0:11:38 – Or like how long did you listen to it, right?
0:11:39 – Right, the engagement I care very,
0:11:41 so that’s actually what I care most about as a creator.
0:11:42 ‘Cause when I was at Wired,
0:11:44 Chartbeat changed me as an editor
0:11:47 and I need to know where people drop off.
0:11:48 That is a number one thing.
0:11:50 So I don’t know if you even know this, Nick.
0:11:52 We were in the launch set for when Spotify launched
0:11:55 their first move into podcasting in 2015.
0:11:58 They selected us as part of one of their media outlets
0:12:00 because our podcast was one of the very few
0:12:02 that covered tech in a thoughtful way.
0:12:05 And the reason I was so excited about Spotify,
0:12:07 because Spotify didn’t really have much
0:12:09 of a podcasting audience back then,
0:12:12 was they showed me this really beautiful dashboard
0:12:15 that showed you the potential and where people drop off.
0:12:18 – But you don’t get that from all the other places
0:12:19 our podcasts are distributed.
0:12:21 – It’s still limited because not all of our listeners
0:12:22 are listening on Spotify.
0:12:23 They’re on SoundCloud, they’re on iTunes.
0:12:24 They’re in a bunch of different apps.
0:12:25 And iTunes, by the way, also announced this,
0:12:27 I think, what last year, James Boggs,
0:12:30 announced that you can actually have drop off.
0:12:33 – Yeah, they rolled out a more granular
0:12:34 in episode analytics.
0:12:35 – Another thing I’d push back on though is like,
0:12:38 I don’t actually think advertisements
0:12:40 are the only way you can monetize podcasts.
0:12:41 – Yes, I agree wholeheartedly.
0:12:43 – I feel really, really strongly about that
0:12:46 because even as someone who consumes podcasts,
0:12:48 ads are extremely annoying to listen to.
0:12:51 And this is where I look at other business models
0:12:53 that are working in Asia for podcasts
0:12:56 that I think could very much translate here.
0:12:58 – Yeah, so a couple of points on that.
0:13:01 It’s a situation in which there are behaviors
0:13:05 in internet usage, in gaming, in media consumption,
0:13:10 in China, Japan, Korea, Australia, Malaysia, Singapore,
0:13:12 that doesn’t occur here,
0:13:14 maybe through a path dependency reasons,
0:13:17 maybe through sort of technical habituation reasons.
0:13:20 And yes, we’ve already seen like a really healthy growth
0:13:23 of the number of podcasts using Patreon as maybe not a primary,
0:13:26 but a strong supplementary business model.
0:13:28 Chatbot, ChatPos is an example of this.
0:13:30 There are a bunch of podcast collectives
0:13:32 that rely on Patreon for this.
0:13:35 And there’s also like Slate Plus being sort of a central model
0:13:38 to Slate as a digital media publisher
0:13:40 that also heavily indexes on podcasting.
0:13:43 But I think I’ve always found this lack of data conversation
0:13:47 a little interesting because whether or not advertisers
0:13:50 feel confident in the measurement
0:13:52 and what the data is sort of trying to reflect
0:13:55 in terms of reality, the world continues to spin
0:13:59 and people do end up converting as a promo code.
0:14:02 And so there is a strong sense that podcasting
0:14:05 is a very powerful driver of consumers
0:14:07 and it’s a powerful advertising driver,
0:14:09 even though we’re not able to tell specifically
0:14:11 how many people that gets hit
0:14:13 in terms of just the analytics of it.
0:14:16 And so there’s this fear among a lot of people
0:14:19 that the analytics side will end up driving
0:14:20 way too much of the conversation
0:14:24 and ends up dictating the behavior of creators and publishers
0:14:26 in a way that might end up being unhealthy
0:14:29 or counterintuitive to the relationship
0:14:31 between a listener and a creator.
0:14:33 – The problem with that I think is like,
0:14:36 yes, analytics may skew what kinds of content they put out
0:14:37 and how they engage with their audience.
0:14:41 But like really analytics is just a nicer way
0:14:45 of saying revenue because at the end of the day
0:14:46 your analytics are a reflection
0:14:48 of how many listeners you’re getting, right?
0:14:51 – I don’t agree actually completely.
0:14:53 I agree with you from a business perspective,
0:14:57 but as a creator the analytics tell me about community.
0:14:59 And one of my favorite talks on the early days
0:15:02 of resurgence of podcasting was Marco Arment gave a talk,
0:15:04 I was at XOXO in 2013.
0:15:08 And it was basically about the resurgence of podcasting,
0:15:13 the early signaling of that and podcasts as a movement.
0:15:14 Because what’s really unique for the first time
0:15:16 when you think about the first wave of podcasting
0:15:18 with all the indie bloggers,
0:15:20 we now have brands podcasting.
0:15:22 And sometimes they’re not actually looking
0:15:23 for direct revenue through that.
0:15:26 It’s a way to really connect intimately with your audience.
0:15:28 I mean, it’s essentially a movement
0:15:29 brought live in audio form.
0:15:31 – So I mean, there are types of content
0:15:34 where it’s not about monetization.
0:15:35 But for a lot of creators,
0:15:37 I do think revenue is one kind of proxy
0:15:39 for how much value they’re providing their listeners.
0:15:44 And I also think that we’re in such, such baby phases
0:15:47 of how podcasters should be able to monetize.
0:15:48 Like honestly, they shouldn’t be having
0:15:51 to ask their listeners to go to other sites
0:15:52 to pay them like a monthly fee.
0:15:54 – You can’t do it in app.
0:15:55 – I mean, this is where the platforms
0:15:57 are gonna start rolling out subscriptions.
0:16:00 I think some are gonna roll out like other ways
0:16:02 of paying for packages or bundles of content.
0:16:04 And I think that’s when you’re gonna see creators
0:16:08 really unleash like much better content
0:16:11 where they don’t have to focus on mainstream audiences,
0:16:13 but they might focus on smaller audiences
0:16:14 that are willing to pay for that.
0:16:15 – So actually, I’m like really fascinating
0:16:17 in terms of the concept of analytics
0:16:20 is being the sort of like proxy for revenue here.
0:16:22 It’s strange because I’ve always sort of viewed analytics
0:16:26 as a certain kind of representation of reality.
0:16:28 And it just so happens that advertisers
0:16:31 at this point in time are really reliant
0:16:34 on a certain expectation of a kind of analytics
0:16:36 in order to discern whether a media product
0:16:38 is effective in a way that they want it to be.
0:16:40 And there’s this larger conversation
0:16:43 about platforms in general, switching metrics
0:16:47 or tweaking metrics or in some cases ballooning them
0:16:49 in order to control and manage that narrative
0:16:51 and relationship with the advertiser.
0:16:52 – No, I completely agree.
0:16:55 Analytics matters for an advertising model.
0:16:57 But what I’m saying is like the advertising model
0:17:01 is actually not a good model to monetize podcasts.
0:17:03 – No, that we could be agree with.
0:17:08 But it’s a situation in which like it is the revenue
0:17:10 that a lot of people, a lot of publishers
0:17:11 and creators feel most comfortable with
0:17:14 because that’s all they know right now.
0:17:16 – I think it’s actually also a legacy.
0:17:17 This is where I think we need to think again,
0:17:19 very native and a new medium.
0:17:21 This is where we make, we do ourselves a huge disservice.
0:17:24 Like the early days of the web
0:17:27 when media outlets would put like a fricking,
0:17:29 you know, homepage analog on the website.
0:17:31 Right, exactly.
0:17:34 Like we need to think very natively in this medium.
0:17:36 And we have a huge opportunity for the first time
0:17:39 because we have such an intimacy, a slipperiness,
0:17:42 a connection with podcasting that’s visceral.
0:17:43 That’s, I mean, personally,
0:17:45 I think it’s unlike any other medium I’ve ever seen.
0:17:47 I feel like I found my voice on this medium quite honestly.
0:17:49 But so I do think that we have an opportunity here
0:17:51 because we’re so stuck on the legacy.
0:17:53 And in fact, this goes back to something we started with,
0:17:54 which is what is the definition of a podcast?
0:17:56 So I think the thing to revisit here
0:17:59 is that the underlying pipes and infrastructure.
0:18:00 And I know people don’t expect this
0:18:02 when we’re talking about an episode about podcasts.
0:18:03 But I think it’s really important
0:18:04 because it informs this conversation.
0:18:06 It is RSS feeds.
0:18:07 It is literally an ecosystem
0:18:09 of pipes that are connected by feeds,
0:18:11 talking to feeds, talking to feeds.
0:18:14 This is both a structural, huge limitation,
0:18:17 causing major fragmentation in the industry,
0:18:19 major limitations on what’s possible
0:18:22 with what creators can do to even connect the dots.
0:18:23 Because the unit of analysis is limit
0:18:26 to what you can actually send in a feed.
0:18:27 And that has certain trade-offs to it.
0:18:29 And this actually reminds me of container ships,
0:18:32 like physical, large shipping ships,
0:18:34 like Merck, et cetera, that you see in the ocean.
0:18:36 And one of the novel things about container ships
0:18:39 is about what they did to creating trade across the world.
0:18:41 And because they’re multimodal,
0:18:45 they go from airplane to ship to truck to yard.
0:18:47 They allowed so much collaboration
0:18:49 and connection around the world.
0:18:52 That’s what feeds are doing for the podcast ecosystem.
0:18:55 What’s missing, however, is just like a container ship.
0:18:57 Containers are rectangular boxes
0:19:00 that are very limited in what you can actually fit into them.
0:19:03 And people therefore need to fit the shape of their goods
0:19:05 to fit in those boxes.
0:19:07 And the entire ecosystem for physical container ships
0:19:10 is architected around being able to lift things out and in.
0:19:11 That is the same thing
0:19:13 that’s happening in podcasting right now.
0:19:15 The containers are connecting all of us
0:19:16 in this feed ecosystem,
0:19:19 but they’re also dictating what information
0:19:21 travels where and in what form.
0:19:22 And I just want to point this out,
0:19:23 no matter how wonky it seems,
0:19:25 because that structure both dictate so much
0:19:28 of what the current batch of tools can and can’t do
0:19:30 when it comes to analytics, to discovery,
0:19:31 and more, all across the board.
0:19:34 And it’s where platforms and tool builders
0:19:36 have a huge opportunity to cleverly address
0:19:39 or even bypass those containers
0:19:40 once we get past this phase
0:19:44 of where the podcasting industry is structurally right now.
0:19:46 – Yeah, I just think like we are in such
0:19:48 early, early, early innings of what podcasts can be.
0:19:50 Because if you think about it,
0:19:52 again, this is not using the technical definition
0:19:54 of a podcast, but using this cultural definition
0:19:57 of like audio recorded content, right?
0:19:59 Most of the time you’re consuming that kind of content
0:20:01 on an internet enabled device.
0:20:04 It’s not like you’re downloading it onto your computer
0:20:05 and then like using a USB stick
0:20:07 to transfer it to your phone, right?
0:20:11 And so therefore, like we are not monetizing this stuff
0:20:12 or even creating features on top of it
0:20:14 that are internet native.
0:20:16 There’s just so much stuff we’re not even tapping into.
0:20:19 And it’s such a shame because we’re consuming these things
0:20:20 on internet enabled devices.
0:20:22 And yet we’re using the same business model
0:20:24 as televisions.
0:20:25 – Where you can’t even do anything.
0:20:28 – Which is not meant to be interactive.
0:20:30 And there’s like right now very little interaction
0:20:32 with the podcast, which I think is such a shame.
0:20:35 – So I want to ask you guys kind of lightning round style
0:20:37 on a couple of neat things that are artifacts
0:20:39 of the existing world of content
0:20:41 and how we think they’re going to play out with podcasting.
0:20:42 So let’s just–
0:20:43 – And I think you should give your take too
0:20:45 ’cause you have more expertise on podcasts
0:20:46 than anyone in the software.
0:20:47 – Right, I forget to do that as a host sometimes.
0:20:48 – Okay.
0:20:50 – So I want to ask you guys about seasonality.
0:20:52 Like what do you guys think of this trend
0:20:54 of people dropping podcast seasons?
0:20:56 – So I love seasonality.
0:20:58 It gives, like it gives me a feeling of momentum
0:21:00 and also we’re currently living in a moment
0:21:02 where there’s all things happening all the time.
0:21:04 So many things to consume.
0:21:06 I would like things to have definite ends.
0:21:09 And I’m a big fan of seasonality personally.
0:21:11 – I think it also makes it easier for bundling
0:21:13 and different pricing down the line.
0:21:14 – Absolutely.
0:21:15 – Oh, fascinating.
0:21:16 So for me, seasonality is,
0:21:19 so when I think of the long tail of content
0:21:21 and Chris Anderson wrote the fundamental piece
0:21:24 and book on this, it’s this idea of an infinite shelf space.
0:21:26 And to me, things being in software and being digital,
0:21:30 it’s unbounded to the point of being pointlessly infinite.
0:21:33 And forcing a false scarcity is my favorite thing
0:21:36 that like box in a month companies do,
0:21:38 like stitch fix and makeup, whatever.
0:21:42 It’s a way of curating and creating a scarcity
0:21:43 in a world of abundance.
0:21:45 And I think that’s a really interesting packaging thing
0:21:47 for any kind of content across the board.
0:21:49 And especially for podcasting because there is no,
0:21:51 you’re essentially in an infinite scroll
0:21:52 in the audible world.
0:21:54 You don’t know where you are.
0:21:55 You have no context.
0:21:57 You’re not plugged into a specific thing
0:22:00 ’cause you’re living in this weird ecosystem of voice
0:22:02 and show or episode, depending on how you’re listening.
0:22:04 So that’s my quick take on seasonality.
0:22:05 – Love it.
0:22:05 – Okay.
0:22:08 So binge watching, this is related to seasonality.
0:22:09 One of the most fascinating things
0:22:14 about Netflix phenomenon in the space of visual content
0:22:16 is they realize like, wait a minute,
0:22:18 we don’t have to do weekly things.
0:22:20 We can drop everything at once,
0:22:22 not release it as a season that spreads out once a week
0:22:24 or whatever the pace is.
0:22:26 And allow binge watching.
0:22:27 – I think binge watching is great
0:22:30 and it’s natural human behavior for any kind of content.
0:22:32 I suffer from it myself.
0:22:33 Like I was the kind of person,
0:22:34 I would watch the series 24.
0:22:38 I would watch a season in like 30 hours.
0:22:38 – I did that too.
0:22:39 It’s stranger things and everything.
0:22:40 – Yeah, yeah.
0:22:42 And it’s just natural human behavior.
0:22:43 And so I think it’s great.
0:22:44 – That we wanna just be addicted
0:22:46 and go deep all at once and we can’t stop ourselves.
0:22:49 – And actually in terms of, for the creator,
0:22:49 I think it’s a good thing
0:22:52 because you don’t want that listener
0:22:53 to kind of forget about it.
0:22:54 – Yep.
0:22:55 – I binge watch all the time.
0:22:57 So I’m just gonna take “Devil’s Advocate”
0:23:00 that I only like believe about 80% of.
0:23:03 One is I actually think that binge watching
0:23:05 or binge dropping has actually caused attention
0:23:08 to a given show to deteriorate, right?
0:23:11 It used to be the case where when a TV show drops weekly,
0:23:13 there’s sort of a pulse of conversation
0:23:14 that is drawn out over a longer period of time
0:23:16 if that show has hit.
0:23:17 I thought about–
0:23:18 – You mean like the water cooler conversation?
0:23:19 – Absolutely.
0:23:21 Like true detective, game of thrones,
0:23:23 same thing, basically everything that HBO,
0:23:25 like that sort of structure of it,
0:23:27 I really like that water cooler conversation
0:23:29 and I like to be on the same sort of page
0:23:31 as other people when I’m having that conversation
0:23:34 and that’s something that I’ve never gotten with a binge show.
0:23:36 I loved “Russian Doll”.
0:23:38 I can’t find a single person to talk to about it
0:23:39 who falls in love at the same time
0:23:42 and I can guarantee in about a month
0:23:43 I’m gonna forget about that show.
0:23:45 To use a torture metaphor,
0:23:48 the thing about binge TV that I enjoy really doing
0:23:51 but I feel a little bit sick of doing afterwards,
0:23:53 it reminds me of that thing when parents say
0:23:54 that they do to certain kids
0:23:56 where if they catch that kid smoking one cigarette,
0:23:59 they make that kid smoke the entire pack of one cigarette.
0:24:02 That’s kind of how I feel after when I binge a season.
0:24:04 I feel like I don’t wanna watch TV for like a month.
0:24:05 – But it’s like inevitable.
0:24:08 I feel like this is a behavior you count.
0:24:09 – Well, there is a lot of,
0:24:10 so my whole thesis about this
0:24:12 which is similar to screen time and kids
0:24:13 ’cause people always have these stupid religious debates
0:24:15 over it, it’s not so much the act of doing it
0:24:17 or not doing it, it’s why you do it.
0:24:18 So if you’re someone who’s binge watching
0:24:20 ’cause you’re depressed, that’s not good.
0:24:21 But if you’re someone who’s binge watching
0:24:23 ’cause you just can’t stop watching the show, that’s great.
0:24:24 I will say to push back on your point, Nick,
0:24:26 ’cause I know you’re taking the devil’s advocate,
0:24:28 but I think that what you’re describing this problem
0:24:31 of the water cooler thing that Connie that you labeled,
0:24:33 it’s actually an artifact of technology,
0:24:36 not quite being there because there is a movement
0:24:39 of second screen technologies that are allowing more,
0:24:42 there’s forums online like Reddit that aggregate.
0:24:43 To give you a perfect example of this,
0:24:45 when I finished the Ubrati problem,
0:24:47 the first thing I did was go trawl the web
0:24:49 to find all the forums and all the people talking about it
0:24:51 so I could find my people and talk about it
0:24:53 and find other people who loved it.
0:24:55 And so there are tools that are emerging
0:24:58 that allow conversations to then to your point,
0:25:02 the water cooler to be aggregated asynchronously.
0:25:05 And there will be, I think, a second screen phenomenon
0:25:09 happening with pod listening and binge listening
0:25:11 as we start having the technology ecosystem grow.
0:25:15 – I can see how you don’t want to spoil the ending.
0:25:16 So you won’t actually go to that forum
0:25:17 until you finish your book.
0:25:18 – You’re absolutely right.
0:25:20 And actually, I like that you can have a choice
0:25:21 because in spoiler alert culture,
0:25:23 which Nick is slightly hinting that he misses,
0:25:24 at least on the devil advocate.
0:25:25 – I do.
0:25:27 – There is sort of like a thing
0:25:29 where you can actually choose to check out of things.
0:25:31 Luckily, so you’re not like stuck in a room
0:25:33 with everyone talking and then you are screwed
0:25:35 ’cause you missed like the closing season of Dallas
0:25:36 or whatever show it was.
0:25:38 The other point I want to make about binge listening
0:25:41 in this context is with binge watching,
0:25:43 new types of narratives are happening.
0:25:45 I’m very curious about what will happen
0:25:48 as we start seeing binge listening of podcast seasons
0:25:50 or podcast episodes to narrative
0:25:52 and how that’s gonna change that category of podcasts
0:25:56 where a serial change the way it tells stories
0:25:57 because people are binging it.
0:25:58 – Well, then it becomes an audio book.
0:25:59 – Oh, interesting.
0:26:00 Then it becomes an audio book.
0:26:01 Oh my God, I would have argued
0:26:02 to almost the opposite item in the spectrum
0:26:05 because it’s sort of going through a book very quickly.
0:26:06 But the flip side of it is
0:26:08 when I’m thinking the analog with binge watching
0:26:10 is that you can watch an entire season
0:26:13 and it changes the way you don’t have to have a cliffhanger
0:26:14 at the end of every episode.
0:26:15 Whereas even in a chapter,
0:26:17 people still have a little bit of these things.
0:26:18 – Right, narrative.
0:26:20 – I will say, I think serial would have made a lot more money
0:26:22 if it allowed people to pay.
0:26:26 I think on the margin, binge listening helps creators
0:26:28 because if you can make someone pay
0:26:29 for like a whole season at once
0:26:32 and maybe give them like one or two episodes for free,
0:26:33 it’s better than hoping
0:26:35 that they’re gonna come back every week, right?
0:26:37 – The serial example is actually really, really interesting.
0:26:40 Serial itself was an innovation of the form
0:26:42 because it stuck to what podcasting
0:26:44 was able to do at that time.
0:26:45 Prior to the existence of serial,
0:26:48 it was incredibly difficult to tell a serialized story
0:26:50 over the radio in the form that they did it.
0:26:52 And secondarily to that,
0:26:55 they told that story in real, in semi-real time.
0:26:56 And that’s something that they sort of looked
0:26:59 at the structure of what the distribution format was
0:27:00 and they go, we’re gonna try that out,
0:27:01 we’ll see what happens.
0:27:03 And so this is a little bit
0:27:06 of like them playing perfectly to the form there.
0:27:07 And I wanna sort of go back a little bit
0:27:10 to the point about like the second screen experience
0:27:13 and the sort of the death of the water cooler.
0:27:14 So I love second screen experiences.
0:27:17 I live for NBA Twitter, I live for Bachelor Twitter,
0:27:21 but I gotta say, I do like that experience
0:27:25 with physical people and that I miss hanging out
0:27:26 and watching TV with my friends sometimes
0:27:28 at the same pace, that’s all I got to say.
0:27:30 – I just think like ever since DVR arrived,
0:27:32 like we kind of lost it already.
0:27:34 – I think you guys are both being very falsely nostalgic
0:27:37 for a past that never was because I actually think,
0:27:40 I mean, yes, there’s a reality to be physically present.
0:27:43 But again, we’re in the early innings with all of this.
0:27:45 We’re investors in a company called Big Screen
0:27:48 where you can essentially share in this ambient intimacy,
0:27:51 like hang out in VR, like when there is a digital overlay
0:27:54 over the physical world, just like people connect on Twitter
0:27:57 for ambient intimacy, the cocktail party of the web,
0:27:59 there will be a physical like experience
0:28:01 that you have similar level of satisfaction
0:28:03 and hanging out in real time with your friends.
0:28:04 And it’s just an artifact of technology
0:28:05 that we’re not 100% there yet.
0:28:06 That’s what I would argue at least.
0:28:08 But back to the binge watching thing,
0:28:11 I was gonna add that when a season drops all at once,
0:28:12 I add it to my playlist, but I never watch it
0:28:14 because what’s also missing in this space,
0:28:16 and this is again why I love the idea of binge watching
0:28:20 slash listening for podcasting, is the concept of virality.
0:28:22 The viral hits don’t happen instantly
0:28:23 unless you’re like a Joe Rogan experience
0:28:25 and Elon Musk smoking pot on air.
0:28:27 Like it’s sort of a cult of personality show,
0:28:29 it’s slow burn type of virality.
0:28:30 And so seeing what people are talking about
0:28:34 and what resonates is hugely important for creators,
0:28:35 not because you freaking want to crowdsource
0:28:37 what you want to say, but you do want to know
0:28:38 it doesn’t go in a black hole.
0:28:40 – I would love a world where in the future
0:28:42 you’ll know which parts of the podcast
0:28:44 the audience like the most.
0:28:45 – My proxy for that, by the way,
0:28:47 is I do Twitter searches all the time for the commentary.
0:28:49 So it’s a very skewed sample, but it’s helpful.
0:28:52 And I push the editors to do this to close this loop,
0:28:53 even if they’re not active on Twitter,
0:28:56 because there was no other way to see what resonated.
0:28:59 – But can’t you see like a platform just like saying,
0:29:01 tap your screen if you like this part?
0:29:01 – Oh, totally.
0:29:02 Well, I don’t know if this is public.
0:29:03 Do you know this, Nick?
0:29:07 But is doing screen shot, audio shots of podcasting?
0:29:09 – Yeah, I love this, yeah.
0:29:10 – Is it public, do you know?
0:29:12 Okay, but there will be sort of podcasts,
0:29:14 sort of screen shotting and sort of audio clips.
0:29:17 And I’m curious to see with or without
0:29:18 the transcript, Connie, to your point
0:29:19 about the importance of that,
0:29:21 whether those will go viral.
0:29:23 – It’s crazy to me that these things
0:29:27 don’t have automatic transcription on the top hits.
0:29:29 Like that’s such an easy technical thing to do.
0:29:31 And for a listener, that would mean
0:29:33 that I don’t have to just pause and say like,
0:29:34 oh yes, remember, like go back
0:29:37 to the one minute 30 mark later on and take notes.
0:29:38 – Well, I actually love that too,
0:29:40 because one of the biggest limitations of podcasting
0:29:42 is the lack of a quote screenshot equivalent.
0:29:44 – But that exists in China already.
0:29:46 Not only can I see the transcript,
0:29:48 I can then comment on it and I can make it
0:29:50 so only my friends can see it
0:29:51 or I can make it so the entire public can see it.
0:29:52 And then there’s a discourse.
0:29:53 – That’s amazing.
0:29:54 Right now we have to manually upload transcripts.
0:29:56 – And you basically have redded conversations
0:29:58 around parts of your podcast.
0:30:00 And so it’s okay if the listener doesn’t even get to the end
0:30:01 ’cause you can have a highlight speed,
0:30:05 all kinds of stuff right now that we just are not doing.
0:30:07 And so I think this is like where the platforms
0:30:09 can get much better at creating.
0:30:12 Like even if they just chunked up the best clips, right?
0:30:13 Or maybe you as the creator,
0:30:15 you can like throw out which clips you think are the best.
0:30:19 Make it easy for them to repost on other social mediums
0:30:21 or make us like background music to whatever.
0:30:23 – You can do that actually now on some of these tools,
0:30:25 but to your point, it’s fragmented.
0:30:26 It’s not central on a single user experience.
0:30:28 – Fragmented and I think like the main platforms
0:30:29 don’t allow that, right?
0:30:33 – Currently no, Spotify and iTunes and others don’t.
0:30:35 In fact, this is again where the ecosystem is so fragmented
0:30:36 ’cause the side players are,
0:30:38 there’s a whole budding ecosystem of tools
0:30:39 that are doing this kind of thing.
0:30:41 – So again, like it goes back to like,
0:30:43 you know, like likes and comments and payments,
0:30:46 like on tips like that’s just like a form
0:30:48 of showing how much you like something.
0:30:51 Creators don’t know which pieces of their podcasts
0:30:52 were the best parts of the episode.
0:30:53 They don’t know where that ends for it.
0:30:54 – They don’t know any of it, it’s a black hole.
0:30:57 But on the metrics, I do wanna say that one of my favorite
0:30:59 analytics for podcast success,
0:31:01 ’cause I do think that we need to think about
0:31:03 what you’re measuring for, for the type of show you are.
0:31:06 And in our case, what I care about as editor for the show
0:31:09 is insights per minute.
0:31:10 And this is the same thing as insights per inch
0:31:14 in terms of like going down a verbal post.
0:31:16 Because when you have a brand collective
0:31:19 and not a cult of personality driven show,
0:31:21 this is again where the metrics for the type of show
0:31:23 need to vary as well in my view.
0:31:24 For our kind of show,
0:31:26 if you’re not like a famous personality,
0:31:28 then the insights per minute matter a lot
0:31:31 to get people to stick and stay.
0:31:34 And then secondly, when you think of audience discovery,
0:31:36 audience and movements of people and fans
0:31:39 aggregating around a piece of content,
0:31:44 then I care about if a show has say a drop off halfway,
0:31:45 as a drop off point,
0:31:48 if the first half are people who are mainstream interested
0:31:50 in learning about quantum computing,
0:31:52 and then they drop off 50%,
0:31:54 I consider that a huge metric of success.
0:31:56 And if the remaining 50% that stick around,
0:31:59 a much smaller subset of people who are developers
0:32:01 in quantum computing are interested in building
0:32:03 quantum computing are physicists,
0:32:05 then that’s a huge metric of success.
0:32:07 So for me, again, this is again another granular way
0:32:09 of thinking about the type of show,
0:32:11 the type of content, et cetera.
0:32:12 Now we can’t do any of this right now,
0:32:13 but as we introduce new storytelling
0:32:15 and forums and podcasting,
0:32:16 I think we’ll be thinking a lot more differently
0:32:18 than the obvious on those fronts too,
0:32:20 and about podcast engagement.
0:32:22 Which by the way, one quick factoid for you guys,
0:32:24 the number one thing I hear from all of the publisher network,
0:32:26 ’cause one of the things that I did when I came here
0:32:28 was reach out to various people to beg them
0:32:29 to put their authors on the podcast.
0:32:31 So before authors became,
0:32:33 like going on podcasts became the thing to do.
0:32:36 And yeah, there’s nothing that moves books
0:32:37 the way podcasts do.
0:32:40 I’ve heard this over and over and over again
0:32:42 from all of my publishing industry friends.
0:32:43 – I heard the exact same thing.
0:32:45 The way that the podcast experience
0:32:48 is currently constructed, it drives sales.
0:32:51 But the question is, is that when other platforms
0:32:53 or when the experience changes
0:32:57 due to technical innovations or new features added,
0:32:59 would it fundamentally change that relationship?
0:33:02 Will there be the same kind of sales push
0:33:04 that we experience right now?
0:33:05 I think it’s an open question.
0:33:07 – I think it’s a totally work.
0:33:09 I mean, like to me, it’s like the same way QVC
0:33:10 is a great way to sell stuff.
0:33:12 Like podcasts is a great way to sell content,
0:33:14 written content that people don’t want to read.
0:33:16 But I think this is a bigger problem
0:33:18 with the book publishing industry.
0:33:20 Meaning that they’re not selling books
0:33:21 in an internet native way.
0:33:24 There’s no great way to figure out the highlights of a book.
0:33:26 There’s no way for me to read the first chapter for free.
0:33:28 There’s no way for me to like get a sense of,
0:33:31 do I want to pay for this entire book?
0:33:33 – I do that all in a bookstore.
0:33:34 We’re just skimming though.
0:33:35 I mean like–
0:33:37 – In a physical bookstore, yes.
0:33:39 In a physical bookstore, you can do all these things,
0:33:41 but on Amazon, you still can’t.
0:33:42 – Right, this is another way where I think
0:33:44 we’re not thinking of the native medium
0:33:47 because it’s crazy to me that books,
0:33:49 which are self-contained with no context,
0:33:51 are still decoupled in audio book form.
0:33:53 And it’s equally crazy to me that podcasting
0:33:56 because of the structural limitation of the feed pipes
0:33:59 don’t actually have context built into them
0:34:00 where you can actually tie a podcast
0:34:02 into the context of a broader show,
0:34:04 more by this author, more on the topic,
0:34:06 to your point about PDFs and show notes
0:34:07 and related materials.
0:34:09 It’s crazy to me that there isn’t a web link ecosystem
0:34:10 for podcasting yet.
0:34:12 – Because none of this stuff is being sold
0:34:14 in an internet native way.
0:34:16 I just think like right now, the way we sell books,
0:34:18 it’s like if you had no movie trailer
0:34:21 and you only had the movie poster, right?
0:34:23 – It depends on the movie poster.
0:34:25 You’re like buying the book based off the cover
0:34:28 and maybe some quotes by people who’ve read it,
0:34:31 but you don’t get to even see the trailer.
0:34:34 And this totally actually skews the creator’s incentive
0:34:35 for what kind of content to create.
0:34:38 So like for a book, like are you gonna pay $20
0:34:40 for like a 20 page book?
0:34:42 Or will you feel better about paying $20
0:34:44 for like a 170 page book?
0:34:46 And then authors might have to write extra words
0:34:48 for the sake of selling a, you know–
0:34:50 – Well, that reminds me of the early days
0:34:52 of Charles Dickens where he was paid by the word
0:34:53 and that was like a funny artifact
0:34:55 of the way the monetization was happening.
0:34:57 But I would argue on the flip side of that,
0:34:59 on the creator side, I think it’s more important
0:35:01 to find your community because a beautiful thing about,
0:35:03 again, podcasts are movements.
0:35:05 Groups of people following either a show
0:35:08 or an episode or a topic, serial fans, whatever it is.
0:35:11 And so when you have thousand true fans
0:35:13 in the Kevin Kelly phrase that are following
0:35:16 a particular book author or a particular topic
0:35:19 or a particular podcast, in our case,
0:35:21 what we’re doing is we’re mobilizing the fan base,
0:35:22 not because of that author,
0:35:25 but because of the way that we do our take with that author.
0:35:27 Like it’s sort of the A6 and Z take on it.
0:35:29 So when we did Yuval Harari, it was me and Kyle
0:35:31 talking to him about all kinds of random stuff
0:35:33 that was probably not even related to his book.
0:35:35 The point is that it’s a way to mobilize your movement,
0:35:36 your fan base.
0:35:37 And this goes to Nick’s earlier point about Patreon
0:35:40 and fan bases or Mark Orman’s point
0:35:41 about brand as intimate connection.
0:35:44 – So my theory on this whole,
0:35:46 this sort of notion of like what people will pay for it,
0:35:48 people will pay as much for a thing
0:35:51 based on how valuable they think the thing is.
0:35:53 And so it’s equally plausible that a person looks
0:35:56 at a 20-page book and thinks it’s worth $20
0:35:58 as it is that a person looks at a 170-page book
0:36:00 and thinks that they will pay $20 for that.
0:36:02 It really depends on how that person
0:36:05 or how it’s messaged to this consumer what value is, right?
0:36:08 And so this ties back a little bit to the notion
0:36:10 of advertisers and analytics.
0:36:12 Analytics, as constructed by a technology company,
0:36:14 by a platform, by a data team,
0:36:16 is an effort to tell the advertiser
0:36:19 this is how valuable you should think this is.
0:36:20 And in the art world,
0:36:23 value is constructed in a whole different amorphous way.
0:36:26 And so I think it’s not a one-to-one objectivity
0:36:27 of what is the right metric
0:36:30 or how do we find the truth of the value of a certain thing.
0:36:32 These are socially constructed things.
0:36:35 And so I think that should be a consideration
0:36:36 when it comes to when we think about it,
0:36:37 even the book publishing industry.
0:36:39 I should argue that celebrity books
0:36:40 should be priced a lot higher than it is,
0:36:42 but that’s just me.
0:36:44 – Books is just one example, though.
0:36:46 Like if you think about like a YouTube video,
0:36:49 like the creator is incented to make it long enough
0:36:50 so you don’t put just what pre-roll ad,
0:36:52 but also put like another ad in the middle,
0:36:54 which means the video has to be long enough
0:36:57 to have enough gap time between the ads, right?
0:36:59 – Really, because the most popular videos on YouTube
0:37:01 that do really well are the short, quick takes,
0:37:03 or tutorials, or like in those cases,
0:37:05 it’s another example of,
0:37:05 I mean, I think that’s the reason why
0:37:07 tutorial culture is taken off
0:37:08 because people are self-selected
0:37:09 into like learning about X, Y, or Z.
0:37:12 – But like some creators will lengthen their videos
0:37:14 so they can put in a second ad.
0:37:17 – Yeah, I think those to me are the more old-school creators
0:37:19 that are doing that to monetize in that way.
0:37:21 They’re not the ones who are the influencer creators
0:37:23 because the influencer creators have their eye
0:37:24 in a much bigger ballgame.
0:37:27 They’re looking at moving their own freaking makeup lines.
0:37:29 Or like, you know what I mean?
0:37:30 Or like other things, but yes,
0:37:33 that is sort of like the early phase of every platform
0:37:36 and medium is that you have a quick way
0:37:38 to kind of game it to get what you need.
0:37:41 But I don’t know if that works for the long-lasting players.
0:37:44 – YouTube in that situation is the arbiter of like
0:37:47 how, of the data that tells advertisers what to value,
0:37:49 but it’s also the arbiter of the data that tells creators
0:37:52 how to value the way that they’re creating something.
0:37:54 It also becomes a situation where YouTube
0:37:57 is the thing that interprets human behavior
0:38:00 and makes assumptions based on those interpretations
0:38:01 as to what people are valuing.
0:38:04 And so this is like YouTube sort of defining that reality
0:38:06 and pulling levers in a bunch of different ways.
0:38:10 And they may be correct, they may not be correct.
0:38:12 In any case, it’s all a proxy of reality
0:38:13 that may or may not be aligned.
0:38:14 We don’t know necessarily.
0:38:14 – I agree.
0:38:16 I agree it’s socially constructed and value is created
0:38:19 and a lot of it is limited by the tools people have
0:38:21 for thinking about pricing and they have heuristics
0:38:22 for doing that based on those directors.
0:38:24 I would also say that there’s a really interesting
0:38:25 opportunity, especially with podcasts,
0:38:28 to flip the model where fans get paid.
0:38:31 And in fact, Kevin Kelly made this really interesting
0:38:33 argument in his book, Inevitable,
0:38:34 about how when you swap your paradigm
0:38:39 for thinking about attention in an abundant software world,
0:38:40 which is what we’re talking about here,
0:38:42 abundant digital world bits are infinite.
0:38:44 There’s no limit on airwaves in this context.
0:38:47 You can actually flip the model where fans
0:38:48 can monetize their attention.
0:38:50 So you actually reorient,
0:38:52 and this is actually the premise of crypto, right?
0:38:53 Or one of the premises of crypto,
0:38:54 at least in the notion of crypto networks,
0:38:58 where right now the locus of data controls the platforms.
0:38:59 With crypto, you can actually invert that
0:39:02 where you are the user is a container of the data.
0:39:03 So if you think about this in the context
0:39:06 of media creation and podcasting,
0:39:08 how interesting to think about a fan monetizing
0:39:09 their attention because if a fan is a sum
0:39:11 of all the shows they watch,
0:39:13 maybe an advertiser wants to buy that fan
0:39:14 and the fan directly monetizes.
0:39:15 That’s that attention.
0:39:16 I know that sounds crazy,
0:39:18 but I don’t think that’s impossible in a world like this.
0:39:19 You guys are looking me like that.
0:39:21 – I just think if platforms can do that,
0:39:24 like there’s all the stuff they need to experiment with
0:39:26 before they even can get to something like that.
0:39:26 – Yeah, yeah.
0:39:28 That is if you believe it has to go stepwise
0:39:29 ’cause sometimes technologies can leap.
0:39:30 I agree with you.
0:39:31 I think it’ll be in the middle.
0:39:33 – I’m like, if we can’t even get subscriptions or tips up.
0:39:35 – We can’t even get downloads for fuck’s sake.
0:39:36 – All right, I’m gonna do another quick,
0:39:38 I wanna hear your quick lightning round take
0:39:39 on interstitials and podcasting.
0:39:40 Any thoughts on that?
0:39:42 The idea of like, you know, title slides or breaks
0:39:44 or segmentation, et cetera.
0:39:46 – I’m pro interstitials.
0:39:48 Like, you know, it’s really important
0:39:51 to orient your audience to teach them
0:39:52 how to listen to a thing.
0:39:53 It’s an important creative tool.
0:39:55 That’s a my view on it.
0:39:57 – Connie, I feel like you have a lot of thoughts on this
0:39:59 ’cause it feels so China native what people do and–
0:40:00 – Describe more what you mean by interstitials.
0:40:01 – I mean, more just like,
0:40:03 it’s kind of to your point about there being granularity.
0:40:06 Like you can actually break up a show into sub parts
0:40:07 by having little breaks or–
0:40:09 – I think interstitials is great because again,
0:40:12 it allows me to show you which parts of your episode
0:40:14 I value the most and which ones I’m willing to pay for.
0:40:15 – Yeah, for me, I will say that’s,
0:40:18 we tried some early experiments with segmentation
0:40:20 because I got this funny feedback from people
0:40:23 that they’re like, I listen to the podcast on the road
0:40:24 and my commute’s 10 minutes.
0:40:26 I wish they were 10 minutes long.
0:40:27 And then someone else was like, my commute’s 20 minutes.
0:40:28 I wish you were 20 minutes long.
0:40:30 And then someone else was like, my commute’s 30 minutes
0:40:32 or 40 minutes and they have this ideal time.
0:40:35 For us, at least 30 minutes has been a sweet spot
0:40:37 in terms of like the ideal podcast size.
0:40:38 But I don’t think there’s a rule of thumb
0:40:41 because some of our most popular episodes are an hour.
0:40:43 And also 20 minutes so I don’t know.
0:40:45 But I did because of that.
0:40:47 I wanted kids on campuses like at Stanford or wherever
0:40:49 to have a way of listening to an episode
0:40:51 and kind of have like a nice natural stop-off point
0:40:53 ’cause when you’re watching a show,
0:40:54 the ability to kind of pause.
0:40:56 So to me, interstitials are a way of creating
0:40:58 a little bit of those moments and breaks.
0:40:59 But then what I realized is that
0:41:01 as an artifact of this industry,
0:41:03 all the tools save your spot
0:41:05 in where you were playing last in your player.
0:41:07 Yeah, and so it kind of became a moot point.
0:41:09 So that experiment didn’t really work.
0:41:11 But the driver for it is this thesis
0:41:15 that Dixon says the internet’s made for snacking.
0:41:17 And podcasts can be beautifully long form,
0:41:19 but I also think that there’s a consumption mode
0:41:21 and very short micro-awaiting moments
0:41:24 to use a term from a park paper on this concept
0:41:25 that when you’re waiting in line,
0:41:27 can you listen to a quick bite of content?
0:41:29 Not just watch something on your thing,
0:41:31 not just listen to it.
0:41:32 Super interesting.
0:41:35 Yeah, and I wonder if we can fill micro-awaiting moments.
0:41:36 And so I wonder if interstitials
0:41:37 would play an interesting role
0:41:38 as a micro-awaiting moment.
0:41:40 To do that, I feel like you need really good discovery.
0:41:42 Oh yeah, because the likelihood of me
0:41:44 finding something, like hitting something
0:41:47 that I don’t like causes this fear in the listener.
0:41:48 Of course, unless you are then,
0:41:50 which currently is a model,
0:41:52 following a show or a personality.
0:41:54 You just have to have so much trust
0:41:56 that it’s gonna spin up the right thing.
0:41:57 Because right, ’cause in the cult of personality model,
0:41:58 people are following the person,
0:42:00 not necessarily the guests.
0:42:02 I’ll just say that the notion of short form audio
0:42:04 is one that’s constantly talked about.
0:42:06 It’s also, this is another reminder,
0:42:09 like what anchor essentially attempted to do
0:42:10 at the very beginning of the journey
0:42:12 and what audio tried to do.
0:42:16 And it’s one of those things where it didn’t,
0:42:17 both for those iterations, didn’t quite work.
0:42:20 We don’t know if it has anything to do with what people want
0:42:23 or if it’s the case that people were not ready for that yet.
0:42:24 I would argue the last one,
0:42:26 because we have seen over and over with technology,
0:42:28 there’s like five Facebooks
0:42:29 before there’s a Facebook that works.
0:42:31 I subscribe to the view of the world
0:42:33 in which human beings are generally plastic.
0:42:35 And so you could force a human being
0:42:36 to accept just about anything.
0:42:39 And so it’s a question of whether they are,
0:42:42 whether the right startup or the right platform
0:42:43 executes the right experiment
0:42:45 at the right time with the right group of people.
0:42:45 That’s just kind of how these things work.
0:42:48 – Yeah, human beings are creators of emergent behaviors
0:42:49 because this is where you can never predict
0:42:51 the second order effects of new mediums, right?
0:42:53 Like Twitter spawned all kinds of interesting
0:42:55 emergent behaviors and that is the fundamental truth
0:42:57 of the evolution of all kinds of technologies.
0:42:58 – But it’s all technically,
0:43:01 I mean, this is not like cutting edge science
0:43:03 or technology that doesn’t exist yet.
0:43:06 It’s just a platform hasn’t put all of these things in place.
0:43:10 But the fact of the matter is that stuff like social audio,
0:43:14 stuff like Anchor’s initial bit to be the Twitter of audio,
0:43:17 the stuff like audio, which is what Twitter was
0:43:18 before Twitter became Twitter,
0:43:20 which is essentially for audio,
0:43:25 is that we need proof that the consumer side
0:43:28 will lead the way that it will stick with them.
0:43:29 – But I think that’s the problem, right?
0:43:31 If we’re waiting to have like survey data
0:43:32 to see if this works,
0:43:34 then no platform is gonna experiment on it.
0:43:38 And this is why like new startups and new platforms
0:43:40 need to experiment with how to engage with podcasts.
0:43:43 I think it’s like a given that everyone would prefer
0:43:45 to have no ads in their podcasts.
0:43:48 And that’s why it’s up to all the platforms
0:43:50 to figure out how to create the tools
0:43:52 so creators can still make money
0:43:54 and make better money than I think what they’re making now.
0:43:57 I actually think creators are vastly underpaid in podcasts
0:43:59 and it’s up to the platforms to figure out
0:44:00 how to help them monetize
0:44:03 so we can get ads out of the podcast itself.
0:44:05 – I don’t think we’re disagreeing.
0:44:06 I think we’re sort of like coming at it
0:44:07 from opposite directions here
0:44:08 because my number one principle
0:44:09 when I’m thinking through these things
0:44:11 is that no matter what happens
0:44:13 in terms of feature development,
0:44:14 and no matter what happens to those
0:44:16 of whether certain platforms or tools
0:44:18 ends up innovating on these fronts
0:44:20 is whether creators themselves end up controlling
0:44:21 their destinies in this situation
0:44:24 and whether they control the means of distribution.
0:44:26 Like the entire wave,
0:44:28 the entire learnings of what happened of YouTube
0:44:30 and YouTube creators really haunts a lot of the people
0:44:33 that I speak to when I report week in week out.
0:44:36 That is the nature of the platform being capricious
0:44:38 and altering the way that they expect
0:44:40 their certain revenue projections over time.
0:44:44 And so I’m personally all for the ability
0:44:46 to create better tipping structures
0:44:50 to streamline Patreon and direct revenue sort of pathways
0:44:52 straight into the listening point.
0:44:55 But the fact of the matter is that all these pieces
0:44:58 connecting the listener to the creator
0:45:00 are all gonna be controlled by other people.
0:45:02 And I think this is the nature of things
0:45:06 that brings the most anxiety to the creator class right now.
0:45:07 Of course, the creator class would change over time
0:45:10 with changing expectations of how these things should work.
0:45:11 – Connie, I’m hearing you say
0:45:12 that there’s huge experimentation
0:45:14 that’s already happening in China
0:45:16 that we’re not even remotely seeing here.
0:45:18 That is also a case, however, where we have platforms
0:45:21 because to the point of tipping as an example,
0:45:23 Nick also mentioned Patreon is a good thing,
0:45:26 but clearly one of the big structural limitations in the US
0:45:28 is that people don’t obviously always
0:45:30 have their credit cards linked
0:45:31 and the way that you have in WeChat
0:45:33 or like that we’ve talked a lot about on the podcast.
0:45:34 – But like Apple Pay, right?
0:45:36 Or like in app payments.
0:45:37 – Right.
0:45:39 – Like people oftentimes will say like,
0:45:40 oh, our payment infrastructure
0:45:41 is why none of this stuff would work in the US.
0:45:42 – But you’re saying that’s not true.
0:45:43 – And I don’t agree with that.
0:45:44 – You’re saying that’s a cop out.
0:45:45 Okay, that’s fair.
0:45:47 So then maybe tipping needs to be done
0:45:47 at a more micro level.
0:45:49 – It’s not even just the money.
0:45:54 It’s also helping creators see who their real fans are.
0:45:56 – You want the 1,000 true fans.
0:45:58 – And right now it’s like a one-way conversation.
0:45:59 Like why can’t the platforms
0:46:01 that allow you to listen to podcasts
0:46:04 also allow me to record a quick message back to you.
0:46:06 And then also like use algorithms
0:46:08 to figure out which comments are valuable or not.
0:46:10 – Yeah, I think we agree in that sense.
0:46:11 Like platforms should basically do more
0:46:12 for their users and experiment.
0:46:14 I also agree with Nick though
0:46:16 on the point that he’s raising.
0:46:18 I don’t like the assumption going right to platforms
0:46:20 as the default owners of this
0:46:22 and the default aggregators of this.
0:46:24 And this kind of goes to Ben Thompson
0:46:26 who writes about aggregation theory a lot,
0:46:28 which is just a fancy name for network effects
0:46:29 in a lot of ways.
0:46:30 I mean, he’s very much more nuanced,
0:46:31 but it is at the end of the day,
0:46:33 the tension between centralization,
0:46:35 between bundling and unbundling,
0:46:37 and these cycles that constantly go back and forth
0:46:38 and waves.
0:46:40 – Yeah, especially with the YouTube platform.
0:46:42 Like you look at how the influencers
0:46:44 who started YouTube channels 10 years ago,
0:46:46 they have massive followings now.
0:46:48 – Yeah, and they’re dependent on YouTube,
0:46:48 which is Nick’s point.
0:46:50 – Yes, but also it makes it really hard
0:46:53 for a newcomer to come in and create a YouTube channel
0:46:55 and get to that one million subscriber count, right?
0:46:57 And in the similar way, like even now,
0:46:59 I hear about so many friends even starting podcasts.
0:47:02 – Oh yeah, it’s very competitive.
0:47:04 Like there are people who barely get
0:47:07 to 10,000 listens per episode and that’s insane.
0:47:09 – And it can get more competitive, right?
0:47:10 – Yes, very crowded.
0:47:12 – And so that’s why I think all these new platforms
0:47:14 are kind of interesting because as they try
0:47:16 and pick off creators to have them exclusive
0:47:19 to their platform, this dynamic may change.
0:47:20 But it’s really interesting ’cause like for video,
0:47:22 it was like winner-take-all.
0:47:23 – Which is not true in podcasting.
0:47:25 So I’m curious then for your guys’ take,
0:47:27 because back to the point of centralization
0:47:29 is to give people a better user experience
0:47:33 and choice and variety and ease of use.
0:47:36 What do we think about the moves of Spotify
0:47:39 and Apple in this space, especially given Spotify’s news
0:47:41 a few weeks ago of acquiring Gimlet?
0:47:43 – So I think the necessary background here
0:47:45 is that for the longest time,
0:47:47 Apple has been a primary distributor of podcasting.
0:47:51 It used to be somewhere upwards of like 80%.
0:47:55 We believe it’s now somewhere between like 60 to 75 maybe.
0:47:58 But with today’s infinite dial, so studies,
0:48:01 it suggests that Spotify has grown their particular share,
0:48:04 but we’re nowhere seeing like 50/50 parity or something.
0:48:06 We’re just not seeing that just yet.
0:48:09 And so Spotify, the business case for Spotify
0:48:12 going to podcasting or spoken audio at large
0:48:13 is pulling their business model away
0:48:16 for being completely tethered to the dynamics
0:48:18 of the music industry.
0:48:20 Which is to say a music industry that’s very,
0:48:22 that’s been very costly for them to play in
0:48:25 and it’s been very costly for a lot of music platforms
0:48:29 to try to come in and take over essentially distribution power
0:48:30 from the music labels.
0:48:33 And so Spotify looked in the situation and go,
0:48:36 we see a category of content here
0:48:39 that is significantly cheaper, that is still unwieldy
0:48:40 and it’s still untamed.
0:48:42 And we can try to figure out our place in that world
0:48:45 and sort of push us off the narrative
0:48:46 of just being a music company
0:48:48 and giving ourselves other avenues of growth.
0:48:50 – And that impacts like the company’s branding
0:48:51 and positioning, right?
0:48:53 It’s no longer seen as just a music company
0:48:56 but like an audio destination for all kinds of audio.
0:48:57 – Absolutely.
0:49:00 – And in that same way that Spotify was also known
0:49:02 for helping you discover stuff you like.
0:49:04 I think this is also a reflection they’re realizing
0:49:06 like podcasting has gotten so large
0:49:08 in terms of how many new creators are jumping in.
0:49:12 – Can you guys address the exclusive shows angle?
0:49:14 – I actually see both models working really well.
0:49:16 I think if you have a platform
0:49:18 where anyone can submit a podcast, that can be great.
0:49:19 You can have long tail creators.
0:49:21 But I also think a podcast that says,
0:49:24 “Hey, I’m going to curate the top two, 300 podcasts,”
0:49:25 can also work really well too.
0:49:27 Both have great monetization potential
0:49:30 if they want to be niche or just long tail.
0:49:31 – Yeah.
0:49:34 And so, I mean, we have a couple of situations
0:49:36 that’s probably, that’s pretty interesting right now.
0:49:39 So there’s been a paid podcasting attempt
0:49:41 for quite some time called Stitcher Premium.
0:49:42 It’s a sort of exclusive layer
0:49:46 on top of a fairly popular third party podcast
0:49:48 I have called Stitcher, which is part of Mintroll.
0:49:49 And earlier this week,
0:49:51 I saw the formal announcement of a company called Luminary
0:49:53 that’s attempting to be,
0:49:57 they literally use the tagline sort of Netflix for podcasts,
0:49:58 which is going to be difficult
0:50:00 because the primary challenge there
0:50:03 is that they’re trying to build a catalog of things
0:50:06 that you could argue has free alternatives
0:50:07 almost everywhere else.
0:50:11 But I have made this argument a couple of times before
0:50:13 and I don’t think it’s stuck yet,
0:50:15 but I think we should be looking at Headspace
0:50:17 as a really interesting comp here.
0:50:18 – What do you mean by that?
0:50:21 – So Headspace essentially is an on-demand audio app
0:50:23 that performs a very specific function
0:50:25 that provides a very specific genre
0:50:27 of on-demand audio content.
0:50:30 It fits into one’s life in a very, very specific way.
0:50:32 You know exactly what you’re paying for it
0:50:35 and you can’t find quality alternatives elsewhere
0:50:37 of that platform generally speaking.
0:50:40 And so we’re in a situation where we,
0:50:45 there is some lane here to build a paid podcasting platform.
0:50:46 The question is like,
0:50:48 will there be a really, really big one
0:50:50 or will it be a series of smaller ones
0:50:52 that ends up being bundled over the long run?
0:50:53 And I think we are at the very beginning
0:50:55 of beginning to answer that question.
0:50:56 – Yeah, I agree.
0:50:59 I would also say it does work for people in the know
0:51:00 in terms of the history of podcasting
0:51:02 in the recent past five years.
0:51:05 I think I’ve seen versions of Netflix for podcasts
0:51:06 and one of them I remember,
0:51:09 I don’t even know if you remember this, Nick, is 60DB.
0:51:11 – I do, acquired by Google.
0:51:12 – Right, they got acquired by Google
0:51:14 and I don’t know what Google’s doing inside.
0:51:16 But the problem is like, it’s still a subscription, right?
0:51:17 – Why is that a problem?
0:51:18 I would love a subscription service.
0:51:21 – But I think I would rather pay for a specific podcast.
0:51:23 – Oh my God, yes!
0:51:25 So my number one complaint.
0:51:27 So everyone at A6 has either heard my whole thesis
0:51:29 on this a million times, which is first of all,
0:51:32 podcasting is such a homogenous word.
0:51:35 We’ve defined it technically and in user experience,
0:51:38 but when I think of the content side of podcasting,
0:51:41 I like to split it into a simple taxonomy
0:51:42 of three types of shows.
0:51:43 There are personality based,
0:51:46 what I call cultur personality based shows.
0:51:48 You know, like the Azure Klein show, the Tim Ferriss show,
0:51:49 and my God, by the way,
0:51:51 most of them are named after male names.
0:51:53 Let’s just go off on that one.
0:51:56 Then the next category besides cultur personality shows
0:51:58 is what I call like more collectives
0:52:00 or like brands or voices of groups of people,
0:52:02 which is what I would consider the A6 and Z podcast.
0:52:05 And then the third show is a much more produced serialized
0:52:07 like serial or narrative type of podcasting show.
0:52:09 That’s a very loose broad taxonomy.
0:52:11 But if you think of these three categories,
0:52:13 discovery for each of them,
0:52:15 it is so frustrating to me,
0:52:17 again, going back to this containerization model,
0:52:20 that discovery is limited at a show level.
0:52:22 Again, structurally, it’s terrible.
0:52:23 I keep bringing up structure
0:52:25 because while everyone is so caught up
0:52:27 in talking about discovery and monetization,
0:52:29 they’re missing the big opportunity here,
0:52:29 the bigger thing,
0:52:32 which is defining a new unit of analysis
0:52:34 of episodes versus shows
0:52:36 and possibly even more granular units within that.
0:52:37 I hate that we’re still stuck
0:52:39 in the legacy ways of thinking about this.
0:52:41 When we can bypass things with software,
0:52:43 we don’t have to have the CD stage first
0:52:45 to get to the individual song stage.
0:52:47 And I also talk to analytics people all the time
0:52:49 about how feeds limit what tools
0:52:51 outside the big platforms can do,
0:52:53 like not being able to tag podcasts by topic.
0:52:55 Because I believe we all need the ability
0:52:58 to find episodes, not entire shows.
0:52:59 I like Berks and Birdwatching.
0:53:01 I should be able to find any episodes on those topics
0:53:02 regardless of show.
0:53:05 Connie, you like real estate and crafts.
0:53:07 You should be able to fucking find those topics
0:53:09 and discover every single episode on those.
0:53:11 But see, this is where a transcription and tagging
0:53:14 and just a much smarter internet native way
0:53:19 of displaying podcasts makes all of that automatic.
0:53:21 There is no technical reason
0:53:24 why we cannot automatically transcribe all the top podcasts.
0:53:27 And again, I think subscription for an entire platform
0:53:29 doesn’t necessarily make sense for podcasts.
0:53:31 Like maybe it’s a good starting point.
0:53:31 – It makes sense.
0:53:33 – It’s a decent starting point.
0:53:35 But hey, maybe you’re a podcaster
0:53:37 and you’re only gonna create a couple episodes,
0:53:39 but it’s really, really good content.
0:53:41 Like why can’t you let people pay for that?
0:53:42 And again, I think it’s not just about
0:53:44 the money that’s getting transferred.
0:53:46 The problem right now is like,
0:53:48 there’s certain podcasts that I would happily pay for
0:53:50 and a bunch that I would not pay for.
0:53:51 – Yeah, exactly.
0:53:53 – And right now these platforms don’t give you that option
0:53:56 to say, hey, these are the ones that I ascribe more value to,
0:53:58 much less even to say I like this one or a comment
0:53:59 or anything.
0:54:01 – I mean, right, well, you’re also looting at the,
0:54:02 when you talk about the transcription of shows though,
0:54:05 is like, and this is obviously another key point of discovery
0:54:07 is it goes again parallel to the web.
0:54:08 There was a curated links phase
0:54:10 that preceded the portal phase
0:54:11 that preceded the search phase.
0:54:12 – Give it a couple of months
0:54:13 ’cause Google is working on that
0:54:16 and they are beginning to beta test all of that
0:54:17 in terms of transcriptions,
0:54:19 in terms of whether a podcast shows that
0:54:22 or audio at large shows up in the search engines.
0:54:25 – But they’re not even gonna have all the podcasts, right?
0:54:26 The exclusive podcast on Luminary,
0:54:28 Google’s not gonna have.
0:54:29 – Well, then that’s Luminary’s problem
0:54:31 at the end of the day.
0:54:34 Like, I think Google’s situation is
0:54:36 that they’re gonna pull in the RSS feeds
0:54:39 or they’re gonna pull in podcasts
0:54:42 that exist on the open sort of ecosystem
0:54:43 and they’re gonna transcribe it
0:54:45 and they’re gonna index it within the search engine.
0:54:45 – I guess what I’m saying, like,
0:54:49 rather than rely on Google as the search engine to do it,
0:54:52 at least very basic transcription and search,
0:54:55 all the platforms should be able to do it themselves.
0:54:57 And like, imagine all the other stuff
0:54:57 you’d like to talk on to it.
0:54:59 Like, hey, maybe in addition to the podcast
0:55:02 on podcast today, you have like five links
0:55:04 that the listener can go in and click on.
0:55:05 – Click while you’re playing.
0:55:08 I would love the ability to embed a link natively
0:55:10 instead of in the show notes.
0:55:12 – Or a PDF that you can then charge more money for, right?
0:55:13 Like, hey, to read more.
0:55:16 Or maybe like all the like parts that you cut out.
0:55:18 Like those special clips.
0:55:22 Maybe someone pays like a dollar to untap it, right?
0:55:25 – I agree, I would love to pay for stuff
0:55:27 that I want, but it’s a situation.
0:55:29 I mean, look, I’m just a normal person
0:55:31 that has like normal finances.
0:55:32 I don’t think I’m going to spend
0:55:35 more than X amount of money per month on entertainment goods.
0:55:37 – I agree that people aren’t going to spend
0:55:40 like tons and tons of money on podcasts.
0:55:43 But I think the better creators would get more rewarded
0:55:45 for their content, which means new creators
0:55:49 that don’t have, you know, crazy followings to begin with
0:55:50 can still get paid.
0:55:51 – No, I agree.
0:55:54 But the question is like, I’ve heard the line of argument
0:55:57 that it’s really hard to become a Patreon supporter
0:56:00 or find a way to give you money to a creator
0:56:01 that you really support.
0:56:04 And I do wonder the nature of that assumption.
0:56:06 There’s only so much frictionless,
0:56:08 so much attacking off the friction
0:56:10 that we can introduce to that layer
0:56:13 that we find what the maximum most efficient point of,
0:56:16 you know, listener supporting creators ends up becoming.
0:56:19 – Okay, but that is assuming that I want to support
0:56:21 that specific creator.
0:56:24 Maybe I only want a tip for that specific episode.
0:56:26 Maybe I don’t actually want to give the tip to Sonal,
0:56:29 but I want to give it to Connie and Nick, right?
0:56:30 – That’s fucked up, but okay.
0:56:31 – I mean, like, no, seriously,
0:56:35 like the way that we are thinking about paying,
0:56:37 it’s not necessarily the same person
0:56:40 who’s speaking even on every podcast.
0:56:44 And the fact that we aren’t able to more directly indicate
0:56:46 and tie our money to the products
0:56:48 that we truly, truly value,
0:56:50 I just think that’s really lost opportunity.
0:56:52 – Well, so let me push back on that a little bit, right?
0:56:57 So the assumption here is that the show is made up of,
0:57:00 that this show is made up of you, me,
0:57:03 and, you know, and let’s say a producer,
0:57:06 and let’s say, you know, a couple of people behind the scenes.
0:57:10 But I think the reality is that most of the production
0:57:13 structures constitutes a lot more people
0:57:15 than the listener can ordinarily see.
0:57:18 So what a listener, who a listener is moved to tip,
0:57:19 doesn’t necessarily translate
0:57:21 to who’s actually creating the content,
0:57:23 because that’s a, there’s an entire,
0:57:24 there’s an entire sort of conversation over here
0:57:27 in terms of like, how listeners value the creators,
0:57:29 how they sort of make assumptions
0:57:30 about what they want to support,
0:57:32 how they want to support, why they want to support.
0:57:34 There’s a, there’s a huge, there’s a sort of,
0:57:36 there’s a, there are a lot of gaps in information there
0:57:39 to give all that power to listeners, I think.
0:57:42 There still should be some middle point there
0:57:43 in terms of how support works.
0:57:45 – I’m not saying it can’t go to a show,
0:57:48 but a show is, even then supporting a show
0:57:50 is different than supporting a person.
0:57:51 – I’m hearing both of you guys.
0:57:53 I also hear that there is a lot more granularity you can do
0:57:55 because we have an infinite web.
0:57:57 And the fact that we define things as containers
0:58:01 of a feed or a podcast or a show or an episode,
0:58:03 these are all things we can redefine in this new era.
0:58:05 And I agree it’s very early innings.
0:58:07 I also agree so wholeheartedly
0:58:10 that a thriving content ecosystem
0:58:12 has to support its creators.
0:58:13 And I know you’re arguing for that too,
0:58:14 ’cause you’re arguing in this framework
0:58:16 that people have more comments,
0:58:18 they have more ability to interact with their top fans.
0:58:20 You’re saying the same thing from a different angle,
0:58:23 but from a pure business perspective
0:58:25 in terms of being able to run a business
0:58:26 that is based on podcasting,
0:58:28 there does need to be a middle layer
0:58:31 where creators can get the value they need.
0:58:33 And for me, the open question, quite honestly,
0:58:35 is whether the assumption or thesis
0:58:36 that happened with blogging,
0:58:39 and this is actually the initial premise of Anchor as well,
0:58:41 which Spotify also acquired,
0:58:43 is whether there will be now a new wave
0:58:47 of mobile podcast creators who don’t have tools.
0:58:48 And again, with tools like Descript,
0:58:49 which democratize editing,
0:58:52 with tools like just being able to record a podcast
0:58:54 in your phone without having to have like a fancy
0:58:56 Zoom recorder or mics.
0:58:58 Like that is an open question to me.
0:58:59 And I don’t know if people are really gonna listen to that
0:59:02 because we have this discovery problem in the ecosystem.
0:59:04 And yet there are a few centralized choke points
0:59:05 that are coming up now,
0:59:08 particularly iTunes, Spotify, Pandora, et cetera.
0:59:11 By the way, on this notion of growing the podcast ecosystem
0:59:13 and the total addressable market size,
0:59:15 what do you guys make of radio here?
0:59:17 ‘Cause that has its own set of structural and policy
0:59:19 and regulatory considerations.
0:59:21 I’m curious for your guys’ take on that aspect of it.
0:59:24 – Well, I think the market size for podcasts
0:59:27 is multiples larger than what it is today.
0:59:30 And I do think it’s tapping into radio,
0:59:32 but it’s also tapping into other things
0:59:34 that do really well in the audio format.
0:59:36 So like audio books that are self-published,
0:59:39 for example, things that are related
0:59:41 to the knowledge sharing market for adult learning,
0:59:44 I think really, really work well for audio formats.
0:59:46 There’s a lot of stuff where I don’t need to watch someone
0:59:49 talking on YouTube with like a whiteboard,
0:59:50 ’cause usually they don’t even really need
0:59:52 a whiteboard, honestly.
0:59:54 – Although there is a funny argument to be made,
0:59:56 which is that people also listen to audio on YouTube.
0:59:58 And in fact, Chris Anderson was telling me his son
1:00:01 watches entire movies on YouTube in audio mode only,
1:00:03 which I think is freaking fascinating.
1:00:06 – I also just listen to movies on YouTube all the time.
1:00:08 – I mean, yes, YouTube also works for audio.
1:00:11 But I mean, just imagine topics around business,
1:00:14 topics around finance, topics around parenting,
1:00:19 even like meditation and how to like improve your life.
1:00:21 All of that stuff works really well in the audio format
1:00:24 and doesn’t necessarily always require video.
1:00:26 So anyways, those kinds of podcasts,
1:00:28 at least today, are not the mainstream podcast, right?
1:00:31 ‘Cause today, mainstream podcasts are again around shows
1:00:33 versus individual pieces.
1:00:35 Instead of being like a TV show,
1:00:38 why can’t you be like a movie?
1:00:40 And it’s like this one-time thing that goes really deep,
1:00:42 which is really valuable content.
1:00:43 And I think if you take that kind of definition
1:00:46 for a podcast, it is so massive.
1:00:48 – So let’s begin the whole notion of treasure radio, right?
1:00:53 Like we, it is an industry completely utterly defined
1:00:55 by the nature of the distribution point.
1:00:57 It is antennas going out, it hits you in the car,
1:00:59 it hits you in the radio,
1:01:01 and it commands billions and billions of dollars.
1:01:03 My interpretation of that industry
1:01:06 and its sort of strange persistence
1:01:08 has a lot to do with advertising relationships.
1:01:13 It is still the medium that has the most easy reach
1:01:16 for, and that hits the most Americans,
1:01:19 and has the most like history behind it.
1:01:21 And so if you’re an advertiser,
1:01:23 you feel significantly more comfortable
1:01:26 because that is your default industry to fight into.
1:01:29 And I feel like that feeling of safety and confidence
1:01:31 is something that should not be understated.
1:01:34 And it’s something that all digital media sort of sectors,
1:01:36 including podcasting and beyond it,
1:01:37 should sort of be cognizant of like,
1:01:41 that’s one of the primary things driving that situation.
1:01:44 – And I think another reason why ads work so well on radio,
1:01:46 and it works well on podcasts too.
1:01:49 Sometimes it comes in the voice of the creator
1:01:51 versus the voice of the brand
1:01:53 or like some other random voice.
1:01:54 – 100%, yep.
1:01:56 The sort of buzzword that podcast industry executives
1:01:58 use all the time is intimacy, right?
1:02:02 And that’s why we sort of hear the host rat ad being
1:02:05 the pinnacle of the podcast advertising experience.
1:02:10 And it’s also its most valuable ad slot, ad type.
1:02:14 And so, that’s why like a lot of the genres
1:02:16 that you pointed out when you sought to build
1:02:18 the taxonomy of a podcast is very personality driven.
1:02:20 It’s very people driven.
1:02:22 That’s why there’s a little bit of trickiness
1:02:24 when we talk about something like fiction podcasts
1:02:26 or non-narrated podcasts and how you monetize that,
1:02:27 how you build that relationship.
1:02:29 – Yep, I agree.
1:02:31 It’s very much native to the content of the storytelling
1:02:32 and the medium in that context.
1:02:33 – Absolutely.
1:02:35 And at some point we will see innovations in business models,
1:02:37 innovation in distribution in the structure,
1:02:41 in the sort of like container of it
1:02:45 that will alter the advertising assumptions here
1:02:47 or the monetization assumptions here.
1:02:48 But I just want to go back to,
1:02:50 to tie it back to the very first thing we talked about.
1:02:52 The definition of it, what we think about it,
1:02:53 how we think about it,
1:02:55 our assumptions of it being personality driven
1:02:57 or show driven or episode driven,
1:02:59 it needs to fragment at some point.
1:03:00 It kind of needs to break up
1:03:04 because it needs to be a universe that can hold
1:03:06 a bunch of different kinds of experiences
1:03:08 in the same way that when we think about television,
1:03:10 we’re not just talking about breaking bad.
1:03:12 We’re talking about real fortune.
1:03:15 We’re talking about like so many different kinds of styles.
1:03:17 – We’re talking about like American Idol,
1:03:19 which is such an important movement around the world
1:03:21 when you think of the future of content.
1:03:24 And TikTok and challenge-based things, right?
1:03:26 But the point is that there is a whole,
1:03:28 that was a huge fun reality TV, like–
1:03:30 – Or things around holidays.
1:03:31 – Right. – Like the Super Bowl.
1:03:33 Once a year type events, right?
1:03:35 Like this is again, like we have to break away
1:03:36 from the show concept.
1:03:37 – Exactly, I agree.
1:03:39 And to your point, just on a terminology thing, Nick,
1:03:41 I would say the word fragmented,
1:03:44 we’ve used that in the context of industry fragmentation.
1:03:46 To me, it’s more how to make a homogenous term
1:03:49 more heterogeneous and have more diversity
1:03:50 embodied within it.
1:03:53 – Yeah, and so I think the question here is sort of like,
1:03:56 do we think about the spread as on the one hand,
1:03:58 you have prestige TV, and on the other hand,
1:03:59 you have reality TV?
1:04:01 Or do we think about the spread more like,
1:04:02 on the one hand, you have Netflix,
1:04:04 on the other hand, you have Twitch?
1:04:06 Like, is that the way we’re gonna think
1:04:08 about the ecosystem at large?
1:04:09 Or are we gonna be a bit more specific
1:04:11 when we use the term, when we do our coverage?
1:04:13 I think that’s also, you know,
1:04:15 what we talk about is this important
1:04:16 about how we talk about it, so.
1:04:17 – Do you wanna say one more thing?
1:04:19 – No, I wanna ask you questions,
1:04:20 ’cause there’s so many of my friends today
1:04:22 who want to create podcasts.
1:04:25 And you created the A16Z podcast from scratch
1:04:25 to what it is today.
1:04:28 – To full credit, it was actually created before I joined,
1:04:30 and I took over at three months in the production
1:04:31 and then I’m hosting it a year later.
1:04:33 – Okay, but I know like the user base massively,
1:04:36 the listenership massively grew under your care.
1:04:37 So I think you should talk about, you know,
1:04:39 what are your tips for someone
1:04:40 who just wants to get started on podcasts?
1:04:42 – Oh my God, that could be its own episode,
1:04:43 and I’d love to do that someday.
1:04:45 So I guess maybe on the spirit of creation,
1:04:46 which is a theme of this episode,
1:04:48 I’ll just say some very quick, high-level takeaways,
1:04:50 which is one, and I do this when I give a lot of talks
1:04:52 and talk to founders about how to start their own things
1:04:53 for their company.
1:04:54 – Yes.
1:04:55 – I think the fundamental thing people need to ask
1:04:58 is where they are in the taxonomy of shows that I outlined,
1:04:59 because that is sort of a flow chart
1:05:00 for what your next step is,
1:05:01 for either how to hire, build,
1:05:03 or just what tools to use.
1:05:05 If you’re a cult of personality show,
1:05:07 the things you can do are very different
1:05:08 than if you’re doing a brand show,
1:05:10 than if you’re doing a serialized narrative show.
1:05:11 So the first thing I always ask people is,
1:05:13 what is your goal and what kind of show you want?
1:05:14 ‘Cause it’s a very crowded environment.
1:05:17 So then the next thing is, attention is scarce.
1:05:18 With podcasting, maybe less so
1:05:19 because you have a bit of a captive audience
1:05:23 in a phone or commute or workout or a, you know,
1:05:26 a situation where they are on a hike or a walk
1:05:27 where they’re only gonna listen,
1:05:29 but even then you are competing with other shows.
1:05:31 So the number one thing is how you differentiate your show.
1:05:34 And one of the number one ways to get a lot of listeners
1:05:37 is to have a lot of episodes, a variety of episodes.
1:05:39 And so the other way to do it then is to enforce seasonality
1:05:40 where you drop a season of episodes
1:05:42 and then just like drop them in like, you know,
1:05:43 record 10 and drop them.
1:05:43 – So basically if you wanna do it,
1:05:45 it’s like a long-term commitment?
1:05:47 – I don’t think it has to be
1:05:48 because as you’ve also talked about,
1:05:53 there’s a lot more tools emerging and startups emerging
1:05:55 that will allow like experimentation and sharing.
1:05:57 – But for now, it has to be a long-term commitment.
1:05:59 – I think Ben Thompson said this.
1:06:00 Headcount is the biggest predictor
1:06:01 of how much people invest in something.
1:06:05 And I think if a company has people dedicated to podcasting,
1:06:06 then you know they’re serious about podcasting,
1:06:07 I would say it’s as simple as that.
1:06:09 So you do have to invest in it to make it happen.
1:06:10 – Yeah, but on the simple mechanics,
1:06:11 one of the most beautiful things is the thing
1:06:12 that I complained about,
1:06:14 which is the very thing that also is the best thing
1:06:16 about podcasting is the feed ecosystem
1:06:20 makes it so easy to simply record an episode,
1:06:21 distribute wherever you want.
1:06:23 And then it’s about using the feed ecosystem
1:06:25 to then freely put your feed out all into the world
1:06:26 because it’s as simple.
1:06:28 All iTunes is doing is taking a bunch of feeds.
1:06:30 All we had to do when we got on Spotify
1:06:31 was like feed them our feet.
1:06:34 And people can self-select the feeds into different apps.
1:06:35 So you can use that to your advantage.
1:06:37 And there’s a ton more about the content side,
1:06:39 but the one thing I do wanna say is that
1:06:42 the editing process is now becoming democratized
1:06:43 because there’s a huge gap.
1:06:45 I would often put it as the analogy
1:06:46 between design and manufacturing
1:06:48 where there is a design phase and a manufacturing phase
1:06:50 and you need to close and tighten that feedback loop
1:06:52 to get the best content out.
1:06:54 And what’s happening with tools like Descript,
1:06:55 you tighten this feedback loop
1:06:56 between design and manufacturing
1:06:59 where you no longer have to separate creators and writers
1:07:02 from the technical skills of actually editing a podcast.
1:07:03 So that’s really important
1:07:05 because there’s a whole bunch of tools now
1:07:07 that are on the analytic side that will,
1:07:08 and there are a new bunch of distribution tools
1:07:10 that are now connecting all these pieces
1:07:11 and supporting creators.
1:07:12 So it’s a very quick answer.
1:07:14 There’s so much more you could say on this.
1:07:15 – I think we need to do another podcast
1:07:17 on how to create podcasts.
1:07:18 – Well, that would be fun.
1:07:20 Thank you for joining the ASICS NC Podcast.
1:07:21 – Thank you so much for having me.
1:07:22 I really enjoyed this talk.
1:07:23 – Thank you.

0:00:06 Hi, and welcome to the A16Z podcast. In this episode, another of our hallway conversations,
0:00:11 Benedict Evans and Steven Sinovsky go over the recent Apple event, Apple Event Plus,
0:00:15 and consider what it all means in terms of big company strategy and the evolution of
0:00:20 Apple moving to services. Please note that the content here is for informational purposes only,
0:00:25 should not be taken as legal business tax or investment advice, or be used to evaluate any
0:00:31 investment or security and is not directed at any investors or potential investors in any A16Z fund.
0:00:35 For more details, please visit a16z.com/disclosures.
0:00:40 Welcome to an episode of the A16Z podcast. I’m Steven Sinovsky.
0:00:41 I’m Benedict Evans.
0:00:47 And today we’re going to talk a little bit about the announcements at Apple’s sort of new look
0:00:48 event. The Apple Plus event.
0:00:55 The Apple Plus event, the Event Plus. But I want to start off because I haven’t paid
0:01:00 that much attention afterwards, but certainly during the event there was just
0:01:04 so much build up as usual, which is good because they’re a huge company and people pay attention.
0:01:11 But then so much sort of, oh, it was weird, it was different, and it wasn’t what we were
0:01:16 expecting and all this kind of stuff. And I want to take a step back because I’m completely
0:01:22 fascinated by Apple moving to services, which is obviously a huge deal.
0:01:26 And I want to talk about it at the strategic sense, not necessarily the financial.
0:01:30 This isn’t really about the finances or the business side as much as the strategy.
0:01:32 And so one thing that’s super interesting, just to add to the gate,
0:01:36 is Apple has 360 million or so subscribers worldwide.
0:01:42 That’s a sort of a vanity number because it includes subscriptions to apps in the App Store.
0:01:46 But because Apple gets a cut, at least for year one, it’s a relevant number.
0:01:49 So I try to find other subscriptions that were big.
0:01:53 The only one I came close was China Mobile, which is like a billion.
0:01:58 And then after that, Benedict’s old friends in Europe, Vota and Telefonica.
0:02:02 Yeah, the global mobile operators have got hundreds of millions.
0:02:04 Nobody else is as big on a global scale.
0:02:09 But even Vota and Telefonica, at least the current numbers are under that 360 number,
0:02:10 but it’s very close.
0:02:17 Yeah, it’s interesting if you sort of sit and make a list of how many different places
0:02:22 is Apple kind of putting a tap onto the tree and taking some sap out.
0:02:26 So how many different places do you have an opportunity to pay Apple $10 a month?
0:02:29 It’s a little bit like the joke about cable TV.
0:02:33 Like you cancel your cable for $100 a month and then you sign up to this for $10 and this
0:02:36 for $10 and this for $10 and you end up spending $100.
0:02:42 You could probably, pretty soon you’ll be able to pay Apple $100 a month in subscriptions.
0:02:47 Right, and the interesting thing, and of course it is a good joke about cable TV and unbundling.
0:02:52 Now, one of the things that I think that’s super interesting about that is it is replacing
0:02:58 a place where you have no choice effectively, especially in the U.S. market for television,
0:03:01 but not the case for news necessarily.
0:03:06 But it’s replacing it with a feeling of self-determination and control,
0:03:07 which I think is really important.
0:03:11 And I want to come back to something that just resonated for me throughout
0:03:14 each of the main new plusy things.
0:03:18 And that was the sort of this positioning underlying everything they said.
0:03:24 And it’s sort of the number of times in this consistency across each new subscription $10
0:03:29 a month thing that they talked about it being private and having no tracking between it being
0:03:30 curated and using humans.
0:03:36 So I heard this, somebody on Twitter said that they were a publisher and they had a
0:03:42 big advertising deal for their content on Apple News.
0:03:44 They had a big third-party advertiser.
0:03:48 The Apple News team blocked the advertiser because it wanted tracking that they weren’t
0:03:48 willing to give it.
0:03:50 Guess who the Apple advertiser was?
0:03:51 Apple.
0:03:51 Oops.
0:03:57 Apple’s advertising team was demanding tracking that Apple’s news team was not
0:03:58 going to allow a publisher to do.
0:04:03 Well, I’ve been in the situation of the right hand, left hand on tracking in particular,
0:04:05 and I know how tricky that one can be.
0:04:10 But going back, so it was private, no tracking, curated with humans was very important.
0:04:12 And that’s obviously a statement they’re making.
0:04:15 Also, no ads and family.
0:04:19 And that’s, of course, when you subscribe to a magazine or cable, it’s for your family too.
0:04:21 So it’s not like some giant leap.
0:04:25 But particularly on games, which today aren’t quite shared.
0:04:27 Obviously, Netflix does a great job on family.
0:04:34 And so there’s a big kind of sense of kind of the brand, the fuzzy brand feeling here,
0:04:36 which is not about the technology and the product.
0:04:38 It’s about privacy and curation.
0:04:42 The sort of, there was sort of gossip coming out of Hollywood that
0:04:44 Apple kept pushing back on the TV show.
0:04:46 He’s saying it wasn’t family-friendly enough.
0:04:50 They were just going, “Tim Cook apparently was writing this as being too mean.
0:04:51 Can you be less mean?”
0:04:56 And, you know, that’s a very different to where the kind of the direction of travel
0:04:59 of TV has been in the last five and 10 years with other subscription services,
0:05:02 which is being less family-friendly and more edgy and more alternative and pushing the boundaries.
0:05:04 Interesting challenge for Apple.
0:05:05 Of course, they end with April Winfrey.
0:05:07 Start with Steven Spielberg and end with April Winfrey.
0:05:11 They didn’t show lots of action movies in the interim.
0:05:13 And you’re talking about services.
0:05:17 I mean, there’s something that sort of intrigues me here that for a long time,
0:05:20 you would look at the App Store and the 30%.
0:05:22 And people would say, “Apple is doing X and Y and Z.
0:05:25 I don’t like on the App Store and they’re doing it for the money.”
0:05:29 And you would say, “No, because actually if you think about what 30% of the App Store is,
0:05:32 it’s tiny in proportion to the overall Apple business.
0:05:37 And the purpose of the App Store is to sell iPhones and to make the iPhone a great experience.”
0:05:40 And yes, they’re making a little bit of money from it kind of on the side,
0:05:43 but actually it’s there to sell iPhones.
0:05:48 And I think that’s still sort of true, except there’s now 800 million iPhones
0:05:50 and over a billion iOS devices.
0:05:53 And I think Apple said 500 million people open the App Store every week.
0:05:58 And so 30% of those purchases has become a real number.
0:05:59 Yeah, yeah.
0:06:01 And so there’s a kind of an interesting thing across
0:06:03 many of these tech companies actually,
0:06:06 that something that was kind of non-core or non-strategic,
0:06:07 all sort of not there for the money.
0:06:11 The money that you weren’t really there for has now become a really big number.
0:06:15 Well, and that’s one of the things about the scale that makes this all very interesting.
0:06:17 Because I think that this move to services,
0:06:21 people are just having trouble getting their heads wrapped around it.
0:06:28 And it’s a very natural progression for any company when it starts to reach a mature level,
0:06:35 which is, okay, are we now effectively selling things to our “installed base” enough?
0:06:41 And in the world of enterprise software, every company is in the transition to cloud space.
0:06:43 They’re taking their existing customers,
0:06:46 and they’re reselling in their old software about on a cloud thing.
0:06:48 And in the enterprise space, that’s like heroic,
0:06:51 and it’s viewed as this brilliant strategy.
0:06:53 And here’s Apple doing the same thing.
0:06:55 And it’s like, oh, this is a recognition that they’re doomed,
0:06:57 and it’s the end of the line for them.
0:07:02 And it’s a very weird thing to sort of see because it’s both natural.
0:07:05 And unlike all the other enterprise businesses,
0:07:11 Apple is saturating the population, not some artificial number,
0:07:13 like number of computers and marketing people.
0:07:15 There’s five and a half billion adults on Earth,
0:07:17 and four billion or so people have a smartphone,
0:07:20 and 800 and 900 million of those now are iPhones.
0:07:22 I mean, we should probably just kind of,
0:07:24 if you’re people who haven’t been obsessed with this stuff
0:07:24 and haven’t seen the event,
0:07:27 we should probably talk specifically about this before they’re announced.
0:07:28 So they did four announcements.
0:07:31 So the first is that they’ve extended the existing news product,
0:07:33 which has been, so they have the Apple news product,
0:07:34 has been kind of a sleeper hit.
0:07:36 It draws a lot of traffic for publishers.
0:07:38 It’s, again, manually curated,
0:07:40 so they don’t let any, theoretically,
0:07:42 they don’t have kind of random junk in there.
0:07:46 Apple News now gets this company they bought last year called Texture,
0:07:52 which is sort of PDF magazines plus reformatted magazines,
0:07:55 $10 a month, and there’s, I think, 300 magazines on the title,
0:07:56 and there’s some notable exceptions,
0:07:58 but basically everything is in there.
0:08:00 Like the New York Times isn’t in there,
0:08:03 but National Geographic and all sorts of other stuff is in there.
0:08:04 Loads and loads of magazines.
0:08:05 And you pay your $10 a month,
0:08:08 then that sits within the news curated experience,
0:08:10 so it will suggest stuff from titles
0:08:11 that you wouldn’t necessarily have looked at.
0:08:13 It will say stuff will flow up.
0:08:17 And the picture magazine, of course, here is found money,
0:08:18 because these people wouldn’t have bought your magazine.
0:08:20 They won’t read all of it, but they’ll read five stories,
0:08:22 and you’ll get some money from that.
0:08:24 People in magazine business are saying,
0:08:26 A, you’re giving up customer ownership,
0:08:28 and B, you’re giving Apple 50%.
0:08:30 An awful lot of people don’t get customer ownership.
0:08:33 Well, this is me, like yoga magazines.
0:08:36 Like the only time I really buy yoga magazines is at the airport.
0:08:37 So this is the thing, they say this,
0:08:40 you’ve got people at kind of top right corner
0:08:42 of the quadrant titles saying,
0:08:45 you’re insane, you shouldn’t give up customer ownership.
0:08:46 You look at these titles.
0:08:48 Most of those titles don’t have customer ownership,
0:08:50 and will never get it.
0:08:52 And so there’s a sort of a found money conversation in there.
0:08:53 So there’s the news product.
0:08:54 That’s kind of interesting.
0:08:55 There’s some execution questions.
0:08:56 You could go and do the micro thing,
0:08:59 which we weren’t on what’s going on there.
0:09:01 There’s news plus, then they have a credit card.
0:09:03 Well, let’s slow down for a second.
0:09:04 One more thing on news.
0:09:04 Well, shall I go?
0:09:05 I’ll do the four bullets.
0:09:08 So there’s news, they’ve extended Apple pay
0:09:09 and Apple cash with a credit card.
0:09:13 They have got a new version of their TV app
0:09:15 that aggregates content from other TV apps
0:09:18 on your phone, on your device,
0:09:19 and from stuff that you might have access to
0:09:20 through your cable subscription.
0:09:22 So it should all just show up in one UI.
0:09:24 And then they have, they are paying people
0:09:26 in Hollywood to make TV shows for them.
0:09:27 So those are those four things.
0:09:28 So that’s news.
0:09:28 Right.
0:09:30 So the interesting thing for me about news, again,
0:09:34 it comes back to, so Apple has like core values.
0:09:38 It has a set of core attributes Tim Cook has done,
0:09:40 but there’s three sets of Apple values
0:09:41 that sort of float around.
0:09:43 The Steve Jobs one, the early Tim Cook ones,
0:09:45 and then the most current ones that you can see on the website.
0:09:48 But the middle ones, one of the things
0:09:50 that they really talk about a lot is
0:09:53 they like to make complex things simple.
0:09:54 Yeah.
0:09:57 And to me, the thread through all of the announcements today
0:10:01 was like making complex things simple.
0:10:04 And for most people, a lot of these things
0:10:06 are actually pretty complex.
0:10:08 Like the idea of subscribing to six magazines,
0:10:10 it’s not just that it’s expensive.
0:10:12 It’s kind of a complex thing.
0:10:13 You got to find them.
0:10:15 Should make a note here that the US print
0:10:17 magazine market is a subscription market.
0:10:17 Right.
0:10:19 It’s not true in other places.
0:10:21 So in the UK, no one subscribes to magazines.
0:10:23 There’s a shop selling 300 magazines,
0:10:25 every 100 yards on every shopping street,
0:10:26 you want a magazine, you go in and you buy it.
0:10:27 No one subscribes.
0:10:29 In America, like living in San Francisco,
0:10:30 supposedly in an urban center,
0:10:32 if I want to get a magazine, I actually can’t.
0:10:33 Like unless I go to the airport.
0:10:35 Yeah, all of those stores, there used to be many of them.
0:10:36 They’re all.
0:10:38 But the only way I could get a copy
0:10:41 of National Geographic today is to find some way
0:10:43 of getting them to mail it to me.
0:10:43 Right.
0:10:46 And so in that context, moving to the Apple news product
0:10:48 does actually solve a consumer problem.
0:10:48 Right.
0:10:51 And also, just like again with all of these,
0:10:54 there was a lot of like hemming and hawing over,
0:10:58 oh, is this part of it going to be available in Germany?
0:11:01 And is Lichtenstein going to have special TV shows for them?
0:11:04 And the thing is, when you’re looking at your
0:11:06 installed base as the potential customers,
0:11:10 you have a lot of data over who’s buying what and where.
0:11:13 And so it becomes very natural to sort of tilt things
0:11:16 towards where the money is already being spent
0:11:19 because the easiest dollar to make is a dollar more
0:11:21 from somebody who’s already paying you.
0:11:25 And in Apple’s case, like tilting it towards the U.S.
0:11:26 and the early versions of these products
0:11:29 makes it a ton of obvious sense.
0:11:31 Now, they’ll have and expand it,
0:11:34 but they will follow the economics much more
0:11:36 than you might for hardware.
0:11:39 It’ll look a lot more like when they open their Apple stores.
0:11:39 Yeah.
0:11:41 And going back to the old world of print,
0:11:43 U.S. magazines is a bigger market,
0:11:45 and then the U.K. is a bigger magazine market
0:11:46 than France or Germany.
0:11:48 And you would expect that to be reflected
0:11:50 in what happens on this platform.
0:11:50 Yeah.
0:11:53 And so, but it’s part of what made the event weird
0:11:54 for people is sometimes it was like,
0:11:56 well, this isn’t what we’re really used to.
0:11:59 We’re used to a new device that’ll be available
0:12:02 in 160 countries on Thursday.
0:12:02 Yeah.
0:12:04 And all of a sudden, it’s like, well,
0:12:05 it’s complicated to roll out all these things.
0:12:07 Like, even just the magazines,
0:12:10 you’ve got to get everybody to be in sync on an issue.
0:12:12 Like, they can’t just show up.
0:12:14 And TV production, it’s even more uncertain.
0:12:18 So, I personally thought that Apple News
0:12:20 was particularly interesting.
0:12:21 I have some beefs with it.
0:12:23 So, I think, yeah, I’m just listening to you talk.
0:12:25 I feel like there’s these four events,
0:12:27 and you could put them in very different places.
0:12:28 Because Apple News is, I would say,
0:12:31 this is a good solid incremental upgrade
0:12:32 to an interesting, useful product.
0:12:34 It’s not changing the world.
0:12:34 It’s a good product.
0:12:36 This is a good upgrade.
0:12:38 The same thing with their refresh of the TV app.
0:12:38 Yeah.
0:12:40 This is a good upgrade of an existing product
0:12:42 that solves a bunch of problems.
0:12:43 There’s also a two-hour argument
0:12:44 about how well it does that,
0:12:46 and what else will happen, and so on.
0:12:46 Right.
0:12:48 But there, basically, it’s an incremental upgrade
0:12:50 to an existing, well-understood product.
0:12:52 Then you have these kind of two sort of meteorites.
0:12:54 Let’s finish TV, and let me get to that one.
0:12:56 Because the thing on the TV that I think,
0:13:00 this is one where I would say it’s the,
0:13:02 if only Apple got into the business of X,
0:13:04 they would fix it.
0:13:06 And there’s just this hope
0:13:08 that Apple could show up and erase
0:13:11 the existing business infrastructure of television.
0:13:14 And all the reasons why it’s like that would stop mattering,
0:13:15 and it would just go away.
0:13:18 It reminds me of anything that we all dislike,
0:13:21 and we all wonder if only Apple would make that,
0:13:22 the world would be a better place.
0:13:25 And we forget they didn’t do that to telco.
0:13:29 You still pay your telco X amount of money,
0:13:32 and the service is still the works of pretty much
0:13:33 the way it was trained 15 years ago.
0:13:35 In fairness to them, they, you know,
0:13:37 especially with the soft sim and things like that,
0:13:38 they’ve made–
0:13:39 But pretty incrementally.
0:13:42 It’s incremental, but it reduced complexity
0:13:43 in some significant way.
0:13:44 And so I think that–
0:13:45 But they didn’t buy a record label.
0:13:46 Right.
0:13:47 They didn’t buy telco.
0:13:47 Exactly.
0:13:49 They didn’t, until they didn’t buy a bank.
0:13:50 Or a book publisher.
0:13:51 Yeah, exactly.
0:13:52 To fix books and stuff.
0:13:53 And so I think that there’s,
0:13:57 the problem is when people are unhappy with
0:13:58 any company doing something,
0:14:01 it’s often because, you know, the company messed up.
0:14:03 But it’s equally often that there’s just a mismatch
0:14:06 between expectations and what was really done.
0:14:07 And I think in the case of TV,
0:14:10 everybody just wants so much more.
0:14:13 And really, nobody is cracked it.
0:14:15 In fact, what’s interesting is so much of the negatives
0:14:17 about what’s going on with TV,
0:14:20 we forget how many people thought Netflix would never work.
0:14:23 And how many people, like, that were in TV
0:14:24 said Netflix wouldn’t work.
0:14:26 Like, there were a bunch of people at Disney
0:14:27 who were clearly convinced
0:14:29 that it wasn’t going to get any traction.
0:14:31 Which is why they let them buy their shows.
0:14:31 Right.
0:14:35 There’s just no escaping this reality of TV
0:14:38 that the people who make things like
0:14:40 there to be a large number of customers
0:14:42 and divide up the market in different ways,
0:14:44 by streaming and not streaming and DVD,
0:14:47 or pay-per-view or theater, plus by country.
0:14:49 And that’s not, they make it.
0:14:51 So it’s not going to change.
0:14:52 Yeah, exactly.
0:14:54 I mean, it is as though Apple had to do a telco
0:14:56 and then you were complained that somehow
0:14:58 the existing telco market structure hadn’t changed.
0:15:02 Well, yeah, you’re only going to do this slowly
0:15:03 and piecemeal in a careful bit
0:15:05 because there’s very, very strong incentives there
0:15:06 that aren’t going to go away.
0:15:07 Right.
0:15:10 But if they can make, you know, like, I’m a TiVo user
0:15:12 and Roku was much the same way.
0:15:14 And both of those are products
0:15:17 that take a very complex world of many different apps
0:15:20 with many different feeds of potential content
0:15:22 and make it simple.
0:15:25 And there’s so much room for Apple to make that even simpler.
0:15:28 And the fact that they have a TiV device is very interesting.
0:15:31 The fact that they will incrementally expand where that,
0:15:35 you know, in Visio TV or LG TV or Samsung TV is all goodness.
0:15:40 And I think it fits the description of like progress.
0:15:41 And that’s good to see.
0:15:43 It didn’t erase the TV industry, but it’s progress.
0:15:46 Yeah, we’ve got news and the TiV app.
0:15:49 These are interesting, useful products to sell problems for people.
0:15:51 They are not the Jesus phone.
0:15:51 No.
0:15:55 But this is just good incremental work by a bunch of people there
0:15:56 making it a bit better.
0:15:56 Apple card.
0:15:58 I’m not, I’m not a card person,
0:16:00 which is actually also interesting in the context of TV.
0:16:03 Are you like, so you’re like anti-tracking and everything?
0:16:05 So you only use money or is that a British thing?
0:16:07 No, no, what I mean is I can’t sit there
0:16:09 and analyze exactly what this position is
0:16:11 and what it looks like relative to other positions,
0:16:12 which is similar to TV.
0:16:15 A lot of the TV questions are actually TV industry questions,
0:16:16 not Apple or tech questions.
0:16:17 Right, right.
0:16:20 I think another way you can think about all of these services
0:16:23 are they all bind you into the phone.
0:16:24 Right, and so there is a, you know,
0:16:27 just as everything Amazon adds to prime
0:16:29 keeps you from canceling your prime account
0:16:32 and that drives all of your purchases through Amazon,
0:16:35 all of these things are sort of ways of making
0:16:38 your next phone purchase be another iPhone.
0:16:42 And if your credit card is a particularly sticky thing,
0:16:43 if you’re getting your TV through it,
0:16:45 if you’re getting your magazines through it,
0:16:49 if you’re getting any other transit, XYZ service,
0:16:52 anything that you can do that makes,
0:16:54 both makes the product better,
0:16:56 but also is something that’s going to be kind of a pain
0:16:59 in the backside to switch out and replace with something else,
0:17:00 all of that becomes valuable.
0:17:02 Right, which is of course exactly what
0:17:04 everybody enterprise software does
0:17:06 and why SaaS is so interesting to them.
0:17:09 So it’s no surprise that Apple is doing all of these things.
0:17:12 And it’s this, it is just this weird view of like Apple
0:17:15 as a boom bust company dependent on hit gadgets,
0:17:18 which isn’t true all that much either.
0:17:20 But the thing to me about the card,
0:17:23 I found the card actually particularly innovative.
0:17:25 And then a lot of people were like, oh, you know,
0:17:28 you go to nerd wallet and you see all of these cards
0:17:30 that do better points or better this and better that.
0:17:32 You think it’s like the people who said,
0:17:33 oh, Dropbox isn’t very innovative.
0:17:37 You just go into your GitHub and you can download 15 scripts
0:17:38 and tie them together and you get the same thing.
0:17:41 Like even people who said that the way Apple did,
0:17:43 Wi-Fi hotspots wasn’t innovative.
0:17:47 And like underneath every, they’re probably, you know,
0:17:49 a very, very small number of people
0:17:53 at a very, very smaller number of companies
0:17:55 that understand all the complexity
0:17:57 that could go into delivering Apple card.
0:18:00 That complexity, Apple is erasing.
0:18:02 Like some very simple thing, like you mentioned,
0:18:04 well, if Apple can make the phone sticky
0:18:06 when you get a new phone, right,
0:18:08 this is exactly the kind of thing that they can do.
0:18:10 Make it really easy to get a new phone,
0:18:11 even if all your credit card and money
0:18:14 are sitting on your Apple device.
0:18:17 And that upgrade is hugely valuable.
0:18:18 But on top of that,
0:18:21 there’s all this innovation that happened in the space.
0:18:22 And yes, you can go to Nerd Wallet
0:18:25 and you could find some card that does, you know,
0:18:28 3% cashback on everything, not just store purchases,
0:18:30 or you can find one that gives you better miles.
0:18:32 But anyone who knows any of these things
0:18:34 knows that once you’re on that game,
0:18:37 you’re almost like the person who’s determined
0:18:40 to find everything you want to watch on off-air free TV.
0:18:44 Like people are only willing to spend so much effort
0:18:46 for some of those…
0:18:47 You’re like the coupon queen.
0:18:50 Well, coupons are very good for certain people
0:18:52 at certain economics.
0:18:53 But like at some point,
0:18:56 like you’re making a trade-off over time versus effort.
0:18:58 And if you’re an Apple customer,
0:18:59 you’ve already made that trade-off
0:19:01 because your phone is a luxury good.
0:19:04 Like you didn’t buy the $99 phone,
0:19:05 you bought the expensive one.
0:19:07 So you’re looking for other things.
0:19:11 And this is where another part of where people view these services,
0:19:12 they sort of get a little confused,
0:19:15 which is first, Apple off the top
0:19:18 is not aiming for all five billion humans
0:19:19 that will have a smartphone.
0:19:21 They’ve already said we’re going to only go,
0:19:22 we’re not making super cheap phones,
0:19:23 it’s not that big.
0:19:24 We’re aiming for a billion.
0:19:25 Right.
0:19:28 And on top of that, they can do their services
0:19:29 as a subset of those people.
0:19:31 Like they already have everybody in the app store
0:19:34 and then they have some very large percentage of people
0:19:36 that will buy iCloud for backup.
0:19:38 And then after that,
0:19:41 they don’t have to get 900 million people for every service.
0:19:44 And they can aspire to that and they can measure that.
0:19:48 But there’s some point where it becomes a very good business
0:19:50 and a very great value proposition,
0:19:51 even for people who don’t have them
0:19:53 to know that they can get them.
0:19:55 I think that kind of takes us onto the TV product
0:19:57 where we sort of slightly hesitant about,
0:20:00 I suppose the best way of putting it is to say,
0:20:04 we’re sort of reserving judgment on any kind of specifics
0:20:05 because we don’t have the specifics.
0:20:07 We know Apple has officially said,
0:20:09 we’re doing a TV service.
0:20:11 We’re going to get a bunch of really great people
0:20:13 to make some fantastic TV.
0:20:14 We’ll tell you more later.
0:20:15 Yeah, yeah.
0:20:16 So that’s TV plus you’re talking about.
0:20:17 Yes, this is TV plus.
0:20:18 Apple will pay people in Hollywood
0:20:20 to make the TV shows for them
0:20:22 and they will tell us more in the autumn.
0:20:26 You can guess that it will be $10, $15 a month.
0:20:30 They’ve said it will be global or 100 countries
0:20:31 because they own the rights.
0:20:35 The big unanswered question is how much,
0:20:37 what actual volume of content,
0:20:39 because Netflix is spending something over $10 billion,
0:20:42 it’s here, how much are they going to make in there?
0:20:43 For how big will the proposition be?
0:20:45 How many of those great shows will there be?
0:20:47 That’s kind of the big thing everyone wants to know
0:20:48 and we don’t know.
0:20:50 And we don’t know and we’ll find out.
0:20:51 And the thing is people are like,
0:20:52 ooh, this is weird and stuff.
0:20:53 And look, this is what,
0:20:55 this is the power of being Apple
0:20:58 is that you basically can convene all of these people.
0:20:59 They’re willing to experiment.
0:21:01 But the strategic level that one sees there
0:21:03 is here again, Apple is saying,
0:21:05 here is something good that you might like
0:21:07 and you can pay a bit more money
0:21:08 and get it on your Apple devices.
0:21:10 And that sits next to news.
0:21:12 It sits next to the card.
0:21:14 Is Apple bringing something unique to credit cards?
0:21:16 No, they’re just changing the experience.
0:21:19 Well, and there’s a bunch of integration.
0:21:21 I think the credit card is more innovative
0:21:22 than people are willing to say
0:21:24 because they focused on sort of the nerd wallet checklist
0:21:26 as opposed to the security and the privacy
0:21:26 and the money management.
0:21:28 There’s a bunch of Apple engineering stuff
0:21:29 going on in the card.
0:21:32 There’s not apparent that there’s a bunch of Apple engineering
0:21:34 stuff going on in the TV,
0:21:36 but there’s a bunch of Apple decision
0:21:37 about what should you see
0:21:39 and how does this make your overall
0:21:41 being an Apple customer experience better.
0:21:43 Right, and if they can reduce the friction
0:21:46 of acquiring it, of browsing it,
0:21:48 of suggesting what to watch and when,
0:21:50 I mean, there’s a whole lot of places
0:21:52 where this is literally,
0:21:54 you know, like the Jim Barksdale famously said,
0:21:57 like there are two ways to make money in business.
0:21:59 You can either bundle things or unbundle them.
0:22:02 And so what we’re seeing is a gradual creation
0:22:05 of a series of bundles from Apple.
0:22:07 And yeah, sure, there might be Apple Prime
0:22:09 or something down the road
0:22:11 that bundles all of these into something,
0:22:13 but for the time being, they don’t need to.
0:22:14 And in fact, it’s, I would argue,
0:22:16 one of the things that people were jumping to
0:22:18 was to have like this all in one.
0:22:19 But the fact that Apple is allowing them
0:22:21 or keeping them separate
0:22:23 is also a way to find product market fit
0:22:24 for each of those.
0:22:26 Because you don’t prematurely bundle things
0:22:28 because then you really don’t know
0:22:29 if you’re successful or not.
0:22:31 And this is what all the credit card companies
0:22:33 sort of count on, which is basically,
0:22:35 they’re going to make a giant basket of stuff
0:22:37 and move it around all the time.
0:22:39 And most people only care about like one thing
0:22:40 that they’re getting.
0:22:42 – Yeah, I mean, see what the Apple could say,
0:22:45 it is 200 bucks a month and you get a free iPhone
0:22:47 and a free iPad every two years
0:22:49 and you get all of this stuff.
0:22:50 – Yeah.
0:22:51 – And yeah, that would,
0:22:54 I don’t think that would actually be a good proposition
0:22:55 for most customers
0:22:57 because you wouldn’t get to pick and choose which bits
0:22:59 and it would also be kind of a huge sticker price.
0:23:00 And it’s much better to say,
0:23:02 well, there’s a phone and there’s how you pay for a phone.
0:23:03 And then there are these bits that come
0:23:05 that you can have on top of it.
0:23:07 – And also the people who would jump at buying that
0:23:10 probably would be spending $400 anyway.
0:23:12 And so that’s like one of the weird things
0:23:15 when you do these mega bundles is you’re also trading off.
0:23:17 – Yeah, those are the people who’d buy a new foot
0:23:19 atop of the line iPhone XS.
0:23:20 – Every year.
0:23:21 – Every year anyway.
0:23:22 – Every year and they would buy AirPods
0:23:24 and a whole bunch of other stuff.
0:23:30 And so, for me, there was just a lot of overthinking
0:23:31 of this whole thing.
0:23:34 And that’s the constant challenge with Apple is you over,
0:23:36 in fact, last night I tweeted that like
0:23:38 when before the iPad came out,
0:23:40 we were all sitting around trying to figure out
0:23:41 what they were going to do.
0:23:43 And we for sure thought they were going to go build
0:23:45 a Mac tablet with a pen,
0:23:48 which was just sort of our weird
0:23:49 strategizing about what they were going to do.
0:23:50 Not this very-
0:23:51 – I think there’s a kind of,
0:23:52 there’s a sort of a high level point here,
0:23:54 which I think you said a couple of years ago that,
0:23:56 you know, Microsoft would do some big event
0:23:58 and then you look in the tech press
0:24:01 and you discover what your brilliant Dr. Evil strategy was
0:24:02 and you read it and you think,
0:24:03 “Oh, that would be a good idea.
0:24:04 “Maybe we should do that.”
0:24:06 And the people sort of, you know,
0:24:09 I said earlier there’s like,
0:24:11 there’s two sets of Apple strategy here.
0:24:13 There’s news in the TV app,
0:24:14 which are incremental improvement.
0:24:16 And then there’s a credit card in the TV content,
0:24:18 which are rather big around ambitions.
0:24:19 And you can kind of generalize that over
0:24:22 any kind of big company that you’ve got stuff to doing,
0:24:24 which is just VPs doing VP stuff
0:24:25 and product teams doing product stuff.
0:24:26 And they’ll just carry on doing it.
0:24:27 Every now and then, like you’ve got
0:24:28 the huge mega strategy.
0:24:30 But very often you’re just kind of carrying on
0:24:31 doing what you’re doing.
0:24:34 And I think a lot of what we saw was sort of Apple
0:24:35 just kind of carrying on doing what they’re doing.
0:24:36 Some of it’s good.
0:24:37 Some of it you can argue about.
0:24:39 Some of it is a big mega future strategy.
0:24:40 Some of it isn’t.
0:24:42 And you can kind of, and over analyze,
0:24:44 you can kind of over rotate on that we’ve got to work on.
0:24:45 – And it is one of the things
0:24:47 that Apple does particularly well,
0:24:50 is progressively reveal the strategy.
0:24:52 Like take something like the Apple card
0:24:55 and the Apple cash that’s in it.
0:24:56 Like Apple cash came out
0:24:58 and everybody’s like, why would I ever use this?
0:24:58 What am I going to do?
0:25:00 And then last week, they just, or earlier in the week,
0:25:04 they made the change that now you can pay off your bills
0:25:06 using Apple, which now it’s all starting to come together.
0:25:07 And it’s this whole thing like,
0:25:08 I always think about Keychain
0:25:11 and how for years they were doing Keychain.
0:25:13 And then one day they have the fingerprint reader.
0:25:13 – Yes.
0:25:14 – And it all comes together.
0:25:15 – And suddenly your fingerprint,
0:25:17 your password is automatic.
0:25:18 Yeah, I mean, you can run your scenario back.
0:25:20 So they start with a fingerprint reader
0:25:22 before the year before they do Apple Pay.
0:25:23 It’s really obviously going to do Apple Pay.
0:25:24 But they do the fingerprint reader first.
0:25:26 And there’s a reason that it’s there.
0:25:28 Then they had Apple Pay.
0:25:29 Then they had the cash.
0:25:30 Then they had the card.
0:25:32 Now you take the Apple card,
0:25:34 you get your 2% cash back on everything you spend
0:25:35 and where does that money go?
0:25:38 Well, it goes into P2P payments using cash
0:25:40 or it goes into the app store or you spend it.
0:25:42 – And I, you know, like just,
0:25:45 and taking their family friendly view of things.
0:25:47 Well, now you have like a credit card
0:25:50 where the, your son or daughter doesn’t need the card,
0:25:52 can use it at a set of number of places.
0:25:53 They have spending graphs.
0:25:54 They’ll earn this, man.
0:25:56 You can give them cash allowance directly.
0:25:58 All of a sudden it’s like the family friendly way
0:26:00 to run finances.
0:26:02 And it’s super interesting.
0:26:05 So sort of for me, like there was just a lot more there.
0:26:08 And I think it just didn’t have this big bang,
0:26:10 you know, big companies too that you set a date
0:26:12 and you have to do an event.
0:26:13 Like you can’t not do it.
0:26:16 And then you’re, you run around and like,
0:26:18 sure, when you’re launching hardware, you know,
0:26:19 – We forgot to mention the game thing.
0:26:20 – Oh, the game, right.
0:26:22 – The game thing is also the family friendly piece,
0:26:24 which is you pay the subscription,
0:26:27 you get these nice, fun, interesting indie games
0:26:30 that are not about blowing people up and are-
0:26:31 – Curated and private.
0:26:34 – And private and are not about kind of manipulating you
0:26:37 to get you to spend more money on loot boxes.
0:26:39 And also about kind of trying to help
0:26:41 the indie development, develop a base a bit more,
0:26:44 which is obviously sort of a challenge
0:26:45 that they have to address.
0:26:47 And make money and make money.
0:26:49 – In this case, iMac 2 or Mac 2.
0:26:51 – And pull people, you know, another way
0:26:53 in which there are better games on iOS
0:26:54 than there are on Android.
0:26:55 And it’s another $10 thing.
0:26:57 And it’s another piece of your brand experience
0:26:59 and a reason why as a parent
0:27:01 or something you might prefer to be on iOS
0:27:03 because you’ve got this great thing.
0:27:04 And again, you wouldn’t want to say,
0:27:06 well, you have to have this,
0:27:08 but it’s an interesting experiment
0:27:10 for a way of shifting what that gaming experience
0:27:12 might look like that kind of fits into the Apple
0:27:14 kind of branding and experience.
0:27:16 – Right. And it also, it shows that their view
0:27:18 of how these bundles work,
0:27:20 which is they’re confident enough
0:27:23 in the value proposition of the phone itself
0:27:25 that they’re not bringing all of these things in
0:27:27 for free on the phone.
0:27:29 Like it’s very easy to see another company
0:27:32 with a similar set of assets and other strategy
0:27:35 constantly worried about making the phone upgrade cycle work
0:27:38 and drawing every bit of software that they make
0:27:41 into the sort of the default phone experience.
0:27:42 And then a bunch of groups within the,
0:27:44 all the VPs, as you said, within the groups,
0:27:47 like competing over which percentage of the phone upgrades
0:27:48 did their free thing cause.
0:27:49 – Yeah. And then it would be like,
0:27:52 you can only get the game subscription on the new iPhone.
0:27:52 – Right.
0:27:54 – You have to buy the new, you have to buy this product
0:27:55 in order to get that subscription.
0:27:57 – And again, this was something Apple pioneered
0:27:59 very early when they made upgrades
0:28:01 to the Mac operating system free.
0:28:04 They realized that that turns out to be a better business
0:28:06 if you just make owning,
0:28:07 being part of the ecosystem great.
0:28:11 So for me, I felt that there was just a lot of,
0:28:15 of strategizing and hand wringing
0:28:17 and trying to find like the big thing
0:28:19 when in fact this is a big company executing
0:28:22 reasonably well on a bunch of stuff.
0:28:24 And some of it is going to play out and some of it won’t,
0:28:26 but the strategy is really clear
0:28:28 and the evidence is clear.
0:28:29 And then what I would call like the framework
0:28:32 or the meta strategy of being family friendly and private,
0:28:35 it resonated across all the things that they did.
0:28:39 I left thinking it was a pretty positive view for them
0:28:41 in the sense of putting together a strategy
0:28:43 and communicating it.
0:28:44 – Yep. It came. Thank you.
0:28:48 Thank you. I’m Stephen, and this is A16Z Podcast.