Snap’s Quest to Control Cameras in an AR World
Snap continues to be an interesting company. Thanks to spending years in Facebook’s shadow, the social media company has a credible claim to being perennially underestimated. Snap’s $96 billion market cap is just one-tenth of Facebook’s ($946 billion).
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A Work from Home Head Fake
The tech industry sees its fair share of head fakes – items and trends that consensus thinks will be the next big thing but which fail to meet lofty expectations. 3D TVs, consumer drones, and voice computing are three such head fakes. The pandemic has introduced a few new head fakes in tech – the biggest one being work from home.
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The Future of Digital Tracking
A retailer (Amazon), social media company (Facebook), and information services company (Google) now capture more than half of all advertising spending in the U.S. The Inside Orchard essay “The Advertising Triopoly” focused on how the three were able to reach such a milestone: establish formidable ecosystems powered by not only software, but also customer data. As to where tracking will go from here, change is in the air.
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Elon Musk and a New Era of Tech Celebrity
Elon Musk continued his streak of being unlike any other CEO by guest hosting Saturday Night Live this past weekend. For those who have followed Musk over the years, including his Twitter activity, the show went pretty much as one would expect.
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The Pandemic Isn’t Fueling Tech
With the 1Q21 earnings season coming to a close, we have a good view of how the world’s largest companies performed during the first three months of 2021. Impressive would be the word. Consider the following year-over-year revenue growth figures:
Apple: 53%
Facebook: 48%
Amazon: 44%
Alphabet: 34%
Microsoft: 19%
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The Real Estate Boom Is Leaving Tech Behind
Last week’s essay was focused on the rise of new financial bubbles. This week’s essay is about an asset that is showing signs of being an anti-bubble: residential real estate.
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New Age Financial Bubbles Are Forming
Last week, there were a number of events that caught my attention.
Dogecoin, a cryptocurrency which contains no value and is literally based on a meme, saw its price rise by 400%.
Coinbase, a cryptocurrency exchange platform, had its initial public offering and at one point during its first day of trading reached a $100 billion valuation. The company, which most people never heard of prior to last week, reached a market cap milestone that Uber, one of the most talked about companies of the 2010s, was unable to reach until just a few months ago. Only one of those companies has a valuation directly tied to crypto’s surge in price.
There is a publicly-traded deli in NJ apparently worth approximately $100M. It says something that my initial thought was that the NJ deli’s stock price (HWIN) was probably higher, not lower, following public awareness. I wasn’t too far off.
Coinbase, Dogecoin, and the $100 million NJ deli share something in common.
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The Advertising Triopoly
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The press has come to rely on a very wide net when describing “tech” companies. Some of this is to be expected as tech continues to invade new industries. However, there is something wrong found with using “tech” to describe any company making money one way or another from software and data. My stance on “tech” is that it has lost much of its descriptive meaning when it comes to business models and product strategies.
Instead of lumping today’s corporate giants into one massive “tech” bucket, a different categorization based around advertising is more valuable. For the first time, a retailer, social media company, and information services company are grabbing more than half of all advertising spending in the U.S. The pandemic was the catalyst responsible for pushing the three over the 50% mark.
Wall Street doesn’t see any end in sight when it comes to Amazon, Facebook, and Google and their advertising prowess. Accordingly, the press has taken it upon themselves to be the last remaining force of resistance to the three. It is not a coincidence that massive media campaigns have been waged against Amazon, Facebook, and Google. All three have awful narratives and perceptions if going by press coverage. From my position, much of the press outcry and criticism has become too stretched to be any good. The press made one giant mistake in their quest to go after these advertising giants. By turning every little thing into a massive crisis that supposedly was going to bring their downfall, the press cried wolf too much. The end result was valid criticism being watered down to such a degree that readers and listeners became tired with it all. In a way, the press’ attacks have helped strengthen Facebook, Google, and Amazon.
That’s not to say that there isn’t controversy found with the advertising triopoly. Instead, few are able to correctly point out the actual issues. Another way of describing the advertising triopoly is the data triopoly. Consumer-friendly services, most of which are free, are offered with the goal of grabbing consumers’ attention, and by extension, their data. This data is then used to both enhance the underlying services, which results in better and stronger engagement, and attract brands, which have a never-ending craving to get in front of consumers.
There is nothing inherently wrong with the triopoly giving away services (email accounts, cloud storage, video streaming, music streaming, messaging, reviews, business solutions) for free just as there is nothing wrong or evil found with leveraging customer data to enhance or better the service over time. However, there are two primary problems found with the dynamic:
Companies are not being clear and up front with their customers as to what kind of data is being collected and how the collection process works. The average consumer would be shocked to learn how much of their data is actually being collected. It is no longer good enough to collect data about what consumers’ are doing on your own online property. The goal is now to track customers while they are on other online properties.
Companies are building detailed customer profiles in an effort to better compete against other companies.
A good argument can be made that the two preceding problems end up being byproducts of giving services away for free. If services weren’t free but instead paid, the companies offering such services wouldn’t be in as much of a need to build detailed customer profiles or hide their true data collection intentions. However, this view comes across to me as being a bit too cynical. We have not seen what would happen if the advertiser triopoly was actually up front with customers about data collection while making a concerted effort to curtail data collection in an attempt to enhance customer privacy. It is not a guarantee that their advertising grip would actually weaken in such a scenario. Instead, we are left with a company like Apple, sensing no viable solution to the two preceding problems, taking it upon themselves to address the underlying issues.
As for who stands to be the largest business losers from the advertising triopoly, industries that have essentially become commoditized are high on the list. The demise of local newspapers has been well telegraphed. Less focus has been put on how the advertising triopoly holds complete and total responsibility for its destruction and broader problems found with the entire news industry. It is ironic that two of the three advertising companies that make up the triopoly have been trying to “save” the news industry by throwing money at publishers. Unfortunately, such efforts are too little and too late. The simple presence of the advertising triopoly leaves little to no room for a news industry long supported by advertising. (We are going to see continued consolidation in the news industry, including the online space, which should leave enough room for a pretty decent niche publication scene.)
The music industry has similarly come under pressure from the advertising triopoly, not due to declining revenues from streaming but rather from the art form being used and taken advantage of in pursuit of building up ecosystems. Fears of podcasting and video not being too far behind music are valid. There are then niche industries, or at least industries that would seem to be niche, such as restaurant and product reviews, that have been decimated by the advertising triopoly. While an enduring entrepreneur can take a swing or two at these troubled industries, it will likely take massive capital in an effort to grab users and only then would consolidation seem like the inevitable conclusion.
Turning to the government for help with taming the advertising triopoly is easier said than done. The regulatory issue isn’t actually found with what companies are doing with customer data once it is collected, but rather it’s found with the collection of the data in the first place. Examining data collection practices would then unveil a systemic problem found throughout the corporate world with very few exceptions. Breaking up the advertising giants won’t accomplish as much as regulators think. Instead, competition can be intensified by giving customers more control over their data and the collection process. Focusing on the data itself will end up being the best way of equalizing the situation as it was data that gave power to today’s advertising triopoly.
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The Rise of Digital Town Squares
Humans are social creatures. We don’t want to avoid social interaction. There is a gravitation that pulls us together. One characteristic that has been part of the exchange of ideas in the physical world is a social construct to push fringe ideas and opinions to the edges – out of town squares and into back alleys.
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NFTs, Tulips, and Misplaced Artist Hope
NFTs (non-fungible tokens) are the digital equivalent of signed art. Instead of using fiat money to pay for physical art, cryptocurrency is used to pay for NFTs. While there are more technical and expansive definitions for NFTs involving digital ledgers, complexity ends up adding unnecessary noise to the discussion.
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Clubhouse and Niche Audio
Everything is going Clubhouse’s way, or so it would seem.
The social media start-up playing in the audio space is apparently doing everything right. The combination of an invite-only system, which is one of the more effective ways to create buzz, and a big embrace from celebrities including everyone from Elon Musk and Drake to Bill Gates and Oprah, completes the unicorn status of the latest tech darling.
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Carving Up Retail
Kmart was at one time the second-largest retailer in the U.S. After two bankruptcies, one as a Sears subsidiary, and a growing number of store closures, the big box department store finds itself on a gradual slide into liquidation.
After 43 years in the same location, a local Kmart closed its doors at the end of 2019. The 45,000-sq foot store – far too small of a store footprint for Walmart or Target but too large for most other retailers - anchored the town’s most visited shopping plaza. Its closure led many to fear that another small town had fallen victim to e-commerce.
Such fears ended up being misplaced.
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Robinhood’s Misdirection
Every few years, an event occurs that captures society’s mindset for a week or two. This past January, we saw the latest example of this with what is being called the GameStop frenzy. A group of unknown composition used the web to coordinate trades, targeting buying pressure towards a few heavily shorted companies. The goal was to increase share prices and in the process, squeeze hedge funds that were short the stock (betting that the stock price would decline).
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Music’s Trouble
The number of people paying good money for music continues to rise. In the U.S. alone, 75 million people are paying on average $90 a year to listen to music through a streaming service. On its own that’s a great thing, and music rights holders are riding decades-long emotional (and financial) highs. However, we are seeing what amounts to music’s destruction continue to unfold before our eyes.
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Online Product Reviews Are Broken
The premise behind a site like The Wirecutter, bought by the New York Times for $30 million in 2016, may make complete sense on paper. Have an “expert,” who apparently knows everything there is to know about a product category, test out an arbitrary number of products spanning the price and feature spectrums in that product category. Relying on experience and perspective, the expert issues a verdict as to the “best” product to buy - the product that everyone should use without fear of regret or disappointment.
In practice, Wirecutter is wholly disappointing.
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Movie Theater Nostalgia
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Humans love going to places. The idea that we will one day wear a pair of VR googles in the home in lieu of actually going on vacations, visiting family and friends, or just simply going out to social gatherings is a fantasy.
Although humans like going to places, the list of failed social gathering ideas is long and storied. Dance halls, arcades, pool halls, and roller skating rinks once defined culture. Today, these venues are nothing more than relics with a few owners trying to keep the memories alive for the select few willing to pay for the nostalgia.
The list of social gathering places that have lost out to time and technology will only get longer. We see the latest addition before our eyes: movie theaters. Some think movie theaters will be fine postpandemic. Others are convinced movie theaters will go the way of the dodo bird. Reality is found somewhere in the middle. There will be physical movie theaters in the future, but they will look like a shell of their former selves. Movie theaters will become the new arcades - still around if you search hard, but irrelevant.
Most movie theater screens will either meet the wrecking ball, contractor’s hammer and saw (for conversion into something else), or they will be bought by families that feel a calling or duty to keep the nostalgia alive.
Movie theaters aren’t in decline because video streamers are seeing success in grabbing eyeballs. Netflix, Amazon, or Apple are financially able to purchase a movie theater chain tomorrow and give away free tickets to subscribers to watch exclusive films. This may seem like a great idea to some. However, a growing portion of the population would feel differently. Movie theaters face a very difficult future because society is moving on from the idea of traveling outside the home to sit in a dark room to consume video content. It’s telling how everything from reclining chairs to steak and lobster have been used as carrots to get people inside a movie theater. The problem with movie theaters isn’t a suboptimal food selection or uncomfortable seating. Instead, fewer people want to venture out the home, sit in a dark room, and spend two hours watching a movie that began at a time not of their choosing.
As for what is driving this trend:
The rise of on-demand consumption. The thought of needing to pick out a specific time to go somewhere to watch video content will seem as foreign as needing to leave the house to play a video game. It simply isn’t going to register to people.
New-age communication. Turning the smartphone and wearables off for two hours is becoming unconscionable for a growing number of people.
It certainly doesn’t help that the rise of streaming is causing some blockbuster movies to be watched in the home at the same time that they are being watched inside theaters. However, blaming that development for the demise of movie theaters is misplaced. It does little but leave an opening for nostalgia holders to think “if only tech companies would support movie theater operators.”
Unfortunately, these developments aren’t confined to movies. A similar trend is slowly occurring with theaters in general. Don’t let Broadway’s commercialization overshadow what are deteriorating economics found with operas, plays, and other performance art that take place in (large) dark rooms at a time not of our choosing. It’s telling how such activities increasingly need to be supported by cities and states. The logic is that such institutions are part of culture. The real purpose of such funding is to keep the nostalgia flowing.
Movies aren’t going anywhere. Theater isn’t going anywhere. Instead, the way we consume these art forms will change. Selling tools for retrofitting basements into “video consumption” rooms contains more upside than owning a chain of movie theaters.
Nostalgia is a powerful drug. While it is possible to sell nostalgia, one who does is ultimately stuck selling old ideas into a society that is always forward looking.
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Introducing Inside Orchard
I would like to introduce something that I’ve been building. It’s called Inside Orchard.
Ten years ago, technology was a defined sector with recognizable barriers. Ten years from now, there will be little to no delineation between technology and society as the two become intertwined. Inside Orchard (@InsideOrchard) will be home to my unique perspective on technology and its growing influence on society.
The name “Inside Orchard” is a play on the fruit orchards that eventually became Silicon Valley. Given the ease of focusing too much on any one tree in an orchard, “Inside Orchard” also refers to successfully navigating the noise found in the tech news cycle to focus on the big picture.
It’s getting increasingly difficult to find articles about technology that I feel a connection to and enjoy. Inside Orchard is my outlet for publishing ideas and perspectives that I believe in. I’m confident others will also find immense value in the essays and podcast.
Inside Orchard’s business model will be subscriber based. I want to make the site as accessible to as many people as possible while keeping it sustainable for decades. A subscription is just $10/month or $100/year and includes exclusive early access to written essays as well as access to an exclusive podcast. The first 200 subscribers will receive the distinction of being “Founding Subscribers.”
Inside Orchard will sit next to Above Avalon as a home for my perspective and analysis. While Above Avalon will continue to be dedicated to offering the most comprehensive and accurate analysis of the most influential company in tech (Apple), Inside Orchard will be dedicated to the big picture. A bundle consisting of subscriptions for both Inside Orchard and Above Avalon is available here. Above Avalon members receive a 50% discount on Inside Orchard (just $5/month or $50/year).
A big thank you goes out to my wife Jennifer (@jennifercybart) who drew all of the artwork featured on Inside Orchard. Another thank you goes out to Above Avalon members. Above Avalon success is providing the foundation for Inside Orchard. It’s never been a better time to analyze Apple, and the same applies to the broader technology landscape.
Neil Cybart (@neilcybart)
Founder and Author
Inside Orchard