The Art of the Turnaround
Bob Iger isn’t wasting time attempting to put Disney on his preferred track. Yesterday, the WSJ reported that Iger had axed Disney’s metaverse and membership teams – two initiatives in their infancy that were spearheaded by Bob Chapek. This follows a reorganization a few weeks back that returned power to the company’s creative executives. Disney is just one of a handful of companies that have been changing strategies to get a better footing in the marketplace.
We can look at Netflix’s move into advertising – something that executives had talked down and dismissed for years - as an acknowledgement of paid streaming becoming bigger than any one company.
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Mark Zuckerberg’s Bet
Meta is the latest company to take a ride on the Wall Street roller coaster. After a horrendous year in 2022 with shares trading down 65%, Meta turned heads last week with the stock popping 25% after reporting earnings. The wild swings left observers scratching their heads as to what may have changed. How could a company considered by some to be fatally wounded see its shares more than double in just three months?
Year to date, the best-performing stocks in tech are those that struggled the most last year. Peloton has doubled in share price in just a few weeks. Spotify is up 80%. Roku up 60%. Market participants, represented by many different viewpoints and perspectives, are betting on a turnaround even if consensus isn’t quite sure what a turnaround will look like. Instead, it’s simply assumed to be better than what things were.
As we discussed three months earlier, the market was valuing Meta as having about a decade of life remaining.
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Valuing Meta
As Mark Zuckerberg contemplates some of his toughest business strategy decisions to date, Wall Street has already weighed in with its verdict on Meta: The company has about a decade left. While that dire prediction will likely morph with Wall Street’s always-changing mood, a closer examination of Meta’s valuation reveals several intriguing questions applicable to valuing Big Tech in general.
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NFTs and Crypto Are a Backlash to Social Media Wrongs
It is too easy to get caught in the weeds of a topic and in the process lose sight of the big picture. That scenario is occurring with both NFTs and crypto.
At a very simple level, the promise found with NFTs and crypto is said to be about empowering people. Instead of figuring out if NFTs and crypto meet that promise, there is more value found in understanding why such a promise exists in the first place. What tech development has harmed user empowerment to such a degree that NFTs and crypto are said to be needed to put things back on track? My suspicion is the answer will contain a great deal of insight regarding the future.
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Chronological Feeds Won’t “Fix” Social Media
The Facebook Files saga took an unexpected turn last week as Frances Haugen, the former Facebook product manager responsible for providing the WSJ a treasure trove of leaked internal documents, made her public unveiling as the Facebook whistleblower.
In what is still difficult to wrap my mind around, in the span of just two days, Haugen went from having her first public interview on 60 Minutes to sitting down for a three-hour hearing in front of Congress. Haugen went so far as to unveil something of a “public oversight of social media” agenda. Based on the well-orchestered PR aspect of it all, if you told me that she was next running for Congress, I wouldn’t think you were crazy. We seem to be experiencing something of a renaissance for the corporate whistleblower. There is a story to be told here, but that won’t be the subject of this essay. Instead, the supposed “fixes” that Haugen suggested Congress could apply to Facebook caught my attention.
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The Facebook Files Won’t Change Much
Over the past week, the Wall Street Journal has published a series of articles that reveal Facebook is aware that “its platforms are riddled with flaws that cause harm, often in ways only the company fully understands.” The articles rely on a trove of internal Facebook documents, correspondence, and presentations. While the WSJ is right to position these articles as a big deal, unfortunately the revelations are not going to lead to the kind of change the publication likely thinks is coming.
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We Have a Growing Social Media Problem on Our Hands
Ongoing issues related to the pandemic involving variants and vaccination rates are now leading to what seems like some kind of turning point for today’s digital town squares (Facebook, Twitter, YouTube etc.)
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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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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 Advertising Triopoly
(The following essay has been made available for all to read. You can share this essay far and wide.)
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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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