Here are some of my favorite quotes from Ben Thompson's Stratechery blog 👇
Read & subscribe: stratechery.com
Read & subscribe: stratechery.com
Aggregation theory:
Pre-internet, you captured profits by controlling supply.
Post-internet, you capture profits by aggregating demand.
Internet made distribution free & transaction costs zero. making it viable for a distributor to integrate forward with end users at scale
Pre-internet, you captured profits by controlling supply.
Post-internet, you capture profits by aggregating demand.
Internet made distribution free & transaction costs zero. making it viable for a distributor to integrate forward with end users at scale
In other words, the internet disintermediated the supplier -> distributor -> end user relationship by allowing digital content to be aggregated & delivered directly to end user
0 Transaction costs means that adding 1 more customer is as simple as adding 1 more row in a database
0 Transaction costs means that adding 1 more customer is as simple as adding 1 more row in a database
Which means that the best companies win by providing the best experience, which earns them the most consumers/users, which attracts the most suppliers, which enhances the user experience in a virtuous cycle
Types of aggregators:
Level 1: Supply Acquisition (e.g Netflix)
Level 2: Supply Transaction Costs (e.g. Uber)
Level 3: Zero Supply Costs
Level 4: Super Aggregators (Zero marginal costs w/ users & suppliers, advertisers (Fb, Google)
Level 1: Supply Acquisition (e.g Netflix)
Level 2: Supply Transaction Costs (e.g. Uber)
Level 3: Zero Supply Costs
Level 4: Super Aggregators (Zero marginal costs w/ users & suppliers, advertisers (Fb, Google)
Google is the best at doing the job of answering questions; which attracted content suppliers to formulate their content for Google, making it even better
FB started as the best place to find friends & family, but over time evolved into being the best place to waste time period
FB started as the best place to find friends & family, but over time evolved into being the best place to waste time period
Amazon is the best place to buy things; started w/ books, which attracted customers, which made possible offering more products, & later merchants, which attracted more customers, eventually evolving into the hybrid store/merchant platform that Amazon.com is today.
All super aggregators benefit from strong network effects, both on the supply and demand side; these network effects, supercharged by the ability to scale for free, are these companies’ moats.
Newspapers used to enjoy local monopolies on distribution.
Google & FB didn't create better newspapers, they reduced newspapers to any other type of content, and made it compete with all other content in the world.
Google & FB didn't create better newspapers, they reduced newspapers to any other type of content, and made it compete with all other content in the world.
Publishers took advertising for granted (or, as journalists put it, erected a “separation of church & state”) under the assumption they had a monopoly on reader attention
Advertisers don’t care about readers; they care about identifying, reaching & converting potential customers
Advertisers don’t care about readers; they care about identifying, reaching & converting potential customers
Publishers going forward need to have the exact opposite attitude from past publishers: instead of focusing on journalism first and biz model 2nd, publishers need to start w/ a sustainable biz model & focus on journalism that works hand-in-hand with the biz model they've chosen.
Publishers need to answer the most important Q required of any enterprise: are they a niche or scale business?
Niche businesses make money by maximizing revenue per user on a (relatively) small user base.
Scale businesses make money by maximizing the number of users they reach.
Niche businesses make money by maximizing revenue per user on a (relatively) small user base.
Scale businesses make money by maximizing the number of users they reach.
The truth is most publications are trying to do a little bit of everything: gain more revenue per user here, reach more users over there. However, unless you’re the NYT, trying to do everything is a recipe for failing at everything
These strategies require diff approaches
These strategies require diff approaches
On one side you will have the aggregators as ideal vehicles for content creators who value reach; on the other new kinds of tools that enable direct connection—& funding—from fans. Maybe this whole Internet thing will turn out pretty good after all…unless you’re a publisher.
Video is safer b/c it's very expensive to produce (or buy rights to), so hard to substitute
Video has been increasingly differentiating itself on either quality (HBO) or exclusivity (ESPN)
The value of tech cos in each space is inversely proportional to value of the publishers
Video has been increasingly differentiating itself on either quality (HBO) or exclusivity (ESPN)
The value of tech cos in each space is inversely proportional to value of the publishers
The rule of thumb around marketplace businesses is that you either have a low take rate and high margins or vice versa.
The challenge w/ Neither/New companies (e.g WeWork) end up with relatively low take rates combined w/ relatively mediocre margins.
stratechery.com/2019/neither-a…
The challenge w/ Neither/New companies (e.g WeWork) end up with relatively low take rates combined w/ relatively mediocre margins.
stratechery.com/2019/neither-a…
And that's what's wrong w/ Microsoft. It’s not they don’t have talent—they do. It’s not that they don’t have great tech—they do.
Rather, it’s that they achieved their goal. There IS a computer on every desk & in very home, & nearly all of them run Microsoft software.
Now what?
Rather, it’s that they achieved their goal. There IS a computer on every desk & in very home, & nearly all of them run Microsoft software.
Now what?
Microsoft:
I am skeptical that Microsoft’s antitrust issues were a major factor in Microsoft missing mobile; the company had the wrong approach, both in terms of product and business model.
I am skeptical that Microsoft’s antitrust issues were a major factor in Microsoft missing mobile; the company had the wrong approach, both in terms of product and business model.
Twitter:
Since finding PM-fit came so easily, Twitter still has no idea what their market actually is, and how they might expand it.
Twitter is the company-equivalent of a lottery winner who never actually learns how to make money, and now they are starting to pay the price.
Since finding PM-fit came so easily, Twitter still has no idea what their market actually is, and how they might expand it.
Twitter is the company-equivalent of a lottery winner who never actually learns how to make money, and now they are starting to pay the price.
Twitter had huge potential:
Whereas Google is valuable because it knows what I want, when I want to get it, Facebook knows who I am, and who I know.
Twitter, on the other hand, knows exactly what I like and what I’m interested in.
Whereas Google is valuable because it knows what I want, when I want to get it, Facebook knows who I am, and who I know.
Twitter, on the other hand, knows exactly what I like and what I’m interested in.
Twitter had problems scaling growth b/c of their onboarding experience, so they focused on maximizing monetization per user:
It's a challenge to get ppl to re-try a product they have already dismissed.
In the meantime, they have to monetize the users they have
It's a challenge to get ppl to re-try a product they have already dismissed.
In the meantime, they have to monetize the users they have
Economics of software: massive fixed cost, effectively zero marginal costs.
It was expensive to develop Windows, but Microsoft could reuse the software on all computers; every new computer sold was pure profit.
It was expensive to develop Windows, but Microsoft could reuse the software on all computers; every new computer sold was pure profit.
It was expensive to build Google, but search can be extended to anyone with an Internet connection; every new user was an opportunity to show more ads.
It was expensive to build Facebook, but the network can scale to two billion people and counting, all of which can be shown ads
It was expensive to build Facebook, but the network can scale to two billion people and counting, all of which can be shown ads
They let others handle less profitable marginal components, at least initially
Google builds the search engine and leaves the creation of web pages to be searched to the rest of the world
FB builds the infrastructure of the network, & leaves the content creation to its users
Google builds the search engine and leaves the creation of web pages to be searched to the rest of the world
FB builds the infrastructure of the network, & leaves the content creation to its users
Politicians designed for the TV age — i.e meant to be palatable to the greatest # of ppl — are at a disadvantage on platforms like FB.
The Politicians that win inspire passion, stirring up a level of engagement that breaks through on a scale that far exceeds an ad buy.
The Politicians that win inspire passion, stirring up a level of engagement that breaks through on a scale that far exceeds an ad buy.
"It’s a really cool ad about ppl creating that kinda forgot to say how Dropbox makes that all possible, kinda like how Dropbox built a really great product that solved a real problem but kinda forgot—or more generously, waited far 2 long—to build a huge sustainable biz around it"
Apple is all about focus, Amazon is The Everything Store.
Apple has high margins, Amazon says "your margins are my opportunity."
Apple is a product co that struggles w services, Amazon is a service co that struggles w product.
Multiple ways to be successful.
Apple has high margins, Amazon says "your margins are my opportunity."
Apple is a product co that struggles w services, Amazon is a service co that struggles w product.
Multiple ways to be successful.
/FIN
Barely scratching the surface here. There's TONS of stuff I'm not including.
Go spend some hours (or years) reading his work, from front-to-back. Perhaps the best tech MBA you can buy.
Curious for other favorite takeaways from Stratechery.
Barely scratching the surface here. There's TONS of stuff I'm not including.
Go spend some hours (or years) reading his work, from front-to-back. Perhaps the best tech MBA you can buy.
Curious for other favorite takeaways from Stratechery.
