Thread by @chamath

The growing short case on $FB and $GOOG:

1. New product experiences
2. Regulation
3. Taxes
4. Anti-trust

If you have the capital/stomach for a 5yr+ bet, here’s how I’d build the short case...

BigTech’s long term success is no longer about better products.

They are incumbents and their success is now a multi-variate/multi-dimensional problem of competition, anti-trust, tax and regulatory multiplied by EVERY city, state, country and jurisdiction in which the operate.

1. New product experiences - BigTech has a huge yearly R&D budget. In fact, with two years’ worth of R&D, BigTech could recreate the Apollo program.

But they haven’t. Why?

Incumbency’s biggest drawbacks are lack of creativity, sloth, internecine politics and waste.

At the same time, the customers of incumbents want predictability. The customers are the advertisers.

The users are the feedstock. The feedstock needs to be constantly entertained or they churn.

See rise of TikTok vs IG if unsure...

This tension is at odds for incumbent products which is why new products take shape and gain share elsewhere.

BigTech’s historic solution was M&A. But this is now impossible save for a few tiny acquihires.

Even modest M&A like Google + Fitbit takes years now...

So product surface area will become more brittle over time despite the best of intentions and product vision. This will lead to better short term profitability but longer term churn of users.

2. Regulation - Governments around the world increasingly feel threatened by $FB and $GOOG.

The most basic encapsulation is that $FB and $GOOG threaten to disrupt the business model of allocating and distributing political power.

It stands to reason then that they will find all kinds of ways over the next many years to reinforce THEIR incumbency and legislate using old and new laws to slow these new kingmakers down.

The result is a more brittle product that drives users to go elsewhere (#1).

For customers, regulation could slow down their velocity of spend. A good recent example was the advertiser boycott on $FB.

If regulations on hate speech, free speech get stricter for $FB and $GOOG, it becomes harder to monetize all impressions and will make ad rules stricter.

3. Taxes - with governments crippled economically because of the pandemic, they will search for as many new “do no harm” forms of revenue.

IE, The EU, broadly, will look at taxes until they get their pound of flesh from any company operating there.

3. Anti-trust - A quick search of ongoing regulatory flare ups shows this trend is at the beginning and not the end.

As of July10, AL is the only US State NOT holding an anti-trust investigation into $GOOG.

When you look at any of these items discretely, you can discount them sufficiently so as to not overly change the value horizon BUT when you layer these probabilities, the risk changes.

In 80% of cases, nothing changes.

In 20% of cases, there may be market value destruction.

A few years ago, this risk equation was 100% and 0%.

In a few years from now, it’s probably 70/30.

Within 7-10 years, it’s likely 50/50. That’s a coin flip!

When you see this trend, buying the cheap insurance can be very profitable.