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I am here today with Ben Thompson who is the founder and author of Strater which is about the strategy and business of Technology there's a free article once a week but there's also more extensive material which you pay to subscribe to I am myself a loyal subscriber and payer I
recommend that you all do the same and Ben welcome to mercades thank you I'm happy to be here we're mostly going to talk about tech so let me just plunge right in why aren't the big tech companies very good at public relations
or are they that's the add-on is is an excellent question I think there's an aspect where they haven't needed to be for a long time and this is both a broader context and that they've kind of been like American heroes in many respects and you know where's American
innovation everyone looks to Silicon Valley and from that perspective can do no wrong uh but the other big thing is just the their business model is making people happy I mean you can define happiness in all kinds of ways in perhaps and nefarious ones as well but
people use Google because they find Google useful they use Facebook because their friends and family are there they use these companies regularly and they're very different than the sort of dominant companies of old that were sort of like monopolies based on controlling
distribution and they had no need to service their customers well because there customers can go nowhere else in this case they succeed by virtue of being better than everyone else and that kind of gives them a leg up you know in
in the public high generally are founder Le companies worse at public relations maybe because they're so substance obsessed I mean maybe I I think there it's more a matter of founder companies I think in particular are very sort of can you say missionary ask in their
mission they are very sort of you know they're they're True Believers and they have a story that they've told themselves about why this company exists and why it's successful and it usually has very little to do with the sort of stuff that I write about which is you
know business models and and Moes and network effects that sort of thing no we we are connecting the world or we are you know finding all organizing all the world's information very sort of lofty sort of goals and the more I think a found the more Founders is there the
more that that sense of mission is felt deep within organization but that creates blind spots where you can't even it's not that they're bad at public relations it's that they can't even imagine the possibility of anyone thinking about them poorly because they
know their own intentions and their intentions they feel are good and it's the whole sort of attribution error where I know what I was trying to do that guy down the road he was just being a jerk it's kind of that but in Reverse does Amazon do public relations
differently do they do it better have they somehow found the magic that the other major tech companies have lacked or is reality simply catching up to them now I mean I think there's a bigger challenge in general for a company like
Facebook where you know if you think about public relations it's very tied up into the media and that sort of area where they there's a certain sort of you know tension already in that sort of relationship when it comes to this health of their underlying businesses
whereas Amazon I think is a bit more removed from that and Amazon is also sort of so customer focused that everyone uses Amazon Everyone likes Amazon and it's not sort of part of the conversation in that regard I think to the extent Amazon has gotten sort of
poor public relations it's it's sort of being ginned up and ginned up sounds bad it's being sort of built up by people that are concerned about its tremendous power in the economy and and arguably they are you know the the strongest of all particularly if you look at them
from a supplier perspective but that's very different than sort of a ground swell of a political movement which is almost sort of the sentiment around Facebook these days so I think it's more a matter of their position relative to society and the dialogue generally that
Shields them and the other thing I think they do though that as far as a strategy goes is they just don't engage I mean they when there was that big thing in the New York Times about sort of working conditions certainly they pushed back
and pushed back very strongly but by and large they aren't generally in the thick of it whereas Facebook and Google I think particularly Facebook they're very eager to explain themselves and it's arguably that explaining themselves that gets themselves in trouble more than
anything else now why is it that tech companies might make quote unquote obvious strategic mistakes what's your simplest model of that I actually find this to be one of the most productive ways to think about what I do because you know there is an old you know went
to business school and you would have the sort of the mock interviews I was you know part of the tech club this the thing that you did to help first year students prepare and one of the go-to questions was always you know what's a
move this company made or a product they made that you that you disagree with or you think was was a poor choice and you know everyone always you know they prepare for these they always have an answer but the real killer is the fall on question which is why do you think
they did that yes and what you find out is a lot of people they don't have anything beyond because they're stupid and and the reality is if you know these companies you know the people in them they are anything but stupid like they are very brilliant people that have
brilliant backgrounds and all the sorts of you know great things in their resume and whatnot and that's where it gets interesting to look at companies look at their culture look at their business model see what's driving that sort of decision-making you know you have a
company like say Microsoft for example that achieved dominance in the consumer Space by virtue of their Network effect that sort of emanated from the Enterprise side and but they started thinking they were good at consumer products so they would make these
consumer products that had no chance in the market place cuz they didn't have that Network effect to build on and it failed but you could think about like what you know the company had achieved so much success to that point how did that influence their decision-making and
create blind spots where they would do what were stupid things and I think you can do a similar sort of analysis of all these companies I just mentioned the context of Facebook they're so convinced that they are a Force for good and changing the world that they can't even
fathom that they're not which leaves them unprepared to answer you know very legitimate questions about their effects on the world because they don't have the sort of I don't know if empathy is the right word they don't have the sort of
empathy for the possibility that they might not be which doesn't allow them to even create the right response if we're talking about tech where there's high potential for convex or asymmetric returns is not the real puzzle that we don't see a lot more mistaken strategies
because companies arguably should be taking a lot of chances which maybe have poor modal outcomes but High expected value and you might think well three quarters of the time will just be seeing mistakes mistakes mistakes and actually
so-called bad strategy is in a sense profit maximizing do you agree no we do see tons of bad strategy there're just although thousands and tens of thousands of failed startups that didn't any traction and then went by the wayside that's the model of of silk and Valley
and that's you know people sometimes ask like why do I I spend more time on large companies in part there's more information there's more impact in general but also those are the ones that have made it and actually can afford to make sort of strategic decisions I mean
the venture Capital model in many respects is not about having a great strategy and then finding the right team to implement it no it's it's funding a whole bunch of teams get the ones that get traction and then build up from there and so strategy is very much a
follow on to initial execution initially gaining product Market fit and then even with the large companies see failures all the time I mean Google in particular I think is notorious for this for launching products all the time that never succeed but it doesn't matter
because they have that core product with the huge Network effects that lets them do that and fail I mean and Amazon's made an entire business out of this like Amazon is spinning up new things all the time like Amazon's almost like an internal sort of VC sort of culture
where their money-making businesses throw off tons of profits that they reinvest in all these sort of initiatives many of which don't work out what are Venture capitalists chronically underrating I am very curious about we have we're entering this sort of world
we have these extremely sort of dominant platforms and I personally am a huge believer that there's room for all sorts of new types of businesses that are uniquely sort of enabled by the internet I mean obviously I'm quite literally
living that with sort of like my life and career and I think that Venture capitalists are very eager to get into many kinds of businesses that should not have venture capital I think I think there's a lot of small scale businesses that can you know be bootstrapped or
have minimal investment to get started that can build very very Niche products for very very Niche audiences that can be reached via social media VI via digital marketing the basically the entire world and which enables you know all these unprofitable niches that you
can never serve geographically but can actually you know be something viable but all those businesses are not Venture style businesses and even arguably the companies that support them are not necessarily Venture sort of style businesses and I think it's going to be
very tempting and you see it a lot of venture capitalists and companies raising money to go into these spaces and it it's not that the idea is bad or the business model is even bad it's that there's not Venture level returns there
to be had but I think the Challenge from a venture capitalist perspective is these big companies are so dominant that where is a similar sort of level return to be gained and particularly on the consumer side and that's you know a little harder to see so do we simply
have too much Venture Capital today so you can scale social media and apps most things you can't scale Venture Capital got too happy with the returns from the mobile era social media era and now where's the next place for them to go I mean I don't know that I'm done this
research or whatever to say that I would be inclined to say no I mean I think there's still tremendous amounts of transformation that is going to happen from here on out where you know particularly things like the cloud and everpresent Computing and basically
everything can be rented particularly for technology company there's all sorts of things that can be addressed and taken on I think a lot of them may be less sexy than a you know a Facebook or something along those lines but I think there's tons of opportunities still to
be explored and what you see I think we're the a really in is you know Tech spent many years sort of eating itself and and you had these sort of like you know darwinian process where you got these just the ones that won out in the end were just these really well
executing super well funded tons of cash flow machines and now they're kind of turning their eyes out to the general world and all these industries that were not that you know used Tech but were not sort of fundamentally transformed by
Tech and they're just like being mowed out you know I think it's going to be you know the carage I think I think is going to be pretty epic when you get into broader Industries I mean Uber and the tax industry is an obvious example but I think you're going to see that
happen more broadly which is I think is might be another thing that uh Venture capitals are underrating which is the you know Tech in general is all about the heavy investment upfront and then basically zero marginal cost products on
the backside and the reality is as you get more into the real world those marginal costs become more and more difficult to escape you need to hire a Salesforce you need to hire well that's always been sort of the accepted okay marginal costs you're need other ones
you're going need Regulatory Compliance you're going to need like ongoing sort of lobbying effort you're going to need like all sorts of stuff that is sticky stuff in the real world he'll say why isn't Tech done much in health Healthcare well everyone avoids
healthcare because all the regulatory overhead despite this massive market and I think there's going to be a mind shift where we need to be willing to go into those areas with massive regulatory overhead with massive red tape and because that's the real growth sort of
opportunity I think being willing to fund companies that are are willing to do that they're willing to spend like that is going to require a mind shift in Venture Capital generally and also I think you know in Founders looking at
opportunities what's the main commercial area where a truly decentralized blockchain database might actually make sense I don't know I mean do you think there's any I don't know I mean I think blockchain is inherently interesting because the thing about the internet is
its reduction in dist basically driving distribution cost is zero but tied into that is the sort of end of scarcity because anything can be you know copied endlessly and that's great or it's bad for a lot of businesses it's great for other businesses but what makes
blockchain derived products interesting is they can have that zero distribution cost aspect I mean obviously varying on the fees and whatnot but but theoretically well also being scarce and that's a really interesting concept of being able to basically go over the
whole entire world yet there only be one of every particular item so I think that's fundamentally interesting so I would not dismiss it outright I don't know how that's going to actually manifest itself that itself in the real world but I mean the thing to remember
is every time there's a new sort of Paradigm that comes along everyone starts out trying to copy what came before but in the new format like you know when the internet came along everyone slapped ads next to the Articles because that's way they did in
newspapers and obviously that didn't work but you see this again and again and again and it's sort of the second wave that fig figures out what is native to the format in the case of digital advertising that's putting it in the feed where it's an ongoing stream
information that you can inject ads into only possible on digital tremendously profitable and I think with blockchain type companies the initial wave is all trying to recreate stuff that already pretty much works and the key is going to be figuring out stuff that's not
possible but is uniquely possible with blockchain and you know if I knew what that was then maybe I wouldn't be writing a newsletter every day so will Amazon have any impact on Healthcare as you know there's a new initiative I don't know I mean it's Amazon is a sort
of company where it's very difficult to doubt them and they do have a sort of model where they figure out stuff for themselves first and then they figure out a way to sort of productize it and make it available to anyone and so I
would always be hesitant to bet against them uh that noted or I think the other thing to to note too I was going to say I was going to say you know all the sort of difficulties in healthcare and regulation but thing Amazon does Amazon does really hard problems I think I
mentioned that that Venture capitalists need to change their mindset generally to be willing to go into spaces where upfront capital investment is not sufficient there needs to be sufficient you know ongoing expenditure on a marginal basis for a product and and be
willing to accept that and Amazon does stuff like that they actually go out and they build a bunch of distribution centers and they build out a logistics chain and they do all this sort of really hard expensive stuff that everyone says doesn't make sense and how
you get a good return of capital from that with without realizing that the payoff is not in the you know 3 to 5e range it's in the sort of impenetrable moat that comes from actually having physical Assets in the real world that people no one can afford to compete with
in the long run here's a business school kind of question the idea of synergy is made fun of quite often conglomerates often have had a pretty poor history but now there's Amazon that seems to be evolving into a conglomerate form based on synergy
and it's working I mean what's the difference now how would you explain this in terms of the Strategic model having changed I'm a little skepticism of the claim that synergies don't exist or that merg Acquisitions are inherently value destroying I think particularly
you know tech companies in general just throw off so much cash and have such such strong core products that it makes sense to acquire other companies instead of trying to sort of build something from scratch all over again ID say that as a rule generally with Amazon specific
speically uh you know bezel has done a remarkable job of building a company that is not integrated like Amazon is sort of the anti-apple men specs where it all fits together absolutely perfectly whereas Amazon is sort of a very sort of modular entity where all
the different teams have well- defined ways to work with other teams that lets it build other things that that sit on top of that and you know the famous story of AWS is you know AWS the idea was that you know Amazon should interact
with this entity it should be able to scale to sort of Amazon's needs in a way that it would any third party and then will might as well sell to third parties I mean that's a little bit of a oversimplified telling of the story because Amazon itself was sort of on its
own integrated platform for a long time after AWS started it's it sort of has shifted a AWS over time but I think the way AWS works is very emblematic of the way Amazon is structured internally that lends itself far better to expanding in a sort of K gation structure in a way
that even other tech companies are not well suited to do and I think Amazon in particular given their focus on infrastructure on spending all that money not just in AWS but the distribution centers and the logistics and all those sorts of things all those
are particularly good synergistic pieces because they are very Capital intensive they're very hard to duplicate in general and you're going to get much more of the gain from Synergy than you would with other Tech products what's the modelbased reason why
Winner's curse doesn't seem to apply to the tech companies is it that there are so few biders but over time as more biders enter the market that winers curse will apply and mergers and Acquisitions will go back to on average being mistakes it depends on the
actually the part of the tech industry I would say when it comes to the consumer companies the reason is Network effects the there's so much gain to be had from having a larger Network that it sort and it creates a virtuous cycle where you
have the larger Network you bring and this is a big sort of thing that I focus on in general is the importance you know it used to be that you gain sort of power on a value Chain by controlling Supply and you know consumers had to come to you on your terms whereas in
Tech you gain power by controlling Demand by having all the users and the suppliers sort of come to you on your term so if you're acquiring a company with a significant user base and adding it to your user base you're increasing your power you know exponentially in the
sort of value chains that you compete in so I think that that's number one number two a lot of Acquisitions in Tech are much smaller scale buying technology that is going to be plugged into existing products existing networks existing people and again the value of a
particular Innovation to Apple if they put it in an iPhone is just so much greater than it would be anyone else to put in a similar phone or or Facebook acquiring a some sort of product that can incorporate into Facebook is so much more valuable because of Facebook's
Network that they just don't have competitors at that that scale to gain those sort of to compete with now we're sitting here in Arlington Virginia where will the new Amazon headquarters be maybe down the road maybe down the road I think it'll be Crystal City with some
other facilities in Maryland so they get six Senators instead of two yeah that that's that's a good way of thinking about it I've definitely been focused on the getting Senator sort of angle and you know obviously the you mentioned it
earlier the the sort of is there going to be a public relations wave which in public relations Is many respect another way of saying politics and you know Amazon having a presence here is something that you know I think is going to be important to the company I think
is something that Bezos has thought about and Amazon has been proactive like this in the past I mean you see this for example with the sales tax thing where they fought the sales tax or they refused to pay it in States for ages and ages I remember being in business school
and having to interview with them by phone because they would not send recruiters of the state of Illinois because they were in a sales tax dispute and then what they do when they saw sort of the wind shifting they said we're going to pay sales tax
everywhere and oh by the way we're building distribution centers next to all the major cities and so they actually turn into an advantage where they're actually they're already everywhere they impose this idea of sales tax you had the Wayfare decision
come down that's going to weigh very heavily on e-commerce businesses you have a small e-commerce business is something that I'm dealing with right now like how do you calculate sales tax across you know 5,000 some tax jurisdictions whereas for Amazon that's
going to be much more easier for for them to handle and they did the same with this minimum wage thing like the you know California is already on its way to $50 minimum wage they have lots of distribution centers there they get out in front of it get a ton of huge PR
it doesn't actually cost them much because they they took away all the bonuses and whatnot and and so I think they're more Savvy about this stuff than you think and certainly setting up you know bridging Maryland and Virginia uh would make a lot of sense in that regard
I have a few questions about Apple now it feels to me like I have a happy life and indeed it's actually pretty simple why do I need an Apple Watch I don't I don't wear one personally I mean I think what's the best thing it might possibly
do for me you're excited about it right well why I am excited about it because Apple has always been at its heart a personal computer company and just what a personal computer is has changed over time it used to be something on your desk then it was something in your bag
then it was something in your pocket and that's certainly the dominant form now and the idea something on your wrist that is with you even more is something that's very compelling and sort of fits with what you know a sort of broad Arc
the broad narrative I think of Apple and and you know what could be done with something on your wrist that you know connect to a pair of airpods in your ears or maybe there's going to be something with a reality in the future I mean it's hard to say I think it's just
if you're interested in the future and the way technolog is going it's inherently interesting I think Apple struggled originally because they had the same sort of supposition that this is inherently interesting so let's build it and they didn't know what it was for
and they've really over the last few years hon in on a health and fitness angle where you know this will help you with healthier it will help you with you know exercise be more active now they have the sort of the heart rate sensor and things like that and that's that's a
necessary step in why should you buy this product I find it useful I do have one um you know the notifications can be useful you know almost actually less of a distraction because you're not pulling your phone out of your pocket you just
glance say you know that that's not important uh but at the end of the day honestly for me I like the simple life as well and charging something every day just drives me one more thing every day sort of drives me up the wall and and being nervous about that and also just I
want to look at my watch my wrist and see the time immediately not have to wait for it to turn on or whatever so I I have very little very small scale sort of objections to it but that's the thing the more the closer something is to you the more the small stuff really matters
well Apple be the company that finally builds a workable fun comfortable version of Google Glass probably I mean if you had to bet on someone they make the most sense when it comes to physical products you know apple is still the best by a significant margin and I mean
Google is is better and better at Hardware especially things that are very computationally intensive like their camera is is is is pretty incredible but when it comes to the sort of entire experience of touching it and interacting with it and and just the
feel of it which matters again I just said the smaller something is and the more the closer it is to you the more that matters the more that plays the sort of Apple strengths and you saw that going from computers to phones you see with their watch which is just leagues
ahead of anything else and I think it's likely to be the case with with something that you would put on your face and that device what will it do for me why do I want it I have a simple life I'm happy I walk into Whole Foods it helps me see the bargains or it tells me
the person I'm talking to is lying or what I mean again it's one of those things where the easiest way to define what we do is to take is to imagine things today as they are and if you went back and say you know what would a phone
do for me you know back when we were using flip phones you would have said you know you you said oh it's going to do email it's going to do things like that you wouldn't have imagined that all the that you're going to use it to find
Pokemon or you're going to you know play these crazy involved games or spend tons of money in that purchases or whatever it might be you know there's an aspect of you need to build it to figure out what is there I mean it's it's the Silicon Valley model RIT large you know
you you figure stuff out you build it you throw it out there and and see what happens and that's that's fine that's okay we don't need to know exactly how stuff goes I think we have a lot of history that trying to anticipate and plan everything
is generally results in a less Dynamic outcome than sort of experimenting and seeing what works have smartphones made humans smarter or stupider I think humans are humans you know there's an you people that are tutting the kids on the phone you know they they forget that
when they were kids they literally sat at home with a phone against their ear talking to their friends for hours at a time and if they had a smartphone they'd be be doing the exact same thing I I think it's a matter of certainly it's important to pay attention to and be
aware of potential downsides but you know that's just they are they're here it is what it is we've dealt with these upheavals previously and I think we'll figure it out and you know I I I tend to adopt the the kids are going to be okay
sort of mindset I mean there's going to be new things that arise about it new Moray is there worries about things like bullying and you know being on phones all the time and isolated certainly but that's always been a problem and a question of new technology and I mean
not I'm not trying to wave wave my hand and say it's all going to be okay I think it's just a matter of it's here and I think once you accept that it's here the best thing we can do is to figure out the how to manage it sort of going forward instead of sort of pining
for a world that that is is long gone are you worried about the attention span effect precisely because say iPhones are so very good and entertaining I think so I mean I I do certainly find myself always wanting to you know pull up Twitter or whatnot but I think that's
another thing where you know we're going to adapt I mean when television you know I'm not sure it's great for people to have a very long attention span that until sitting in front of the television for 4 hours at a time you know I think
there's a at the end of the day people are going to have to figure it out and I I think they will why should I want a tech device in my home at all so take Alexa I don't have one I'm pretty happy my life is simple I don't want anyone or anything listening to me what does it do
for me I know I can tell it to play me a song or buy something on Amazon but that's oneclick shopping anyway could hardly be simpler why do devices in the home have any future at all the reality is particularly when it comes to Consumer products is that in the long
run convenience always wins and I think people will have them in their homes and they'll become more popular because it's convenient you can be doing whatever you want you can say something like set a time or 5 minutes or you know what
temperature should I grill my steak to and you'll get an answer with your hands busy and all and all together and it's going to be a more convenient answer than would have been otherwise and right now is it always more convenient no to get everything working together all the
different pieces but again that's very normal in the development of something new where at the beginning everyone's sort of figuring it out and then someone's going to nail it and then it will grow from there and if you don't want to have it you cannot have it
that's going to be fine but I think a lot of people will choose to have it because people love convenience so it answering your questions is the main thing it will do for you in the home I think that's going to be an important thing I think the I think there are
aspects of home automation that are pretty that are pretty nice I just even like lights once you have one set up to turn your lights on it off it seems barbaric to go and hit a switch on the wall uh I I may or may not be speaking from personal experience but again is
there going to be more than that we will see I mean I I feel I'm giving you these sort of platitudinal answers is like I don't know we'll figure it out but I think that's that's the way technology has always worked it it's you in to the
extent that silk and Valley you go all the way to like what is silk and Valley about why is it successful and it goes to this willingness to let people do crazy stuff most of which is going to fail and some of it will succeed and to have that willing to say I don't know I
don't know if it's going to succeed but sure give it a shot and that drives Innovation I think in a way that a sort of top down you know it's going to be used for this create this sort of process doesn't and and I think you know it's so the platitudes are all I got let
me trar a few Facebook questions what's the long-term Facebook Instagram relationship will Instagram just be like Facebook and it will be as cluttered and as connected to advertisement and it will feel like Facebook or will Instagram always be a
separate car out well it depends how you look at the business if you look at from consumer perspective there are two very very different products and you have people that say you know I'm against Facebook I'm going to delete Facebook meanwhile they're sitting on Instagram
all day long but if you look at it from an Advertiser perspective they're they're very much the same product you buy the ads in the same way through the same platform you deal with the same salespeople you can build the same sort
of ads whether it be the feed ads or the story ads or whatnot and frankly that is the reason why Facebook owning Instagram is such a problem for sort of competition in the digital advertising Market because if you're an Advertiser let's say Snapchat is marginally more
effective at reaching you know the demograph you want to reach well if Instagram is so much cheaper by virtue of you're already on Facebook and it's easy to add on Instagram then it's not even worth the effort to go elsewhere and so I would say from an advertising
perspective they're already extremely integrated and it's the reason why Facebook is as dominant the company is as dominant as it is I do think Facebook will be very hesitant in screwing up the user experience too much I mean it's
their best asset and even if Facebook does feel the need to drive increased Revenue um I'm sure they are more aware of than anyone about you know what a jewel sort of Instagram is in their portfolio and that's part of the reason why having Facebook is actually a
benefit for Instagram because Facebook does all the junk like events and birthdays and stuff so that Instagram doesn't need to is the social media space right now just full up no more major entrance what we have is what we're going to get and it will evolve in
modest ways but the ages of a new Instagram are over I don't think so uh I think the you know every sort of new generation comes along and they want to be somewhere different than the generation that came before and that was very much I think what drove Snapchat
you know that they kids didn't want to be on Facebook and I think the Next Generation the post Snapchat generation come along and they'll want something else I think the real concern is the monetization side I mean social networks and advertising go hand inand because
advertisers want to be everywhere and the value of social network is about how many people are on the service so it's a natural business model but as I just noted because Facebook owns so much of the social advertising Market it's very
hard for sort of a third entr to gain Traction in a meaningful way and that's what I'm more concerned about I'm not concerned about a service NE necessarily emerging over time per user is Facebook or Twitter worse at creating these ideological filter bubbles if indeed you
think either is a problem I thought about this a lot and I've written you know about the filter bubble issue and it I think I do wonder if it's one of those things that makes so much theoretic it's almost too neat like that this obviously this must be a problem
but is is is it a problem and you think about the age groups that are the most polarized and they tend towards I think the sort of older generations and and you look at things like cable news and how much is that actually driving you know the the filter bubble sort of
effect I guess I may I do think there is more of an effect than Facebook acknowledges they you know they did this they released this study a few years ago it said there was no filter effect it was a very problematic study in all kinds of ways and it's it's bothered me
they never sort of acknowledge those problems and sort of updated that at the same time I think it's a little easy and cliche to blame Facebook when Facebook may actually just be a reflection of sort of society at large and I think the
sort of attributing causation to these companies when if you think about how they work and how they have power in the market It Is by giving people what they want which it follows you know people want to be polarized they're going to get polarized things and what is the
sort of chicken and egg connection there I'm I'm a little more skeptical than sort of the general narrative that Facebook is to blame for everything now I have a few questions about what I call the Ben Thompson production function how does being from Wisconsin shape what
you've done I would say significantly I mean the the most obvious impact is I was raised you know very you know Blue Collar small toown Wisconsin I think just being more in touch with and aware of the sort of world between between the coasts you know the the the the not
Elite at all the I think one place that's manifested very clearly was I was very bullish on Facebook very early even when they're in their dull drums around the IPO and things like that and saying this you know this company the potential
here is is just absolutely massive and I think part of that came from the fact that where I'm from Wisconsin Facebook is everything it is the social network no one's on Twitter like people know of Twitter they don't use it they're not aware of it or they're aware of it but
but it it's it's not a thing and you know Facebook that's really gets to Facebook's power is Facebook has penetrated so thoroughly everywhere you know and why because Facebook is sort of the digitization of your friends and family and where I'm from friends and
family is is very Central in a way that in Silicon Valley where a lot of people are sort of running away from their friends and family to to pursue this dream or to get away is is sort of less cognizant of how would you describe your media diet what you do to stay current I
read a lot of news I mean people you know I get this question a lot I think people find it unsatisfying but I read a lot of news I read a lot of newspapers I read you know Tech M as a list of all the stories of the day and then when I want to write about
something I will do very deep Dives on it and read sort of extensively about that topic in and around it but as far as a regular habit it's a lot of news and and frankly probably too much Twitter and what do you do to optimize what you might call reader input emails
you receive or whatsa messages as a part of your daily workflow should you be doing more of that and less reading of news or vice versa so how do you balance those two things uh I I get a I think the feedback is very valuable I mean I
get I get lots of email every day from from readers I have a you know forum for members to post on I have you know people send tweets to me all the time I think it it goes in a few ways one you do get really valuable sort of like concrete feedback like this specific
thing like details about something or you're wrong about this and this is why which is you know extremely valuable sometimes it's you know oh I disagree with you and it's an opinion sort of thing which is fine it's good to sort of gauge that I think one thing that's
that's hard for it was hard for me at the beginning I think most writers have to figure out is to understand you have a core group of readers that are going to send you messages and tweet you all the time and they are not representative
of your audience as a whole and being in being sort of having a mental sort of uh filter around that to be aware of it but I it's one of the best things about writing on the Internet is the immediate feedback and that it can adjust what you write the next day as opposed to if
you're writing a book or whatever and then you have to wait for the next book or the next paper or whatever might be it's it's a tremendous benefit now you have an NBA from Northwestern correct yes are NBAs overrated or underrated uh proba it depends how you think about it
I think from a uh intellectual Pursuit probably a little overrated and I say this as someone who benefited tremendously from an NBA I had no sort of like formal business background uh it turned out I had a good sort of you know understanding of how this stuff worked
and the NBA gave me sort of the language to put around these sorts of things that said are you going to get an NBA and you become sort of strategic Maven no I don't think so and I think a lot of NB get a bad rap deservedly so for thinking
they know everything when they've just read a few case studies uh on the other side I think nb's do do wonders for your salary and I think that's very well documented and it's certainly paid off for me in that regard if one is trying to learn or understand business strategy
do academic economists have anything to offer I don't know I I it I would say that it's impossible for me to answer this objectively because I would say a driving force from me starting shory was I felt there was a tremendous void in
actually looking at things that were happening now and thinking about them strategically and in a sort of useful sort of way and I remember being in business school and reading studies and like you know there's nothing here about internet companies for example and press
say well you know there's Universal Concepts that you can apply them anywhere and like yeah but once you put zero marginal cost into the equation like you could you can think it through if you think really hard but it's a totally different business and it's hard
to sort of draw Concepts from and so one of the voids that I saw that I thought sh Checker could fill was sort of much more practical immediately useful you know analysis of suu today and so I I guess I I would say yes it's probably useful but that's more a do I
read a lot of academic papers about business and business mod no not not many to be honest what would be a book you would recommend for someone interested in learning about business strategy doesn't even have to be the internet you know I get this question a
lot and I always get what books do you read and it's challenging because I I read books in a very sort of practical what's the word I'm looking for I read books a very um exploitative way I read books Very pragmatically Yes like I want to know about something or I'm writing
about something like and I read very fast so I will plow through a book in a morning to get context about something and then use it to write and and the sort of books I find particularly useful for what I do is the sort of like founding stories of companies and like
going back to decisions made very early CU I think going back we talked at the beginning of the podcast about you know when companies do stupid things it's often it's embedded in their culture about why they do that understanding that is useful but if you want one thing
to read about business strategy I guess I I do go back to you know Quay christenson's the original in dilemma and the reason I like that book go back to it even though I think he's taken the concept A little too far and you know one of the first articles I got traction
on was saying why he why he got Apple so wrong but what I like about that book specifically is the fundamental premise is managers can do the quote unquote right thing and fail and I think that gets into the what I talked about before
why do companies do stuff that in retrospect was really dumb and often done for very good legitimate reasons that's what they're incentivized to do they were serving their best customers they were you know adding on features cuz people wanted them and that actually
made them you know susceptible to to disruption and I think that's a very generalized broadly is a very useful concept now you've worked at Apple Microsoft WordPress what did you learn at WordPress well Auto I have to be clear the WordPress folks will be mad at
me it's automatic which manages wordpress.com WordPress is an open source project one of the great things working there was that's when I went back to Taiwan W cuz they're fully distributed you can live and work anywhere in the world teams are totally
remote and virtual and that was just a really cool and neat experience generally and you know you would have team get togethers all over the world where people fly together for a week and I almost from a social experiment it's a very interesting and fascinating company
to work for I would say the other thing though I learn working there is I mean the scale of the internet is astronomical I mean they you know automatic in wordpress.com the number of signups they have every day and the number of new blogs being created and a
Blog who writes blogs anymore there are a massive number of new blogs created every single day and know do lot of them fall F sure they do but this idea of the internet being huge I mean it's something that drives strates like I can write a paid newsletter and
because my dress Market is the entire world I can have plenty of subscribers all over the place that makes it viable and not just me but you know you can write a newsletter about China he talk to my friend Bill Bishop here in DC you
can write a newsletter about basketball I can write a newsletter about Apple specifically you and and that's just one Niche one area as newsletters Because the Internet is it's bigger than anyone thinks like even people in Silicon Valley I think underestimate at times
just what it really means to be able to access billions of people now as you mentioned you live in Taiwan your wife also is Taiwanese I believe what's your favorite thing to eat in Taiwan there are many good choices I would say my favorite is probably spicy hot pot
lots of food spread on the table put it in there mix it all together it's it's good but beef noodle soup is great Taiwanese breakfast remarkably underrated most people don't know about it but once once they come they they can't get enough uh it's as far as
eating goes it's it's hard to top what's the most underrated place in Taiwan probably tooco Gorge it's called tuuga in Chinese uh in in part because in Taiwan it's very well known but I think internationally it's not known at all and it's absolutely incredible
world-class scenery like it's it's pretty a inspiring the east coast is gorgeous also I did that the entire East Coast yeah you well and the best part is you going to tyroo from Taipei you go down this road that's you know you're there's Parts where there's Cliffs up
one side Cliffs down the other you're hanging over the ocean and also winding through the mountains it's a it's a two-day trip and it's it's totally worth it what's the hardest thing about living in Taiwan I mean the obvious one would be just the language in general but I
mean I I can I can speak certainly well enough for day-to-day life I I think what gets harder is the sense of always being different and you know I I certainly people can experience this you know here or lots of places but every time you're in public at all moments
you're always aware that you are different and if someone is rude to you or someone doesn't help you or taxi drives by you on the road and doesn't pick you up why is that because I'm a for is that because I'm a white guy and that's something that I think a lot of
people have a hard time dealing with and you know I used to I when I went Taiwan I was an English teacher back in the day and new new teachers would come and you could tell right away which ones would not make it cuz that sort of stuff would
just drive them crazy and and they'd be gone in in a month or two whereas if you can chill out and be like you know it is what it is then then you'll have a better chance of better chance surviving the Milwaukee Bucks last year won I
believe 44 games and in the NBA they were in the bottom third for a number of three-pointers attempted why should we think they might do better this year because they had the worst coach in the league by far and he is gone and now they have a new coach and they're they
actually had the best shot profile in the entire league in the preseason which is shooting threes or shooting shots at The Rim they were like 89% or something like that they are going to have a great year Giannis is going to win MVP it's
going to be amazing and we are we we being Buck Twitter is going to spend the whole time you know telling everyone that we were right and they were wrong as a management question how do teams end up in the equilibrium where they're not taking enough three-point shots that
seems like a very easy technology right you know where the line is you shoot from behind it not in front of it how does that happen well there's been a real sort of culture shift in in in the MBA over the last decade where even though the three-point line has been
around for a long time and the math is very obvious I mean three is more than two you make a third of Threes you're you know same as making half of your twos it it it took a long time that sort of to take roote and a part because in the NBA generally speaking coaches and
and front offices Executives probably the majority or a fair number are former players they came up through the game and so they have you know 10 20 30 40 Years of conditioning about this is how you play basketball and whereas a lot of
the sort of teams that were the first to start doing this differently had sort of like the Houston Rockets had Daryl Mory who was former NBA like former MBA I should say you know and bringing in a completely different mindset that is more math-based but that's coming from
from the outside and it takes a while for that to you know that generates a reaction to it and it takes a while for that to sort of break through and the Bucks you know that was very much the case I had a had a general manager that had been there for in the league for
ages had a coach that was a former player and was insistent that this is there's a certain way to play and we're going to play that way even if it was objectively wrong how should NBA rules be changed are there too many clocks running isn't it confusing too arbitrary
the main thing I would change is making the and they've done a little bit about this they've reduced the number of timeouts in the last two minutes of a game to make it flow more I would make it so that FIFA has very or feea I should say has very interesting rules
where you can only call a Timeout on a stoppage of play or and things along or you can't called they they have lot at the end of the game to make it go more quickly oh I would also give teams the options when fouled that they can either
take penalty free throws or they can take the ball out of bounds and at the end of game you know they just fouling and that would fix two problems one the hacking bad players don't shot free throws well which just grinds the game to a halt and isn't in the spirit of the
of basketball at all the point of a foul is to punch the defense not to punish the offense but then two the end of game you have this fouling constantly and the parade to the free throw line like well that' give people a harder time to to
come back at the end like well then they should do better the rest of the game I think they'd make the end of the games remarkably faster make the whole game faster and and more exciting problem of steroids and in general players taking
substances and professional Athletics should it be regulated by the government does the league choose the optimal rules is there a negative spillover effect on say college and high school appliers how should public policy deal with this I would tend to think there's bigger
problems for for the federal government to deal with uh the I I do think the spillover effect is the biggest reason to be concerned about it I mean when it comes to professional athletes they're like it's professional athletes they're being paid tremendously for what they do
there's going to be the risks they are bearing are on them but when you have a high school player or a college player that is just you know in it and they're going to go have to live a normal life afterwards and that's much more I think
much more problematic from a sort of moral perspective uh at the same time you know the the leagues are also sort of incentivized to do the minimum necessary to avoid sort of bad press I think something that might be better would be to relax things like uh Mar
marijuana testing which I in the NBA you know I think it's very common for players to smoke weed but because that's wrapped into the drug testing program that the drug testing program in some respects is a little easier to Dodge in part because they don't want to bust a
start player for smoking weed and maybe if they took weed out of the program and got a lot more strict on the other stuff that would be sort of more Equitable to everyone involved now many Americans have never heard of the company bite dance which is from China by many
estimates it's the world's most valuable startup how can it possibly be worth say $75 billion because there's 1.2 or 1.3 billion people in China and the market is such that not all of them are online but a huge you know WeChat has how many
750 million users or something like that all of whom speak the same language shop at the same places go to you know it's all it's such a common market in a way that more similar to the US than than the EU but it's you know three times the size and so it all things with China
start and end with just the size of the market and the potential there and you add on to that I mean this is beyond sort of bite dance specifically but Chinese cities are so large and so dense that the level of services and possibilities there are a lot higher
than they are in the US where things are more spread out and also there's so much you know labor in China generally available that you can do more sort of labor intensive offerings and so there's just a lot the the potential upside is just so massive that that drives I think
frankly a lot of pretty crazy investing in valuations in China but it's just because the upside is is so tremendous B dance to me seems to be apps and machine learning why should I care what what can it do for me say I'm Chinese why is my
life better because of bite Dance I mean I don't I don't know I I I'm not that famili I'm not that familiar with it to be honest people ask me why I don't cover Chinese companies more i' say there's two reasons one I'm actually not in China I'm I I mean uh careful how
you um but uh then also there tends to be a lot of opacity into sort of understanding what's actually going on with these companies and these companies I think generally speaking to command the level and size of audience that bite dance does and to
have sort of demonstrably done it with sort of an algorithmic approach that has you know really gain a lot of traction the potential there for advertising for driving to various Services is you know pretty significant and in the internet generally power comes from owning
attention from owning the consumer and they have the attention of a lot of consumers in a way that pretty much no one in China outside of tensent does should Google develop a censorship Laden search engine for China as a business decision not morally separate but should
they do it probably I don't know it's hard to say I mean the the thing people don't remember about Google leaving China the first time is that yes they took a moral stand about it they're also getting their rans kicked in the process their share had
decreased from around 33% to something like 177% when they pulled out in part because they weren't very strong on local results particular which BYU had had really focused on as far as a businesses and of being there broadly you know the the issue with being in
China I think that needs to be weighed is the risk which is the more that your business is exposed to China the more you're going to have to deal with the government and the government's decision- making is generally speaking going to favor domestic companies and
second is not is going to be first and foremost concerned with preserving their own sort of power and whatnot and I think this is something that Apple is is going to have to deal with Apple's always been the most successful company in China because of their business model
selling diff you know devices differentiated with software don't have to worry about piracy don't have to worry about being copied on a hardware level because they're they're unique in that regard but what that means is Apple is uniquely exposed right now to the
trade War that's going on and yes they've gotten exceptions so far but if China really wants to put the squeeze on they can squeeze apple on both sides on the supply side and on the demand side and apple that's a risk factor that most
of the tech companies don't have because they're they're China is not really a meaningful market for them how bullish are you on India's Tech sector and software development I'm bullish I think you know India I people want to put it in the same bucket it's the next China I
think you know the countries are so they're they're similar in that they're both very large uh but they're so different in sort of a you know the thing about China is I think arly the most underrated event you know I don't know I say human history but in the last
100 years is is the cultureal revolution in China and not just that 60 70 million people were killed or starved to death or whatever or what it might be but it really like it was like a scorched Earth for China as a whole everything started
from scratch and and from an economic perspective you that's why you can grow for so long because you're you're starting from nothing basically but the way it impacts you know culture generally and the way business is done I mean Taiwan I think struggles from
having thousands of years of Chinese bureaucracy behind it plus they are occupied by Japan for 50 years you have sort of that sort of culture on top of it you have this sort of sclerotic corporate culture that you know the boss always RI stay in the office until you
know he goes home and that sort of thing and and it's it's unhealthy whereas China it's it's much more bare knuckled sort of competition and you know and figure out the right answer and figure out quickly the competition there is absolutely brutal it's it's brutal in a
way I think is hard for people to really comprehend from the west and that makes China uh you know something that that makes these companies really something to do with whereas India did not have something like that India has all its
you know yes it had you know colonialism but all that is still there and the effects of that and the long-term effects of of India's you know thousands of years of culture and so it makes it much more difficult to to wrap things up to get things done and that's always I
think going to be the case so I think the way India develops generally because they didn't have a clear the decks event like the cultural revolution is always going to be fundamentally different and that is by no means a bad thing I'm not wishing the cultural revolution on
anyone I'm just saying it makes the countries really fundamentally different but you know India is it's going to be interesting because India is also you know English is a is one of the national languag is to what extent do they develop their own industry versus
adopting US tech companies is is going to be very different than China as well would you agree that Taiwan has produced more internationally successful business Executives than say South Korea although the latter is a larger country and if so
why is that is a coincidence or there some cultural reason Taiwan has always been very open to the outside world in in a way in very sort of island nation sort of way like very cognizant of their place in the world their dependence on other countries uh there there's a
there's a cartoon that is very very humorous that says how where Taiwan is in the world and it shows Taiwan next to China it says where Taiwanese think they're in the world and shows Taiwanese off the coast of California and I think that that
captures something about the Taiwanese psyche looking to America very favorable towards America have always been very uh favorable towards Japan and sort of generally aware of and pulling culture whether it be popular culture or whatnot from other countries whereas uh my
impression South Korea I haven't lived there so I don't want to you know delve into too deeply is it's much more sort of internally focused very which is to to the benefit I think of Korean companies because they have a very strong base on which to build and then
go abroad whereas you know if you're a Korean you are you you buy a Samsung phone because it's it's Korean whereas no Taiwanese buys an HTC phone because it's Taiwanese they buy whatever phone they think is the best phone to buy China of course has the great firewall
but is the internet going to fragment internationally more generally will there be a European Union Internet a USA internet more I think that China will always be a very distinct internet with distinct companies the US uh European Union thing is going
to be interesting to watch I mean it's so there's Europe the European Union is Rich and there's a lot of people there so the big us tun companies are going to do what it takes to do business there no matter how annoying it is and they will
do so because I think they're going to be even stronger in the European Union in part because dealing with all regulations like that are going to it's going to be traditional favorite incumbents are going to do better at it that so I don't think it's going to be a
different internet in the way that China is different is there going to be more things like you can't reach a site because of gdpr and things on those lines probably but I don't think that means it's going to be different it's just going to be more it's going to be
this the same city maybe with offence between it as opposed to being a different country entirely two final questions about television first in terms of management strategy why has Netflix been so successful in expanding to so many foreign markets so quickly is
it now what 15 markets or oh more than that I very large number in a pretty small number of years how' they do that well that's in part because the internet makes that uniquely possible I mean but there's regulations in every country you
need to tell her to the Home Market it's not so easy television markets are often quite local American programs don't export easily that's what they did when they started when they started in a lot of countries they didn't even have a app in the language of the country they
launched in like it was the app wasn't you download the English app I mean they've localized I think the vast majority of them by now but I think when they did that very dramatic we've gone from like 10 countries to two like 160 or whatever it was a lot of it was
literally just flipping a switch and you can now download our app and sign up there was no sort of like real localization effort and it was more a sort of like it was almost sort of a flexing of this is what we can do we and this is why we are comp competing
asymmetrically with the traditional networks which are focused on a single market and they're focused on you know monetizing upfront and and whereas we're thinking about the entire world and monetizing over many years and and is almost more a demonstration of how their
business model was different and why they could invest at the rates they do as opposed to necessarily being a viable product that would get a lot of subscribers in all those countries I think that's actually been more the last
couple years they've actually fleshed it out to being more accessible several years ago you wrote about TV advertising's surprising strength what's what's your update on this topic well the the the idea of that article is that the sort of TV adver that the companies
that dominate TV advertising the big cpg companies the car companies the beer companies like the it's a set group the phone companies they are the sort of mass market products that are seeking to serve you know least commentator
products that will reach the most amount of people and where those products go they go into big box retailers where they buy up shelf space and they make deals do brand extensions and have next to it and people drive there in their cars and they pick it up and go and
what's interesting is all parts of that value chain are under Threat by the internet in in it's all it's all together and so my argument there was the reason why TV advertising has remains Stronger Than People anticipated is because the TV advertisers are unique
are tied in it's all integrated they're integrated with the big box retailers they're integrated with the car companies they're integrated with all with Sports and the big beer companies it's all one big thing where the economy as a whole is all tied together around a
certain way of thinking about the consumer and how you go to market and all parts of that under Threat by the internet sort of simultaneously and so it'll say stronger than you would think because if the weak all stand together they can stand longer they would by
themselves but when it collapses it's going to be sort of a total sort of collapse and you're going to have you know this rise of all the attention markets on the internet and all the nich products and the individualized marketing that you can do on platforms
like Facebook and it it it's a almost completely separate economy that's developing off to the side while they're sort of in it in it to the end Ben Thompson thank you very much and I recommend that you all read and indeed subscribe to stratechery thanks for having
me thanks for listening to conversations with Tyler you can subscribe to the podcast in iTunes Stitcher or your favorite podcast app and if you like this podcast please consider rating it on iTunes and leaving a review this helps other people find the [Music] show