Markets

Four Weddings And A Funeral

By Scott Galloway:

We witness border skirmishes between big tech firms on a regular basis. This year, one or more will erupt into a shooting war. Just as most wars are not a function of ideology but economics, the armies of search, handsets, and performative posts will begin landing paratroopers behind enemy lines and initiate heavy equipment assaults. Yes, I watch too much History Channel.

Wars also make strange bedfellows. For a hot minute (four years) we fought side by side with the USSR. Upon our collective victory, they promptly became our adversary. A weak DOJ and accretion of market cap for the biggest players make 2020 a year for high-profile acquisitions (weddings) and one spectacular failure (a funeral).

As I’ve written, big tech has no choice but to enter the fields of healthcare and education. These are the only two sectors, other than government, that offer the margin dollars required to sate investors’ growth expectations. Google (GOOG) (GOOGL) and Facebook (FB) could wipe out the entire radio industry, and they’d still wake up hungry for more profits within 24-36 months based on investors’ expectations.

Every big tech firm must implicitly, or explicitly, assure investors there is a reasonable chance their stock will double in the next five years. Otherwise investors will buy Zoom (ZM), Lemonade (LMND) (which filed to go public this week), or another “disruptive” firm. Big tech is running up against staggering appetites, like Brad Pitt being forced to feed off humans, as rats just can’t sate his thirst. Remember that movie? Pale and a bad haircut ...

And. Still. Dreamy.

Anyway, the Four plus Microsoft (MSFT) need to add more than half a trillion dollars to their top-line incomes over the next five years. This will result in them entering new markets, and coming for each other.

Some scenarios — four weddings and a funeral:

Apple acquires DuckDuckGo or launches its own search engine.

The entire world is bifurcating into Android or iOS. Android users are the masses who trade privacy for value. iOS are the wealthy who enjoy the luxury of privacy and status signalling by shelling over one month’s household income in Hungary in exchange for $443 in sensors and chipsets (what it costs to make an iPhone). Even social platforms are distilling to red-state (Android) and blue-state (iOS).

So, Apple (AAPL) will likely divorce from Google, where they receive $12 billion a year for making Google the default search for iOS, and leverage their ownership of the rails in the best neighborhoods. Apple will not be able to monetize search to nearly the same extent as Google, since it can’t make Tim look stupid (“Privacy is a fundamental human right”). Still, they control the tracks, and just as they can get us to watch Murphy Brown at $15 million per episode (i.e., The Morning Show), they’ll be able to shove a search engine that’s 80% as good as Google down our throats. They own the rails.

Twitter acquires media properties in move to subscription model.

Mark Zuckerberg has now become the world’s most visible oligarch, leveraging his proximity to power (Trump) for corrupt economic gain. Facebook, despite their claims to be neutral and not wanting to be “the arbiter of the truth,” is turning red ((GOP)). Facebook will be the Android of the world, offering a free service in exchange for molesting your privacy. Also, depressing your teens, perverting elections, sowing hate, etc., etc., etc. Btw, Facebook has demonstrated real comfort with being an arbiter, it’s the truth they are allergic to. Specifically, the arbiter of truth for Facebook is … whoever is willing to pay to determine our truths.

Question is ... who will be the iOS (blue/Dem) of social? The opportunity to go blue, and capture a smaller but more valuable audience, is Twitter’s (TWTR). Their labeling @therealdonaldtrump’s tweets as lies renders them the MSNBC of social. Their opportunity is to acquire distressed media properties, go vertical, and move to a subscription model. Subscription fees should be based on the number of followers. If @kyliejenner can garner $430,000 per promoted tweet, she’ll pay $10,000 a month to maintain her revenue stream, and @karaswisher (1.3 million followers) would pay $250 a month. Verified accounts with <2000 followers would remain free to maintain critical mass.

If Twitter had a full-time CEO, he or she would have come to this conclusion in half the time. Twitter doesn’t have the scale to compete on an ad model, and their ad tools are substandard. However, they are unwittingly starching their hat blue and could acquire several of the remaining independent media properties (Lee, McClatchy, Condé Nast, Hearst, etc.) or assets from them to buttress the subscription offering.

The B2B market alone would be huge, as Twitter has replaced PR, news agencies, and IR firms. What firm wouldn’t pay $2,000 a month to announce their new SAAS/diet/keto/hemp product? Twitter could take a 40% hit to top-line revenue over the short term, and triple their stock in the next 24 months as they move to subscription.

The subscription model also has a free gift with purchase — identity. People are less awful when their name and reputation are attached. Ad-supported platforms are incentivized to allow bots and Russian interference, and to provide more oxygen to ideas that lack merit but are incendiary. Rage equals engagement, which translates to more Nissan ads. Remember that time when Netflix (NFLX) or LinkedIn really pissed you off? That was Twitter or Facebook.

Also, Twitter has the added benefit of being shi**y at advertising. Specifically, a move to a subscription model would mean forfeiture of dramatically less revenue than Facebook, which monetizes users at twice the rate of Twitter. They could also hold on to much of their ad revenue during the transition phase, or even settle on a hybrid model that cleans up 90% of the carcinogens.

Microsoft/LinkedIn launches a microblogging platform.

If Twitter doesn’t do this, Microsoft should launch their own microblogging platform as a sub-brand of LinkedIn. If there is any doubt that media is nicotine (addictive) but advertising is the s**t that gives us cancer (tobacco), compare and contrast the most successful media firms of the last decade: Google, Facebook, Netflix, and LinkedIn. Two are tearing at the fabric of society, the other two... are not. The difference? Facebook and Google run on rage (ad model); Netflix and LinkedIn are powered on a subscription model (note: approximately 20% of LinkedIn revs come from advertising).

LinkedIn is much of the great taste of Twitter, an interesting feed full of connections and discovery, without the calories — bots pumping TSLA, death/rape threats, and antivaxers. LinkedIn is the social media platform we are all hoping Facebook and Twitter would become.

NFLX/SPOT/SONO

The two mob families of subscription media merge and control video and music. Gangster. They acquire Sonos (SONO) (with the sweat off their Tiger brow at $1.3 billion) and establish a vertical beachhead of devices in the wealthiest homes in America.

The funeral: Quibi

In February, I predicted Quibi would be the unicorn that lost the most value in 2020, and would be stillborn. Media analyst @richlightshed wrote a thoughtful, and detailed, response on why I was wrong about Quibi and the streaming wars. Also, a senior exec at the firm called and asked me not to bad-mouth them before their launch, as it was bad form. A fair point, and I’ve been (for me) quiet on the issue.

Ok, no más. It (Quibi) is over. Jesus, that was easy.

Last week a reporter called and asked why I was so confident pre launch that it would fail. The answer is obvious, and ageist. To my knowledge, there’s never been a successful media-tech firm founded by people in their sixties. The young brain is crazy, creative, and willing to work 80 hours a week, as young people think they’ll live forever. People in their sixties are not blessed/cursed with any of these things, which makes them decent leaders, great mentors, and shi**y entrepreneurs.

In addition, the strategy never made any sense, and the firm showed up to a howitzer fight with a squirt gun ($1.75 billion in funding, vs. SVODs who deploy the defense budgets of Australia, Canada, and the UK).

What happens next? The firm is likely now pursuing assisted suicide, as I believe Ms. Whitman and Mr. Katzenberg find the pain of tech failure unbearable. They (again, speculating) are shopping the firm to bigger media platforms so they can pull a Masa Son and save face by blaming their conflation of luck and talent on Covid-19. The firm will be sold for less than the cash on hand, as it’s worth less than zero, having built a business that just eats cash and has no assets — the IP reverts to the creators after four years.

“I attribute everything that has gone wrong to coronavirus.”
— Jeffrey Katzenberg, New York Times 5/11/20

Quibi will be a case study in the hubris of successful boomers and the invasion of Los Angeles by Bay Area tech firms. It will also be confirmation that while software is eating the world, the world of start-ups belongs to a younger generation. Frustrated boomers can take solace, as the government, elected and funded by boomers, still enjoys a staggering transfer of wealth from a younger, more multiracial generation to an older, whiter generation (Social Security, mortgage interest and capital gains tax deductions, PPP, CARES Act, police, prisons, etc.). But I digress.

Stay Thirsty, My Friends

How do we stay crazy and young? How do we demonstrate the fearlessness of young artists, activists, agents of change, and tech founders? I don’t know. I find myself, as I read the above at 1am on Friday, fearful that my arguments are pedestrian, that my words might upset people I care about... or anger people more powerful than me. Everything but the last part of the last sentence is true.

Two things, I believe, keep me crazy/young: Atheism and alcohol. A recognition of the finite nature of life is my superpower. It gives me the courage to love, and write, unconditionally. And then... I drink.

Original Post

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

See also Stocks: It's Time To Go Abroad on seekingalpha.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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