Acquired - Episode 29: Special—2016 Review and 2017 Predictions

Episode Date: January 11, 2017

Ben & David wrap up 2016 with a review of the top tech themes we discussed on the show this year, and look forward to which themes we think will be relevant in the coming year. Can our hosts predict the future? Tune-in in 2018 to find out!   Note: we apologize for the less-than-amazing audio quality on this one. We’re still working on tuning our remote recording setup! Sponsors:ServiceNow: https://bit.ly/acqsnaiagentsHuntress: https://bit.ly/acqhuntressVanta: https://bit.ly/acquiredvantaMore Acquired!:Get email updates with hints on next episode and follow-ups from recent episodesJoin the SlackSubscribe to ACQ2Merch Store!Topics covered include: Our top tech themes of 2016, including the first annual Acquired "Theme of the Year”: Aggregation Theory (surprise, surprise)Themes we think will be most relevant as we head into 2017Extended Carve Outs!  The Carve Out(s): Books:  Ben:  On Writing WellDavid: The Creative Habit and the Asimov  Robot/Empire/Foundation seriesArticle:  Ben: Wait But Why: Religion for the NonreligiousDavid: The New York Times: The Perfect Weapon: How Russian Cyberpower Invaded the U.S.Podcasts:  Both: The Ezra Klein ShowMusic:  Ben: Justin BieberDavid: Stevie NicksTV/Movies:  Ben: WestworldDavid: Rouge OneApps:  Ben: ReachNowDavid: Amazon Music

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Twitter. Jack Dorsey says Twitter is quote thinking a lot about an edit tweet button. Oh God. Like the things that are innovation in Twitter now. Yeah, sad. Who got the truth? Is it you? Is it you? Is it you? Who got the truth now? Is it you? Is it you? Is it you? Sit me down, say it straight. Another story on the way. Who got the truth? Welcome to episode 29 of Acquired, the podcast where we talk about technology acquisitions and IPOs. I'm Ben Gilbert. I'm David Rosenthal. And we are your hosts. This is a very different episode for us than usual. We decided to do a year in review and probably more importantly than that, talk about what lies ahead in 2017. So Dave and I were thinking, you know, we've talked a lot about a lot of tech themes in a very sort of rambling and unstructured way over the course of the show. And we went back and actually pulled out what were the tech themes that we identified from each episode. And we kind of basically have a little tally going of which ones we thought were the most important.

And we're going to kind of talk about those and then get into the themes that we think are going to be pretty dominant in 2017, or at least make some freewheeling predictions on that. Yeah, no, you get what you pay for here. So no guarantee we'll be right. But, um, yeah, a couple notes. Uh, so Ben and I are recording this on December 30th, right at the tail end of 2016. It will barring some editing heroics, uh, it will probably be, uh, up for you guys, uh, already into 2017. But as we came to the end of the year,

we thought, especially this being our first full year of doing Acquired, we wanted to look back and run some data on our own content and see what the biggest themes of our show have been. So Ben and I were chatting just before we started. We recorded 23 regular episodes. Well, I guess that includes specials, but 23 full episodes, uh, in 2016, this is our 24th. Um, and, uh, it was really fun to go through and, and pull out the themes, a lot of, uh, a lot of repeats. Yeah. So with that, should we announce the acquired 2016 theme of the year?

We should. And frequent listeners to the show, I'm sure, can guess what this one's going to be, or at least who the originator of this theory was. I'm shocked. Shocked. Yeah, so discussed in six different episodes is Aggregation Theory by Ben Thompson of Stratechery. This, of course, talks about building superior user experiences as the winning strategy in an infinitely accessible, zero-cost distribution world, a.k.a. the Internet. And this was discussed on Accompli, Snapchat, Jet, Android, Skype, and Marvel. And so I think for us, it's such a, it says a lot about the power

of the theory that once you see it, you can't unsee it. And once you realize that, oh, this is a, this is a predominant factor in making these companies successful. You know, every company we analyze, we're like, oh, I see what they're doing here. Yep. And obviously a big hat tip, as we always do on this show, to Ben Thompson and all of his work. But I think it's interesting how much we've talked about it and also reading Ben's work throughout the year. He first published the post on aggregation theory last year in 2015. But how much it keeps coming up in his work, too and and how he keeps refining this concept and adding on to it but the core of it I think you know that insight that in this world where where distribution costs are are the cost of distribution is zero and in digital marketplaces, your accessible market is the entire world that it is really the superior

customer experiences that are going to beat everything else because you can have sort of perfect competition amongst the whole world. And and so the best will rise to the top. And it's, it's totally informed, you know, my work in and I'm sure Ben yours to you know, in the companies that we work with, when I'm meeting with startups trying to decide which to which to invest in and which, you know, I think might be successful and won't be. It's a very been hugely influential, not just on this show, but in my everyday work too. Yeah, absolutely. Moving on to things that were discussed four times throughout the year. And I think, listeners, what we're going to do here for the structure of the show is move through these fairly quickly to kind of just establish a baseline of where we've come from and then really spend the bulk on 2017 themes. And also we have sort of an extended carve out section to kind of talk about the best

things that we've bought or read or listened to or paid attention to this year. So that said, going back to the 2016 themes, the ever so dominant network effects in Virgin America episode, PayPal, LinkedIn, and Adobe. And, you know, this one, like for me, was such a dominant theme that I gave this talk at a product conference called Industry. That's right. Earlier this year. And I had like two ideas for talks going and I was working on both of them and um Dave and I were recording I forget which episode it was but it suddenly dawned on me that like oh my god my this talk has to be

about network effects and I think uh it was actually pretty interesting because it was a conference for uh like product managers and and people that have some amount of product management in their role and uh it was really interesting to take sort of a venture lens to a product audience and talk about building network effects and virality and dependencies on the rest of your user base into the core product and rather than thinking about it as kind of an afterthought. Yeah. And Ben, is your talk on YouTube? It's not yet. It's not there. Um, they're going to start releasing the talks, uh, I think pretty soon here.

Um, but, uh, we'll definitely let the acquired audience know when, um, when they can check that out. Yeah, it's, uh, I got to, uh, got the privilege of, uh, seeing Ben slides, uh, and, um, hearing, uh, hearing a first draft of the talk and, it was it was great so we'll be sure to share that with you guys um and you know this one i think what's uh one of the things i learned doing the show this year um and thought about is how rare like true strong form network effects are uh and talking about it on these episodes we spent a lot lot of time on LinkedIn and when we graded that episode, talking about how that is one of the very few

really, really strong form network effects out there. And it's striking to me that all the companies we covered, some have varying degrees of them, but only a few, Facebook, Snapchat, LinkedIn have this strong form effect. varying degrees of them, but only a few, you know, Facebook, Snapchat, LinkedIn, um, have, uh, have this strong form effect. Yeah. It's really interesting thinking about the, uh, strength of the sort of like relationship between the nodes of the network and how that can be super variable. Like you can, you can have, um, uh, product that has network effects that are just not core to the product itself.

And that ends up not scaling and becoming as powerful of a sort of force of your business as the incredibly strong ones. So a couple examples I'm thinking of are I use MyFitnessPal when I'm tracking what I eat. And there's sort of two components to it. There's utility to actually provide me the ability to track, you know, how much of each macronutrient I'm eating, you know, how many calories have I eaten today, what should I be getting more of, the actual catalog of food that has all the nutrition data associated with that. And then, you know,

I can make friends on that. And that's kind of important. I mean, it's interesting for sort of encouragement or accountability or anything like that. But an app like that is so much more utility than it is network. And then you have apps that are sort of a crossover. Like you look at Instagram at first, and there is incredible utility to the fact that you could put filters on photos. And sure, you could share it out to the small network that was Instagram. But ultimately, there was a powerful utility there regardless of network. Now, that was an amazing product that actually did grow into incredibly powerful network effects.

And then you get into things on the other side of the spectrum that have no utility and are pure network effects, like the telephone. I mean, if you have a communication network, the only purpose of it is to talk to other people on the network. And when you think about how entrenched that technology became and how long the telephone has been the de facto means of communication, it's pretty clear that the more core your network effect is to the product itself, the more power and, I guess, staying power that technology has. Yeah, and it's interesting, too, maybe a better distinction between it, because as I was just going through the list again, network effects have played a large role in many of these companies we've talked about. But there's the strong form, single platform network effects that Facebook has, that LinkedIn has, that Snapchat has.

And then there's the two-sided network effect that marketplaces have, of which we spent a lot of time on this show between Amazon and Skype. Well, Skype is also a strong form, single platform network effect. But YouTube, you know, where you have supply and demand getting matched. And that can also be a strong network effect, but it's so much harder to get going because you have to bring both of these sides together. Whereas the single platform strong form effect where it's literally been you being on Facebook makes Facebook more valuable to me. Whereas you buying stuff from Amazon only indirectly makes Amazon more valuable to me. Right. Oh, great. There's so few companies that can achieve the scale in that single platform.

And then once you do, just the defensibility is pretty much unbreakable. Yeah, it's funny. I saw, I was reading a thing, it was reflections of Obama on his presidency. And he was talking about, actually, I think it was, I think this quote was from one of his aides, but talking about how important the telephone was to the Obama administration and how amazing it was that that's the way that he speaks to other world leaders and how that's pretty much unchanged over the last, I don't know, however many decades. But we have all this new technology and he was notoriously a Blackberry addict, but the phone is ubiquitous it's you know the especially

for landlines pretty high quality secure it's you know it's one of those that's the that's the classic case right of like two world leaders the value of the telephone is solely in the fact that other world leaders are available via the telephone. Yeah. Yeah, exactly. Great. All right. Let's move on. Our next theme that we also discussed four times this year was what I like to call start small, but is focusing at the outset on solving a specific problem for a specific customer base, not trying to be everything to everyone as at the startup phase. And you could also think about this as targeting niche markets and then growing from

there. We talked about this on the Virgin America episode with Alaska, obviously targeting the Seattle market and Virgin targeting the California market. We talked about it on Snapchat with Snapchat really tailoring the product after some wandering in the woods for a while to high schoolers in Orange County and with Trulia and also with Amazon. Amazon was just books until long after the IPO. And several of those companies, Amazon, obviously, and potentially Snapchat, too, have gone on to become huge companies that do lots of things and have many different products and target diverse user bases. But they all started with that core solving a very specific problem for a very specific audience.

Yeah. And relating this to network effects, like we just mentioned, what's not in this list, but easily could be is Facebook. And you think about the issue of the cold start problem. Like if they launch Facebook to the world, it would have been no fun because let's even say there's 10 people in every city on it. I mean, you're just not going to know anyone, maybe one person. And by launching university by university and focusing on just Harvard first, you take advantage of those pre-existing networks to make sure that there's density among your customer base. Yeah. Well, and you can provide, you can do the Paul Graham things that don't scale to get those nodes on the on the small niche

network and then grow from there and actually i think in our well uh let's let's let's jump to the third theme that we discussed four times this year and i think the three of these kind of form a trinity that you know if you are working with startups starting a startup or working in technology generally you know you could do far worse than to keep these three things in mind. And the third one is growth culture. And what we mean by that is the discipline of growth within startups and technology. And it really started with PayPal. And that was the first episode where we discussed it of using real data from the marketplace and from usage of your product to iterate what you're doing and to iterate your product towards the signal of how people are using

that data. So we talked about that on PayPal, Snapchat, Next, and the Amazon IPO. But I think the interplay of these three things, you know, one, you know, keeping in mind the power of network effects. But the problem with that is that it's they're very hard to achieve because you need a lot of scale. And then companies that have achieved them have huge defensibility. So how do you attack that? You know, you start small with a very specific niche, you know, that's underserved and by whatever solutions are in the marketplace today, target them. And then, and then you, you know, use the discipline of growth, uh, to, um, to be honest with yourself about what's working, what are people using? And, um, you take it one step at a time.

Boy, and I'll tell you, uh, in looking at, at growth culture and thinking about the way PayPal did it when they released, um, you, when they released a product that wasn't really resonating and then they found where are people using this product and it turned out, oh wow, like an incredible amount of transactions are actually happening over because of eBay sales. Yeah. Or you look at like- I mean, the initial product was for Palm Pilots, right? Right, right, right. And you look at like Twitch and they realize it's a general purpose thing, but wow, people are really using this thing around gaming. So let's focus on that. We've totally discovered that with PSL and Madrona Labs companies where it's so important to like get in market with something and just be like a player in that space to have

something to talk to partners and customers to and ways to get actual data back from the way that people are using your thing. And it's just funny how companies either narrow or move to an adjacent market. And it's so important to get in the space, have a product in market, be able to learn, and then you'll find what the real opportunity is from there. Because it's always, there's varying degrees of how similar it is to your original idea that ends up working. But, you know, it's never exactly that. And you need customer data to know. We didn't plan it this way.

But, you know, as we've been talking about these themes, I almost see it as like this kind of tr of the the themes that we talked about four times throughout the year being how you you know sort of the playbook of when you're actually building and running a startup what you work on and then the meta theme is aggregation theory on top of that because the output of if you do these three things is you'll create a superior customer experience that really is the goal of you know starting small focusing solving a specific problem better than anyone else for a specific customer and then growing from there and and and then network effects layering on top of that of making the product even better and providing defensibility add those together you get aggregation theory you could do a lot worse than using these as your checklist when starting or pitching or refining an idea.

You know, as like, am I going to be able to create a successful company or at least convince other people that my company could be successful? This sure feels like a decent, decent place to start. Yeah. Unfortunately, nobody has yet invented a magic button to translate theory into practice in the technology world. But that's what makes it fun. Yep. Yep. Yep. All right. Moving on to things we've discussed three times. The flywheel is a big one with Lucasfilm, Marvel, and the Amazon IPO episode. I look at a flywheel as a very specific type of network effect where any increase in one piece of your business adds momentum and grows an additional part of your business.

Amazon and Disney, of course, being classic examples of this. Disney with movies that feed into theme parks, that feed into TV shows, that feed into merchandise. And then Amazon with the ability to create a better experience through lower cost, building more customer trust, driving more traffic, and then their ability to continue and grow and scale from there. Yep, and Amazon is definitely a two sided network effect. Or I guess

now, with AWS, all of the different businesses that Amazon has multi sided. But, you know, for them, the flywheel is about adding to one side of the network effect and then that pushing the other side, um, you know, Disney and, and, uh, the companies they've acquired in their flywheel, I don't know how much it's about a network effect, but it's, um, it almost makes me think more of like economies of scale and sort of old world businesses. Um, but I, I guess you could argue to the extent that, to the extent that people come, that consumers come to see content, that the more consumers they have coming to see Disney content,

the more they can channel those consumers into other Disney content. And then, so you could, you could think about it as kind of a content consumer, uh, network effect. Um, but it's not as, not as strong, I don't think. Yeah. Yeah. That's a good point. And it's funny in thinking about the best way to define, uh, flywheels or, or potentially if you're, uh, in an existing business to, to see flywheel opportunities in the business. Um, I think a good way to define it might be what does your existing asset of business line, customer, capabilities, all those things allow you to do that is an unfair advantage that people starting from a cold start wouldn't be able to do. So there's sort of criteria one. And then criteria two is, does the existence of that new thing that you do feed back and grow your original business?

Yeah, yeah. Disney, you know, somebody trying to create a caricature, you know, like a toy business, doesn't have Disney's IP, so they'd fall on their face. And so criteria one is like, boy, you can really boot, like a toy business doesn't have Disney's IP, so they'd fall on their face. And so criteria one is like, boy, you can really bootstrap a merchandise business. And then criteria two is, of course, more people are going to go want to see the movies and visit the parks if they have the toys. Yeah. And this makes me think about Airbnb and what they're doing now with launching experiences and blending both the lodging and experiences into trips. You know, lots of people have tried to solve the kind of destination services and travel for a long time.

But Airbnb has a complete unfair advantage in that they have travelers who are coming and using their site to book lodging and are especially travelers who are oftentimes looking for experiences at the destinations they're going to. And so they can feed that into the experiences product. And then as that product matures and potentially someday people will be coming to Airbnb specifically for experiences, then they can funnel those people into booking lodging. So we could see, you could paint what they're trying to do now in a flywheel way. Yeah, good point. All right. Next one that we also discussed three times this year was this idea that as a particular technology generation matures. So, and we saw this with the PC generation, with the mobile generation,

and potentially with future technology generations to come. Maybe we'll talk about this in 2017, 2017 themes. But the basis of competition moves up the stack throughout the generation and kind of starts at the hardware level and then moves up to the operating system level and then to the application layer level. And then eventually, like we're seeing now in mobile and on the web into the service layer level, which is cross cross application. So we talked about this in the Accompli episode and in the Android episode, where I think you can see it most clearly, and in the Pushpop Press episode, which became Facebook Instant Articles. Yeah, I really like this one. And we talked about, it was like not exactly the

same, but in that episode about Rightly and Google Docs, we were talking about uh you know as um as productivity moved toward the cloud from uh from desktop software you know like who there's a low-end disruption thing that happened where where google decided that they were going to create you know not as good tools for the professional but uh you know very good for people that wanted to do sort of lightweight editing in their browser. And then that began a total arms race of, wow, there actually, there is a services and cloud-based productivity market here. And you don't necessarily discover those things without somebody building an inferior product further up the stack first. Yep, which is a great transition to our last three-point theme or three-times theme for 2016, which was business model-based disruption, which we talked about on the Right Lane Google

Docs episode and on the Waze episode and on the Android episode. But anytime, if you're an incumbent in an area and somebody pops up that can offer the same product as you and make money via a different business model, you should be very, very worried. Yes. And this is classic Clayton Christensen here. It very much falls in the same sort of fear as the Jeff Bezos quote, your margin is my opportunity. And in this method, it's more like your business model is my opportunity. Because if you're able to leverage something like how rightly was able, I'm sorry, how Waze was able to crowdsource all the data, suddenly it's like, hey, I've got this huge asset that costs you money for free. And now I get to decide what to do with that. Yep. And we'll see this all,

you know, Amazon is one of the best in the world at this. And actually, this is part of one of my carve outs coming up. Not Amazon video, my carve out is not Amazon video, but you see it happening there. I mean, Netflix is a great, great company and valued very highly right now. But Amazon Video has improved so much throughout 2016. And it's free with Prime. And you have to pay eight bucks a month or whatever it is for Netflix now. It's, you know, it's a different business model. It is. It is. It is. All right. Well, we've got some things that are discussed twice and once throughout the course of the year, but we're going to put those in the show notes. So if you're curious about other tech themes that were prevalent in 2016, at least through our lens, those will be in the show notes. And we're going to move on to talk about is I think aggregation theory is going to continue to be critically important and one of, if not the clearest lens through which to view opportunities and challenges and disruption that's happening, not only in tech going into 2017, but I think in the world broadly too, in society.

I mean, Ben Thompson has had some great posts, really great posts in the back half of the year here talking about how you can apply that lens, the aggregation theory lens to looking at politics and obviously the U.S. presidential election in 2016, but the media as well. And to me personally, I actually see it becoming more important in 2017 and thinking about sort of beyond just the traditional IT sector of tech, you know, consumer technology and enterprise software technology. But what does it look like when the dynamics of aggregation theory and the both opportunities and implications of internet dynamics get trained on all industries. You know, we're seeing it with driving right now, which if I'm not getting my facts wrong, which is entirely possible that I could be, I believe driving jobs are either the number one or certainly top five category of jobs in the U.S.

It's like two or three million jobs are directly related to the logistics industry. So it's kind of trucking and coordinating trucking alone. And then you add, you know, I don't know how many Uber drivers there are. If you add up Uber and Lyft and taxi drivers, that's another huge amount of people. And all of a sudden, you're going to have a superior customer experience through self-driving technology that's going to come on board in the next few years. I think everybody in some form or fashion is going to have to come to grips with the implications of what this means. Yeah, yeah, that's pretty interesting. Well, this segues nicely into one of mine and I think I was going to talk about three things that I think will happen in 2017,

and then three things that I think will begin to happen, but are really 2018, 2019, and 2020 themes. But this totally gets into one of mine, which is autonomous vehicles start to make people more serious about universal basic income. I was having this discussion with a friend recently where, let's start with this hypothetical world that is we can basically produce in a very sci-fi way our basic means of living for free. We create technology that is efficient enough that, let's say that we can have farms that have all autonomous equipment that are powered by solar arrays of, you know, renewable free energy and can deliver all these ingredients to people basically free of charge. So we have clean water, clean food entirely for free, and maybe it's even possible that transportation is there too.

So then there's things like shelter, other basic things that you need to live that aren't free, but we're going to start trending toward this world where we could provide those things for everyone. But the thing that will happen much sooner than that is that we'll be able to provide these things with very little jobs. And so, you know, if you look at like the industrial revolution, the argument that everyone always makes is, well, you know, technology eliminates jobs, but it also creates new jobs. And I think in this era of autonomous, you know, autonomous vehicles, autonomous machines, and leveraging machine learning, the difference is that you don't create

as many jobs as you eliminate. And that might be okay in the extreme long run where we do have a societal structure in place that we take care of everyone that doesn't have a job because, like, nobody needs to work. Like, let's imagine a world where everybody gets to live without working, and then we need some, you know, some ways to distribute that wealth out to people. But what we...

Yeah. We also need something for people to do when they're not working. Yeah, boy, that's like, that's an evolved civilization problem, right? Of figuring out what to do with your time in an era where we don't work. But I think there's an immediate pressing problem, which is companies will get extremely wealthy by having really fat profit margins

on being able to achieve great value for tons and tons of people through aggregation theory. And those people will be completely served, but it will be the same price that we've been paying for things, except that lots of people don't have jobs. And there's going to be this kind of scary valley where we eliminate the jobs long before we have

a sort of support redistribution system. Yeah, there's, well, a couple of thoughts. I mean, I think one of the, I think what we're talking about is a consequence of aggregation theory where, you know, if you believe it, that we're entering a world across all industries now where a superior customer experience becomes a winner-take-all business, you know, that means there is a winner and lots of losers. And, you know, as opposed to where you have equilibrium in other industries now, such as the auto industry, where there are, you know, 10, 20, or the airline industry, 10, 20 firms that are all employing lots of people.

And maybe, you know, they are not as profitable as firms as a winner take all business. But they are at least providing jobs. So so this is definitely, you know, as far as far as I know, nobody has solved what this means, you know, how to deal with this on a societal level. But but what you're saying after that reminds me of there was a great I believe this was in Wired. I'm going to find this article. I'll link to it in the show notes. When right before the election, Obama gave a few interviews where he talked a lot about tech and sort of, you know, mused on what he saw as the biggest challenges, you know, for the world and for America going forward now, and called on the tech industry to respond to them. And the first

one was inequality. And this piece, they had six well-known figures from the tech industry sort of respond to each of these things, the challenges that Obama called out. And I believe, yes, it was Tim O'Reilly, the founder of O'Reilly Media, answered the inequality topic. And he said exactly what you're talking about, Ben, which is that Silicon Valley often forgets that it takes consumer surplus and people with jobs who have disposable income to then spend money on Silicon Valley products and technology. So you're always kind of eating your own tail in the economy. And to the extent that we put more people out of jobs as an industry,

then there's going to be far less consumption of our own products as an industry. Yeah. It's kind of funny thinking about, it's not as much funny as sort of haunting. Yeah. It's ironic, but not in a happy way. Yeah. So I guess like, you know, technology is this interesting sword that has to be responsibly wielded. Like you, we've talked about this in the past that the purpose of technology is to make things easier so that it requires less effort

from people. When you run that to its extreme, it's that you need less people to do the jobs that create the value for people, for the consumers of those things. And I mean, this is one of the themes that we talked about, um, throughout the year that we have that technology is a lever. Um, you know, it doesn't mean technology is like, uh, not like it's Excalibur, right. It's not like it's a, you know, a sword for good, like it magnifies what is going on, uh, whether that's, you know, good or evil or indifferent,

it just magnifies the consequences. Yeah. So in having this ability to, you know, create incredible automation and incredible value without human input, I don't think we've necessarily figured out what a societal structure is in a world where technology is so powerful. And I think a lot of the things that we take for granted in a society that is a democratic republic and has a capitalist economy function pretty well in a world where aggregation theory and automation is not so powerful. But I think we could be forced to do some serious rethinking in the coming decade as these new harsh realities come to light and think about, like, boy, if we just... Pure capitalism may not actually work anymore, or I, I think I'm, I'm venturing into dangerous territory there.

Well, we're going to have to call my wife Jenny onto the show as a guest expert for this, uh, as, uh, um, she's a, a PhD and, uh, in the humanities and thinks a lot about this, but, you know, I think channeling her, she would say, you know, we have been in a late capitalist world for a long time. I mean, at least since the end of World War II. And this is kind of the hallmark of late capitalism, which is that you have rapidly increasing wealth inequality. And then the uh the theory uh is that it ends in a in a communist or socialist revolution um uh we'll see not predicting that that will necessarily happen right um but that but that's the direction that you know if you look at like europe that that

um uh that political economies there have been moving towards over the last 20 years or so. But it's also a world where innovation isn't encouraged as much as it is in a purely capitalist society. Yeah, maybe. I think then you start diving into what are human motives besides economic ones. If you look at the reason, Daniel Pink has done a bunch of research on this, what makes people happy in their jobs? It's not really money. It's autonomy, mastery, and purpose once you hit a certain dollar amount of sustaining yourself.

If you think about that on one hand, and you look at sort of like the things that motivate people in general, you know, money, power, love, there's a lot of like very core human things that we often like wrap up with how much money someone makes and people often define themselves by their job and their value in the world is so tied to that. And I think we might start seeing, and maybe not in 2017 and maybe not for a while, but once we get to a kind of a post-scarcity society is a place where we start defining ourselves and doing things by different measurements. And actually, I'm glad you brought that up because I'm catching myself sort of falling into a trap

that i think a lot of people and a lot of economists have for a long time i've been um reading a bunch of economists lately and uh realizing that you know classical and traditional macroeconomics uh is kind of like voodoo, right? Like, and not effective voodoo, like, it's really deeply flawed. And some of the, one of the assumptions that is really flawed in it is that every individual is A, a rational actor, B, has perfect information, and C, is motivated by money and wealth. And that's, all of those three of those things have been proven to be just not true. Are you reading Kahneman right now?

I've not yet started reading The Undoing Project, but it's on my list. But no, I've been reading Tyler Cowen's blog, The Marginal Revolution, and a lot of the links and work that he links to and posts there. And he's sort of one of the poster children for the new breed of economists that reject a lot of these classical assumptions. That's cool. I'll have to check that out. Yeah. Well, should we move on to... So one that I wanted to bring up on a sort of looking more on the bright side note of all of this that we talked about on the Facebook IPO episode is, I'm hopeful that 2017 sees, at least starts to see the beginning of the end of this stay private longer theme.

And startups, private technology companies delaying their IPOs indefinitely. It sure looks like we're going to see a Snap Inc IPO in the first half, maybe even the first quarter of 2017. And I'm really, really excited and hopeful to see what that does for the market. Lots of questions to be answered both about the company and what valuation they end up getting both at pricing and how the stock trades afterwards. But I hope that, you know, I'm encouraged by their courage, I guess, quote-unquote, word of 2016 in doing this. Yeah, thank you, Phil Schiller. So I hope we see more companies that are building long-term sustainable businesses get the courage to go public. being private wouldn't make them risk or that like they're doing it out of some sense of uh

like it's probably like just overwhelmingly the right thing for them to do so they're doing it but regardless of of motivation um it sure seems like it's better for everyone to have companies ipo-ing you know at or before the five-year mark and after you know somewhere between like three and six years rather than waiting eight to ten. We talked about this on the Facebook episode, but it lets the American public get in on the growth and wealth that is created from late-stage American innovation. And I think this is something that, don't get me wrong, Wall Street has its own set of issues and the short-term focus on short-term earnings results can be a bad thing for companies of all types. But I think going public, it forces a level of accountability and being forced to see the real picture, reflection of your business, that I think in the long term will be good for companies.

Like we talked about on the Facebook episode, it was, I really think, not being there at the time, but doing all the research and talking through the story, I think Facebook going public forced the company to recognize how big a problem they had in mobile and to move at warp speed to fix it. Yeah, that's a great point. All right, listeners, our next sponsor is a new friend of the show, Huntress. Huntress is one of the fastest growing and most loved cybersecurity companies today. It's purpose built for small to

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Our huge thanks to Huntress. All right, I've got another couple that go together. Yeah. So the first one is the commoditization of basic machine learning. I think, you know, there's, I am, let me just create a disclaimer that says I am not a machine learning practitioner or a data scientist, nor do I have formal education on the topic. I am a curious person in tech. And so I've been doing as much reading as I possibly can and talking to some people that are a lot smarter than I am in these things and trying to understand what does the landscape look like. And what's become really apparent is that a lot of these things are 50 to 70 year old

technologies, or I guess, really like math papers that only now are coming to fruition and actually being applied because number one, we have the hardware to do so, not only with just cheap CPUs and GPUs, but with actual, like Google's creating tensor processing units that are more effective at doing the sort of math quickly and efficiently that you need to do for machine learning. Plus you have access to elastically scalable clouds. You don't have to build tons of data centers. You can use S3 to store all your data. Yep. And yeah, so variety of factors contributing to this. There are tens or hundreds of

defined machine learning methodologies. And I think something that is pretty interesting is there's less than five that are actually used right now by a lot of people and have actually had a lot of research on them, a lot of time and practice. It's interesting that relative to a decade ago when there was still this green, lots of green space of this is an emerging field, it's been researched for a while but not commercialized, we don't know which things work best. Now there's like a fairly understood scope and scale and understand of what they can be used for, for the few basic types or few most used types.

And what we've seen is the platformization of those. So if you have machine learning tasks to do at your company that are not wildly different than something somebody else is doing, or don't require any sort of new research or actual mathematicians to be hammering on a methodology that's not well understood yet. These are often available from Google, from Amazon, from Microsoft as cloud services that are built on TensorFlow or at Google or any of the other platforms at these other companies. And so what you see is like companies that might be like 30, 40 people don't really need to build out a data science and machine learning practice in the company. They just need to find a way to create really clean data and then feed it into these sort of like off the shelf systems that the big companies have created.

Yep. And that makes me really excited as an investor because it's going to enable so many more companies in so many more industries to take advantage of these tools. And I think it's going to, you know, I think this will be one of the enabling factors that further pushes aggregation theory out into the world, you know, beyond the traditional borders of the quote unquote tech industry that we talked about earlier. Yeah. And that brings up the second point that I have is, you know, the reason that these larger companies are incentivized to make these things available is that the value, once you hit a certain kind of scale and understanding and saturation of these things, the value isn't the algorithm themselves.

The value is all about the data. And so these companies with large sets of data, Google, Facebook, Microsoft, Amazon, et cetera, can solve problems that startups just can't. And there's a total flywheel effect of once they have just incredible critical masses of data and have the machine learning algorithms and practices built in-house to really be competent at turning that data into new products and new services, they're just able to be the best at things that startups have no chance at. So there's a category of machine learning problems that, like you're saying, David,

are very exciting as an investor to new startups because they can use these off-the-shelf tools. But there's a whole other category of things that the big tech companies with lots of data can do that no one else can. Yeah, I think, well, I'm going to agree with you with a caveat on this one. And more to come, you know, on my front in 2017 on this idea. But my view, at least right now on this question is, I think the key to the data is it's data about your customers and your domain and people who could be your customers, and the interaction between those customers and what your product is. So, yes, I agree that if you have multiple companies doing the same thing, the company that has the most data and the most robust and rich data is going to be able to create the most superior customer experience and win via aggregation theory, which we've talked about ad nauseum. But to the extent you're doing something slightly different, like, I don't think it pivots very well, you know, so that gives me some hope for opportunities for startups.

Yeah, maybe like, I think there's this category of things. So I see you. I think there's definitely a category of things around personalization where all those points are spot on. Anything that requires lots of information about you to bootstrap from, for example, showing you the photos of your best memories of the last five years when you were in motion, or queries like that. But Google has the most

photos of cats. So anything that relies on a very accurate cat recognizer, like you're not going to beat Google at that. And so I think about like these companies have the largest data sets of like a lot of things. And so I think you're right that like outside of the domain of things that these companies capture, like, you know, you can imagine like flow meters on plumbing, like none of those big tech companies have the data on flow meters on plumbing, but anything that's like photo related or conversation related or, you know, data sets that people create in interactions with themselves in the world is really like locked up there. And I think there's probably interesting opportunities to try and go find data sets elsewhere and figure out what value come at it from is that if you think about all the activities in our economy and in our saying, you know, understanding cats. And I do think machine vision is going to be perhaps the biggest category of machine learning, value creation in the coming years. But like, you know, what about a company that I work with, that we're investors in in Madrona is a company called Booster Fuels, and they deliver gas to your car.

And you wouldn't think that that would be driven by machine learning. But it actually turns out that, you know, that the route that trucks take to deliver gas is hugely important. And the more efficient you get at that, the better your business, your product will be and the better your business will be. You know, Google can't do that. So I just think there's... Or at least they don't have an unfair advantage in doing that. They don't have an unfair advantage in doing that. Yeah. And even Uber doesn't have an unfair advantage in doing that. So I think there's a big C out there to fish in. Cool. Yeah, I see you there. All right. Last one that I had, more

fun one for me, at least, to end on is, I think 2017 is, I'm going back to the niche, sort of a theme we didn't talk about in the preamble, but is what do native experiences, quote unquote, look like in new mediums? And I think 2017 could be a really interesting year for VR and the whole VR, AR industry. And I think we'll get a lot more signal this year on whether VR and AR is going to be a mainstream industry anytime soon or a large niche industry or none of the above. And I'm hopeful that by this time next year, we'll have a lot more information on that front. And to the extent that it either becomes mainstream or a large niche industry, I'm really excited to see what native quote-unquote experiences look like in the VR world. Yeah, yeah, me too. Because it's funny, it's like, you remember the first Steve Jobs demo of the iPhone when he pulls up the New York Times,

and there's no such thing as a mobile optimized site yet, and he double taps to zoom in on all the articles, and you're looking at like a desktop rendered version of the times. Yep. It's like, what's the equivalent there? Like what's the, what are the native VR experiences that are, are, uh, right now? Like, we're so excited to like, oh my God, we're playing a similar video game, but in VR. Yeah.

Well, and, and a lot of the games you're seeing in VR right now are those, you know, oh man, this game that we've always known and love would be so cool if we could do it in VR right now are those, you know, oh man, this game that we've always known and love would be so cool if we could do it in VR, like Minecraft or whatever. Like, but what are the, and I think this is just where the creativity of entrepreneurs is going to come out. It'll be things that you and I haven't imagined yet. And having done a lot of VR experiences myself, I would imagine a lot of VR experiences myself, I would imagine a lot of our listeners either haven't done many or haven't done any yet.

It's very much a bleeding edge niche technology right now, but you can see so much potential in the immersiveness of the experience. You know, it's like the anti-mobile in a lot of ways. Yeah, yeah. Yeah, I mean, right now it's a largely tethered experience that you certainly can't move around much outside of a very controlled environment. You know, the best VR experiences right now, which still have lots of problems with them, but where, you know, as opposed to on a mobile phone where you're getting 16,000

notifications every minute and jumping between contexts all the time, you know, you really do start to forget that you're in a simulation and just get totally immersed in what you're doing. Yeah. Well, David, I would argue I'm frequently completely immersed in my phone and not paying attention to what's around me. It's all a question of what context you're thinking about. Amen. Well, hey, I've got one more, and it's more of a question. Yeah, do it. I'm curious what you think,

because for how political we could get on this show, we stay pretty far away from it, even though we sort of discuss societal issues. And I was trying to think through, you know, we've been in this era of rising abundance of both information and physical products over the last several decades. And I was trying to figure out, like, is it possible that we start moving to an era of scarcity of physical products where in years past, you know, it's been incredibly inexpensive to manufacture overseas. And, you know, that's the reason why we can get an iPhone for $600 when it's this incredible, magical device.

And with the combination of a rising middle class in China, you know, additional countries where a lot of this very inexpensive manufacturing is getting done, becoming more of a developed nation. And then also, it's hard to predict what's going to happen, but all indications lead toward we may have a little bit more restrictions and tariffs on trade to encourage things to be built in America under the Trump administration. I'm curious, even if that doesn't come to fruition, do you think that we start to shift back toward an era where goods are more expensive and we have less physical goods? Yeah, I don't know. I hadn't quite thought about that. It's really hard to imagine that just from a consumer perspective, which does make me wonder if it happened, what would the political reaction be? I mean, let's assume that if more barriers to trade get enacted, that a consequence of that is that the price of physical goods goes up significantly unless people are able to afford

them. Like, how would people vote in reaction to that? I don't know. I don't know. Yeah. If you can't buy your big screen anymore. Yeah, I don't know. It's at the same time, like we also live in this moment where, you know, one of the books I read this year was one of the top selling books in 2016 was that the life changing magic of tidying up the Japanese art of decluttering. All about removing physical things that there's too much. Many people have too many physical things in their life and you need to remove them. So if prices go up, will it solve that? I don't know. And I can't tell if there's a cultural, I'm trying to decide if I live too much in a bubble, but it sure seems like there's a trend toward owning less things just to try and be more minimalist. And especially with the shift toward

more people being in urban environments and having smaller spaces, that we may just start to see this from a cultural desire perspective, too. Yeah, I mean, no question. I think one thing that seems very clear to me that you mentioned is urbanization, regardless of what happens with globalization and trade, I think urbanization is going to continue to be a very, very powerful force throughout the rest of this decade and, and likely into the next, you know, so many for,

for a whole variety of reasons, so many people in this country and around the world are, are migrating to cities and, you know, the net migration to cities that I think is happening is going to force a lot of this change. You know, the big mansions in the suburbs, you know, aren't what a lot of people aspire to anymore. It's a great point. Let alone the fancy cars that you drive to get back and forth. Yeah, no kidding. With that, do you want to move on to carve-outs? Yeah. So for carve-outs for this episode, since it's the end of the year, we thought that we would

each do a carve-out across a whole bunch of basically all the categories that we talked about throughout the year. So we have books, articles, podcasts, music, TV and movies, and apps. Should we start with books? Yeah, let's do it. I've got one that I'm rereading now, and I don't think I've done it as a carve out before, but it's one of these books that I probably should read every year. And, you know, I'm just reading for the second time now, but it's called On Writing Well. It is a kind of a spiritual supplement to the E.B. White's Elements of Style. And it's this really great, very enjoyable to read book that harps on the importance of writing in plain English, using one word when you can instead of two or three or 10,

eliminating kind of colloquial phrases that are, you know, not adding anything to the piece and really decluttering your writing and having clarity of thought. And one of the things I want to get better at in 2017 is just being a better writer and writing with more clarity and purpose and being more pithy. And it's just a phenomenal, phenomenal guide

to doing exactly that. I've had that recommended to me several times over the years. I've never read it. And I got to get that and read it. Very few things that we can invest in that'll do more for our communication than learning to be a better writer. Something I definitely, definitely need to keep working on. Okay. For my book, um, for the carve out, I, uh, actually broke it into two. I did nonfiction and fiction. So for nonfiction, um, the creative habit by Twyla Tharp, which was a book that I actually got a long time ago and had been meaning to read, had started, never finished. And I finally picked it back up again and finished it this year. Really great.

Twyla is an American choreographer and dancer. It's a really creative work itself, but a lot of great advice for how to think creatively and structure your life if you are someone from an entrepreneur to an executive to an actual artist who needs to think creatively in your work. And then my fiction for the year is actually a whole multiple series of books. But I finally read the entire Isaac Asimov canon, not not all the books that he wrote, but the Robot series, the Empire series, and the Foundation series, which are all separate series.

But later in his life, he wrote other books to fill in the gaps and tie them all together. Really fun. And also a great read as we head into this world, as we've been talking about on this episode of artificial intelligence and robotics potentially coming along with that. A lot of his work has been an inspiration to actual innovators and inventors throughout the years. So highly, highly recommend all of the series that he's written.

Awesome. And actually, that kind of leads into my article yeah it's uh religion for the non-religious which is a wait but why column and yeah so good yeah really really great like talks about um you know level one thinking which is more like uh instinctual level two thinking which is more empathetic level three thinking which is like thinking about the whole universe as we know it and being just floored by our place in it and then level four thinking which is we don't even know what we don't know and it's kind of a an interesting like way to tie um everything together from why am i acting so silly right now all the way to

what are the bounds of the known universe? Yeah, such a great blog, WipoWide. My article is a piece in New York Times that came out a few weeks ago about the alleged activities by Russian hackers in hacking the DNC and the RNC and then their use of that information to try and influence the outcome of the U.S. elections. This is a really great, long reporting piece, and they sort of deliberately make the analogy in the beginning of the piece between Watergate and the hacking of the DNC, the physical hacking of the DNC headquarters for information during Watergate to the digital hacking now. But why I thought it was super cool is they make the argument in the piece that if Russia did, in fact, do this, that this is actually moving beyond espionage into,

you know, trying to influence outcomes of elections in another country is a war like act. Um, and it made me think a lot of, regardless of what you think about this particular situation about, uh, disruption, uh, and evolving technology as regards to war too, you know, um, uh, if this is, uh, this might be the way that at least one of the ways that war is conducted now, as opposed to, you know, tanks and planes and bombs. Super interesting to think about disruption of at that level, too, and also relevant to what we were talking about earlier in this show. Wow.

Yeah, totally ties it together. Yep. Speaking of being all over the place, my podcast recommendation is the episode of the Ezra Klein Show with Patrick Collison, the co-founder and CEO of Stripe. And fascinating on a lot of levels. It truly is all over the place in a lot of the best ways that you would hope. Super intellectual on technology, politics, philosophy, and highly recommend checking it out.

That is so funny because the Ezra Klein show was my podcast as well. Fortunately, I had two episodes to recommend. One was that show with Patrick Collison, which is a great, great episode. The other one, I think, is the one that Ezra did immediately following that episode, either immediately or two episodes later with Ta-Nehisi Coates, completely different type of person in a different world. Coates is an author and a journalist, but also very, very great episode and worth listening to. I agree.

Music? Music. So we've been riding this really highbrow intellectual train so i'm going to bring it back down and declare 2016 the year of justin bieber his last uh his album of mega hits technically came out november of 2016 but uh boy do they have staying power and stayed snappy and hot and released fresh singles all year so i unapologetically go justin bieber that's great i'm uh i'm also unapologetically going to go back to i think i mentioned this an episode or two ago um jenny and i went to a stevie nicks concert this year and it was so good i've been a huge fleetwood mac fan for a long long time

and um uh but in 2016 i have discovered discovered Stevie Nicks' solo career, too, even beyond Edge of Seventeen and the famous hits. She really is an amazing artist, and both her own solo albums and her collaborations, especially with Tom Petty and the Heartbreakers. Also, Prince. I didn't know until I went to her show that Prince played the guitar on her hit Stand Back.

No way. They had a really close relationship. That's my music for 2016. Awesome. So my TV or movie is Westworld, the HBO show. I mentioned it as my carve out a few episodes ago, but that was the piece of entertainment of 2016 for me. It was so thought provoking, worth watching twice, worth listening to podcasts about, worth talking to your friends about,

and reading the subreddit and diving in. It is JJ Abrams and Jonathan Nolan at their absolute best. So I'm going to, I'm going to bring it down even further here. I haven't, I haven't gotten into any of the heady grade television that's being produced these days. But my video content of the year was Rogue One. So good. If you haven't seen it yet, I know it's gotten somewhat mixed reviews,

but I thought it was just fantastic. Ben and I saw it together on opening tonight on opening night. It was a blast. I've seen it once more since then, and I would totally go see it again. The forest is with me, and I am with the forest, David. Moving on to app, my app of the year is one I just started using, which is ReachNow, the car sharing program by BMW. It behaves very similar to Car2Go if you've used that, but you get a car that's not a smart car. So you can take four or five passengers. It's enjoyable to drive.

You can go on highways. It costs about the same amount, and it's a really great renting and drop-off experience. Interesting. And it's a really great renting and drop-off experience. Ah, interesting. I tried ReachNow when they first launched in Seattle earlier in the year, and I stopped using it because I remembered the prices being way more expensive than Cardigo. Have they gotten better? I think they're the same. Right now they're waiving sign-up fees, which is like $39.

I think that they'll probably start at some point. But it's $0.40 a mile, and I think that's pretty comparable. I remember when I stopped using Car2Go like three or four years ago, it was, uh, 33 cents a mile and I think has gone up since then. So, hmm. Interesting. Yeah. Great in concept. If for the same price as a smart car, you could drive a BMW. Yeah. Yeah. I take the BMW. And I think, uh, uh, sorry, not a mile per minute. I think it's actually kind of part of their plan for eventually building a self-driving fleet.

I think they're kind of data collection vehicles. Getting the data for machine learning. My app also plays into a bunch of themes we've talked about on this show and throughout the year. A company is Amazon Music. uh discovered this in 2016 and um as perhaps evidenced by my music carve out in stevie nicks i'm not uh i don't spend a lot of time staying up on new music and uh the amazon prime

music is free with prime and is pretty great, especially for free. So talking about business model disruption, the Amazon, if you are not already a Spotify or Pandora or other paid music or Apple Music subscriber, and it's not something that's like so important to you to have an absolute full catalog, free with Amazon Prime, the music app is pretty great. Yeah, I'd be curious. Listeners, if you are a music lover and have tried out Amazon MP3, I would love to get your review.

If you want to reach out to us in the Slack, go to acquire.fm. You can see the Slack where all the conversation's happening. And yeah, I would love to hear about it from, uh, from music lovers. Yeah. I also have a request too, for, uh, anyone out there on, uh, going back to books. I love reading sci-fi and, um, but I'm super curious. I haven't read a lot of current science fiction and I would love to hear, read and learn about what people are imagining about the future today, and especially women's science fiction authors, which I've read

embarrassingly little. So if you have any good recommendations for current sci-fi, especially by women authors, hit me up in the Slack. Awesome. We want to thank our longtime friend of the show, Vanta, the leading trust management platform. Vanta, of course, automates your security reviews and compliance efforts. So frameworks like SOC 2, ISO 27001, GDPR, and HIPAA compliance and monitoring, Vanta takes care of these otherwise incredibly time and resource draining efforts for your organization and makes them fast and simple. Yeah, Vanta is the perfect example of the quote that we talk about all the time here on Acquired,

Jeff Bezos, his idea that a company should only focus on what actually makes your beer taste better, i.e. spend your time and resources only on what's actually going to move the needle for your product and your customers and outsource everything else that doesn't. Every company needs compliance and trust with their vendors and customers. It plays a major role in enabling revenue because customers and partners demand it, but yet it adds zero flavor to your actual product. Vanta takes care of all of it for you. No more spreadsheets, no fragmented tools, no manual reviews to cobble together your security and compliance requirements. It is one single software pane of glass that connects to all of your services via APIs and eliminates countless hours of work for your organization. There are now AI

capabilities to make this even more powerful, and they even integrate with over 300 external tools. Plus, they let customers build private integrations with their internal systems. And perhaps most importantly, your security reviews are now real-time instead of static, so you can monitor and share with your customers and partners to give them added confidence. So whether you're a startup or a large enterprise and your company is ready to automate compliance and streamline security reviews like Vanta's 7,000 customers around the globe, and go back to making your beer taste better, head on over to vanta.com slash acquired and just tell them that Ben and David sent you. And thanks to friend of the show, Christina, Vanta's CEO, all acquired listeners get $1,000 of free credit. Vanta.com slash acquired. Well, listeners, we hope you had a great 2016 and ring in the 2017 with, you know, however you choose to ring it in. Um, it's probably a week or so in right now, but, uh, we hope you have a great year. If you have been listening to the show for a long

time, or even if you're brand new and, uh, enjoyed the episode, um, we would love a review on iTunes and to, uh, share it with your friends and colleagues or anyone that you think would be interested on, on Twitter or just, uh, email or word of mouth. So thank you so much for being a listener and, uh, have a great year. Happy 2017. We'll talk to you soon.