Conversations with Tyler - Ben Thompson on Business and Tech

Episode Date: October 24, 2018

Not only is Ben Thompson's Stratechery frequently mentioned on MR, but such is Tyler's fandom that the newsletter even made its way onto the reading list for one of his PhD courses. Ben's based in Taiwan, so when he recently visited DC, Tyler quickly took advantage of the chance for an in-person dialogue. In this conversation they talk about the business side of tech and more, including whether tech titans are good at PR, whether conglomerate synergies exist, Amazon's foray into health care, why anyone needs an Apple Watch or an Alexa, growing up in small-town Wisconsin, his pragmatic book-reading style, whether MBAs are overrated, the prospects for the Milwaukee Bucks, NBA rule changes, the future of the tech industries in China and India, and why Taiwanese breakfast is the best breakfast. Read a full transcript enhanced with helpful links. Recorded October 15th, 2018 Other ways to connect Follow us on Twitter and Instagram Follow Tyler on Twitter  Follow Ben on Twitter Email us: [e-mail] Subscribe at our newsletter page to have the latest Conversations with Tyler news sent straight to your inbox. 

Conversations with Tyler is produced by the Mercatus Center at George Mason University, bridging the gap between academic ideas and real-world problems. Learn more at Mercadis.org. And for more conversations, including videos, transcripts, and upcoming dates, visit Conversationswithtyler.com. I am here today with Ben Thompson, who is the founder and author of Strategore, 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 Mercatus. 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? Where are they?

The add-on 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. 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 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. They had no need to service their customers well because customers can go to where else. In this case, they succeed by virtue of being better than one else. And that kind of gives them a leg up, you know, in the public high generally. Are founder-led companies worse at public relations, maybe because they're so substance obsessed? I mean, maybe. I think it's more a matter of founder-led companies, I think, in particular, are very sort of, can you say missionary asking their mission? They are very sort of, you know, they're true believers.

And they have a story that they've told themselves about why this company exists and why is successful. And it usually has very little to do with this sort of stuff that I write about, which is, you know, business models and and moats and network effects and that sort of thing. No, we are connecting the world or we are, you know, finding, organizing all the world's information, very sort of lofty sort of goals. And the more, I think the more founders 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 there's a certain sort of, you know, tension already in that sort of relationship, particularly 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 focus that everyone uses Amazon, everyone likes Amazon. 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 sort of being jinned up. And jinned up sounds bad. It's being sort of built up by people that are concerned about its tremendous power in the economy.

And arguably they are, you know, the strongest of all, particularly if you look at them from a supplier perspective. but that's very different than sort of a groundswell 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, 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, I went to business school and you would have the sort of the mock interviews. I was, you know, part of the tech club. This is 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 disagree with or you think 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 the reality is if you know these companies, you know the people in them, they are any. anything but stupid. Like, they are very brilliant people that have brilliant backgrounds and all these 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. But they started thinking they were good at consumer products. So they would make these consumer products that had no chance in the marketplace because 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 we just. them unprepared to answer, you know, very legitimate questions about their effects on the world because they don't have this sort of, I don't know if empathy is the right word, but they don't have this 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. They're just, although thousands and tens of thousands of failed startups that didn't get any traction and then went by the wayside. That's the model of Silicon Valley. And that's, you know, people sometimes ask, like, why do 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 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 company, you see failures all the time. I mean, Google in particular, I think, is notorious for this for watching 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 where 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 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, via digital marketing, 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'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 error, social media era. And now where's the next

place for them to go? 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 ever-present 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 the era we're really in is, you know, tech spent many years sort of eating itself. And, and you have 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 down. You know, I think it's going to be, you know, the carnage, 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 venture capitalists are underrating, which is the, you know, tech in general is all about the heavy investment up front and then basically zero marginal cost products on the backside. And the reality is, is you get more into the real world, those marginal costs become more and more difficult to escape. You need to hire a sales force, right? Well, that's always been sort of the accepted okay marginal costs, but you need other ones.

You're going to need regulatory compliance. You're going to need like ongoing sort of lobbying efforts. You're going to need like all sorts of stuff that is sticky stuff in the real world. he'll say, why is intact on much in health care? Well, everyone avoids health care 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. Because that's the real growth sort of opportunity. I think being willing to fund companies that are willing to do that, they're willing to spend like that. It's 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. 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 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. 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 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.

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 the way they did in newspapers. And obviously that didn't work. But you see this again and again and again. And it's kind of the second way that 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 streaming 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 won't be writing a newsletter every day. So, will Amazon have any impact on health care? 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.

That noted. I think the other thing to note, too, I was going to say, I was going to say, you know, all the sort of difficulties in health care and regulation. But the thing Amazon does, Amazon does really hard problems. I think I mentioned 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 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 can get a good return of capital from that without realizing that the payoff is not in the, you know, three to five year range. It's in the sort of impenetable 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 synergies 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 merge acquisitions are inherently value destroying. I think particularly, you know, tech companies in general just throw off so much cash and have 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. I would say that as a rule generally. With Amazon specifically, you know, Bezos has done a remarkable job of business.

building a company that is not integrated. Like Amazon is sort of the anti-Applemanory 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 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 and it should be able to scale to serve Amazon's needs in a way that. that it would any third party and then we might as well sell to third parties. I mean, that's a little bit of a oversimplified telling of this story because Amazon itself was sort of on its own integrated platform for a long time after AWS started. It sort of has shifted to ADMS 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 conglomeration 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 model-based reason why Winners' Curse doesn't seem to apply to the tech companies? Is it that there are so few bidders? But over time, as more bidders enter the market, that Winners' Curse will apply and mergers and acquisitions will go back to, on average, being mistakes?

It depends on actually the part of the tech industry, I would say. When it comes to the consumer companies, the reason is network effects. There is so much gain to be had from having a larger network that 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 those 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 Facebook acquiring 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 competitive.

at 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's a good way of thinking about it.

I've definitely been focused on the getting senators sort of angle. And, you know, obviously the, you mentioned it earlier, the sort of, is there going to be a public relations wave? in public relations as many respects, 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 an interview with them by phone because they would not send recruiters to 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 it into an advantage where they're actually, they are already everywhere. They impose this idea of sales tax. You had the wayfair decision come down. That's going to weigh very heavily on e-commerce businesses. You have a small e-commerce business.

It's 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 thing with this minimum wage thing. Like the, you know, California is already on its way to a $250 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 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 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 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, 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, that was something in your pocket, and that's certainly the dominant form now. And the idea of 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, you know, what could be done with something on your wrist that, you know, connected

a pair of AirPods in your ears or maybe there's going to be something with augmented reality in the future. I mean, it's hard to say. I think it's just, if you're interested in the future in the way technology 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, honed 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 sort of the heart rate sensor and things like that. And that's a necessary step in why should you buy this product. I find it useful. I do have one. 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 and just glance say, you know, that's not important. 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 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 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 better and better at hardware, especially things that are very computationally intensive, like their cameras is pretty incredible. But when it comes to the sort of entire experience of touching it and interacting with it and just the feel of it, which matters, again, I just said, the smaller something is and the more the close. it is to you, the more that matters, the more that plays the sort of Apple's strengths. And you saw that going from computers to phones. You see what their watch, which is just weeks ahead of anything else. And I think it's likely to be the case 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's... I mean, again, it's one of those things where the easiest way to define what we'll do is to take, is to imagine things today as they are. And, and, 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 would have said, oh, it's going to do email. It's going to do things like that. You wouldn't have imagined that all the, they'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 writ large, you know, you figure stuff out.

build it, you throw it out there 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, people that are tutting the kids on the phone. you know, 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 doing the exact same thing. 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'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 tend to adopt the kids are going to be okay sort of mindset. I mean, there's going to be.

new things that arise about it, new mores, 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, 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 how to manage it sort of going forward instead of sort of pining for a world that is long gone. Are you worried about the attention, effect precisely because, say, iPhones are so very good and entertaining? I think so.

I mean, 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 of that until sitting in front of the television for four 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 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 one-click 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 timer for five minutes or, you know, what temperature should I grill my steak to? And you'll get an answer with your hands busy and all together. And it's going to be a more convenient answer than what 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 can not 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 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'm 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. I may or may not be speaking for personal experience. But again, is there going to be more than that? We will see. I mean, I feel I'm giving you these sort of platitudinal answers. Like, I don't know. We'll figure it out. But I think that's that's the way technology has always worked. It's, you know, and to the extent that Silicon Valley, you go to like, what is Silicon 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 I think, you know, so the platitudes are all I got. Let me try 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 advertisements and it will feel like Facebook or will Instagram always be a separate carve out? Well, it depends how you look at the business.

If you look at it from consumer perspective, there are two very different products and you have people that say, you know, I'm against Facebook. I'm going to delete Facebook. They're sitting on Instagram all day long. But if you look at it from an advertiser perspective, 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, the digital advertising market.

Because if you're an advertiser, let's say Snapchat is marginally more effective at reaching, you know, the demographic 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, 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. 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 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 in hand because advertisers want to be everywhere. and the value of a 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 entrant to gain traction in a meaningful way. And that's what I'm more concerned about. I'm not concerned about a service 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 I think I do wonder if it's one of those things that makes so much theoretic, it's almost too neat like that it, this obviously this must be a problem. But is it a problem? And you think about the age groups that are the most polarized and they tend towards, I think, these are old generations. And you look at things like cable news and how much is that actually driving, you know, the filter bubble sort of effect. I guess I may, I do think there is more of an effect than Facebook technology.

is 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 bothered me that they never sort of acknowledged 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 this 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 most obvious impact is I was raised, you know, very, you know, blue collar, small town Wisconsin. I think just being more in touch with and aware of the sort of world between the coast, you know, the not elite at all. I think one place this manifested very clearly was I was very bullish on Facebook very early, even when they're in their doldrums around the IPO and things like that. 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 it's not a thing. And, you know, Facebook, that's really good 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 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 pursue this dream or to get away 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 unsatisfying, but I read a lot of news. I read a lot of newspapers. I read, you know, tech me 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 frankly probably too much Twitter. And what do you do to optimize what you might call reader input, emails you receive or WhatsApp messages as a part of your daily workflow? Should you be doing more of that and less reading of news or vice versa? How do you balance those two things? I get a while. I think the feedback is very valuable. I mean, I 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 be all the time.

I think 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're not representative of your audience as a whole and being sort of having a mental sort of filter around that to be aware of it. But it's one of the best things about writing on the internet is the immediate feedback in that it can adjust what you write the next day as opposed to if you're writing a book or whatever. And you have to wait for the next book or the next paper or whatever might be. It's a tremendous benefit. Now, you have an MBA from Northwestern, correct? Yes. Are MBAs overrated or underrated?

Probably, it depends how you think about it. I think from a intellectual pursuit, probably a little overrated. And I say this as someone who benefited tremendously from an MBA, I had no sort of like formal business background. It turned out I had a good sort of, you know, understanding of how this stuff work. And the MBA gave me sort of the language to put around these sorts of things. that said, are you going to get an MBA and become sort of strategic maven? No, I don't think so. And I think a lot of MBAs get a bad rap, deservedly so, for thinking they know everything when they've just read a few case studies. On the other side, I think MBAs do do wonders for your salary. And I think that's very well documented. And it 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 would say that it's impossible. for me to answer this objectively because I would say a driving force for me starting

strategy 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 purchase to 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 know, you. 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 should checkery could fill was sort of much more practical, immediately useful, you know, analysis of strategic decisions today. And so I guess 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 models? No, not many, to be honest. What would be a book you would recommend for someone interested in learning about business strategy? It 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 read books in a very sort of practical, what's the word I'm looking for? I read books a very exploitative way. I read books very pragmatically. Yes. Like I want to know about something or I'm writing about something. 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 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. Because I think going back, we talked to 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 and understand that is useful. But if you want one thing to read about business strategy, I guess I do go back to, you know, Clay and Christensen's the original innovator's dilemma. And the reason I like that book, go back to it, even though I think he's taking the concept a little too far.

And one of the first articles I got traction on was saying 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 what I talked about before. Why do companies do stuff that in retrospect was really dumb? and often it's done for very good, legitimate reasons. That's what they're incentivized to do. They were serving the best customers. They were adding on features because people wanted them.

And that actually made them, you know, susceptible to disruption. 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, I have to be clear. The WordPress folks will be bad 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 because they're fully distributed. You 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 weren't working there is, I mean, the scale of the internet is astronomical. I mean, you know, automatic in WordPress.com, the number of sign-ups they have every day and the number of new blogs being created. In the real of a blog, who writes blogs anymore? There are a massive number of new blogs created every single day. And do a lot of them follow? Sure, they do. But this idea of the internet being huge.

I mean, it's something that drives your techories. Like, I can write a paid newsletter. And because my addressable 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. I just talk to my friend Bill Bishop here in D.C. You can write a newsletter about basketball. I can write a newsletter about Apple specifically.

And that's just one niche, one area is 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 to spread out of the table, put it in there,

mix it all together. It's good. But beef dittle soup is great. Taiwanese breakfast is remarkably underrated. Most people don't know about it, but once they come, they can't get enough. As far as eating goes, it's hard to top. What's the most underrated place in Taiwan? Probably Turoko Gorge.

It's called Tavuka and Chinese. 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 pretty awe-inspiring. The East Coast is gorgeous also. I did that bus trip once. Yeah.

And the best part is going to Tyroko from Taipei, you go down this road that's, you know, 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 two-day trip, and it's totally worth it. What's the hardest thing about living in Taiwan? I mean, the obvious one would be just laying. in general, but I mean, I can, I can speak certainly well enough for day-to-day life. I think what gets harder is the sense of always being different. And, you know, 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 a taxi drives by you on the road and doesn't pick you up, why? Is that because I'm a four, 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, when I went to Taiwan, I was an English teacher back in the day, and new teachers would come, and you could tell right away which ones would not make it. Because that sort of stuff would just drive them crazy and they'd be gone in a month or two. Whereas if you can chill out and be like, you know, it is what it is, then you 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 actually have 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. Janus is going to win MVP. It's going to be amazing. And we being Buck's Twitter is going to spend the whole time, you know, time 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 the NBA 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, the same as making half of your twos. It took a long time to sort of to take root. And in part because in the NBA, generally speaking, coaches and front office 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 Darry, who was former NBA, like former NBA. like former MBA, I should say, you know, in bringing in a completely different mindset that is more math-based. But that's coming from the outside. It takes a while for that to, you know, and 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.

Had a general manager that had been there in the league for ages, had a coach that was a former player and was insistent that 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? I think the main thing I would change is making the end.

They've done a little about this. They've reduced 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 FIBA, I should say, is very interesting rules where you can only call a timeout on a stoppage of play or things long,

or you can't call it. They have lots of things at the end of 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're just fouling and that would fix two problems. One, the hacking bad players don't shoot free throws well, which just grinds the game to a halt and isn't in the spirit of the basketball at all. The point of a foul is to punish the defense, not to punish the offense. But then two, the end of game, you have this fouling constantly in the parade to the free throw line.

Be like, well, that'd give people a harder time 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 more exciting. problem of steroids and in general players taking substances in 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 players? How should public policy

deal with this? I would tend to think there's bigger problems for the federal government to deal with. I do think the spillover effect is the biggest reason to be concerned about it. I mean, when it comes to professional athletes, it's pretty. professional athletes are 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 sort of moral perspective. At the same time, you know, 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 marijuana testing. which 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 star 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 as 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 such a common market in a way that more similar to the U.S. than the EU, but it's, you know, three times the size. And so 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 U.S. 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 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 so tremendous. Bight dance to me seems to be apps and machine learning. Why should I care? What can it do for me? Say I'm Chinese. Why is my life better because of Bight Dance?

I mean, I don't know. I'm not that familiar. I'm not that familiar to be honest. people ask me why I don't cover Chinese companies more. I'd say there's two reasons. One, I'm actually not in China. I mean, well, be careful how you said that. But 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 Bight Dance does and to have sort of demonstrable. of demonstrably done it with sort of an algorithmic approach that has, you know, really gained 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 Tencent 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 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 17% when they pulled out, in part because they weren't very strong on local results in particular, which Bidu had had, had, really focused on. As far as a business isn't of being there broadly, you know, 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 going to have to deal with. Apple is, always been the most successful company in China because of their business model, selling 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 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 China's 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, people want to put it in the same bucket as it's the next China. I think, you know, the countries are so, they're similar in that they're both very large, but they're so different in sort of a, you know, the thing about China is, I think are we the most underrated event, you know, I don't know, I'll say human history, but the last hundred years is the cultural 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 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 that sort of that sort of culture on top of it. And you have this sort of sclerotic corporate culture that, you know, the boss is always right, stay in the office until, you know, he goes home and that sort of thing. And it's unhealthy. Whereas China, 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's absolutely brutal. It's brutal in a way, I think it's hard for people to really comprehend from the West.

and that makes China, you know, something 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 India's, you know, thousands of years of culture. And so it makes it much more difficult 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 way is a bad thing. I'm not wishing the cultural revolution than 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 languages. To what extent do they develop their own industry versus adopting U.S. tech companies 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 it a coincidence? Are there some cultural reason? Taiwan has always been very open to the outside world in a way, in various sort of island nation sort of way, like very cognizant of their place in the world and their dependence on other countries. There's a cartoon that is very, very humorous that says where Taiwan is in the world,

shows Taiwan next to China and 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. I've always been very favorable towards Japan and sort of generally aware of and pulling culture, whether it be popular culture or whatnot from other countries. Whereas my impression South Korea, I haven't lived there, so I don't want to, you know, delve in it too deeply, is it's much more sort of internally focused, which is 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 Korean, you are, you, you,

you buy a Samsung phone because it's Korean, whereas no Taiwanese buys an HGC 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 discerable. distinct internet with distinct companies. The U.S. European Union thing is going to be interesting to watch. I mean, it's so there's, the European Union is rich and there's a lot of people there. So the big U.S. companies are going to do what it takes to do business there, no matter how

annoying it is. And they will continue to 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 a traditional favorite, the incumbents are going to do better at it. 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 this 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 the same city maybe with a fence 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? and expanding to so many foreign markets so quickly. Is it now, what, 150 markets? More than that. Very large number, and a pretty small number of years.

How'd 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 was in, 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, 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. And this is why we are competing asymmetrically with, the traditional networks, which are focused on a single market and they're focused on, you know, monetizing up front. And whereas we're thinking about the entire world and monetizing over many years and is also 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 of the last couple of years.

They've actually fleshed it out to being more accessible. Several years ago, you wrote about TV advertising's surprising strength. What's your update on this topic? Well, the idea of that article is that the sort of TV advert that the companies that dominate TV advertising, the big CPG companies, the car companies, the beer companies, like it's a set group, the phone companies. They are the sort of mass market products that are seeking to serve, you know, those least commoninator products that will reach the most amount of people and where those. products go. They go into big box retailers or they buy up shelf space and they make deals, do brand extensions and have it next to it. And people drive there in their cars and they pick it up and go home. And what's interesting is all parts of that value chain are under threat by the

internet. It's all together. And so my argument there was the reason why TV advertising has remained stronger than people anticipated is because the TV advertisers are unique, are tied in. It's all integrated. are 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 stay stronger than you would think because if the week 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 apps and you're going to have, you know, this rise of all the attention markets on the internet and all the niche products and the individualized marketing that you can do on platforms like Facebook. And it's an almost completely separate economy that's developing off to the side while they're sort of in it to the end. Ben Thompson, thank you very much. And I recommend that you all read and indeed subscribe to

Stretaicore. 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 show.