The Prof G Pod with Scott Galloway - 5G, Disney+, and All Things Social Media

Episode Date: October 15, 2020

Sinan Aral, a professor of management, IT, marketing, and data science at MIT joins Scott to discuss his new book, “The Hype Machine: How Social Media Disrupts Our Elections, Our Economy, and Our Health—and How We Must Adapt.” We also find out why Sinan does not think antitrust is the right way to go after Facebook and his thoughts on data portability. Follow Sinan on Twitter, @sinanaral, and check out his book here.  Scott opens with his thoughts on Apple releasing 5G phones and Disney’s decision to double down on streaming.  This week’s Office Hours: why retailers engage in unfair partnerships, why Scott is bullish on coworking space, and what to consider when funding a startup.  Learn more about your ad choices. Visit podcastchoices.com/adchoices

Episode 31. My 30s were mostly about death, lost the only person I knew, loved me, my mother, divorced, got divorced, and then hair loss. I am still not over these things. I'll tell you, you know what is profoundly tragic? Losing your hair. Go, go, go! Welcome to the 31st episode of The Prof G Show. In today's episode, we speak with Sanan Aral, a professor of management, IT marketing, and data science at MIT, to hear about his new book, The Hype Machine, how social media disrupts our elections, our economy, and our health, and how we must adapt. Wow, that rolls right off the tongue, doesn't it? Okay, smart guy, not a great marketer. Actually, Sinan is a colleague from NYU,

and then he bolted for MIT. That bitch trader! Oh my gosh! Anyways, smart guy, good conversation. Okay, what is happening? What's on everyone's mind? The big event from Apple, yippee! Apple announced a slew of updated products, and most

notable, the company's new phones will be built for 5G, hoping to inspire a super cycle of new phone purchases. iPhone sales peaked in 2015, and the company has doubled its stock price in the last 18 months on the back of subscription or moved to subscription revenue. But at the end of the day, the company is iPhone in the seven doors, most profitable product in the history of mankind. And what do we have here with what is so exceptional about the iPhone? It's not only the market leader by market share, it's also the most profitable. So Samsung may have one phone that's more expensive, but in terms of gross margin dollars, nothing comes close to an item that garners $1,100 in the marketplace, will sell a quarter of a billion of those bad boys, and costs about 500

bucks in glass chipsets and sensors. Nothing's like this. An analogy in the automobile industry would be, all right, typically the best-selling car are low-margin cars, right? They're great value. They appeal to the mass market. The Toyota Camry, the Honda Accord. And then you have your high-margin profitable cars, Range Rover, Ferrari, that produce substantially fewer cars. The marketplace is just much, much smaller. So what is Apple? What is the iPhone? The iPhone is really anomalous and singular. And that is, what if you had the margins of Ferrari with the production volumes of Toyota? Well, you do, and it's called the Apple iPhone. So 5G, a lot of snarky people saying, okay, we really can't take advantage of it. It's up to AT&T and Verizon in terms of your ability to actually access these

blistering fast speeds, but it's important. And the perception will be this is a tangible reason to upgrade your phone versus the incremental reasons that Apple has presented, whether it's a better camera or it's better looking or it has new cool technology. But nothing really comes down to one thing. And that is, as an economy, we have been much more creative, much more adept at building the technologies on top of bandwidth and throughput than we have been providing bandwidth and throughput. The Economist did a survey or a study about a decade ago and found that bandwidth has directly correlated to GDP growth. So what can you do to inspire or catalyze growth in an economy? Simple, put in place the infrastructure investments and their

substantial to increase throughput and bandwidth. So this is a big deal. The thing I noticed, the thing that the dog sensed, the dog was sniffing the ground. I was listening to the opening remarks of Tim Cook. We also designed them to be secure and to protect your privacy because you should be the one in control of how your personal data is used. He led the event with privacy. Now, if you were to walk around the Apple spaceship, bad timing to invest trillions

of dollars in an HQ in my viewpoint. But anyways, I think these things are just giant phallic symbols. Let's build a testament to my manhood and have it plunder, have it plunge into Mother Earth. Anyways, what we are missing here, or what is really exciting about this or different, I should say, is that if you were to walk around the spaceship and say to people at Apple, what are you most proud of? What should we talk about in our marketing? What should we lead with? I don't think any of them would say privacy.

Let's talk about our privacy. They talk about design or creativity or new apps or new features, whatever it is, the ecosystem. However, however, this is the genius of Apple, and this is probably the most genius marketing move, although I say that a lot. But one of them is that they are leading and have led with privacy. Why? Why? Why? It comes down to a basic concept we teach in brand strategy called laddering. And that is when you make a marketing statement, when you promote a feature of your product or service, you are not only highlighting a strength, you are immediately raising that dimension for public scrutiny and

thereby ideally depositioning your competition. So when you're the Democrats and you're talking about healthcare, you're not only talking about why Democrats would be better for healthcare, but you're basically trying to highlight the fact that the novel coronavirus has killed more people faster than almost any crisis in history. And you're trying to bring up the fact that the Trump administration has not been able to put forward their own healthcare plan. You're depositioning the competition. And that's exactly what Tim Cook has done. Notice with the new smart speaker they're putting in your home that he led with privacy, because what he's trying to do is instill a sense of fear that Amazon, like Facebook and Google, is molesting your data.

Do you really want a listening device in your home? Well, if you value privacy, but you want that awesome smart speaker, go with Apple. Voice is one of the few places that Apple has really stumbled. Who was the original gangster here? Siri. And Siri has been taken out behind the gym and had the shit kicked out of her or him and basically given it away to Alexa. And this is a rare, this is probably, if there is a big misstep, if there is a giant stubbed

toe in the history of Apple over the last decade, it's the fact that they basically acquiesced or lost voice after having first mover advantage. Anyways, anyways, anyways, and other news, and other news. Cutting the cord continues. The Walt Disney Company announced a reorganization of its business operations and is focusing on streaming video services. The company said its content will be separated into three groups, studios, general entertainment, and sports. Disney is also creating a distribution department that will be responsible for all monetization of content across various platforms and will oversee the company's streaming services. Here's what Disney's recently appointed CEO had to say.

Managing content creation distinct from distribution will allow us to be more effective and nimble in making the content consumers want most delivered in the way they prefer to consume it. So there's a few things going on here that is really interesting. First off, they're doubling down on what is probably the most exciting part of the business, and that is streaming. And Disney Plus has come out of the gates. I think Disney is arguably the most undervalued big company or big aspirational company in the world. I don't think any company has these assets and trades at the reasonable multiple that is Disney. And I think it's a big opportunity because I think a lot of the pain they're enduring is cyclical, not structural.

I think once we move back post-vaccine to some sense of normalcy, business travel has had structural demand destruction. We're just not going to be commuting as much to work. We're not going to be traveling as much on business. But I do think leisure and resort destination-based travel will likely supersede pre-COVID levels. Why? We're going to have more time. And the people who go to Disney in the wealthiest kind of upper median of households are going to have not only more time, they're probably going to have more money. And they're going to say, all right, let's spend more time on, if we're not traveling as much for business, we have more time, let's go to Galaxy's Edge. I know kind of the first thing I'm doing post-vaccination is taking my 10 and 13 year old

boys to Galaxy's Edge at Disney Orlando. What else is going on here? Dan Loeb, an activist, basically announced that he had taken a large stake in Disney and said, which is, this is unusual. This is the unusual part. He said that he thought Disney should cancel the dividends such that they could have the additional cashflow to reinvest and double down on content for the streaming video platform. Now, what's the test here? Disney still isn't comfortable crossing the chasm. And that is, it is difficult for them to pull the content or take the content out of the original path where they monetize to the tune of hundreds of millions of billions of dollars. And that is, you go into the 70-day exclusive TV theater release,

then you go to the other streaming video guys, whoever's willing to pay the most, and then you put it on your own streaming video platform. To bypass all of that and not get that sugar high of hundreds of millions in revenue, and then put it on as we'll call it a value pulse. If you go straight, Black Widow, the superhero movie starring Scarlett Johansson,

which I can't wait to not see. I am so sick of entertainment basically being dominated by men in tights and the occasional hot woman who we're supposed to believe is a superhero. Anyway, I just don't get it. Anyway, that's neither here nor there. It's more there than here, but it's neither of those things. Anyway, Disney has got to stop fucking around. If Disney really wants to cross the chasm and move to a multiple of revenues instead of a multiple of EBITDA and get away or bust out of the cycle of everybody second-guessing the destruction and park attendance and really kind of command the space it occupies, they need to take all

their original content and think about streaming video first. And this signals that. This signals that somebody is going to be running distribution saying, over the long term, wouldn't we be better off? Wouldn't our share price go higher? Wouldn't we be considered a viable competitor to Netflix if, in fact, we took our most valuable content and put it straight on a proprietary vertical streaming video platform called Disney Plus and rolled all that shit up, it shouldn't be Hulu. It shouldn't be ESPN. It should be Disney Plus.

It should also include a variety of other things. We've talked about this in terms of recurring revenue bundle, but we have an activist. We have a reorganization of the company realizing the distribution strategy is so important. They're doubling down on Disney Plus. And finally, finally, the real test is can an old economy company that is constantly heckled out from their investors, from the cheap seats who are more short-term minded, do they have the testicles to take a huge short-term hit in revenues and earnings in order to start pulse valuing or really creating

pulses of value around streaming video such that they can move, they can make the jump to hyperspace, make the jump to light speed, and command the space they occupied with the ultimate recurring revenue bundle anchored by Disney+. We'll be right back. Support for this show comes from Constant Contact. We'll be right back. last thing on your mind. But if customers don't know about you, the rest of it doesn't really matter. Luckily, there's Constant Contact. Constant Contact's award-winning marketing platform can help your businesses stand out, stay top of mind, and see big results. Sell more, raise more, and build more genuine relationships with your audience through a suite of digital marketing tools made to fast

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Welcome back. Here's our conversation with Sanan Aral, an MIT professor of management, IT, marketing, and data science, and author of The Hype Machine. Sinan, where does this podcast find you? Well, it finds me deep in a conversation about how we fix social media, which is a deep trough to be in. Dude, I meant, where are you? Don't get all professorial on me. Where are you?

I'm in Brooklyn. Brooklyn, Williamsburg, Brooklyn. Yeah. I like to keep the hype cool. Keeping it real. So, okay. So the hype machine, how social media disrupts our elections, economy, health, and how we must adapt. You were sort of in this stuff before it was cool. So give us a lay of the land. What does your research tell us about social media, how it's destroying democracy and humanity? Give us the voiceover, the cliff notes.

Yeah. The hot documentary of the day is The Social Dilemma, which everybody seems to be watching and talking about. And I have to say I'm a big fan. We need more clarion calls like this to raise our awareness of the dangers of social media. And it's obviously not the first. I mean, there was the great hack before it, and there was the book Zucked and surveillance capitalism. And these clarion calls are great. But my book starts where these documentaries and books leave off, which is what do we do? And the book basically argues that we can't be armchair theorizing about how this stuff works. We really have to get under the hood of social media with science, understand how it's affecting our society. And as the, you know, as the subtitle says, it's about democracy, it's about elections,

it's about our economy, our health. And so I really try to get into the science of it and get into very specific detail about what we can do to fix the crisis we find ourselves in. Okay. So what do we do? Well, I mean, first thing we have to understand is how it works to kind of destroy our democracy to affect our elections. And, you know, there, if you think back to 2016, you know, we were in the midst of a massive social media manipulation campaign that was the subject of, you know, a conspiracy to defraud the United States, as Robert Mueller called it. And, you know, 126 million messages on Facebook, 20 million on Instagram, 10 million tweets on Twitter, 43 hours of YouTube content. And fast forward four years, 30 days before the most consequential election in 100 years, and we're no more prepared.

Russia is more sophisticated. And we're in the middle of a global pandemic with civil unrest and questions about in-person voting and by-mail voting, and we're no better off. And so I think we're teetering on the precipice of a lot of calamities that have to do with social media. Once this election is over and we do the forensic analysis on Facebook and social media's role in this election, do you think it'll be as bad, worse, or less damaging than what happened in 16? It will be more influential. And when we say more influential, bad or worse, a lot of the influence is going to come from legitimate political campaigning that is just incredibly persuasive and precise,

very well targeted. We saw glimpses of that even back to the victory lab of Obama. If you go back even before that, it was trippy that was helming the social media advertising of campaigning. It was really the first. But the Trump administration, the Trump campaign, I should say, in 2016 was way more sophisticated than the other side. So there's a lot of influence through legitimate political campaigning. Then we have the influence of Russia and now China and perhaps Iran. Russia is way more sophisticated than it was in 2016. Our intelligence community is unanimous in that they have, for instance, moved their servers to the United States to avoid domestic surveillance. They've infiltrated Iran's cyber war department, perhaps to launch attacks made to look like they came from Tehran. They're nudging real American citizens to spread misinformation

and propaganda to get around platform policies against inauthentic content and accounts. So I think it's going to be much more influential, both through the illicit manipulation attempts by foreign actors and through legitimate political campaigning that is targeted and persuasive. So I'll put out a series of theses and you tell me where I've got this wrong. Until there's a perp walk, it's going to continue. You mean Mark Zuckerberg and chains on the way to prison? Look, it seems to me the financial crisis when we look back on 2008, the reason a lot of people think the reason it's kind of we're cursed to have a repeat every seven or eight years

is that no one went to jail. So $450 million in advertising on Facebook, 10 times revenue, $4.5 billion, 30% wealth to market. Political advertising is worth a billion dollars. And until the algebra of disincentive, until somebody gets arrested, no one's really going to be serious around trying to stop this. Yeah. You know, I, I would say I agree and disagree. So I agree completely with the current lack of incentive to change and the fact that there is a needed incentive to change. And, you know, there's a big call to break up big tech. And I think that's a misnomer because I think each of these cases is so different from the other. But in the

case of breaking up Facebook, I don't think that solves our problems. I really don't because the underlying economics that creates concentration in social media is network effects. And if you break up one company, you don't solve the network effects problem and you'll just tip the next Facebook-like company into market dominance. What you really need is data portability, social network portability, and interoperability, just like we did with telecommunications, just like we did with instant messaging. Those two examples are examples in which we saw a decrease in market concentration immediately after that kind of legislation was passed. And the Access Act is pending approval in front of Congress right now. It would force all social media platforms, over 100 million users, to be interoperable.

And I think that that's a workable solution. So data portability, explain how it works. Give us the example of the phone company. Yeah, so if you remember, we weren't able to take our phone number with us if we switched from one cell phone carrier to another, and you would have to give up your cell phone number. And in fact, that was social network portability because everyone knew you by that number. That is how your number with you. In other words, allow you to take your network with you from one provider to another. It created a tremendous amount of competition. There's a study that shows that over 20 years, when Europe instituted number

portability in the cell phone market, it created $880 million of consumer surplus every quarter for 15 years. And it also created a tremendous amount of competition. It's crazy to think today that I wouldn't be able to call you, Scott, on Verizon from my Sprint service. And yet that's exactly what we have in social media. Social network portability and interoperability would be where I could create a series of messaging standards, be they stories, text, video, stories that disappear, vines, reels. There would be a standard for each of those types of messages. And you could communicate with someone from Twitter to Facebook or from WhatsApp to the other. And that would force them to no longer lock you in to getting value from being able to message

your friends on any given network. And it would force them to provide us with user interfaces, privacy protocols, security, and it would force them to differentiate and compete on those dimensions, which they currently do not have to do because they say, you want to talk to your friends? Well, the only way you can do it is through us. And if you have a problem with that, then you can just stop talking to your friends. That's not an appropriate way to create competition innovation. Is interoperability also a function of if I want to take my network, my friend network that I've created at Facebook and port it over elegantly to Twitter such that it lights up Twitter friends or Twitter followers and Twitter format? Is that also part of it or is it just making the formats fluid between them? I think it's a combination of both.

I think you need to be able to have both happening at the same time. I think that it's really a better way to think about it as identity portability. I should be able to take my social media identity to any platform provider and have it be seamlessly, essentially the same for a standard set of messaging formats and content. And there might be differentiated content and formats on each of the platforms above and beyond a certain set of standard messaging formats that would differentiate one platform from another. But I would exist on social media through any device, quote unquote, platform that I would access it through. And I could speak to people fluidly from one to the other.

And what about, so under the notion of identity, I always thought the one thing that especially Twitter, although I guess Facebook, we'd benefit it, is that anonymity gets starched. When I look at my Twitter feed, when I look at accounts that look like they're trying to create, pick a fight or create dissent or adjective between people or trying to undermine anything I might say about Russia. I think, oh, this is a bot. This is a fake account. This is someone pretending to be someone else. It's one person managing dozens, thousands, millions of accounts that is tearing at the

fabric of our society. What about the idea of verified identity across all the networks? Yeah, you know, I think this is a, it's a tough question. I think that there is some need for pseudonymity, but I also think that there's a need for sorting out inauthentic accounts or inauthenticity. And so there are different ways that that can be accomplished.

It's not clear that having everyone be a verified single identity all the time in every social network is the way to promote the healthiest communication ecosystem. There are some situations in which platforms like these can be used to resist oppression in parts of the world where a ruling authority knew that you were the one saying what you were saying on social media, that it would chill that kind of speech and that could create repercussions for the expression of minority opinions. And so there is a need for pseudonymity to allow people in those situations to be able to speak. But at the same time, there would be able to verify who's who, but also keep the information about who that person is private and secure as long as it's being verified on a backend. It's not clear to me that everyone needs to know who everyone else is on the internet at all times, as long as we have some accountability and verification

at some level. Yeah, the notion that you need some anonymity, people talk about the Arab Spring and how a lot of people had their identity been revealed, it would have been very dangerous for them. But I feel as if that is, granted it's important, but I feel as if the downside of that has just gotten so huge. Do you think there's maybe an opportunity for people to communicate securely to a filter? In other words, there's anonymous filters or sources for anonymous content to come in and be parsed, and for somebody to do a better job of evaluating whether it's a legitimate content, whether someone behind it is actually

it's a human, not a bot, because it just feels like it feels like that is that has the argument around the importance of anonymity for to fight against totalitarian governments has been the cloud cover across what I think is a great deal more damage. It feels to me that, especially Twitter, has just become a cesspool of hate. Just literally, it's starting fires everywhere it can. But let me move on to the money part. What about the idea of a tax? And that is any ad served up algorithmically pays a tax given that slowly but surely, people who used to make these decisions, whether it's editorial or a media buyer, the employer there paid a payroll tax. Because the algorithms don't have a payroll tax, we are not only encouraging the outsourcing and destruction of jobs, but the underlying algorithms, which are benign but also indifferent, will ultimately figure out a way to create content that is most engaging, which unfortunately tends to be rage. That what if we tax these things such that there was a better move or more economic incentive to move away from the ad model to the subscription model?

Because as far as I can tell, the distinguishing feature between these platforms that really fuck up our society are ad-based or ad-driven. And then the ones that are subscription based aren't nearly as damaging. The New York Times and Netflix have not been weaponized. It's the underlying ad model that really is the tobacco that creates the cancer in our society. What about some sort of tax on algorithmically driven ad models? Well, while I agree that the business model is a big driver of the negative consequences that we see in society, I sort of see the tax policy proposals as being a broadsword, not a scalpel. When you think about the advertising economy, and you really evaluate it in a fair way and look at all of the costs and benefits, there's a tremendous amount of consumer surplus and benefit that's created by the advertising economy. And I'm not just talking about revenues created, you know, earned by advertisers or the platforms. I'm talking about consumer surplus that's generated for

the consumers themselves. Because people get a phone for free or they get to watch a show for free. Well, yeah, exactly. Exactly. It's not, it's not just that they get to watch a show for free, which is so for instance, research,, research at the MIT Initiative on the Digital Economy, which I direct as well as at Stanford shows that Facebook creates about $370 billion a year in the US alone in consumer surplus. Imagine that worldwide. A tax would be a broad sort approach that would kind of dampen those benefits broadly across society. Another important thing to remember is that when you think about a subscription model, it necessarily creates inequality because some people can afford that and some people can't. And if you consider at the same time that Facebook in a lot of parts of the world is the Internet.

In the Philippines, Facebook is the Internet. In parts of Africa, Facebook is the Internet. It is the source for economic opportunities, small and medium-sized businesses, getting new jobs, getting meaningful human connections, getting life-saving public health information. Creating a subscription service broadly would allow the rich to have access to that, but not the poor. And that is an important part of considerations for subscription models. I do think, however, that the basic point that you're making is the right one, which is that the incentives created by the digital advertising business model are based on the attention economy and engagement, right? So what do the platforms sell? They sell attention as a precursor to persuasion. They get your attention, that creates ad inventory, they sell that ad inventory and then people can persuade through ads sold in that inventory. with long-term shareholder value is more effective long-term than getting this quick fix of short-term

shareholder value, because there's going to be a reckoning. There's a backlash, either through regulation or through stop hate for profit, delete Facebook. These are indicators that employees and consumers are jumping off of the sinking ship. And that is not a ship that survives long-term, either because of regulation or because people delete Facebook or employees bolt in droves. I think the ones that will succeed are the ones that align a sustainable, long-term profit-maximizing business model with society's values in a wholesome information ecosystem. And yes, government regulation is going to be required to create the incentives that make that happen. Isn't there a way to make a progressive

subscription structure though? So for Twitter, less than a thousand or less than 10,000 followers, it's free. 10,000 to a hundred thousand, it's five bucks a month. Over a million, it's 200 bucks a month or 250. It seems to me there's a lot of surplus value from corporations and famous people and people like you and me who use these things as platforms to circulate our IP that is not being captured. And the company could capture that, maintain their shareholder-driven model, while at the same time not precluding or excluding people who don't have the money for a subscription service to still engage in these platforms? Isn't there a way around it to tiered pricing? Maybe. I think that at its heart, it's still regressive because you're

still taxing the person who finds it difficult to pay for the subscription and you're now taxing them on their reach and influence. So if they want to build a bigger business, if they want to take their small and medium-sized business, they have a great product and their audience, they want to reach a great audience. Or even if it's a nonprofit in South Africa that wants to encourage condom use to stop the spread of HIV, you're saying the better you do, the more we're going to tax you on it. And that is, again, a broad sword. I think that, you know, to begin with a competitive market that creates incentives for everyone to deliver what consumers want the most

is the first step. And then just like with pollution and with every other market- That was a data interoperability, that was the first step. And then just like with pollution and with every other market- That was a data interoperability, that was the first step? Yeah. And then as with every other market failure that we've realized and addressed, we have to have regulations. Regulation and taxation, yeah. Yeah. I mean, so for instance, pollution is a negative externality that companies don't internalize the costs of, so they pollute because they can't fully internalize the costs of pollution to society on their own bottom line. The same is true of misinformation because they can't fully internalize the costs of the impact to democracy on their bottom line, say, if they're Facebook. And as well, for instance, when we're talking about food that we consume at the grocery store, it's extensively labeled with calories and trans fats. And if it's produced in

a facility that produces wheat and peanuts, because it's regulated, it's required to label. Why isn't the information we consume labeled? Why isn't the veracity or the source scrutinized and labeled in the same way? Large-scale experimental evidence shows that when you nudge people to be reflective of the information they're consuming, they're less likely to fall for fake news and less likely to share it. If you ask them every once in a while in their feed, is this headline accurate? It not only scales crowdsourced labels of accuracy, but it nudges them to be reflective, which reduces the spread and belief in fake news. You mentioned a number that Facebook creates $330 billion in surplus value. Can you break

that number down? Yeah, so it's 370. And the way that this is a fascinating story of research that's told in the book, actually. You know, the problem with regulating Facebook is that nobody pays for it. And so all of our antitrust conversations since, you know, Bork all the way through the Chicago School of Economics are all about prices. Monopolies charge higher prices. That's where we get harm, consumer harm. But obviously Facebook and the rest of these free services are free. So how do you measure the benefits of a free service if you can't measure what people are willing to pay for it?

Researchers at Stanford and MIT offered to pay people to give it up. And they did this at scale on very large scale, discrete choice experiments online. And they estimated, well, how much is it worth to people every month if we paid them to give it up? And based on those individual assessments, they created a demand curve for these products. And then they were able to estimate the consumer surplus, the additional benefit that consumers got over what they paid for the service, which is nothing. And from that, they aggregated it up to the economy. And in the US, that was worth about $370 billion per year. I mean, I definitely see the contrast. It strikes me that

looking back, we're going to think that when something weaponizes our elections, when something perhaps, even if it didn't elect an illegitimate president, creating doubt around our elections, teen depression, job destruction, tax avoidance, it just, it feels like we're going to look back and think, for God's sakes, I mean, weren't we just sitting on our hands here? It feels like we're, I don't know. And I worry, and I'm curious if you've looked at regulation or lobbyists, I worry we've been overrun, that it's too late, that with more lobbyists in D.C. than there are working for Amazon, than there are sitting U.S. senators, and when the Facebook PR and communications department is larger than the newsroom at the Washington Post, that we've just been outgunned, that we're just kind of, I don't want to say it's too late because the world is what we make of it. But it feels like this has gone on far beyond where it had reached before we moved in with previous companies, whether it's oil or big tobacco. Yeah. I mean, in some sense, you're telling the story of the book. I don't want anyone to get the impression that I try to paint a rosy picture of social media. I certainly lead with all of the catastrophes that we're all experiencing every day. And that's true. And I, and I try to do that, not in a hyperbolic sense, but in a, here's the data, here's the actual evidence. I

mean, you know, I started researching social media before Facebook was founded. And so I try to lay out all of the scientific evidence for both the harms, but also remind people of the benefits. In terms of is it too late and the lobbying, I couldn't agree with you more that yes, there is a problem of regulatory capture where we have big corporations spending so much on lobbying. And people immediately talk about that. And the first weapon or quill they go to in the quiver is antitrust. But antitrust is a horrible solution for – Oh, that hurts. That's my go-to, Sinan. That's my go-to. Put that one back in the quiver because that really politicizes antitrust, which is really

run by the executive branch. I mean, imagine the corruption that's created by using antitrust in that way. The real way that we do this is campaign finance reform. It's legislation. It's HR1. It's really getting serious about reducing corporate influence in politics. And we could do that, but we should do it through the correct means, through the ways that aren't going to create more corruption than it will solve. So connect the two. I understand the arguments around getting money out of elections, but link that to how that will fix some of the externalities of social media? of millions of dollars each on lobbying to get their way on laws that are regulating them. And that money could be much better spent helping us. And it's being put to reducing our ability to control the harmful effects of social media and society. And social media isn't the only place where corporate money and politics is creating harm in society. I think it's a much broader problem that we've dealt with for a long time and have been unable to really come up with an effective solution for. But I think that it's something that we really need to address more broadly. So why did you call this book The Hype Machine? Everything I've heard you say, wouldn't a better title be The Rage Machine?

Because I read The Hype Machine and I think it's some good, some bad, that I should read this if I'm in PR and I want to leverage these platforms. Why did you choose that title? Yeah, the reason I chose the title is because the business models are based on engagement in an attention economy. And the way that they engage us is they hype us up. And they hype us up with good and bad. And the message of the book is that there is tremendous promise in social media and the potential for tremendous peril. So yes, I do want to make sure not to overlook the positive benefits of social media on society. And yes, you're correct that a lot of our research has shown that, for

instance, fake news travels farther, faster, deeper, more broadly than the truth because it is rage-inducing and because it's salacious and it gets our blood boiling. So the rage machine was a close second in the titles that I was considering. But at the end of the day, it does hype up positive things as well as negative things. I mean, there's a lot of, for instance, social movements, from Black Lives Matter to the Snow Revolution to Hong Kong, Ukraine, the Arab Spring, these are all examples of positive effects of social media as an accelerant. As much as people like to make fun of the ice bucket challenge, it did raise a quarter of a billion dollars with a B in eight weeks for ALS research. The tremendous power of social media is also evident when you research it for 20 years. And so the point of the book is to say social media has the potential for tremendous promise and tremendous peril. The book is about how do we achieve the

promise and avoid the peril? And I do, I really do think that we have to get past the debate about, is social media good or evil? You know, I think the answer is yes. And the much more important question is, what do we do? What can we concretely do? And that is the point of the book is to is to get past sort of techno-utopianism that we had for a decade, followed by the techno-dystopianism that we've had for a decade, and really ask, what can we do? Sanan Aral is a professor of management, IT, marketing, and data science at MIT, and the director of the MIT Initiative on the Digital Economy. He's also a founding partner at Manifest Capital. Sanan's book, The Hype Machine, How Social Media Disrupts Our Elections, Our Economy,

and Our Health, and How We Must Adapt is out now. He joins us from his millennium man cave in Brooklyn, which if you knew Sanan, he was easily the coolest professor at Stern. Low bar, low bar, but nonetheless, he had that crown. Sanan, stay well, my brother. Congrats on all your success. Thank you. So great to talk to you, Scott.

Thanks for having me. I appreciate it. We'll be right back. What software do you use at work? The answer to that question is probably more complicated than you want it to be. The average U.S. company deploys more than 100 apps, and ideas about the work we do can be radically changed by the tools we use to do it. So what is enterprise software anyway? What is productivity software? How will AI affect both?

And how are these tools changing the way we use our computers to make stuff, communicate, and plan for the future? In this three-part special series, Decoder is surveying the IT landscape presented by AWS. Check it out wherever you get your podcasts. Hey, it's Scott Galloway, and on our podcast, Pivot, we are bringing you a special series about the basics of artificial intelligence. We're answering all your questions. What should you use it for? What tools are right for you? And what privacy issues should you ultimately watch out for? And to help us out, we are joined by Kylie Robeson, the senior AI reporter for The Verge, to give you a primer on how to integrate AI into your life. So, tune into AI Basics, How and When to Use AI, a special series from Pivot sponsored by AWS, wherever you get your podcasts. Okay, it's time for Office Hours, the part of the show where we answer your questions about the business world, big tech, higher education, and whatever else is on your mind. If you'd like to submit a question, please email a voice recording to officehours at section4.com.

Roll the first question. And by the way, I have not heard these questions before. The element of surprise, the element of electricity, it's the dog in the jungle. Roll, roll tape. Hi, Scott. I'm Patrick coming to you from Nashville. My question for you involves retailers trying to compete with Amazon on last mile delivery, specifically with Instacart.

Many retail brands, both regional and national, have partnered with Instacart to handle the shopping and delivery experience. Instacart claims they serve more than 500 retailers in 40,000 locations. The problem? Their Motley Road's brand loyalty is Instacart doesn't share their customer data with the retailers they've, quote, partnered with, unquote. And it was announced this week that they just closed on another round of funding, and their valuation is now almost $18 billion. It's widely assumed that Instacart will soon open their own dark stores to provide

specific products and brands for their customers, cutting out their retail partners and impairing the retailer's profit margins. So my question for you, Big Dog, why do retailers continue to make this short-sighted decision and engage in a parasitic relationship with Instacart? And does it make more sense for these retailers to band together to develop their own solution or find an alternative partner that's not a potential competitor? Thanks for that. That was a thoughtful question. So Instacart, an American company, operates a grocery delivery and pickup service in the US and Canada. They allow customers to order groceries from participating retailers with the shopping being done by a personal shopper. Okay. So Instacart. So this is about everybody wants custody of the consumer, or specifically,

everybody wants custody of your data. If you can control the browser and the search engine that gets your data, if you can control the e-commerce platform that gets your data, whoever is the service provider to the person that owns the customer relationship and gets the data, whether it's the cable company that didn't let HBO know who was watching HBO, they ultimately over time, especially in a data-driven age where you can start leveraging that data, putting some limited AI on top of it and establishing a stronger relationship with the end consumer and all the leverage, you're going to win. Now, the question is, okay, theoretically, it makes no sense for people to engage in that relationship except the promise of owning that custody of the consumer and the promise of

ultimately getting to a point of being that platform means that if you have the vision and the execution and you make progress against that vision, you can raise capital at such a cheap rate that quite frankly, you can offer your retailers and those grocery stores a level of technology at a price that is really attractive. There's a lot of people, small retailers aren't stupid to go on Amazon. The grocery stores partnering or using Instacart aren't stupid. But if you're some regional grocery chain in Idaho and you don't have the $200 million to invest in technology, you're overwhelmed just managing your unions and your labor force. You can't figure out how to create, how to transport lettuce and figure out cold storage. And then Instacart shows up and

says, for just 8% or 12% of revenues, we'll do this for you. And you can flip on. You can literally turn on a switch and have home delivery. Or you can sit on your hands and try and go find this type of capital as we blow by you and as Amazon blows by you, sure, it's incredibly hard to resist. I think it makes a lot of sense. You can absolutely see why they do it. If you're a small beauty brand, you don't have the capital to build stores. It is prohibitively expensive to drive enough traffic to your site as Facebook, Google, and Amazon begin sequestering all traffic on the internet. So what I call capital light distribution, capital light innovation is incredibly attractive. The problem is, is it a deal with the devil over time that slowly but surely you put these players or this platform in a position to be so dominant

that they turn back to you and say, hi, we're going to go from 8% to 12% to 15% to 18%. And we're going to sit on top of that data set and start figuring out what products are high margin, what products are profitable. We're going to see how people interact with your products, what type of SKU size they're going to learn on your dime and then offer their own private label. And this isn't anything that retailers haven't done in the past, whether it's JCPenney's learning from Levi's sales so they can offer

Arizona jeans, which became a billion dollar denim brand, or Sam's Cola. The difference is with data now, you can just do it at scale much faster, whether it's Amazon figuring out that batteries are a homogenous product, that Duracell and Energizer were getting ridiculous margins on. They understand how people, what sizes they want, what SKUs they want. And boom, overnight, they introduce Amazon Basics or Amazon Elements. I forget what the branding is. And boom, they have a $1,500, $200 million high margin battery business. And the brand that trusted them to be their partner is kind of shit out of luck. So look, what they should do, what they should do is these grocery chains should start a cooperative and start investing in their own technology and create their own independent company that they each own a piece of, similar

to what the content guys did with Hulu. That's actually kind of the model for how people, different parties play nice. The problem is, is that Vons and Albertsons and Wegmans, they all think a cooperative is a great idea as long as they're the lead dog. And that is they all want to play nice as long as they're in charge and they are the majority shareholder and the majority of the board seats. So the best way to defeat an enemy is when the enemy gets atomized and that is they don't join together. They don't cooperate. And I think you could argue that's probably the biggest start to the world right now is that we're no longer cooperating across the North Atlantic Treaty. But that's another talk show.

Anyways, easy to understand why people would participate in what is an unhealthy long-term ecosystem. They get cheap distribution, cheap innovation. But yeah, you're right. If the grocery guys had any real vision, they'd figure out a way to put ego aside and create a cooperative or a separate company such that they could pull a Hulu and all go on one platform and ultimately not become beholden to the much better capitalized Instacart. Thanks for the question. Next question. Hi, Professor Galloway. My name is Amanda Lee

Barber, and I'm reaching out from Bethesda, Maryland. We're coming up on the year anniversary of the wheels falling off WeWork. In fact, listening to your cutting remarks on Wondery's WeCrash series is how I've become such a big fan of yours. Anyway, my question is about the current state of the coworking industry. After the pandemic, is there still one to speak of? What do you think of WeWork's attempt to focus more on business services? It seems like coworking is going to make it through, albeit with the marketplace getting reduced due to the pandemic. We'd love to hear from the OG who predicted WeWork was a house of cards. Love the show. Thank you for your thoughts. thoughts? Well, Amanda Lee Barber, so you demonstrate a very easy lesson, and that is when someone is nice to you, when someone likes you, you immediately like them. And I think that, and there's a lesson here, and that is if someone has the confidence you have, if someone is as generous as you are and is willing to articulate admiration or say nice things about someone,

if you don't act on those positive feelings, you are really missing out. Because immediately, Amanda Lee, I like you and I want good things to happen for you. So anyways, thanks for the kind words. And the lesson is if you feel good things or impressed by people or like the work, have the confidence that Amanda Lee has and tell them that and you immediately have friends. Anyways, that's not why you phoned in. So WeWork, at its peak or its trough, depending on how you look at it, was flying a Bombardier Global Express into a mountain every

week. They were losing about $70 to $100 million a week. This thing made absolutely no sense. And supposedly, they wanted to take it public, or Goldman was going to take it public at a value that said it was worth more than the entire automobile industry. This shit just made no sense. And people often say to me, how did you know? And it's, I brought this incredible skill called math to the party. This thing made no sense. Now, what about coworking now? Amanda, Amanda Lee Barber from Bethesda, Maryland. What about coworking now? I actually think coworking has a bright future in a post pandemic world. We are absolutely, you want to talk about a reconfiguration. You want to talk about rivers changing direction. Let's talk about office space.

So many of us have rethought or reconfigured our relationship with commuting and with office space that it just makes sense that a lot of companies are going to say, you know what, one, two days a week, we need to get together. Hurting is still important. Ideas, the electricity of people bumping into each other is still important. But do we really want to spend... I was spending 70 or 80 grand a month on office space. Think about that. For 9,000 square feet, because I made the same rookie move that a lot of entrepreneurs make when I started section four of my online learning startup. But okay, we're going to be 100 people within six months, and I'm fortunate in that I don't have a difficult time raising capital. What a stupid fucking move.

What a stupid fucking move. Anyway, anyway, where we'll go from here, like a lot of small businesses, is I think it's important that we get together on a regular basis. And we'll probably just do co-working. And that is either get a static space or just rent space in a cool place with reclaimed wood and frosted glass and IPA beer and cool coffee. And we'll pay a premium, but on the whole, we'll pay a lot less and have a lot more flexibility. So I think coworking actually does well. Why? One of the reasons we work has

significantly evolved the space. Coworking used to be bad cherry wood desks and stupid plastic plants that were expensive, like Regis. I think WeWork, the amount of cheap capital they literally burned through, absolutely evolved the space. And at a valuation of $3 billion, I think WeWork makes sense. With a CEO of Sandeep Matrani, the guy who used to run General Growth Properties, a very bright guy, the exact opposite of Adam Neumann. I think WeWork actually has a decent future. And I think the future of coworking is actually pretty bright, despite the debacle that

was WeWork. WeWork will go down as more spectacle than historic. The markets did their job. They shut the fire door. The people who registered the losses were PIF, Mubalaba, the investment fund out of the Gulf, SoftBank, and WeWork employees. But the markets, unions, institutional investors, retail investors, didn't lose any money because the markets did what they did. The SEC did what it was supposed to do. The media did what it's supposed to do. And the dog did his job. The dog ran after that ball and started barking. Thanks for the question. All right, one more. Hey, Scott. Connor from Alabama here. I was wondering if you have any advice on how to find funding for a possible business. I'm only 25, and while I do have a

significant amount of money in assets, investments, and various other things, I don't feel that I have the money needed to completely fund this business. I've been trying for a little bit, but I don't think I have the connections. Do you have any advice? Also, do you want to hear it out, Scott? Keep up the good work and the dog pound, buddy. Connor from Alabama. That's a good rap. Connor from Bama. Connor from Bama. I just like that. So Connor, first mistake entrepreneurs your age make, or the ones I made when I was your age, is believing that expenses make a business. That if I can raise money and spend money, I'll build a business. No, they don't. I don't know the business you're trying to build, but unless it's a really capital-intensive tech

company, most businesses, most businesses can bootstrap on a small amount of capital. Now, the key to a small business is not expenses. It's not raising money and building infrastructure, it's revenues. So if you have an idea, the ultimate litmus test of the business is not expenses. It's not raising money and building infrastructure. It's revenues. So if you have an idea, the ultimate litmus test of the business is to go find revenues or specifically go find that first client. Profit, red envelope, L2, section four. Actually, the last one's a lie. I raised a bunch of money because I could. But with all those companies, I raised a very small amount of capital from friends and family or no capital at all. And I threw around nickels like they're manhole covers. And I tried to validate the concept and then use client money to fund the business.

Now, once you prove the concept, then you should have the ability to go raise money. It is very hard to raise money on a brand new concept. Also, at the age of 25, I'd be careful about putting too much of your own capital into it. It's easy to enter into consensual hallucination with yourself that it's worth it and it's your dream. So see if you can bootstrap the thing, get some proof of concept initially. And I say that without having really knowing, without knowing the business. There's things like Kickstarter. There are some angel networks you can tap into. There is a lot of capital out there, but despite the fact there's a lot of capital out there, less than one out of 1,000, I think it's even less than that, like maybe one even, like 5,000 startups ever raise institutional capital.

And if you watch CNBC and you read the Wall Street Journal and TechCrunch and Recode every day, you would think everybody was raising tens of millions of dollars and that you, Connor from Bama, are a loser unless you can raise tens of millions of dollars. No, you're not. of dollars and that you, Connor from Bama, are a loser unless you can raise tens of millions of dollars. No, you're not. You're 99% of entrepreneurs and you need to go out there, maybe raise a small amount of money from friends and family and tell them most likely they will lose it all. Small businesses are very risky and that way you won't want to kill yourself if, in fact, it doesn't work out. Most of my businesses, or at least half of them, have not worked out. Start small.

Find revenues. Revenues make a business. Find a client or try and sell, get a prototype and try and sell one of whatever is you're trying to sell into a company and see if you can sell fund until you have proof of concept. But Connor, at the end of the day, the best way to predict the future is to make it.

OSB shipping. If you wanna be in a services business, start offering that service, build a you want to be in a services business, start offering that service. Build a prototype if you're in a product business. And then, and then, see if you can get the proof of concept and then raise the money.

Thanks for the question, Connor, from BAMO. Keep sending us your questions. Again, if you'd like to submit a question, please email a voice recording to officehours at section4.com. Algebra of happiness. What does it mean to be appreciative? What does it mean to take stockier spoils? What does it mean to actually be the person you want to be? So many times I have not lived up to my own expectations and the gap between my intentions and what I did was just enormous. And it's something I'm embarrassed by. When 9-11

happened, I thought I'm going to go down to the pile and help. And of course I didn't. When Katrina hit, I thought, you know what? Why don't I just run a fucking motor home and go down there and find some people who need help and get them out of there, give them a little bit of money, get back on their feet. And what did I do? Absolutely nothing. And I've decided in this pandemic, I'm going to try and be the man that my kids think I am. And I think there is a strategy. And first off, there's a very dirty secret around the novel coronavirus. And that is, despite the fact that I believe 7 million Americans, I know about 212,000 have died as of today. I think it's about 7 million infections. The majority of us, you know, the majority of us, what is that, seven of 350? That means 97 or 98% of us

have not experienced a novel coronavirus. Not only have not experienced it, but if you're one of the people, 97%, and you're saying the top 10% of income earners, and maybe you're old enough to already have established relationships, already have some economic security, Maybe you're fortunate enough to have enough economic security where you're invested in stocks. This is where you are. You're not commuting. You have more time with your family. You have more time with Netflix. The water is cleaner. The air is crisper. You are living your best life. This is accelerated. If you are on the right trajectory, if you kind of made the jump to light speed in terms of your relationships and your economic situation, everything's gotten just fucking disco cocaine wonderful. If you're young and trying to establish yourself, if you're trying

to make a living, if for whatever reason you were out of work, if you were economically strained, if you had comorbidities in your life, you didn't have good relationships with people, you were struggling with mental illness, you were struggling economically, then shit's gone from bad to worse. This has taken every trend in the economy and every trend in your life and just extrapolated it, just pour fueled on it. And if you had a good life going into this, you're living your best life. And if you were struggling, you are really enduring hits. And so what do you do? What do you do? Do you want to bridge the gap between your intentions and your actions? And I think the methodology is the following. You have to affix your own oxygen mask before helping others. And that is an honest appraisal of where you are in your life

and whether you need help. And if you do need help, do you have the courage? Do you have the self-awareness to reach out for help? Then go to the next circle, and that is the people around you, your family and friends, the people you know the best, the people who you can kind of sense if something's wrong, and then having the grace and courage to reach out to them and make sure they're all right. And doing it in a way where you're not, a lot of times I think expressions of help are humble brags. You know. People who want to show how just fucking awesome their life is and do you need help. And people are embarrassed sometimes to take help because they don't feel it's like a real offer of help. It's more like schadenfreude of people relishing in your misfortune. I know that's a terrible thing to say, but make sure when you present help

that you really present it in a nonjudgmental, humble way. And then if you're fortunate enough to A, have your own life going well, to have the people around you, the circle around you doing well, then that's where you really get off your heels and onto your toes. The ultimate, the place in heaven that is reserved for people who are generous without any recognition and also help people they will never meet. I've just gotten there in my own life. I'm still such a fucking narcissist. And when I give money away, I want recognition. If I give money to a university, I want to be in the alumni magazine so all my classmates can go, oh, what a baller. Isn't he

cool? But the real grace, the people that are going to get into heaven first are the ones that figure out a way to help people without any expectation or recognition. And if you're in a position to do that, I think you'll look back on this period and think, my intentions, the person I am really met who I want to be. It all comes back to the similar theme. Be the man you think you are. Be the man your kids think you are. Foot your intentions to your actions. We are in a crisis. People need help. Our producers are Carolyn Shagrin and Drew Burrows. If you like what you heard, please follow, download, and subscribe. Thanks for listening. We'll catch you next week with another episode of The Prof G Show from Section 4 and the Westwood One Podcast Network. Oh, daddy's on fire. Daddy's on fire.