The Prof G Pod with Scott Galloway - State of Play: The Sharing Economy

Episode Date: September 3, 2020

Scott discusses how Google Career Certificates could unbundle higher education. He’s excited, to say the least.  Then, Arun Sundararajan, a professor of entrepreneurship and professor of technology, operations and statistics at NYU’s Stern School of Business, breaks down how the pandemic will accelerate the shift to platform-based businesses. He also explains why California’s AB5 law isn’t the right solution for Uber and Lyft drivers. Arun is the award-winning author of “The Sharing Economy: The End of Employment and the Rise of Crowd-Based Capitalism.”  Follow Arun on Twitter @digitalarun. Office Hours: why Netflix should own its distribution, the brand era is dead, and balancing your time between teaching and running a business.  Please take our quick survey to tell us how we can improve The Prof G Show: https://forms.gle/xVRfqCKrrNr9xzor5 Learn more about your ad choices. Visit podcastchoices.com/adchoices

Episode 25. There are 25 profits according to the Quran. An official roster of a Major League Baseball team has 25 players. Technically, you should be having a quarter-life crisis if you want advice on how to have a full-blown midlife crisis, which I'm in the midst of, but the good news is it's going to end in about 50, 60 years. My girlfriend keeps saying that my midlife crisis is getting in the way of our relationship. What does she know? She's only 18. Make me feel 54 again. Go, go, go. Welcome to the 25th episode of the Prof G Show. In today's episode, we speak with my colleague Arun Sundararajan. Arun is Professor of Entrepreneurship and Technology Operations and Statistics at NYU Stern. He's also the award-winning author of The Sharing Economy, The End of Employment and the Rise of Crowd-Based

Capitalism. Arun gives us the state of play of the sharing economy and gig workers. Okay, what's happening? Startup and big tech are trying or going to debundle education. Google is entering higher ed by offering BA equivalent degrees, Google career certificates, which is essentially micro certification for $300 over a six month period. Okay. This is just so excited. I can't tell you how excited I am about this. And I don't like Google. It's not right. I kind of hate Google, but I'm very excited about this. Google will offer its career certificate programs via Coursera for $49 a month. The courses include data analyst, project manager, and UX designer.

Will employers outside of Google take this type of certification seriously? Is Google better off partnering with the university? All good questions. All good questions. But why is this so breakthrough? Why is this so gangster? Simply put, that unless organizations and corporations start validating or start or stop, I should say, using the traditional four-year college degree as the entrance exam or as the requirement, the prerequisite for even being in the lobby, think about this. Think about this. Only 30% of Americans have a college degree, only 10% a graduate degree. And then think about business, think about economy, think about the government, think about culture, think about the media. Think of anyone over a certain level. What percentage do you think have college degrees? 95, 98%. So we have decided at a very early age whether or not

you have access to the spoils and influence of the most productive, fruitful economy in history based on this four-year litmus test. And it gets worse than that. It gets worse than that. So trajectory of that cannon that shoots you into the stratosphere or not of the greatest economic marketplace in history is based on where you go to college. Where does Google recruit? You guessed it, MIT, Stanford, Berkeley, and probably five other schools they get disproportionate number of their kids from. And now that Google is saying, Google is giving permission to corporate America and the technology companies, which every year grab a greater share of GDP, the best employers.

Someone at the age of 24 at Google has the same life, literally compensation role of a 32-year-old at the traditional masters of the universe, the communications conglomerates, WPP, IPG, Publixy, and Omnicom, who, by the way, Google loses or gains the value of all of those companies, all of those companies in a single trading day. When I was just out of business school, I met a guy named Warren Hellman, who ended up becoming a mentor, is one of the kind of gangsters of modern day business, ran, was the co-founder of Hellman and Friedman along with Tully Friedman and built what is still

arguably probably the premier private equity firm in the world. And I got this dream assignment. I'd started a company called Profit Brand Strategy, and I met Warren, and he asked me to come to two years of Levi Strauss and Company board meetings, sit in the back. He told me, don't make friends with anyone, don't talk to anybody, listen to the entire board meeting for a day, and then I want you to stand up for 15 minutes and just give us your thoughts. And they invited two other individuals, Nigel Bogle of BBH, great agency that I think at some point got sold. And then Lee Clow, remember him? He was sort of the Apple whisperer. He was Steve Jobs' right-hand man. He was on the cover of Businessweek.

Basically, it was sort of, I was the young, crazy consultant they brought in to speak youngish or speak Levi's. And they brought in these two masters in the universe. Well, guess what? I go to about, I don't know, probably 20 or 30 board meetings a year. And I haven't seen an ad agency person, individual in that room for 10 or 20 years. The bottom line is the old masters of the universe, no one gives a shit what they think. No one cares what the advertising community thinks. And the advertising, entire traditional broadcast advertising industrial complex gets shed or accreted one day, one day by Google. So Google is, Google is the new aspirational employer globally. And they've said and given permission to the rest of corporate America, the rest of the corporate world, it's okay to hire great kids with good training and micro-certification without the Bachelor of Arts. This might release,

this might liberate us from the stranglehold that accreditation, which is nothing but a bunch of white people ensuring that their joey bag of donuts with graduate PhD degrees continue to have an artificially inflated compensation, decreased accountability, i.e. tenured faculty, such that we can continue this cartel despair across middle-class families where we say, okay, 95% of you or 90% of you aren't going to get into the college of your choice, but we'll downshift you to a Hyundai, but we'll still charge you a Mercedes price. But no mas perhaps, no mas perhaps, because when Google says we're unbundling and getting into micro-certification, it might start something wonderful. Think about the internet in the 90s. Specifically, think now about one of the greatest monopolies in media history. What's that? What's that, dog? What's that? Your newspaper.

Newspapers, it was essentially, it was like college. There was one great one and one sort of great one, right? There was the San Francisco Chronicle, and then there was the Examiner. There was the Los Angeles Times and the, I think it was the Herald or the Tribune, the LA Tribune, I forget what it was. Anyways, they had a monopoly. And then what happened? What happened? They got unbundled. First, it was Craigslist that came in and went after the white meat of newspapers and destroyed the classifieds business, which by the way, kind of paid for newsrooms. Then they came into the entertainment section. Remember the LA Times calendar section? I used to sit around with my mom on a Sunday and we'd go to get bagels and nosh and we'd read the calendar section. Anyways, anyways, 777 film, Fandango. They started unbundling or picking apart movies.

Then Google and Twitter went after the front page and news and slowly but surely these monopolies got picked apart. Could the same thing, could the same thing be happening with universities where again, there's typically one amazing one in that city, NYU, a kind of a close second, Columbia, UCLA, number one in Los Angeles, a distant number two, USC, San Francisco, number one by far, Berkeley, a distant second, Stanford. You get the point. Could they be on the brink, on the midst, on the precipice of being unbundled by specific offerings, specific offerings that go after executive education? There's an interesting company, I think it's called Outlier, that is saying, all right, calculus hasn't been taught any differently for a century, yet it's a $9 billion business. Meaning, meaning, meaning that young people spend about $9 billion in tuition to take calculus, which has been taught the same way for 100 years. So let's find the best calculus teacher in the world. Let's do an amazing job with sort of master class-like production values, but with people who actually have domain expertise instead of people who vomit platitudes like, I don't know, Anna Wintour. And let's teach them calculus in a great way. And let's charge them 100 or 200 bucks

instead of 7,000, which is what it costs to take calculus at Brown or Dartmouth or the University of Southern California, USC. Fight on Trojans and keep ripping people off. Anyways, anyways, they could debundle certain core classes. They could debundle executive education. They could debundle micro-certification. Are universities, the newspapers of today, could they begin to get unbundled and thereby release, unleash the Kraken and take us back to where education is supposed to be

and be the greatest upward lubricant of mobility, income mobility and opportunity in the history of mankind. There is an enormous opportunity here in terms of micro-certification busting out of this, this weird trope or dictum that you have to have a college degree to have access to a better life. This is so exciting. Well done, Google.

Let's see a lot more innovation. Let's see Apple take over one of these abandoned campuses of which there's going to be about three or four hundred over the next five years. Start with software instead of accreditation, which is nothing but a guild. Start with technology instead of the classroom. Start with the kids instead of the administrators and get rid of the administrative bloat. And let's see if we can return to this opportunity that higher education has afforded so many of us, so many of us. Let's fall back in love with the unremarkables. The test of our society isn't what we do or the opportunities we give them remarkable. It's the test of our society and higher education is what we offer, the unremarkables.

Let's go back. Let's give the unremarkables remarkable opportunities. Let's salute Google. Let's invite Amazon, Apple, Facebook, Salesforce, which I think could do an incredible job here, some private funding. And let's start with the kids. Let's start with technology.

Let's break the wheel of the caste system here. This is so exciting. So exciting. I can't help myself. I can't help myself. I'm excited. We'll be right back after this break with our conversation with Arun Sundararajan. Support for this show comes from Constant Contact. You know what's not easy? Marketing. And when you're starting your small business, while you're so focused on the day-to-day, the personnel, and the finances, marketing is the last thing on

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start your free trial today. Go to constantcontact.ca for your free trial. Constantcontact.ca. Welcome back. Here's our conversation with Arun Sundararajan, a professor of entrepreneurship and professor of technology operations and statistics at NYU Stern. I've known Professor Sundararajan for the better part of 20 years. He's a very thoughtful young man. He's sort of a, or was, or I guess is one of the young premier scholars in the field of the sharing economy, kind of owned the sharing economy for a while, and has consistently been sort of one of the favorite professors among students at Stern. Anyways, here's our conversation with Arun. Professor Sundararajan, where does this podcast find you? I'm sitting in my office at NYU in New York. Feels good to be back in my office. I never

thought I'd miss my office, but here we are. Here we are. So let's talk, let's bust right into it. I think of you as the world's premier scholar on the sharing economy. You wrote a book called Share. Oh, you're too kind, Scott. Go on. I know. Making you look good makes me look good. We're all members of the same brand here, the same community, the same tribe. Look, sharing economy, how have things changed since the pandemic? What's happened here? Broadly, I think we've started to realize that we're going to be relying a lot more on platforms in the foreseeable future. When the physical world channels got shut down,

a lot of stuff shifted to platforms. And so there was a dramatic increase in Uber Eats. There was a dramatic increase in DoorDash. There was sort of this shift to looking for ways to get to the stuff that we wanted without actually having to be there physically. On the other hand, demand for Uber itself, the ride share service dropped dramatically. Demand for Airbnb dropped dramatically. Although I think Airbnb is going to come back much stronger than the hotels over the next few years because travel is shifting in a way that is going to make people want greater control, greater trust, sort of smaller destinations.

So the sharing economy in a nutshell took a hit on some fronts, saw a big uptick on other fronts, but overall will come out stronger. So it feels like, okay, you have Uber making this gangster pivot to food delivery. I agree, Airbnb is going to come back stronger. Let's talk about gig workers and AB5, where California has said, you need to reclassify these contractors as workers. And Uber says, this will put us out of business. And they now have prop, I think is it prop 22, where they've said, we're going to create a new classification. Give us your sense. Do we need a new classification of workers? Well, no, we don't. Well, we certainly don't want AB5.

The problem is that all workers want a safety net. They want benefits. They want protections. They want a way to take a vacation. They want health insurance. They want funding for pensions. They want predictability in their income. They want funding for pensions. They want predictability in their income. They want workplace insurance.

But over the 20th century, we constructed the social safety net so that only one kind of worker, the full-time employee, was able to get these benefits easily funded. And so now we've got this broad spectrum of relationships between workers and institutions. You've got part-time contractors on Uber. You've got hosts on Airbnb. You've got sellers on Etsy. You've got delivery people working for DoorDash and Postmates and Uber Eats. And there isn't a funding mechanism to give them the benefits that they need. So the actual, the right solution would be to create this funding mechanism. But what California is doing is looking backwards and saying, well, we've got this funding mechanism for full-time employees. So let's try and stuff them in that full-time employee box.

And not surprisingly, Uber and Lyft and DoorDash and the others are really sort of pushing back. They've come up with their own proposal, which makes a lot of sense, which is for platforms to sort of share in the funding of the workers who work for them proportional to how much time they spend on the platforms. But this is where we are. So you're a favor of Prop 22. I'm in favor of Prop 22, largely because I see it as an important building block for the future. I may agree or disagree with some of the actual details or the actual funding levels, but creating something that funds benefits in a structured way for non-employment work, for people who are not full-time employees, I think is critical for the future economy.

Because it's not just going to be Uber drivers or DoorDash delivery people in 10 years. A significant fraction of the economy is going to have these non-employment work arrangements. I think this is going to be accelerated dramatically by COVID. We've sort of wiped the slate clean on employment in a number of different sectors. And so it's not just the platforms. When the companies start to reconstruct their workforces, they're probably going to do it in a way that relies less on employees and more on other arrangements. And so the country desperately needs some sort of system that allows people who are

not employees to get benefits without having to marry someone who is an employee, which seems to be the favored path today. And I think Proposition 22, if passed, will be a critical building block on which we can then start to develop things for other parts of the country and start to improve. And I always learn when I speak to you, let me give you what I would call, and I'm guilty of this, I immediately decide if something is red or blue. And if it feels reddish or it feels big tech-ish, I have a bias against it. My bias against Prop 22, and I might be reading or seeing ghosts or seeing dead people where there aren't any here, one, it basically outlaws, as far as I can understand it, unions, that it requires like a seven-eighths vote to unionize, meaning that unions just have been eliminated from these workforces should Prop 22 pass. It says that you, in fact, are guaranteed 120% of minimum wage, which they position as a feature, and it is, but only during the time there's a ride. And that struck me as tantamount to when at fast food restaurants, they were clocking people out when it wasn't busy,

that that doesn't really guarantee anyone dignity of work. It just says, while you're making us money, we'll ensure you're getting at least minimum wage, which I guess is some progress. And as evidence that this isn't for workers, it's for corporations, the no against Prop 22 has gotten, I think, $110,000 or no, $800,000 mostly from unions. And the yes on 22 has raised $111 million. I mean, my sense is this is just more, if Uber can't afford to guarantee some level of minimum wage or benefits, one, there's a bigger argument that government really needs to step in and provide some sort of healthcare because it's become such an economic strain on companies and people.

But is there an argument that if Uber can't afford to operate its business, making these people who work more than 20, 30, 40 hours a week employees, that just means that this business isn't viable. Isn't this, you don't worry that Prop 22 is just sort of cementing this caste system where there's an underclass of workers. You think it's a move in the right direction? I realize what a loaded question that is. Well, I do think it's a move in the right direction in part because it gives us a template for a broader safety net. I recognize some of the issues that you're raising and they're

valid issues. The reality of driving other people around for a living is that it's never been a tremendously lucrative profession. It's a great point. It's not as if the taxi drivers were rolling in wealth and then Uber came along and took that all away. If anything, they've expanded the market and perhaps expanded opportunities and made life better. If I compare the life of a hack in New York City who would rent a medallion for $130 for a 12-hour shift, and then have to drive continuously for those 12-hour shift to try and make up that $130 and then keep whatever they could earn over that. I mean, you know, Uber is certainly offering something better. I agree that, you know, the reality of how much money Uber drivers earn on average doesn't give them a very good life. And I don't have a solution to that. I don't think AB5 is going to be a solution to that either. Just sort

of making them full-time employees isn't suddenly going to magically solve things. But on the minimum wage issue, I am a strong proponent of having a floor on earnings. I've looked at all the arguments against minimum wage and none of them hold water. But the trouble with minimum wage for people who don't have one employer is that you can sometimes have unintended consequences. I mean, if you look at what's happening in New York, where we've got a minimum wage of sorts for Uber and Lyft drivers, it's designed in a way that will eventually favor Uber over Lyft, because it's based on how much time are you actually driving. So you sort of have to pay more per hour of driving. The platform has to pay more per minute of driving if you're driving less frequently.

And so that sort of overtime naturally ends up favoring the larger player. And it could have sort of unintended other consequences like leading to monopoly and therefore reducing driver bargaining power in the long run. And let's talk about, let's move away from AB5 and Prop 22. So when we think about the sharing economy, we immediately go to Uber and ride hailing and Airbnb and apartment sharing, or I don't even need to call that part-time rentals. What are the other sectors where you think the sharing economy is going to create tremendous value or disruption? Well, there are a few others in the longer term. I use the

term sharing economy very broadly for any way of organizing economic activity that uses a platform to connect to a crowd of suppliers. And so Uber and Airbnb certainly fit, but so does Etsy, so do a lot of other platform-based businesses. In the long, long term, I certainly see energy and healthcare moving in different ways to a platform-based model. At some point, we will have cheap enough batteries and widespread enough or low-cost enough solar panels to make viable the idea that like, you know, a few people in the neighborhood can redistribute power to others instead of feeding it back into the grid. And, you know, I think this won't emerge first in the United States,

where we've got a pretty reliable power system, it'll emerge in countries where like, you know, the grid is not quite as reliable as it is here. The sector that I'm watching most closely now is in fact food. As you pointed out, Uber was fortunate to have Travis with this unlimited allowance, delving into all these different businesses, Uber Eats, flying cars, autonomous vehicles, trucks, because when the pandemic hit, it certainly helped Uber that they had Uber Eats. But if you look at the restaurant sector in just the United States, it's almost a trillion dollar business. It's about half the size of the transportation sector. And only a tiny fraction is online right now. And I think a very big fraction is going to be going through Uber and

DoorDash and Postmates through Uber and Grubhub and the other players in the next five years. A lot of the supply is going to move away from restaurants that are small and have storefronts to a larger sort of bulk supply through cloud kitchens. And so in terms of like, you know, where is there a lot of corporate value that is going to be created and where are we going to see a platform really absorb a physical world industry? I think food is really where we're going to see a lot of action in the near term. Healthcare and energy are probably going to take a little bit longer. Do you think, I mean, if you had to guess, you follow Uber pretty closely.

Do you think, I mean, if you had to guess, you follow Uber pretty closely. Do you think Uber ends up, I mean, it looks like they've literally become a food delivery company. Can you see any other businesses that ride hailing with their infrastructure, with their automobiles, kind of this last mile? Do you think they'll get into last mile delivery? Do you think they'll get into freight? Where does ride hailing go next with this cheap capital and this huge infrastructure and software and this unbelievable labor force of, I think it's like 5 million people domestically? Yeah. And it's 5 million now and it's bound to grow over the recession. I mean, more and more people are going to be looking for ways to make ends meet as the economy recovers a lot slower than we expect. I think that Uber was very fortunate to have entered Eats and to have that be now 75% of its revenue. Yeah.

It's certainly a cousin of ride hailing, but in many ways, it's also sort of a fairly different business. The Uber Eats delivery guys and the Uber drivers have tended historically to be distinct groups. And so it's not as if like, you know, you're repurposing one labor force for another business. I think what's being repurposed is the logistics expertise, the data science that allows them to operate what is sort of a fairly complex business. This isn't the kind of technological expertise that is going to erect big barriers to entry in sort of a Microsoft, Facebook kind of way. But it's non-trivial, and it's certainly something that they could port over to last mile delivery. I don't think they're going to go there because Amazon has a huge presence there. And Amazon has as good or

better capabilities on a lot of these things that could be an advantage to Uber. Freight might be one direction in which they go. I mean, Travis Kalanick certainly wanted to go in that direction. But I think the long game for them really is to work on convincing investors that they can play the Jeff Bezos game of saying, well, we can be profitable if we want to, but we're going to lose money in order to grow our market share and expand our business. Because eventually, ride hailing starts to work really at population scale when you have fully autonomous vehicles. I mean, you and I know that that's not going to happen in the next two to five years, but Amazon took 20 years to get to where they are today, right? And for those 20 years,

they convinced investors that it was worth the investors while to allow Amazon to lose money as they expanded into more and more categories. And what Uber should have been doing and what I think Lyft should be doing is convincing their investors that, yes, we can be profitable in New York City if we want to, but allow us to expand into the suburbs, allow us to sort of grow our wallet share, because that's what's going to make us a trillion dollar company in the long run. And about 18 months ago, Elon Musk predicted there would be a million self-driving Teslas on the road, which I guess is technically, I don't know if that's considered the sharing economy. Do you think Tesla could be a player in ride hailing? Absolutely. I think that whoever gets to having society be comfortable with their cars being on

the road without a person behind the wheel is going to have a huge leg up on the others. So if Tesla gets there first, they'd partner with one of the platforms like Uber or Lyft, because Uber or Lyft sort of has the user know, they've worked out the maps and the logistics and the local regulations. Google could be a player if their cars get sort of like, you know, into self-driving mode or sort of like, you know, personal self-driving mode before Tesla's. But these are certainly two very viable players. And it's still very early days. I wouldn't be surprised if GM suddenly jumps into the fray and sort of demonstrates that they have leadership on some dimension of self-driving cars. And where Uber and Lyft are going to have the advantage at that point is if they have gotten like tens of millions of people to start to rely on them for transportation,

then they'll sort of plug out the cars that are driven and plug in the driverless cars, and they'll be able to capture some of the value that's being created. We have a tendency to always think about U.S. companies. We immediately go to Uber, Lyft, Airbnb. What are the most impressive companies in the sharing economy outside of the US? Certainly top of the list is Didi in China. They are probably the largest ride hailing company in the world. And their use of technology to solve problems that have come up in China with navigation, with traffic management, with, you know, they can't use surge pricing. And so they have to come up with some other way of balancing supply and demand have consistently impressed me over the last five years. And so

I would say that they are certainly top of the list. So your domain expertise is how digital technologies transform business, government, and civil society. Make some prediction. Bring us home with some predictions. Give us a prediction around the prospects of Uber, Airbnb, and just more broadly, the US economy. Well, let's start with Airbnb. That's the easy one. I see Airbnb as dominating the travel sector in the years to come. There's a wide variety of reasons why the Airbnb model is going to work better in a post-pandemic era. We have to rebuild trust with travelers. Airbnb knows how to do that. The hotels don't. We have to adapt to the fact that people are going to be traveling to smaller destinations

and not big cities. Airbnb is better suited for that. We have to wrap our heads around lower occupancy. Airbnb's model works better at lower occupancy. Hotels are capital intensive. And so Airbnb will be far and away the largest company in its sector in five years, probably bigger than the three or four hotel chains behind it combined. With Uber and-hundred billion dollar company in five years if they can convince the market that growth is more important than short-term earnings. The U.S. economy as a whole, I think the recovery from the pandemic is going to be slower than we expect. And I don't expect us to get back up to 2019 GDP for the next

three years at least. And if you had to guess where the markets are in two or three years, every company you've talked about has skyrocketed in value. Actually, it's not true. Uber is sort of flat. Airbnb has gone up and the private market's gone down and then come back up. Where do you think you follow the markets? You're a private market investor. What do you make of this market? The tech VC market has certainly, it certainly surprised me at first because when the pandemic hit, I knew a lot of startups who were worried that they weren't going to be raised money. I think the investors have realized that the share of the economy that is going to be digital

is going to suddenly be a lot bigger. And so making investments in the companies that are going to control the digital channels for all these new things makes sense because there's only so much of the economy that Apple and Google and Facebook and Amazon and Microsoft can own. Arun Sundararajan is the Harold Price Professor of Entrepreneurship and Professor of Technology Operations and Statistics at NYU Stern School of Business. He's also the author of The Sharing Economy, The End of Employment, and The Rise of Crowd-Based Capitalism. He joins us from his office on NYU Stern's campus. Brother,

I will see you. Actually, I will not see you back on campus. I'm not going back on campus until there's a vaccine, but I will be thinking of you and we will get together for either a distance drink or once the vaccine is out. Absolutely. Look forward to it, Scott. Thanks, Professor.

Bye now. We'll be right back. 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. If you'd like to submit a question, please email a voice recording to officehours at section4.com. Question number one. Hi, Professor. My name is Blake, and I am from Irvine, California.

I have a question regarding a prediction you made on Netflix in 2017. You state that Netflix could be worth $300 billion and become the operating system for joy, much like Amazon is the operating system for consumption. You have stated before that Netflix needs control over their distribution and faces an uphill battle against all four horsemen as they all compete in some way for our attention on a screen. Can you elaborate on how Netflix could accomplish this, such as buying Roku or creating something themselves? How do you balance your 2017 prediction of Netflix becoming a part of the Big Four against your view that they need to have control over their distribution, as well as their flywheel, in order to be a titan? Thanks, Blake from Irvine. A thoughtful question. I picked, so once a year I used to call the fourth

horseman, I would pick a stock that I thought was going to accelerate. And I did it while I was still at Gartner. And then they, amongst other things, told me I couldn't make stock picks. But the three stocks I picked for 17, 18, and 19, I think were Netflix, then Spotify, then Disney. And Netflix, I think it's tripled or quadrupled since then. Disney went up, then came back down, and Spotify went sideways, and then finally doubled. So we've done okay there. So Netflix, I think it is difficult in vertical distribution. It is difficult to find a company that's over $200 or $300 billion in market cap. And right now, you have Netflix at $230 billion in market valuation that doesn't control its distribution. And when you don't control your distribution, you are vulnerable to Apple deciding that your app needs to pay them, or if you want to be on their rails and you want access to

iOS or Android, and right now the phone only has two rails, it has iOS and Android, that you have to go through the duopoly of Apple and Google and they extract a toll. As a matter of fact, Apple wins across every streaming video platform. Every streaming video platform, whether it's Netflix, Disney+, Apple TV+, Hulu, pays between 2% and 12% of their total revenues to Apple, who takes 30% of the fee, I think, the first year. And then after that, I forget what it is, 10% or 15%. But they basically own the rails. And also over time, it's very difficult to maintain a leadership position or build a ton of value when you don't control the end distribution.

And if you think about all the companies that do have created, gotten above a trillion dollars, whether it's Amazon, whether it's Google, whether it's Apple, they control their distribution. And primarily the greatest unlock probably in business history of shareholder value, some would argue it's prime. I would argue that it was a direct to consumer distribution play where Apple decided to open 550 temples to the brand. So not only do they control the rails by having whatever it is, a billion of the wealthiest people on their device, the iPhone, they also control the rails in the direct-to-consumer distribution with Apple.com and their 550 stores. Okay, Netflix. Netflix, I believe believe is vulnerable because if they don't own the end

product, if they have to go through it, negotiate through a cable company, through Amazon Prime Video, through iOS or Android, I think they're vulnerable. And with a $230 billion market cap, they have the firepower to create their own distribution. It could be Roku. It could be buying, I don't know. I think Netflix. So let me back up. What should they do? Netflix should acquire, and we talked about this, they should acquire Spotify and then they should acquire Sonos and start building direct distribution any way they can. There's probably a variety of ways they can do it. But at this point, Netflix is only Achilles heel, only Achilles heel. They have the content, they have the culture, they have the brand,

they have the direct to consumer relationship in terms of payments. Their only vulnerability right now is someone gets in between them and the consumer with the distribution and starts exacting a toll or getting in the way. This is traditionally, if you think about this, the tension between a manufacturer's brand, i.e. P&G, and distribution, Walmart or Kroger's or what have you. And there's always a tension. There's always a tension between ABC Studios or who creates and produces TV and then the distribution, the cable companies. And people will argue, well, content is king and then distribution is king and it goes back and forth. But I think you would probably argue the distribution in the world of tech and big

game hunting, well, you don't even need to choose. These guys do all of it. These guys, whether it's Apple, Amazon, Facebook, or Google, they produce, distribute, and support their own content. Anyways, long-winded way of saying that I think that Netflix has the firepower to start thinking about establishing direct-to-consumer channels on their own. Thank you, Blake from Irvine. Next question.

Hey, Prof G. This is Judy from San Francisco. Big fan of yours since your L2 days from my e-commerce and marketing background. My question is regarding the debate whether brand can be a moat. When fellow founders and I discuss sometimes pretty tough conversations with investors, those that are especially obsessed with buzzy investment thesis around AI or crypto always want the complex tech and will throw in your face that brand isn't defensible or it's not a moat. And we simply don't agree given the successes of Warby Parker or other DTC brands that have great products but definitely do build something really special around a brand. So we just don't agree that brand isn't defensible. What are your thoughts on this, especially for founders not looking to

invent new tech, but making tech actually speak to valuable and targeted demos? Thanks so much for the generous words, Judy. So the brand era is over. And Professor of Brand Strategy, I've made a really nice living kind of espousing the following, that product has now been commoditized or quality has been commoditized, that all cars are largely the same, all beers have kind of the same taste. It is very easy to reverse engineer any product feature and that the only sustainable advantage is brand, meaning the intangible associations you can wrap around a set of products or services which are easily replicated, very difficult to maintain any competitive advantage around, that a long-term association

around America, youth, European elegance, whatever it might be, maternal instincts, choosing moms, choose Jif, here's a 30 cent. Here's a 16 ounce glass container of peanut butter paste that costs 30 cents to produce. But if we convince you that herding around this brand, you're a better mother. Why? Because choosing moms, choose Jif, that we can print money. And if you look at the icons of yesteryear, whether it's General Motors, whether it's P&G, whether it's WPP, they were front and center of the brand age, taking mediocre products and wrapping around these intangibles called brand associations. And the primary weapons for brand associations were the tools of the Valerian steel.

The Valerian steel was this incredibly cheap and efficient vehicle called broadcast advertising. Then what happened over time, two things really happened. Those vehicles for cementing or creating these intangible associations got worse, but more expensive. So the number of people watching the Academy Awards got cut by 80%, but the price to advertise on the Academy Awards went up fivefold, meaning the brand building had just become almost uneconomical. And then entered digital, which gave us the opportunity to radically innovate around product. No longer going to the card catalog, no longer going to the yellow pages, no longer going to the Encyclopedia Britannica or your mom or dad, but typing into Google any question in the world. That is a 10x

better product. Your ability to get information on health, your ability to communicate with people, your ability to consume media on your own terms. Digital has literally unlocked this next wave of product innovation just about the time we thought we were no longer able to create product differentiation. As a result, we had branding becoming more expensive and less effective, and we had product differentiation entering a new age. And what's happened? People such as myself that have been espousing this brand era, the sun has passed midday on our wrap.

And that is brand is still important, but the way you produce or the way you cement brand is through product differentiation, better distribution, better customer support, more unique means of developing awareness. And the traditional icons of yesteryear want to hold on to the brand era. What do almost all of these companies have in common that have built tens, if not hundreds of billions of dollars in value? What do they have in common? One of the things at least, they hardly ever advertise. They hardly ever advertise, at least not through traditional means. So brand ways is an amazing brand, has nothing to do with their imagery, their brand identity, their logo, or their advertising,

but it is literally a 10X better product. In sum, when someone talks about brand, ask them, what do they mean by that? And it's usually someone trying to hold on to the days of the 90s when people, cool people wearing black berets and smoking clothes could show up and talk a big game about intangible associations, charge 12% of all media spend and have absolutely or almost no definable metrics to define what success looks like. The brand era is over. Don Draper has been drawn and quartered. Thanks for the question, Judy. Next question. Hey, Scott.

Ross coming to you here from downtown Memphis, Tennessee. Love the show. Loved the television show and everything that you do. Keep it up. My question is around teaching versus doing. I've been asked to adjunct in the spring while I run two businesses. Jim Collins once said, you have to choose between teaching and doing. You seem to have been in both worlds. Do you feel like you're able to balance out business and teaching, or is

it something you have to choose one or the other? Hey, Ross from Memphis. Now, you can absolutely teach or be an adjunct, and the industrial education process has this system where they bring in adjuncts, lecturers, clinicals who carry more water and get paid nothing. Such a tenured faculty can consistently reduce their accountability and increase their compensation. But there is psychic reward. I started as an adjunct, and at different times during my tenure, I've been an adjunct and a clinical and a lecturer based on I don't know, whoever was the faculty chair or whatever. Don't ask questions, just accept whatever title they give you. I think it's wonderful, but ask yourself, are you doing it

because you're really interested in teaching? Are you doing it because you want to be the campus environment? Are you doing it because it'll be an interesting challenge for you? If you're doing it just because you think you're fucking fascinating and you want to tell war stories, don't do it because it's a lot of work. What I hate, what I hate are these friends of classes where someone who's very successful comes in, spends the first two classes talking about how awesome they are, and then brings in all the rich and famous friends. That's not education. That's a luncheon series. And in many universities, we still do that and charge the kids for it, and it's total bullshit. It is real work. It is real work to do this well and decide if you really love teaching and you want to be in it long-term or if it's a vanity project. And I know that sounds a little

bit, I don't know, harsh, but I find 50% of adjuncts didn't really want to teach. They were just under the impression that their shit in their life and their careers was fascinating, and it's not. But you can absolutely do it while you're working. I've always worked while I was teaching. I've taught sometimes five classes and 700 students in a given year, and other times I've scaled back to one class and 160 students. I'm doing one class kicking off in three weeks this fall, 280 students. I find teaching exceptionally rewarding. It's a fantastic platform in general. And while I criticize them a lot, my colleagues are an incredibly impressive group of people.

I've made really close friendships and it's just nice and inspiring to be around young people trying to better themselves. So two questions. Why are you doing it? Why are you doing it? I forget the second question. So I'll just say, go on, do it, do it, Professor Ross from Memphis.

Please keep sending in your questions. If you'd like to submit a question, please email a voice recording to officehours at section4.com. Algebra of happiness. My father just went through his fourth divorce. That's right. At the age of 89, he decided he'd had enough and has shed the last vestige of commitment that I think he will ever have in his life. Him and his wife each have been divorced four times. I think that adds up to a tremendous lack of character, but that's not what this algebra of happiness is about. When you are the son of his second marriage and there's more to come, you ultimately end up with different sort of semi family in your life or better known as

stepmothers. And my stepmother, Linda, is staying with us in Nantucket, and I refer to her as Linda, my evil stepmother. So when my dad began his third marriage in the midst of his second marriage to my mom, it obviously created a lot of distress and agita in my household. Ultimately, my parents split. It was a difficult time, especially, I think, for my mom, a difficult time for me, and less difficult for my father. I think in the 70s, it was just easier for a guy to recover from divorce than a woman. Both my parents left school at the age of about 13. My father, a charming and handsome, my mother, smart and hardworking. And so that meant my mother could be a travel agent or a secretary or a flight attendant. My father went on to be an

executive at ITT and we just had our lives just sort of diverge. But anyways, beyond the sob story, I was set up to really hate Linda. My mom used to refer to Linda as that bitch. And so I was really set and ready and teed up to not like my dad's third wife, my stepmother, Linda. But here's the problem. Linda's wonderful. And she was wonderful to me. Linda had been told at a young age that she couldn't have kids. So when a nine-year-old in corduroys and an Ocean Pacific shirt missing his two front teeth showed up, she was an entirely different ecosystem around the relationship between parents and children in the 70s than I think most parents, most American parents, the approach they have with kids. So anyways, Linda used to bake these things called Buckeyes, these cookies that were peanut butter wrapped in chocolate.

And because I'd be away for two weeks, she would wrap them individually in foil and drop them in my house, literally drive 45 minutes and drop them for me. She would take me to Toys R Us and had just this incredible sense for what a little boy wanted. And when I walked up the aisle and was too embarrassed to say I wanted a remote control plane because they cost $18, she saw or sensed that my eyes would go to them and would stop me and say, would you want a remote control plane? Every kid deserves and needs to be spoiled by someone. And the first

person that spoils you, you will kind of love the rest of your life. And that for me was Linda. And there are a lot of step-parents in my friend's lives. My closest friend, Adam, his stepfather, Paul, was this tall, handsome figure that never said a word who would mostly, my only interaction with him growing up was he would remind me when it was time for me to go home. But he stepped in and was a wonderful role model for Adam. sort of slipped into the role of father for his two, I don't want to call them two new daughters, technically his stepchildren. But I remember being out with Bobby and having beers and him saying he needed to get home because he and his 14-year-old daughter loved watching this reality TV show about fishing called Big Tuna and they loved bonding over it. And I think about not only how wonderful it is to be a good step-parent, but how unusual it is, quite frankly, because I can't stand my own kids and they look, smell, and feel like me. I can't imagine how much

I would hate other kids, or actually, I can't imagine how much I hate them. I'm pretty much not interested in anyone else's kids but my own, and I realize how terrible that sounds. But people who show an irrational passion, who step into the shoes of a parent and agree to love irrationally and show an irrational concern for the well-being of someone else's biological children, are a key component to what makes the world go round. It's the Lindas, it's the Bobbies, it's the Pauls of this world that demonstrate the grace that not only make the parenting relationship more giving, but make it more generous. Because to slip into that role and demonstrate that sort of generosity and to be that loving is really exceptional.

So this week, we're hosting Linda, my dad's third wife, and my not-so-evil stepmother. Our producers are Caroline 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 Prop G Show from Section 4 in the Westwood One Podcast Network. Our next story is not nearly as exciting. Amazon's entered the wearables market with its new health product, Halo, an app and fitness band that uses AI-powered health tools.

By the way, what is an AI-powered? It's literally going to be getting your coffee at some point. It's going to be AI-powered. I still don't know what that means. But anyways, it has AI-powered health tools to track things, including your body fat percentage and tone of voice. Well, what's my tone? I just, I'm not entirely sure what that means. That's a little creepy. And it's a young man. Don't use that tone with me, said your Amazon halo.