This week’s podcast is about how digital impacts society, business, news and politics. And how centralized planning might be the best solution in a digital world.
- Valuation Like Warren Buffett in 1 Slide (Asia Tech Strategy – Daily Lesson / Update)
- An Intro to Digital Valuation (Asia Tech Strategy – Daily Lesson / Update)
- Why DCF Sucks for Digital Valuation. (Asia Tech Strategy – Podcast 101)
From the Concept Library, concepts for this article are:
- Coordination and Transaction Costs
- Ecosystems vs. Platforms vs. Networks
- Theory of the Firm
From the Company Library, companies for this article are:
Welcome, welcome everybody. My name is Jeff Towson and this is the Tech Strategy and the topic for today info dictators or Alternatively why Mark Zuckerberg will choose the next president and this is kind of I guess an update or a follow-up to a podcast I did really two years ago called the podcast 11 Which was titled why digital is disrupting business politics media and culture and that was I mean, there’s some important concepts in here which will be sort of in the concept library, but it’s a bit more higher level discussion than I normally do. But there were a couple ideas I wanted to go through and I did want to kind of update that on where I think things are, which I would argue is demonstrably worse in most respects. So that’s a little bit pessimistic to start. Anyways, but I’ll go through that. Okay, so let’s see for subscribers, I’m gonna send you an update. in the next day or so. With a company I think you should look at immediately. Which is, you know, I don’t comment on investment because there’s a lot that goes into that price portfolio objective style, things like that. I talk about company quality. Which companies I think are strongly defended to have good unit economics that have good potential growth, big total addressable market, things like that. within that sort of assessment, this is one of the highest quality companies I’ve come across in a long time. So I won’t say it here, that’s for subscribers only, but I’m gonna send that in the next day. Take a look at it. Every now and then I sort of point the finger at something and I’m always sort of pleased to hear when someone calls me a year later and says, oh, I made a lot of money on that by the way, which makes me feel good. Now I’m not saying buy these, this is not investment recommendation. I’m just saying look at the company. because the quality is really sort of like five out of five. Anyways, that doesn’t mean it’s a good investment, but good company. Okay, so that’s going out to subscribers in the next day. Those of you who aren’t subscribers, feel free to sign up over gifthousand.com. There’s a free 30 day trial, try it out, see what you think. And my standard disclaimer, nothing in this podcast or in my writing or website is investment advice. The numbers and information by me and any guests may be incorrect. views opinions may be no longer relevant or accurate. Overall investing is risky. This is not investment advice. Do your own research. And with that let’s get into the top. Now as always there’s always a couple key concepts I kind of like to point to. They’re all listed under the concept library. I’m not really adding too many more to this. There’s you know there’s I don’t know how many are on the library now probably 40 or 50. I think that’s most everything. The new stuff tends to be subtle, tends to be sub points, things like that. But kind of the main ideas are all there. So the concepts for today, there’s really two, we could say three, but let’s say two main ones. Number one would be ecosystems and networks. We talk a lot about platform business models, this word ecosystem as well, which is a bit different than the idea of a network. Generally the distinction I make is a network which can be connected entities, whether it’s people, businesses, railroad stops, bus stops, whatever, that to me is an asset. Not unlike how a factory would be an asset. It’s not a business. It’s an asset within a business. Ecosystems, platform business models, those are the businesses that are built with these assets. So the business might be making, I don’t know, toys, but then the factory would be one asset. Same thing, ecosystems… platforms, those are business models, generally speaking, network is an asset. We’ll sort of talk about how that matters in information, culture, society, politics, and other places, that’s sort of one idea. The second concept for today is coordination and transaction costs. That’s often referred to as one or the other, you’ll hear about transaction costs, you’ll hear about coordination costs. This is all Ronald Coase, Nobel laureate, I’ll go through some of that. It’s really the same thing, so I just kind of put them together. Coordination and transaction cost, that’s the other idea. It’s in the concept library. One other I’ll touch on is theory of the firm, which is kind of vague. So I don’t think it’s really a concept, and I’m going to point to that a little bit. So those are the three, the two main concepts for today. They’re listed in the show notes. They’re in the concept library. Now. The previous talk I gave, Podcast 11, it started out with the idea that software is eating the world, which is the famous Mark Andreessen, quote, founder of Netscape, later on founder of Andreessen Horwitz, arguably the best, or let’s say, top three venture capital firms in the world. Really smart guy. He wrote an article. just about 10 years ago now, which you can find online called Software is Eating the World. It’s even in the banner of his venture capital firm. Like if you go to Andreessen Horowitz, it’ll say Software is Eating the World right on the home page. And there was the idea that software is just different, which has now grown to be digital. So software is a type of digital. Data technology, AI, these things are all made of ones and zeros, bits and bytes. So their economics are very, very different. Software is the part of that that we’re most familiar, but there’s others. The idea that this is just creeping into business after business, part of society after part of society, and when it does it just transforms it. You know, e-commerce is very different than physical retail. It just is. Online media, TikTok, YouTube, streaming, podcasts, short video, all of that. dramatically different than median entertainment used to be 25 years ago. That’s all software just basically eating into that sector. And we’re seeing it in healthcare education. It’s a bit slower because of the regulatory environment. Financial services is go, go, go. Industrial Internet and so on and so on and so on. Software is eating the world. And there’s a couple high level views of this. These are not my views. These are just ones I’ve noticed along the way. The one I like is from a book called The Second Machine Age, which is, I’m going to mispronounce his name, Eric Brinjolfsson and Andrew McCaffey, fairly well-known digital thinkers. They wrote a book called The Second Machine Age, which basically argues that the first And that was the point at which human beings, for really the first time, were never really limited by the physical limits of our bodies. Which had always been a huge limitation on what human beings could do. We were limited in speed, we were limited in the ability to move, we were limited in the ability to exert power in the world. So there might be some cattle, there might be some horses, but human beings in the 1700s couldn’t make steel. They couldn’t make iron really only in small amounts. They couldn’t make skyscrapers. They certainly couldn’t make airplanes. They couldn’t fly through space. Our bodies can’t take that. They couldn’t go to the bottom of the ocean. Our bodies can’t take that. Most of human society was fundamentally limited by what our bodies were capable of doing in the physical world. Then you enter the steam engine, boil some water, create steam. the piston expands, suddenly you can start to bend metal for the first time. Suddenly you can start to do skyscrapers and you can make locomotives and you can make cars and you can make… I mean, pretty much if you look around whatever room you’re sitting in right now, there is probably almost nothing in that room that you could make yourself. You couldn’t bend plastic, you couldn’t make plastic, you might be able to chop wood, so if there’s some wooden furniture you maybe could do that. Anything with metal, with screws, very, very difficult. And certainly if you’re above like the first or second floor, forget it, can’t do that. If you’re going to go down the street, you’re walking or you’re running or maybe you’re on a horse, but that’s as fast as you can move. Most of the modern world is far beyond what we are able to do ourselves anymore. And that’s what machines let us do. So they call that the first machine age. The first point. when we were sort of liberated from this limitation. And it was by and large a physical limitation. OK, so the point then is the second machine age is basically the same story, but we are now being sort of liberated from the limitations of our brains. Because our brains are pretty impressive. Physical bodies are very impressive, but they have limits. Like human beings can walk forever. Like the average human being in a lifetime walks around the earth like seven times. We are incredibly efficient at walking. And even running, we’re the best runners on the planet, minus like some Siberian husky. There’s like one exception. But apart from that, we can run further than any being on the planet, any creature. I mean, we’re very, very good, but we do have hard limits. Same with your brain. Your brain is unbelievable. can remember things, can learn things, can design things, all of that, but there are some pretty stunning hard limits. Our memories are not very good. You tell people stuff, they forget it. You don’t use something, you forget it. And even the things we do remember are fairly fuzzy and vague. Nothing like a hard drive. A hard drive remembers everything perfectly forever. Never fades. Calculation. We’re pretty good at calculation. We can pull out a pen and a paper and do pretty well. Nothing like a computer or a CPU can calculate. It can do the same calculations over and over, forever, to the 6,000th decimal point and never be wrong. We can’t do anything like that. We can’t do that type of precision. We can’t do it at that speed. And we can’t do it 24-7. Computers never get tired. They can keep calculating all day long. We can’t do anything like that And probably maybe our biggest limitation is our brains are not connected to each other And if I teach I don’t know someone Spanish, that’s good But then if you want to teach someone else you have to get another teacher You have to have another class classes are very inefficient and every generation has to be taught the same stuff over and over and over because we can’t pass things down. We can’t connect. If I know how to speak Spanish, that doesn’t mean you know how to speak Spanish. Computers, that’s how they work. If one computer can drive a car, they can all drive a car. If one computer can learn chess, all the other similar computers can play just as well. And you never have to retrain a lot of this stuff. They just know it forever. So they can learn in a way that we simply can’t. So there’s a lot of tremendous… limitations that are being overcome right now. And so the idea is in 20 or 30 years, we will be doing things that would be incomprehensible in terms of cognition, complexity of problems, things like that, to what we see now, just like you couldn’t show airplanes and cars to people as in 1800. They couldn’t understand that that’s even possible. It’s about the same thing. So that’s kind of one. high-level explanation for what’s going on, they call it the second machine age. I won’t go through these. I did them in podcast 11. The other one I talked about was the Cambrian explosion. I forget where I read that. I read that in a book somewhere. But anyways, I won’t go through that one. The one I want to get to, which relates to info dictators, comes from a… I think this is from Modern Monopolies. There’s a book called Modern Monopolies, Alex And this is basically their argument. And I think it’s right spot on. And the basic idea, this is my words, not theirs, that this idea of free markets versus dictatorships, central planning may not be as clear cut as we think it is. And most people would say, look, marketplaces are more efficient, more effective, private enterprise. is generally better than central planning, i.e. the Soviet Union 1945. That may not be true. Or it may have been true based on the technology of the last 50 years. It may not be true going forward. And here’s basically the argument, which is about a 50 page quick, I’m sorry, 50 history quick rundown. You go back 1930s, 1940s, Soviet Union versus the US, two different models for how to organize an economy, central planning versus marketplace. US is marketplace, more or less. Soviet Union definitely central planning. Enter Frederick Hayek, The Road to Serfdom, famous book. He basically writes that the central planning system will never work. The argument, which turns out, I think, to be basically true, although I’m kind of an amateur at all this stuff. So if you’re an economist listening to this, you’re probably gritting your teeth. But my impression was his argument was central planning requires perfect information, which is effectively impossible for a couple of reasons. One, information isn’t really centrally located. It’s located within people and entities and businesses and all of that. And it’s not just within the entities, but it’s in the interactions between entities. It’s, I want to buy this stereo. That one store is willing to sell it for $50. I’m only willing to pay 40. I talk with the store. We work out 45. That whole interaction is about information sharing. It is about that sort of coordinated knowledge, that interaction, that transaction. And so the Hayek argument is we basically live in a information world that’s fragmented, decentralized, and is constantly changing. And it’s about the interactions between things. So the argument is like perfect information is basically local information. So centralized coordination of large scale economic activity is basically impossible. You need a mechanism to aggregate and react to local knowledge of all the participants in real time. And that’s more or less what we call pricing. That’s kind of what a price is. It’s sort of a mechanism to pull together local knowledge and let participants react in real time. Here’s the price. So everybody in an ecosystem and an economy is aggregating and reacting to their relevant local knowledge all the time. OK. and the US does well and Soviet Union doesn’t and you know there’s more to it obviously but that’s one simplistic look at it okay so if that’s the story then you get to the theory of the firm Ronald Coase Nobel laureate who people who study platform business models are always talking about him he asks a very good question again which i’m paraphrasing badly okay if markets are efficient and if economic activity, then why do firms exist? Why do we have these entities we call companies, firms, basically acting like little dictatorships, which is basically that’s how companies function. There’s a boss, boss tells everyone what to do. And those companies deploy resources towards whatever activity they’re doing. So it’s when you look at marketplaces, it doesn’t really mostly a marketplace with lots of little Soviet unions all throughout it doing various things and then coordinating. So the question is, why do firms exist? And his answer, which got him the Nobel Prize was, there are coordination costs involved in any sort of market activity. You could call it transaction cost, you could call it coordination cost. If you’re going to buy a stereo, there’s a certain coordination cost involved in that. You have to find the party, that’s a searching cost. You have to negotiate the price. That’s a cost in terms of labor activity, things like that. You have to worry about getting sort of defrauded. So there’s a sort of trust cost. There’s usually an asymmetry of information where one party knows more than the other. There’s lots of costs in actually doing a transaction. And his argument was companies come into existence when basically to minimize transaction costs or to minimize information deficiencies. When the market has very low coordination costs like me going onto the street to buy a banana, there’s no reason for a firm to do that. I can do it myself. I can walk up to the seller. I can buy the banana. Very low coordination costs. Easy to do. when coordination costs are high, that’s when that activity moves out of the marketplace and into a company. That would be kind of the difference. If it’s too complicated and or too costly to find a worker to come in and fix your bathtub or to come in and do security for your company on a contract basis through the marketplace, then you might hire them as an employee. So you bring them inside the firm. So you can do that for buying products, you can do it for labor, you can do it for services, but whether something exists out in the marketplace or whether you’ve brought it inside a company has to do with the coordination costs. If the marketplace coordination cost is too high, you bring it into a company. And basically his answer was a company serves to internalize activities where it is more efficient to do it internally than through a market. So a company is basically a small centrally planned economy within a larger market system. And that was his answer. And out of this, you know, comes the idea of platforms. Well, let me finish up this a little bit. Okay, the next, I’ll come back to that one quickly. The next idea that this tees up is economies of scale, Bruce Henderson, Boston Consulting Group. This is when you start to concentrate activities within a firm. the bigger your company gets, you start to get certain advantages of scale. Usually these are cost advantages. They can be learning advantages and other things and therefore larger companies, Walmart does better at retail than a two person shop. So you concentrate the activities, you get some scale. That’s kind of why companies become bigger and bigger up to a point at which the internal coordination costs become larger and larger because it’s a hundred, there’s a hundred thousand person company. and then smaller companies do better. So that scale benefit doesn’t go on forever. Okay, this is then tease up the idea of platforms and networks, because everything I just told you was kind of a story of the industrial age. I mean, it’s about physical products, physical services, moving things around in boxes and trucks and warehouses and stores and consultants and accountants and lawyers and all of that. When you start to move into a more digital world. connectedness of things becomes much more important. We start talking a lot more about networks as the key asset and not a factory as the key asset that you would build your business upon. So you start to build networks of people. You start to build networks of railroads, of distribution, of social networks, of marketplaces, of professional networks, lots and lots of networks. And then you build platforms on top of these networks. uh… and it just turns out that digital because it’s made of bits and bytes is a very good at connecting in coordinating between parties because it doesn’t cost anything you can send a note on facebook to your friend doesn’t cost anything uh… you can order something online from uh… merchant halfway across town they may have to ship the good but placing the order didn’t cost anything And that’s kind of where we get to this idea of platforms creating, let’s call them little info dictators. If you start to coordinate activity through a platform, let’s say Amazon in the US, Alibaba in China, Facebook, WhatsApp. we really start to see a centralized planner that can actually effectively coordinate all the activity of a larger economy in a way that the Soviet Union never could. Most all information that people are sharing is going through Facebook, Google, and four or five other companies, not 90% but the majority. And those companies which are you know, they’re companies, so they’re run like little dictatorships. They are very effectively coordinating all that communication, all those marketplace transactions, Amazon, um, all those payment transactions and they’re getting real good at it. And it turns out not only is it pretty efficient and effective, it may actually be getting more effective the more they dominate. And that that’s basically a network effect. It’s an increasing returns to scale. The more people that are connected to Facebook, in theory, the better Facebook is. So not only are they not falling apart as they become effectively monopolies, which is why this book I’m reading this from is called Modern Monopolies, they’re actually becoming more and more effective as centralized planning agents for communication across, in the case of Facebook. billion people. And that raises a question of maybe this whole idea that many of us, including myself, was comfortable with, which is like central planning is bad, free markets are good. That may not be true in a lot of the digital world. And that conclusion may have been more of reflection of the technology of high X time as opposed to now. It may be that that coordinates all of this, you can get perfect knowledge in software that you could never get with people reading reports in 1940. So I guess that’s the little bit of the downer part of this talk that that may well be the case. It may well be the case. Now what you’ll hear now, and I think in the last two years what we have seen is certain taken control of the information flows within many, many countries and societies. And it turns out who controls the information flows pretty much can control everything else. Now I wrote an article, it must have been a year ago, called the arms race to control or the arms race to shape information flows. And it was really this idea that This isn’t really my thinking. This is Allen Zhang, the creator of WeChat. He does these cool talks every year that can go on forever, like literally four hours, usually in January. And one of his talks really got my attention. And the basic idea was that people are the products of the information they consume. And for a long time… didn’t really think about that because it didn’t matter because the information you consumed in life was living in your town. You walk around, you see signs, your family, you talk with your family, your parents teach you things, your community. Those are all information flows. Maybe you would go to your church. That would be a type of sort of information flow that’s not just like giving you information, but it’s giving you values. It’s giving you a sense of behavior that is considered appropriate. So within these information flows, sometimes it’s just passive. You’re walking around absorbing the world around you. Other times it’s very much shaped like a church or a synagogue or a mosque would actively sort of shape some information to present to people. This is how you should live your life. These are the rules. This is what you think about your family. Your parents would do the same thing. They try and raise you in a certain way, promote certain values. and certain behaviors and not others. Your school, your local school, your teacher would have a key role. The local newspaper you might read would really give you a sense of like what was happening in the world was based on what was in the newspaper. So in each of those sort of information flows that you would be absorbing as a regular person in a regular town. There was always someone who was shaping the information. There was the newspaper editor who would tell you, this is the stories that happened today that mattered. Oh, and by the way, there’s a thousand other stories that you don’t even know about because I’m not mentioning them. Those aren’t news. Your school teacher might shape the idea of this is what your country’s history is. Your parents might shape you in that sense. Your local rabbi or priest would be someone who shapes these information flows. And that was kind of… That kind of creates who you are to a large degree. It creates how you view what is happening in the world that matters and what doesn’t, what values. So we’ve always sort of been exposed to these information flows. And there’s always been people who have shaped them. And then we kind of trust them. There’s a lot of trust in that relationship. Well, what’s happened is one, people started going international. So suddenly, your experiences. the information you possess was no longer just from your hometown, which is how it had always been. Suddenly, people are going around the world. So that was a change. But what has really happened and what Alan Zhang was talking about was the information people now consume through their smartphone dwarfs the information they consume in the real world. So all of that that I just mentioned, your beliefs, what happened in the news today, what you think is important, what you even know about, what you think happened in history and what didn’t, that’s all being determined more by the screen of your smartphone than you walking around your local community. Now it still happens in the local community, but not nearly as much. And it’s really kind of what he would call a sea change in the human experience. And so this kind of raises the question. Well, who controls those flows? I know who’s at the local church. I know who’s the local newspaper editor. I know who’s the TV broadcaster who determines what news stories were on the six o’clock news. I know my parents, I know my school teacher, but who’s controlling the information that’s coming out of smartphone screens that is shaping people in a fairly dramatic way? And it turns out the answer to that question is pretty worrisome. Because in a lot of cases, the answer is nobody. It’s algorithms. And what are those algorithms showing you? Well, now keep in mind, there’s no way around this. Well, let me finish that thought. The algorithm could be commercially focused. We see that it wants to sell you cars. It wants to sell you sneakers. So if it sees your things, it just wants you to show you ads and stories and news articles. and videos to get you to buy makeup. So it could be an algorithm with a commercial intent. It could be someone, it could be totally thoughtless. There could be no real thought behind it. It’s just teeing up news story after news story based on whatever you watched last. That’s TikTok. It could be operating with malicious intent. It could be operating with a goal of misinformation. It could be operating out of political self-interest. It could be trying to keep you angry all the time. Why? Because angry people watch longer. A lot of the news is in the keep you angry business. So it raises this question of who controls, who is the newspaper editor for your smartphone screen? Who is the trusted individual that is doing this? And the answer, to the most part, is nobody. And then basically five to six companies in Silicon Valley all run by individuals who can’t be fired because they all have dual class shares and They have a tremendous power to shape how people see the world How they feel go on Twitter you will start to feel angry within 10 to 15 minutes if not sooner Why because that’s how that algorithm works anger keeps people engaged. They’re in the outrage business and people on twitter generally awful the sort of curators there’s no alternative to the system so one of the ideas you’re in here floating around is well there’s too much power in the tech companies it turns out if you control the information flows you can control culture which is true you can control politics which is true you can control news which is true put a news story at the top of the feed, it’s like it never happened. If they change the history section in a Wikipedia post, they’ve effectively changed people’s perception of what happened in history. If they don’t like you saying certain words or having some opinions, and they can basically delete any comment in real time, they can either delete it, or they can just sort of sink it under the surface so no one ever sees it, shadow ban it. So they can control what people can talk about in real time, and they’re getting real good at it in the last couple of years. whatever hesitation they had about exerting their power in the world they’ve thrown that off made their they’re kicking people off their change in new stories they’re saying this is not an acceptable story that’s fake news why because we said so oh when the sitting president of the u.s. we’re just going to delete you entirely which they did in one day so that’s kind of what these folks are doing so i i sort of think of them as an information cartel where they basically control the flow of information, or you could consider them info dictators because all of them can’t be removed because of their dual class shares. Mark Zuckerberg, he effectively can control the communication and the information flows to 3 billion people, and he’ll be in charge of that company for the next 40 years. So he’ll have control of the information flowing to 3 billion people for 40 years. So who’s gonna win the presidency? whoever they want will be. That’s my opinion. If they really want one person to win, certain news stories will be elevated, certain ones will be disappeared, certain topics will be okay, certain will not. They can keep you in a good mood, they can keep you in an angry mood, just depending on what stories they surface to you. Last point on this, because this is getting a little bit of a downer, this talk. Most information is consumed passively. If you go on Twitter, you’re gonna scroll the news feed. If you go on Facebook you’re gonna scroll the news feed. For the most part you are not searching for information you want. For the most part you’re just staring as they tee up whatever next story they want to show you. The algorithms are pushing information that is overwhelmingly consumed passively. So that’s why the algorithms are so important and the people who write the algorithms are the tech gods. Now you could say, well, I’m going to search. I’m going to search for what video I want to want. I want to search Google. OK. That still doesn’t get around the problem because there is so much information, there’s so many videos, there’s so much of everything that curation and moderation, this editorial function, is required in virtually everything. If you do a Google search, They can’t show you all 50,000 results that might match. They have to make a judgment. Here’s the five to 10 stories that we think are most relevant. It’s just a, you know, it’s a, the world has become an incredible library that stretches for miles and miles and these six companies control the card catalog. And there’s no way to go into that library and use it without the card catalog anymore. There’s too much. I heard a funny joke like the best place to hide a dead body is on the second page of a Google search result, which is really true. Like have you ever clicked on the second page? No, but they’re choosing. So this curation function, this shaping of information flows, this editorial function is absolutely required in everything now because volumes have exploded. and this function that used to overwhelmingly done by local people that we knew and somewhat trusted as a culture, as a community, the local newspaper editor, the school board, the anchor man or the anchor woman on TV, the local priest, the local rabbi, the family community. That’s who used to perform this function. Now it’s being done basically by six people in Silicon Valley who can never be replaced. So if you’re in Thailand and you’re watching the news. the news you are seeing and not seeing is basically being determined by people in Palo Alto. It is not being determined by people in Thailand anymore. They’ll do it a little bit. They’ll still pull from stories in Thailand, but they’re the ones who decide what story is seen and what story is not. So that’s kinda why I call them info-dictators. Now one of the arguments you’ll hear floating around now is, well, these platform business models, they’re gonna get disrupted. What’s gonna happen is people are going to create technology that defies a central point of control, like blockchain. It’ll just be everyone searching themselves and none of this will go through platforms. It’ll just all be a free for all, like a Shopify model. You don’t have to build your store on Amazon anymore. You can just build Shopify and customers can come to you directly and Amazon doesn’t control the flows anymore. Yeah, it doesn’t work that way because you don’t get around the problem that someone has to curate Someone has to editorialize if you put up a shop on Shopify and think you’re gonna bypass Amazon the first thing you realize is okay my stores up there and nobody can find it and You immediately have to go to Facebook and start posting because that’s where everybody is So that curation function even if you’re Shopify and you’re bypassing Amazon You have to spend all your time on Google and Facebook because that’s the editorial function for finding stores. So this argument, oh, these companies are going to get disrupted. I don’t think so. I don’t see any way around that fundamental problem technology-wise. Now, I have actually been working on kind of a solution to this. It’s a product. We have a smartphone. We’re sort of demoing it and working on it. But basically, I’m calling it sort of culture tech. And the goal is to move the editorial function back to local communities and away from those companies. So you would need people to do the curation function. You’re not gonna get around it with a tech solution. What you’re gonna have to use is membership organizations that have a strong community presence and give them that function and bypass this. And I think that’s actually doable. I think we’ve seen versions of this, which… You’ll hear this phrase, techno-nationalism, which is like this argument, oh, there’s going to be a Google of India and a Google of China and a Google of Europe and all of that. I don’t really think that’s true. I think there’s so much power in the tech architecture that breaking it up country by country is foolish. Android is pretty great. So is the Google search engine. I think what you’re going to see is not techno-nationalism. I think you’re going to see info-nationalism. you’re going to see countries and communities basically do what India has been doing very aggressively is telling companies like Twitter and Google and Facebook if you want to operate in India you need to partner up with an Indian company in this case GEO that is going to perform that function locally you can provide the tech architecture but the editorial function on what happens in Indian culture politics society news needs to be done by a trusted local company. And India has been pretty aggressive in that. They banned a couple hundred Chinese apps. They forced a lot of these companies to do deals with Jio. You know who was actually very in the same playbook was Trump. Although I don’t think they thought about it this way. When TikTok started to get a lot of traction in the U.S. there was this idea floating around, well we shouldn’t have a Chinese company. writing algorithms in Beijing that determine what Americans can say to other Americans. That’s basically the info-nationalism argument. And what was their solution? Well, they said, you have to sell this company to Microsoft or, you know, maybe it was going to be Walmart. And that kind of fell through. I think that was a bad solution. The right solution was the India one, which is like, you can operate in the U.S. as the technical architecture. But the data privacy and the editorial functions have to be transferred to local companies we trust. And who did they pick? Well, they picked Larry Ellison and Oracle. And they picked maybe Microsoft. And that’s not a bad solution. That’s actually a pretty decent solution. And I think we’re going to see more and more of that. I think you’re going to see the EU. I think you’re going to see maybe a lot more of India. And China’s already completely down this path of forcing these international companies to partner up locally and to move that editorial function back to the local level. Because I mean, who should really have the ability to determine what Indonesians can say in their own politics and news and society and culture? I mean, that needs to be determined locally. So I think that’s where things are going. My takeaways are, I don’t think the tech giants are going anywhere. The economics are too powerful. This idea of central planning in a digital world it turns out it really does work. And it’s actually in many ways a superior way of operating. I just think it sort of tees up the next question, which is an urgent need for info-nationalism and local curation. That’s what I’m kind of hoping to see. Last point, and then I’ll finish up here. When you hear people talk about these companies, I think what you’re really hearing is four different ideas. And depending on who’s talking, they’re generally talking about one or the other. So there’s a lot of talking past each other in this. When I look at these sort of dominant companies that can control the information flows and can coordinate activity at this level, you know, the first idea is the one I talked about, which is like coordination and transaction costs. These companies are in the business of dropping those. And by dropping those coordination costs, that’s what a platform business model does, they can add tremendous value. And the more of a monopoly they come, often the more value they can add from an economic perspective. So the central planning thing really does seem to work in a lot of cases, not all. But that tees up the second idea. So first idea is going to this coordination cost idea. Second idea, do you want centralized or decent I’m sorry, do you want centralization versus decentralization of an economy? And to what degree? Because that does create some degree of risk. When Facebook went down the other day, I mean, it shut down communication for a good part of the world. You know, one of the problems of a monopoly is there’s no backup. So when you become too dependent on these sort of modern monopolies, you do expose yourself. So there’s this idea of centralization versus decentralization of anything, whether it’s an economy or an ecosystem and the risks therein. Idea number three, yes, in theory, when you concentrate to one player at scale, the network effects are better. The service is actually superior. However, that’s a positive. However, there’s also a negative, which is you have eliminated competition from the equation. And that generally makes companies behave worse. It makes them innovate slower. I think you can definitely see those with Facebook. That company has not created anything good in 10 years. Meanwhile, in China, the companies are rocking and rolling where the competition is very, very fierce. So there’s benefits in terms of economics of a digital monopoly, but there’s also fairly big negatives once you start to eliminate competition from their minds. And I think we can see that in the US. Airbnb is stagnant. Facebook is stagnant. They’re boring. They’re slow. WhatsApp hasn’t done anything interesting in like eight years. Most of the B2C companies out of Silicon Valley are boring, stagnant, and they can’t innovate to save their lives. Come over to Asia, everything’s just rocking and rolling. People are moving quick. Last point, number four, the role of freedom of choice. That in many ways it’s not a business or economic decision. It’s about the idea that people should have options They shouldn’t be forced to use one company. If you don’t like Facebook, what are you gonna do? nothing You don’t really have a choice. There are no other options But I think that’s kind of that’s kind of where I fall in all of this is I give most weight to number four I think there always needs to be options and people need the freedom to choose And if that won’t emerge naturally because of the economics of the business, then I think the government should step in and break them up, which I think is the case. I think that’s absolutely what should be done. But okay, that’s kind of my take. That’s a bit of, I don’t know what you call that, economics, politics, high level stuff today. But the two main ideas I want you to take away, coordination and transaction costs. Very, very big idea. Second is this idea of ecosystems and platforms versus networks, which are business models versus the assets you use to do business models. Okay, and those are the two ideas for today. As for me, I’m back in Thailand. I’m sitting in a hotel room in Phuket. I’m doing the Phuket sandbox, which has been dropped to seven days, so I’ve only got to be in the island for since. Really, it’s not really quarantine at all. It’s, you know, And doing quarantine in Bangkok for two weeks was terrible. This is like a seven-day mandatory vacation where I have to stay on the island, but I can buzz around on a scooter, I can go to the movies, I can go all over. And Phuket’s great. I was over in Pha Thong, which is sort of the city on the western coast, which is a little bit infamous for some sort of bad behavior, Sin City sort of stuff. And that’s all gone now, because all that stuff was shut down, and most of the island was shut down. So I was over there and it was great. It was real pleasant. I kind of hope they don’t allow any of that stuff to come back. It’s a really nice beach town, generally speaking. So yeah, it’s fine. And I was just in Germany for a couple of days and bouncing around Berlin and did a keynote at an event, ended up hanging out with a bunch of real estate investors, which is not really my thing, but I think it’s really interesting. So that was great. Met some good people and now I’m back and I’ll head back into Bangkok in a couple days. So it’s surprisingly seamless for an international trip in the middle of all of this. This was probably my easiest international trip thus far, so I’m hoping this is the end of all this, but who knows? Anyways… That’s basically it for me. I hope everyone is doing well. If you have any thoughts on companies that I should be looking at, that would be much appreciated. Please send them my way. But otherwise, I will talk to you next week from Bangkok. Take it easy, bye bye.
I write, speak and consult about how to win (and not lose) in digital strategy and transformation.
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