Anchor is to Spotify—as Instagram was to Facebook?

Almost a decade ago in 2012, I wrote about Facebook’s $1 billion acquisition of Instagram, and the reaction I recall among many investors at the time was, well, skeptical: Many believed the deal to be a crazy valuation for a 12-person startup with $0 in revenue. In hindsight, they were wrong: Instagram now accounts for more than a quarter of Facebook’s total revenue. I thought about that acquisition this week as I listened to the final installment of Spotify’s podcast series, “Spotify: A product story.” The episode, appropriately titled “building the future of audio,” goes deep into the acquisition of Anchor, which, much like Instagram, gives individuals the ability to seamlessly create (and monetize) content—and share it with Spotify’s 356 million users. Last May, we wrote about how we believe we’re in the very early innings of a multi-year business model disruption across the audio industry; this episode offers a nuanced roadmap of how that is beginning to take shape. In particular, this podcast includes some great behind-the-scenes details of the strategy being employed by Spotify to attack an enormous market opportunity—much like Facebook leveraged Instagram to grow (and monetize) its massive user-base.

“…If you think about what happened to other media spaces, you can basically summarize it as: the tools got easier to use and then more people participated. Like text, for example — before the Internet, writing was something that journalists did. Then the Internet came along and it democratized writing, starting with blogs. Suddenly, anyone could start writing. And now, we have Twitter, where everyone writes something. The same thing happened with photos and videos. In the past, video and photography were left to the professionals. But with Instagram and YouTube, everyone does it. Anchor had arguably done for podcasting what blogs did for writing. But it had stopped short of turning podcasts into imminently shareable, bite-sized audio that everyone can use with the push of a button.”

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Successful companies need loving customers

I’m a fan of Matthew Ball’s long-form essays on technology/media, and his latest essay this week, “What Is an Entertainment Company in 2021 and Why Does the Answer Matter?,” is no exception. Ball argues (convincingly) that long-term shareholder value accrues to entertainment companies that create not just satisfaction, but actual love, using an “intangible sort of operating leverage” that help these businesses excel. He writes: “Anyone can tell a story, fewer, but still many, can tell a story well. And when stories are told, they typically generate revenue. However, profits, and especially great profits, come from love.”

“After years of dodging the question “is Netflix a tech or media company?”, Netflix founder and Co-CEO Reed Hastings recently declared, “we’re really an entertainment company”. So, what is that, why does it matter, and what’s the takeaway? At its core, an entertainment business does only three things: 1. Create/tell stories 2. Build love for those stories 3. Monetize that love.”

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It’s not Shopify vs. Amazon—it’s Shopify + Amazon

One of the more pervasive false dichotomies I see across financial media is that Shopify and Amazon are in direct competition when, in reality, I would argue each platform’s value proposition serves a fundamentally unique problem: One business model solves for experience for brands (Shopify) while the other solves for efficiency for products (Amazon). With that in mind, I enjoyed the conversation this week between Shopify president Harley Finkelstein and The Verge’s Niley Patel. Finkelstein goes deep into how Shopify’s ultimate ambition is to become the “centralized retail operating system” for small and medium-sized businesses around the world—a journey that is really just beginning, and is largely differentiated from Amazon’s global efficiency model.

“The big shift that is happening that will exist long after the pandemic and, frankly, will be the future of retail, will be that consumers will simply say, “I want to buy however is most convenient for me.” And if you’re a really forward-thinking merchant like Allbirds, for example, and you know that it’s all about consumer choice, then you’re going to have a great physical store in San Francisco and New York City and a whole bunch of other places, you’re going to have a great online store, you’re going to cross-sell on things like Instagram and Facebook, you may also activate the TikTok ad channel because that’s when you can reach new potential customers. But what Shopify’s role in all that is, is that we want to integrate all of it into a centralized retail operating system.”

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A few more links I enjoyed:  

Fallibility, reflexivity, and the human uncertainty principle – via George Soros
“…imperfect views can influence the situation to which they relate through the actions of the participants. For example, if investors believe that markets are efficient then that belief will change the way they invest, which in turn will change the nature of the markets in which they are participating (though not necessarily making them more efficient). That is the principle of reflexivity.”
Airbnb’s Brian Chesky: ‘The trick is to be optimistic – via Financial Times
“Chesky, 39, ranks among one of the most striking cases of a person learning on the job in corporate history. In a Silicon Valley culture that sees fast failures as something to celebrate, perhaps even a minimum qualification, Chesky’s first foray into tech, into start-ups, into running a company of any kind — has turned out to be a success. Airbnb’s initial public offering, snuck in before the end of last year, valued the company at $88bn at the end of its first day’s trading.”
The ‘metaverse’ bet: crypto-rich investors snap up virtual real estate – via Reuters
“… art is just one part of a new economy of blockchain-based virtual worlds where land, buildings, avatars and even names can be bought and sold as NFTs, often fetching hundreds of thousands of dollars. In these environments, referred to as the metaverse, people can wander around with friends, visit virtual buildings and attend virtual events. Metakovan’s plans are an ambitious undertaking, but he says he is the world’s biggest NFT investor. His collection of NFTs and other crypto assets, the Metapurse fund, is valued at $189 million, according to NonFungible.com, a site that aggregates sales history data from NFT marketplaces.”
The chip shortage keeps getting worse. Why can’t we just make more? – Via Bloomberg
“Manufacturing a chip typically takes more than three months and involves giant factories, dust-free rooms, multi-million-dollar machines, molten tin and lasers. The end goal is to transform wafers of silicon—an element extracted from plain sand—into a network of billions of tiny switches called transistors that form the basis of the circuitry that will eventually give a phone, computer, car, washing machine or satellite crucial capabilities.”

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