"Lens 1 was Facebook’s finances, which did show troubling trends in terms of revenue and expense growth:"

"for all of the company’s travails and controversies over the past few years, its moats are deeper than ever, its money-making potential not only huge but growing both internally and secularly"

"the company is not maximizing the short-term, it is spending the money and suppressing its revenue potential in favor of becoming more impenetrable than ever."

"The problem with this narrative is that Meta is still adding users: the company is up to 2.93 billion Daily Active Users (DAUs), an increase of 50 million, and 3.71 billion Monthly Active Users (MAUs), an increase of 60 million."

"Facebook itself increased its DAUs by 16 million (to 1.98 billion) and its MAUs by 24 million (to 2.96 billion)."

"There is, to be clear, good reason to think that TikTok is having a big impact on Instagram specifically and Facebook broadly, but that impact, to the extent it is being felt, is in depressing growth, not in reversing it."

"On Facebook specifically, the number of people using the service each day is the highest it’s ever been — nearly 2 billion — and engagement trends are strong."

"Instagram has more than 2 billion monthly actives."

"WhatsApp has more than 2 billion daily actives, also with the exciting trend that North America is now our fastest growing region."

"And as Mark mentioned, Reels is incremental to time spent. Specifically, in terms of aggregate time spent on Instagram and Facebook, both are up year-over-year in both the U.S. and globally."

"what seems clear, though, is that short-form videos are growing the overall market for user-generated content."

"There are now more than 140 billion Reels plays across Facebook and Instagram each day. That’s a 50% increase from six months ago."

"what is perhaps more meaningful is the fact that Reels now has a $3 billion annual run rate (despite the fact it doesn’t monetize nearly as well as Meta’s other ad formats — for now, anyways)."

"TikTok, by comparison, had $4 billion in revenue in 2021, and set a goal of $12 billion this year"

"Third, the fact that Reels usage is “incremental to time spent on [Meta] apps” supports the argument above that short-form video is growing the pie for user-generated content"

"this meant that Meta knew with a high degree of certainty which ads led to which results, because it collected that data from within advertisers’ apps and websites (via a Facebook SDK or pixel)."

"ATT severed that connection between Meta’s ads on one side, and conversions on the other, by labeling the latter as third party data and thus tracking"

"What ATT did not do, though, was kill digital advertising."

"Meta is meanwhile working to move more conversions onto their own platform (which magically makes that data allowable as far as Apple is concerned, even though there is no meaningful difference for merchants beyond losing that much more control of their business)"

"The problem with this line of reasoning is that Meta’s capital expenditures are directly focused on both of the two main reasons for alarm: TikTok and ATT. That is because the answer to both challenges is more AI, and building up AI capacity requires a lot of capital investment."

"The long-term solution to ATT, though, is to build probabilistic models that not only figure out who should be targeted (which, to be fair, Meta was already using machine learning for), but also understanding which ads converted and which didn’t."

"that may have been too pricey in a world where deterministic ads worked better anyways, but Meta isn’t in that world any longer, and it would be foolish to not invest in better targeting and measurement."

"In the long run, though, this investment should pay off. First, there are the benefits to better targeting and better recommendations I just described, which should restart revenue growth."

"Second, once these AI data centers are built out the cost to maintain and upgrade them should be significantly less than the initial cost of building them the first time."

"Third, this massive investment is one no other company can make, except for Google (and, not coincidentally, Google’s capital expenditures are set to rise as well)."

"That last point is perhaps the most important: ATT hurt Meta more than any other company, because it already had by far the largest and most finely-tuned ad business, but in the long run it should deepen Meta’s moat."

"This level of investment simply isn’t viable for a company like Snap or Twitter or any of the other also-rans in digital advertising (even beyond the fact that Snap relies on cloud providers instead of its own data centers)"

"when you combine the fact that Meta’s ad targeting will likely start to pull away from the field (outside of Google), with the massive increase in inventory that comes from Reels (which reduces prices), it will be a wonder why any advertiser would bother going anywhere else."

"It’s worth pointing out, though, that the Metaverse’s costs, which will exceed $10 billion this year and be even more next year, are, relative to Meta’s overall business and overall spending, fairly small."

"Meta the metaverse company may be a speculative boondoggle, but that doesn’t change the fact that the old Facebook is still a massive business with far more of its indicators pointing up-and-to-the-right than its Myspace-analogizers want to admit."

"the Pixel is what it is, which means it has to be great on day one, and it has to be sold."

"Where Google went wrong was with that maps decision: making turn-by-turn directions an Android-exclusive differentiated Android as a platform, but to what end? So that HTC et al could sell a few more phones, and pay Google nothing for the privilege?"

"The truth is that when it came to making money Google and Apple were not competitors in the slightest"

"Apple was a vertical company that expended R&D and capital investment to design and build devices that included significant material costs, and then sold those devices in a zero-sum competition against other manufacturers."

"Apple traded off reaching the entire market in favor of creating a differentiated experience that customers would pay a premium for that far exceeded the (significant) marginal costs of each iPhone."

"Google, meanwhile, has always been a completely different kind of company — a horizontal one."

"Nearly all of Google’s costs are fixed — R&D and data centers — which means profitability goes hand-in-hand with marketshare, which by extension means advertising is the perfect business model."

"The more people using Google the more that those fixed costs can be spread out, and the more attractive Google is to advertisers."

"Again, it’s possible Apple would have built its own Maps product regardless, but Google’s short-sighted favoring of Android ensured that for hundreds of millions of potential Google users the default mapping experience and the treasure trove of data that came with it would belong to someone else."

"the implications for computing generally and Google specifically were profound: voice interaction both expanded where computing could be done, from situations in which you could devote your eyes and hands to your device to effectively everywhere, even as it constrained what you could do."

"First, as I explained after this year’s Google I/O, the company has a go-to-market gap: assistants are only useful if they are available, which in the case of hundreds of millions of iOS users means downloading and using a separate app (or building the sort of experience that, like Facebook, users will willingly spend extensive amounts of time in)."

"After all, if a user doesn’t have to choose from search results, said user also doesn’t have the opportunity to click an ad, thus choosing the winner of the competition Google created between its advertisers for user attention. Google Assistant has the exact same problem: where do the ads go?"

"it is one of closed ecosystems centered around hardware or social networks, and having failed at the latter, Google is having a go at the former."

"To put it more generously, Google has adopted Alan Kay’s maxim that “People who are really serious about software should make their own hardware.”"

"the Pixel phone starts at $649, the same as an iPhone, and while it will take time for Google to achieve the level of scale and expertise to match Apple’s profit margins, the fact there is unquestionably a big margin built-in is a profound new direction for the company."

"the Google Assistant is, at least for now, exclusive to the first true Google phone, delivering a differentiated experience that, at least theoretically, justifies that margin."

"It is not that Google is artificially constraining its horizontal business model;"

"it is that its business model is being constrained by the reality of a world where, as Pichai noted, artificial intelligence comes first."

"In that world you must own the interaction point, and there is no room for ads, rendering both Google’s distribution and business model moot."

"Both must change for the company’s technological advantage to come to the fore."

"the iPhone maker has the distribution channel and business model to make Siri the dominant assistant in its users’ lives, but there are open questions about its technology prowess when it comes to artificial intelligence specifically and services generally"

"moreover, efforts to improve are fundamentally stymied by the company’s device-centric culture and organizational structure."

"Google’s culture and organizational structure, meanwhile, are attuned to its old business model, the one that equated marketshare with profitability, and which achieved that market share with a product development approach predicated on iteration and experimentation on top of the positive feedback loop that comes from massive amounts of data."

"The first means an organizational structure that delivers on the promise of focused integration, not willy-nilly experimentation and iteration"

"the second means partnerships, and outbound marketing, and a whole bunch of other things that Google has traditionally not valued."

"This is why, much like Apple, I can be both impressed by Google’s strategic thinking and yes, courage in facing this new epoch, even as I am a bit bearish about their prospects"

"technology alone is rarely enough, and the only thing more difficult than changing business models is changing cultures."

"Most new technologies foster improved product performance. I call these sustaining technologies. Some sustaining technologies can be discontinuous or radical in character, while others are of an incremental nature. What all sustaining technologies have in common is that they improve the performance of established products, along the dimensions of performance that mainstream customers in major markets have historically valued. Most technological advances in a given industry are sustaining in character…"

"if the innovation was sustaining, then incumbent companies became stronger; if it was disruptive then presumably startups captured most of the value."

"The Internet was almost entirely new market innovation, and thus defined by completely new companies that, to the extent they disrupted incumbents, did so in industries far removed from technology, particularly those involving information (i.e. the media)."

"Cloud computing is arguably part of the Internet, but I think it deserves its own category. It was also extremely disruptive:"

"What is notable is that the core infrastructure for cloud computing was primarily built by the winners of previous epochs: Amazon, Microsoft, and Google. Microsoft is particularly notable because the company also transitioned its traditional software business to a SaaS service, in part because the company had already transitioned said software business to a subscription model."

"Mobile ended up being dominated by two incumbents: Apple and Google. That doesn’t mean it wasn’t disruptive, though"

"Apple’s new UI paradigm entailed not viewing the phone as a small PC, a la Microsoft; Google’s new business model paradigm entailed not viewing phones as a direct profit center for operating system sales, but rather as a moat for their advertising business."

"What is notable about this history is that the supposition I stated above isn’t quite right; disruptive innovations do consistently come from new entrants in a market, but those new entrants aren’t necessarily startups"

"Microsoft struggled with mobile because it was disruptive, but SaaS was ultimately sustaining because its business model was already aligned."

"Smart companies try to commoditize their products’ complements."

"Spolsky wrote this line in the context of explaining why large companies would invest in open source software:"

"Debugged code is NOT free, whether proprietary or open source. Even if you don’t pay cash dollars for it, it has opportunity cost, and it has time cost. There is a finite amount of volunteer programming talent available for open source work, and each open source project competes with each other open source project for the same limited programming resource, and only the sexiest projects really have more volunteer developers than they can use."

"But something is still going on which very few people in the open source world really understand: a lot of very large public companies, with responsibilities to maximize shareholder value, are investing a lot of money in supporting open source software, usually by paying large teams of programmers to work on it. And that’s what the principle of complements explains."

"Once again: demand for a product increases when the price of its complements decreases."

"n general, a company’s strategic interest is going to be to get the price of their complements as low as possible."

"The lowest theoretically sustainable price would be the “commodity price” — the price that arises when you have a bunch of competitors offering indistinguishable goods."

"So, smart companies try to commoditize their products’ complements. If you can do this, demand for your product will increase and you will be able to charge more and make more."

"Apple’s efforts in AI, meanwhile, have been largely proprietary: traditional machine learning models are used for things like recommendations and photo identification and voice recognition, but nothing that moves the needle for Apple’s business in a major way."

"Apple did, though, receive an incredible gift from the open source world: Stable Diffusion."

"Stable Diffusion is remarkable not simply because it is open source, but also because the model is surprisingly small:"

"One of the key questions for Stable Diffusion in any app is where the model is running."

"There are a number of reasons why on-device deployment of Stable Diffusion in an app is preferable to a server-based approach. First, the privacy of the end user is protected because any data the user provided as input to the model stays on the user’s device"

"Second, after initial download, users don’t require an internet connection to use the model."

"Finally, locally deploying this model enables developers to reduce or eliminate their server-related costs…"

"It’s important to note that this announcement came in two parts: first, Apple optimized the Stable Diffusion model itself (which it could do because it was open source);"

"second, Apple updated its operating system, which thanks to Apple’s integrated model, is already tuned to Apple’s own chips."

"it seems likely that future Apple chips, if not this year than probably next year, will be tuned for Stable Diffusion as well."

"Stable Diffusion itself, meanwhile, could be built into Apple’s operating systems, with easily accessible APIs for any app developer."

"This raises the prospect of “good enough” image generation capabilities being effectively built-in to Apple’s devices, and thus accessible to any developer without the need to scale up a back-end infrastructure of the sort needed by the viral hit Lensa."

"And, by extension, the winners in this world end up looking a lot like the winners in the App Store era: Apple wins because its integration and chip advantage are put to use to deliver differentiated apps, while small independent app makers have the APIs and distribution channel to build new businesses."

"The losers, on the other hand, would be centralized image generation services like Dall-E or MidJourney, and the cloud providers that undergird them (and, to date, undergird the aforementioned Stable Diffusion apps like Lensa)."

"Stable Diffusion on Apple devices won’t take over the entire market, to be sure — Dall-E and MidJourney are both “better” than Stable Diffusion, at least in my estimation, and there is of course a big world outside of Apple devices, but built-in local capabilities will affect the ultimate addressable market for both centralized services and centralized compute."

"Amazon, like Apple, uses machine learning across its applications; the direct consumer use cases for things like image and text generation, though, seem less obvious."

"What is already important is AWS, which sells access to GPUs in the cloud."

"Amazon’s prospects in this space will depend on a number of factors."

"First, and most obvious, is just how useful these products end up being in the real world. Beyond that, though, Apple’s progress in building local generation techniques could have a significant impact."

"Amazon, though, is a chip maker in its own right: while most of its efforts to date have been focused on its Graviton CPUs, the company could build dedicated hardware of its own for models like Stable Diffusion and compete on price."

"Still, AWS is hedging its bets: the cloud service is a major partner when it comes to Nvidia’s offerings as well."

"The big short-term question for Amazon will be in gauging demand"

"one of the challenges with AI is the fact that inference costs money; in other words, making something with AI has marginal costs."

"This issue of marginal costs is, I suspect, an under-appreciated challenge in terms of developing compelling AI products. While cloud services have always had costs, the discrete nature of AI generation may make it challenging to fund the sort of iteration necessary to achieve product-market fit"

"I don’t think it’s an accident that ChatGPT, the biggest breakout product to-date, was both free to end users and provided by a company in OpenAI that both built its own model and has a sweetheart deal from Microsoft for compute capacity."

"Moreover, the same approach will be essential to Reels’ continued growth: it is massively more difficult to recommend content from across the entire network than only from your friends and family, particularly because Meta plans to recommend not just video but also media of all types, and intersperse it with content you care about."

"This level of investment simply isn’t viable for a company like Snap or Twitter or any of the other also-rans in digital advertising"

"An important factor in making Meta’s AI work is not simply building the base model but also tuning it to individual users on an ongoing basis; that is what will take such a large amount of capacity and it will be essential for Meta to figure out how to do this customization cost-effectively."

"What will be interesting to see is how things like image and text generation impact Meta in the long run:"

"Keep in mind that Meta’s advertising is primarily about the top of the funnel: the goal is to catch consumers’ eyes for a product or service or app they did not know previously existed; this means that there will be a lot of misses — the vast majority of ads do not convert — but that also means there is a lot of latitude for experimentation and iteration. This seems very well suited to AI: yes, generation may have marginal costs, but those marginal costs are drastically lower than a human."

"The problem came down to business model: Kodak made a lot of money with very good margins providing silver halide film"

"Kodak’s management was thus very incentivized to convince themselves that digital cameras would only ever be for amateurs, and only when they became drastically cheaper, which would certainly take a very long time."

"In this view Kodak is a cautionary tale of how an innovative company can allow its business model to lead it to its eventual doom, even if said doom was the result of consumers getting something better."

"Google invented the transformer, the key technology undergirding the latest AI models. Google is rumored to have a conversation chat product that is far superior to ChatGPT."

"Google has long been a leader in using machine learning to make its search and other consumer-facing products better (and has offered that technology as a service through Google Cloud)."

"the very people the advertisers were trying to reach would decide if their ad was good enough."

"voice interaction both expanded where computing could be done, from situations in which you could devote your eyes and hands to your device to effectively everywhere, even as it constrained what you could do."

"An assistant has to be far more proactive than, for example, a search results page; it’s not enough to present possible answers: rather, an assistant needs to give the right answer."

"More broadly, few dispute that Google is a clear leader when it comes to the artificial intelligence and machine learning that underlie their assistant."

"Secondly, though, Google has a business-model problem: the “I’m Feeling Lucky Button” guaranteed that the search in question would not make Google any money."

"After all, if a user doesn’t have to choose from search results, said user also doesn’t have the opportunity to click an ad, thus choosing the winner of the competition Google created between its advertisers for user attention. Google Assistant has the exact same problem: where do the ads go?"

"Over the past seven years Google’s primary business model innovation has been to cram ever more ads into Search, a particularly effective tactic on mobile."

"Disruptive innovation is, at least in the beginning, not as good as what already exists; that’s why it is easily dismissed by managers who can avoid thinking about the business model challenges by (correctly!) telling themselves that their current product is better."

"Google has its cloud and YouTube’s dominance only seems to be increasing, but the outline of Search’s peak seems clear even if it throws off cash and profits for years."

"Microsoft, meanwhile, seems the best placed of all. Like AWS it has a cloud service that sells GPU; it is also the exclusive cloud provider for OpenAI"

"Yes, that is incredibly expensive, but given that OpenAI appears to have the inside track to being the AI epoch’s addition to this list of top tech companies, that means that Microsoft is investing in the infrastructure of that epoch."

"Bing, meanwhile, is like the Mac on the eve of the iPhone: yes it contributes a fair bit of revenue, but a fraction of the dominant player, and a relatively immaterial amount in the context of Microsoft as a whole."

"If incorporating ChatGPT-like results into Bing risks the business model for the opportunity to gain massive market share, that is a bet well worth making."

"The latest report from The Information, meanwhile, is that GPT is eventually coming to Microsoft’s productivity apps."

"What is important is that adding on new functionality — perhaps for a fee — fits perfectly with Microsoft’s subscription business model"

"There is another possibility where open source models proliferate in the text generation space in addition to image generation. In this world AI becomes a commodity"

"this is probably the most impactful outcome for the world but, paradoxically, the most muted in terms of economic impact for individual companies"

"Indeed, the biggest winners may be Nvidia and TSMC. Nvidia’s investment in the CUDA ecosystem means the company doesn’t simply have the best AI chips, but the best AI ecosystem, and the company is investing in scaling that ecosystem up."

"everyone, though, will make their chips at TSMC, at least for the foreseeable future."

"Just before the break Nat Friedman told me in a Stratechery Interview about Riffusion, which uses Stable Diffusion to generate music from text via visual sonograms, which makes me wonder what else is possible when images are truly a commodity."

"humans, though, are visual creatures, and the availability of AI for both the creation and interpretation of images could fundamentally transform what it means to convey information in ways that are impossible to predict."

"Hobbes and Locke are almost always mentioned together, so Locke’s articulation of the importance of the separation of powers is likely adjacent to mentions of Hobbes and Leviathan in the homework assignments you can find scattered across the Internet."

"Those assignments — by virtue of being on the Internet — are probably some of the grist of the GPT-3 language model that undergirds ChatGPT; ChatGPT applies a layer of Reinforcement Learning from Human Feedback (RLHF) to create a new model that is presented in an intuitive chat interface with some degree of memory"

"What has been fascinating to watch over the weekend is how those refinements have led to an explosion of interest in OpenAI’s capabilities and a burgeoning awareness of AI’s impending impact on society, despite the fact that the underlying model is the two-year old GPT-3."

"So we now have this capability overhang that’s just hanging out over the world and, bizarrely, entrepreneurs and product people have only just begun to digest these new capabilities and to ask the question, “What’s the product you can now build that you couldn’t build before that people really want to use?”"

"Interestingly, I think one of the reasons for this is because people are mimicking OpenAI, which is somewhere between the startup and a research lab."

"a fundamental limiting factor, though, is cost: generating around 750 words using Davinci, OpenAI’s most powerful language model, costs 2 cents"

"what is fascinating is about ChatGPT is that it establishes OpenAI as a leader in terms of consumer AI products as well, along with MidJourney."

"The latter has monetized consumers directly, via subscriptions; it’s a business model that makes sense for something that has marginal costs in terms of GPU time, even if it limits exploration and discovery."

"AI output, on the other hand, is probabilistic: ChatGPT doesn’t have any internal record of right and wrong, but rather a statistical model about what bits of language go together under different contexts."

"The base of that context is the overall corpus of data that GPT-3 is trained on, along with additional context from ChatGPT’s RLHF training, as well as the prompt and previous conversations, and, soon enough, feedback from this week’s release."

"So, for some applications, this virtual machine is already faster than my laptop."

"ChatGPT comes up with its best guess as to the result in 10 seconds, and that guess is so likely to be right that it feels like it is an actual computer executing the code in question."

"This raises fascinating philosophical questions about the nature of knowledge; you can also simply ask ChatGPT for the first 10 prime numbers:"

"There is one site already on the front-lines in dealing with the impact of ChatGPT: Stack Overflow."

"Overall, because the average rate of getting correct answers from ChatGPT is too low, the posting of answers created by ChatGPT is substantially harmful to the site and to users who are asking or looking for correct answers."

"The volume of these answers (thousands) and the fact that the answers often require a detailed read by someone with at least some subject matter expertise in order to determine that the answer is actually bad has effectively swamped our volunteer-based quality curation infrastructure."

"There are a few fascinating threads to pull on here. One is about the marginal cost of producing content: Stack Overflow is about user-generated content; that means it gets its content for free because its users generate it for help, generosity, status, etc."

"For now, though, probabilistic AI’s seem to be on the wrong side of the Stack Overflow interaction model"

"What’s common to all of these visions is something we call the “sandwich” workflow. This is a three-step process. First, a human has a creative impulse, and gives the AI a prompt. The AI then generates a menu of options. The human then chooses an option, edits it, and adds any touches they like."

"We predict that lots of people will just change the way they think about individual creativity."

"the real skill in the homework assignment will be in verifying the answers the system churns out — learning how to be a verifier and an editor, instead of a regurgitator."

"In this model trust is at the level of the verified individual: access (usually) depends on multi-factor authentication (such as a password and a trusted device, or temporary code), and even once authenticated an individual only has access to granularly-defined resources or applications"

"There is, though, reason for optimism, and a belief that things will get better, the more quickly we embrace the idea that fewer gatekeepers and more information means innovation and good ideas in proportion to the flood of misinformation which people who grew up with the Internet are already learning to ignore."

"The solution will be to start with Internet assumptions, which means abundance, and choosing Locke and Montesquieu over Hobbes: instead of insisting on top-down control of information, embrace abundance, and entrust individuals to figure it out."

"Hobbes was a proponent of absolutism, the belief that the only workable alternative to anarchy — the natural state of human affairs — was to vest absolute power in a monarch; checks and balances was the argument put forth by Hobbes’ younger contemporary John Locke, who believed that power should be split between an executive and legislative branch."

"being free is a major factor as well, and text generation may end up being a better match for advertising, given its utility — and thus opportunity to collect first party data — is likely going to be higher than image generation for most people."

"Google’s larger contribution, though, happened five years ago when the company led the move to zero trust networking for its internal applications, which has been adopted by most other tech companies in particular."

"In 1974 Vint Cerf, Yogen Dalal, and Carl Sunshine published a seminal paper entitled “Specification of Internet Transmission Control Program”; it was important technologically because it laid out the specifications for the TCP protocol that undergirds the Internet, but just as notable, at least from a cultural perspective, is that it coined the term “Internet.”"

"Networks came first commercially as well. In the 1980s Novell created a “network operating system” that consisted of local servers, ethernet cards, and PC software, to enable local area networks that ran inside of large corporations, enabling the ability to share files, printers, other resources."

"The problem, though, was the Internet: connecting any one computer on the local area network to the Internet effectively connected all of the computers and servers on the local area network to the Internet."

"The solution was perimeter-based security, aka the “castle-and-moat” approach: enterprises would set up firewalls that prevented outside access to internal networks. The implication was binary: if you were on the internal network, you were trusted, and if you were outside, you were not."

"This, though, presented two problems: first, if any intruder made it past the firewall, they would have full access to the entire network."

"Second, if any employee were not physically at work, they were blocked from the network."

"the larger point is the fundamental contradiction represented by these two problems: enabling outside access while trying to keep outsiders out."

"now, instead of accessing applications hosted on an internal network, employees wanted to access applications operated by a SaaS provider; now, instead of corporate resources being on-premises, they were in public clouds run by AWS or Microsoft."

"In this model trust is at the level of the verified individual: access (usually) depends on multi-factor authentication (such as a password and a trusted device, or temporary code), and even once authenticated an individual only has access to granularly-defined resources or applications."

"Individual-based authentication scales on the user side across devices and on the application side across on-premises resources, SaaS applications, or the public cloud (particularly when implemented with single-sign on services like Okta or Azure Active Directory)."

"zero trust computing starts with Internet assumptions: everyone and everything is connected, both good and bad, and leverages the power of zero transaction costs to make continuous access decisions at a far more distributed and granular level than would ever be possible when it comes to physical security, rendering the fundamental contradiction at the core of castle-and-moat security moot."

"Just as the Catholic Church ensured its primacy by controlling information, the modern meritocracy has done the same, not so much by controlling the press but rather by incorporating it into a broader national consensus."

"Just as important, though, particularly in terms of the impact on society, is the drastic reduction in fixed costs."

"After the Internet, though, the total amount of information is so much greater that even if the total amount of misinformation remains just as low relatively speaking, the absolute amount will be correspondingly greater:"

"perhaps unsurprisingly, the New York Times wished to find misinformation on the major tech platforms, and even less surprisingly, it succeeded."

"The Internet, famously, grew out of a Department of Defense project called ARPANET; that was the network Cerf, Dalal, and Sunshine developed TCP for."

"Contrary to popular myth, though, the goal was not to build a communications network that could survive a nuclear attack, but something more prosaic: there were a limited number of high-powered computers available to researchers, and the Advanced Research Projects Agency (ARPA) wanted to make it easier to access them."

"Two is the fact that the Internet is in fact so resilient"

"A previous study by Reuters Institute also found that social media exposed more viewpoints relative to offline news consumption, and another study suggested that political polarization was greatest amongst older people who used the Internet the least."

"There is, though, reason for optimism, and a belief that things will get better, the more quickly we embrace the idea that fewer gatekeepers and more information means innovation and good ideas in proportion to the flood of misinformation which people who grew up with the Internet are already learning to ignore. Share"

"People having the power to express themselves at scale is a new kind of force in the world — a Fifth Estate alongside the other power structures of society."

"It is the press that holds all three accountable, and in Zuckerberg’s telling, the Fifth Estate that gives everyone else a voice."

"With this context, the European reading of the Fourth Estate is actually rather akin to the American one: the press is an independent force holding the government accountable."

"this was the context for Edmund Burke’s remarks in 1787 that “There are Three Estates in Parliament; but, in the Reporters’ Gallery yonder, there sits a Fourth Estate more important far than they all.”"

"There was some degree of ethnic affinity between various members of the nobility and the commoners on their lands, but underneath the umbrella of the Catholic Church were primarily independent city-states."

"Suddenly Martin Luther, whose critique of the Catholic Church was strikingly similar to Jan Hus 100 years earlier, was not limited to spreading his beliefs to his local area (Prague in the case of Hus), but could rather see those beliefs spread throughout Europe"

"the nobility seized the opportunity to interpret the Bible in a way that suited their local interests, gradually shaking off the control of the Catholic Church."

"The latter was purely an operational expense: output was strictly determined by the input of labor."

"The former, though, was mostly a capital expense: first, to construct the printing press, and second, to set the type for a book. The best way to pay for these significant up-front expenses was to produce as many copies of a particular book that could be sold."

"How, then, to maximize the number of copies that could be sold? The answer was to print using the most widely used dialect of a particular language, which in turn incentivized people to adopt that dialect, standardizing language across Europe."

"This consolidation occurred at varying rates — England and France several hundred years before Germany and Italy — but in nearly every case the First Estate became not the clergy of the Catholic Church but a national monarch, even as the monarch gave up power to a new kind of meritocratic nobility epitomized by Burke."

"just as the Catholic Church ensured its primacy by controlling information, the modern meritocracy has done the same, not so much by controlling the press but rather by incorporating it into a broader national consensus."

"Said retailers, meanwhile, are huge in their own right, not only so they can match their massive suppliers at the bargaining table, but also so they can scale logistics, inventory management, store development, etc."

"More broadly, the press, big business, and politicians all operated within a broad, nationally-oriented consensus."

"Note, though, the reason I wrote that article: my argument is that every part of the media-advertising-industrial complex was threatened by the Internet."

"The inescapable reality is that TV advertisers are 20th century companies: built for mass markets, not niches, for brick-and-mortar retailers, not e-commerce."

"There is no reason this reality shouldn’t apply to nation-states as well."

"What is published on the Internet, meanwhile, can reach anyone anywhere, drastically increasing supply and placing a premium on discovery; this shifted economic power from publications to Aggregators."

"Just as important, though, was the need to buy advertising, as that was the only way to reach voters at scale."

"Indeed, given their power over what users see Facebook could, if it chose, be the most potent political force in the world."

"And, by extension, the most successful politicians in an aggregated world are not those who serve the party but rather those who tell voters what they most want to hear."

"Both Brexit and Trump explicitly call back to nostalgic views of national greatness, conveniently ignoring that neither movement would have been allowed a national voice in the time periods they aspire to."

"The second concern is the capacity of trolls, both of the profit-seeking and foreign government variety, to leverage Facebook’s fundamental engagement-seeking nature to push misinformation and division."

"China is building its own internet focused on very different values, and is now exporting their vision of the internet to other countries."

"Until recently, the internet in almost every country outside China has been defined by American platforms with strong free expression values."

"The U.S. specifically and the West broadly is not going to out-authoritarian an avowedly Marxist regime with a demonstrated willingness to use “re-education camps” and omnipresent surveillance to ensure the Second Estate era — that of the cohesive nation-state — remains in place."

"Netflix has also been pondering steps that could help offset the revenue impact of the subscriber slowdown, including cracking down on people sharing the passwords to their accounts."

"The bigger problem, though, is saturation: Netflix has 75 million subscribers in the US and Canada, where there are around 132 million households."

"Netflix has ways to grow other than subscribers, most obviously by raising prices. The company has done just that on a mostly annual basis for eight years"

"This may seem an odd idea at first: sure, Netflix is generating some new IP, but it would generally be much easier to license that IP than to become proficient at gaming."

"So we’re finding that many game developers really like that concept and that focus and this idea of being able to put all of their creative energy into just great gameplay and not having to worry about those other considerations that they have typically had to trade off with just making compelling games."

"Netflix is obviously one of those streaming services, but the company is also investing in movies (escapism), and is increasingly the default choice when it comes to the under-appreciated “background noise” category"

"This is a big reason why for many people their choice of streaming services is a matter of which service do they subscribe to in addition to Netflix."

"Still, all of these jobs are about passively consuming content; from a consumer perspective gaming is something different, in that you are an active participant. To that end, it’s not clear to me why consumers would even think to consider Netflix when it comes to gaming: that’s not what the service’s job is, nor was it the job of the linear TV bundle that Netflix is helping replace."

"the most effective business model in the attention economy is advertising: if customers rely on Google or Facebook to navigate the abundance of content that is the result of zero marginal costs, then it is Google and Facebook that are the best-placed to sell effective ads."

"the trouble this Internet reality presents to Netflix: if content is abundant and attention is scarce, it’s easier to sell attention than content; Netflix’s business model, though, is the exact opposite."

"However, as more and more content has moved away from TV and to competing streaming services, differentiation is no longer based on the user experience, but rather uniqueness; on-demand no-commercials is no longer unique, but Stranger Things can only be found on Netflix."

"Netflix can, on an absolute basis, pay more than its streaming competitors for the content it wants, even as its per-subscriber cost basis is lower."

"the user experience of getting to that unique content doesn’t really matter."

"First, an advertising-supported or subsidized tier would expand Netflix’s subscriber base, which is not only good for the company’s long-term growth prospects, but also competitive position when it comes to acquiring content."

"Second, advertising would make it easier for Netflix to continue to raise prices: on one hand, it would provide an alternative for marginal customers who might otherwise churn, and on the other hand, it would create a new benefit for those willing to pay"

"while the company once won with a differentiated user experience worth paying for, today Netflix demands scarce attention because of its investment in unique content. That attention can be sold, and should be, particularly as it increases Netflix’s ability to invest in more unique content, and/or charge higher prices to its user base."

"Of course this would be a lot of work, and a big shift in Netflix’s well-defined value proposition"

"In late 2015, in one of Bezos’ periodic purges of underachieving businesses, he agreed to close Webstore. Then, in a rare strategic mistake that’s likely to go down in the annals of corporate blunders, Amazon sent its customers to Shopify and proclaimed publicly that the Canadian company was its preferred partner for the Webstore diaspora."

"What has changed is the composition of Shopify’s business. While the company started out with a SaaS model, the business has transformed into a commission-based one:"

"Amazon.com Inc. is extending some of the offerings of its popular Prime membership program to merchants off its platform with a new service that embeds the online retailing giant’s payment and fulfillment options onto third-party sites."

"AWS has massive fixed costs but benefits tremendously from economies of scale"

"The cost to build AWS was justified because the first and best customer is Amazon’s e-commerce business"

"This last point was a win-win: developers would have access to enterprise-level computing resources with zero up-front investment; Amazon, meanwhile, would get that much more scale for a set of products for which they would be the first and best customer."

"the AWS model was being increasingly applied to e-commerce as Amazon shifted from being a retailer to being a services provider:"

"That last bullet point may seem odd, but in fact 40% of Amazon’s sales (on a unit basis) are sold by 3rd-party merchants; most of these merchants leverage Fulfilled-by-Amazon, which means their goods are stored in Amazon’s fulfillment centers and covered by Prime. This increases the return to scale for Amazon’s fulfillment centers, increases the value of Prime, and deepens Amazon’s moat"

"It seems increasingly clear that Amazon intends to repeat the model when it comes to logistics…how might this play out? Well, start with the fact that Amazon itself would be this logistics network’s first-and-best customer, just as was the case with AWS. This justifies the massive expenditure necessary to build out a logistics network that competes with UPS, Fedex, et al, and most outlets are framing these moves as a way for Amazon to rein in shipping costs and improve reliability, especially around the holidays."

"just as they have with AWS and e-commerce distribution I expect the company to offer its logistics network to third parties, which will increase the returns to scale, and, by extension, deepen Amazon’s eventual moat"

"The goods “sold” by an Aggregator are digital and thus have zero marginal costs (they may, of course, have significant fixed costs)"

"Amazon’s control of demand has been — and will continue to be — a tremendous advantage; Amazon not only has power over its suppliers, but it also gets all of the relevant data from consumers, which it can feed into a self-contained ad platform that is untouched by regulation from either governments or Apple."

"At the same time, limiting a business to customer touchpoints that you control means limiting your overall addressable market."

"This may not matter in markets where there are network effects (which means you appeal to everyone) and you are an Aggregator dealing with zero marginal costs (and thus can realistically cover every consumer)"

"n the case of e-commerce, though, Amazon will never be the only option, particularly given The Anti-Amazon Alliance working hard to reach consumers."

"Still, every customer that visits these websites has an Amazon-driven expectation in terms of shipping"

"If the expectations are not met, consumers decide to buy somewhere else…Merchants are constantly trying to play catch up, whatever Amazon is doing they need to follow suit."

"Now Amazon has — or soon will have, in the case of Shopify-only merchants — a solution: the best way to get an Amazon-like shipping experience is to ship via Amazon."

"Amazon may have given away business to Shopify in 2015, but that doesn’t much matter if said business ends up being a commoditized complement to Amazon’s true differentiation in logistics."

"That business, thanks to the sheer expense necessary to build it out, has a nearly impregnable moat that is not only attractive to all of the businesses competing to be consumer touchpoints — thus increasing Amazon’s addressable market — but is also one that sees its moat deepen the larger it becomes."

"Moreover, the more volume that Amazon processes, the more difficult it will be for Shopify to get their own shipping solution to scale. This endangers the company’s current major initiative."

"First, the fact that Amazon will be able to collect data is a big reason for many merchants not to use Amazon’s new offering. Shopify’s offering will always be differentiated in this regard."

"AWS’s strength is its focus on infrastructure at scale; successfully moving e-commerce beyond aggregation to the same type of service business model would put his stamp on the company in a meaningful way, and, contra that quote in Bloomberg Businessweek, mark Jassy as nobody’s fool."

"Twitter is actually a host of microservices, including a user service (for listing a user’s timeline), a graph service (for tracking your network), a posting service (for posting new tweets), a profile service (for user profiles), a timeline service (for presenting your timeline), etc.; the architecture to tie all of these together and operate at scale all around the world is suitably complex."

"The general idea behind a services architecture is that various functionalities are exposed via application programming interfaces, more commonly known as APIs; a “client” will leverage these APIs to build an end user experience."

"There is no requirement that these clients be owned or managed by the centralized service, and for the first several years of Twitter’s existence, that is exactly how the service operated:"

"Mobile was an absolute boon for Twitter: the public messaging service, modeled on SMS, was a natural fit for a smartphone screen, and the immediacy of Twitter updates was perfectly suited to a device that was always connected to the Internet."

"The first problem that came from Twitter the service relying on third party clients is that the company, which descended into politics and backstabbing from the board level on down almost immediately, was drifting along without a business model"

"the obvious candidate was advertising, but the easiest way to implement advertising was to control the user interface (and thus insert ads — ads, including promoted tweets, are another distinct service from Twitter itself)."

"The second problem is that starting in 2010, a Silicon Valley entrepreneur named Bill Gross (who invented search advertising) started trying to build his own Twitter monetization product called TweetUp"

"witter responded in the short term by kicking several of Gross’s clients off of the platform for dubious terms-of-service violations, and in the long term by killing the 3rd party API for everyone."

"Twitter has, over 19 different funding rounds (including pre-IPO, IPO, and post-IPO), raised $4.4 billion in funding; meanwhile the company has lost a cumulative $861 million in its lifetime as a public company (i.e. excluding pre-IPO losses)."

"such is the value of Twitter’s social graph and its cultural impact: despite there being no evidence that Twitter can even be sustainably profitable, much less return billions of dollars to shareholders, hope springs eternal that the company is on the verge of unlocking its potential."

"At the same time, these three factors — Twitter’s financials, its social graph, and its cultural impact — get at why Musk’s offer to take Twitter private is so intriguing."

"but I have also made the argument that Twitter just isn’t well suited to direct response advertising in particular:"

"The goal is to mainline information, and Twitter’s speed and information density are unparalleled by anything in the world."

"On Instagram, though, you might follow brands and influencers, and your chief interaction with your friends is stories about their Turkey Day exploits."

"Instagram is leisurely and an escape, something you do when you’re procrastinating; Twitter is intense and combative, and far more likely to be tied to something happening in the physical world, whether that be watching sports or politics or doing work:"

"when you are leaning back and relaxed why not click through to that Shopify site to buy that knick-knack you didn’t even know you needed, or try out that mobile game? When you are leaning forward, though, you don’t have either the time or the inclination."

"What is valuable is that social graph: while Facebook understands who you know, Twitter, more than any other company, understands what its users are interested in."

"That is, in theory, much more valuable; said value is diminished by the fact that Twitter just doesn’t have that many users, relatively speaking; the users it has, though, are extremely influential, particularly given the important of Twitter in media, tech, and finance."

"For this group Twitter is completely irreplaceable: there is no other medium with a similar density of information or interest-driven network effects."

"This, by extension, drives Twitter’s cultural impact: no, most people don’t get their news off of Twitter; the places they get their news, though, are driven by Twitter."

"First, Twitter’s current fully integrated model is a financial failure."

"Second, Twitter’s social graph is extremely valuable."

"Third, Twitter’s cultural impact is very large, and very controversial."

"Given this, Musk (who I will use as a stand-in for any future CEO of Twitter) should start by splitting Twitter into two companies."

"One company would be the core Twitter service, including the social graph."

"The other company would be all of the Twitter apps and the advertising business."

"Pay for the right to get access to the Twitter service and social graph."

"Market competition would settle the question about whether or not stringent moderation is an important factor in success; some client experiences would be heavily moderated, and some wouldn’t be moderated at all."

"The fact that everyone gets access to the same Twitter service and social graph solves the cold start problem for alternative networks; the reason why Twitter alternatives always fail is because Twitter’s network effect is so important."

"If you can know how to reach someone, and have the means to do so, you are set, whether you be a critical service, an advertiser, or anything in-between."

"The surest evidence of the Twitter board’s lack of imagination and ineffectiveness is that their response to Musk’s proposal is to further dilute existing shareholders as a means of denying Musk control."

"Indeed, when you consider the fact that Twitter’s board members not only don’t own much of Twitter, but famously, barely use Twitter at all, it is easy to wonder if the actual goal is not financial results but rather harnessing that immense cultural impact."

"This, more than anything, makes me even more sure that my proposal for competition amongst Twitter client companies is essential: not only do I think that more competition would lead to dramatically more innovation, but it would also solve the problem of who decides what we see by undoing the centralization of that power and subjecting decisions to market forces."

"The first platform was the Shopify App Store, launched in 2009, where developers could access the Shopify API and create new plugins to deliver specific functionality that merchants might need."

"At the same time Shopify also vertically integrated to incorporate features it once left to partners; the most important of these integrations was Shopify Payments, which launched in 2013 and was rebranded as Shop Pay in 2020."

"That independence doesn’t just mean one-person entrepreneurs either: good-size brands like Gymshark, Rebecca Minkoff, KKW Beauty, Kylie Cosmetics, and FIGS leverage Shopify to build brands that are independent of Amazon in particular."

"Facebook’s App Install product quickly became the most important channel for acquiring users, particularly for games that monetized with Apple’s in-app purchase API: the combination of Facebook data with developer’s sophisticated understanding of expected value per app install led to an explosion in App Store revenue."

"It’s worth underlining this point: the App Store would not be nearly the juggernaut it is today, nor would Apple’s “Services Narrative” be so compelling, were it not for the work that Facebook put in to build out the best customer acquisition engine in the industry (much to the company’s financial benefit, to be clear); Apple and Facebook’s relationship looked like this:"

"Facebook was by far the best and most efficient way to acquire new users, while Apple was able to sit back and harvest 30% of the revenue earned from those new users."

"Facebook plays a similar role for e-commerce, particularly the independent sellers that exist on Shopify:"

"What makes Facebook’s approach so effective is that its advertising is a platform in its own right."

"Just as every app on a smartphone or every piece of software on a PC shares the same resources and API, every advertiser on Facebook, from app maker to e-commerce seller and everyone in-between, uses the same set of APIs that Facebook provides."

"What makes this so effective, though, is that the shared resources are not computing power but data, especially conversion data"

"A user downloads an app, or makes an e-commerce purchase; Facebook’s SDK, which is embedded in the app or e-commerce site, again records the IDFA or notes the referral code that led the user to the site, and charges the advertiser for a successful conversion."

"Advertisers take out new ads on Facebook asking the company to find users who are similar to users who have purchased from them before (Facebook knows this from past purchases seen by its SDK, or because an advertiser uploads a list of past customers)."

"The critical thing to understand about this process is that no one app or e-commerce seller stands alone; everyone has collectively deputized Facebook to hold all of the pertinent user data and to figure out how all of the pieces fit together in a way that lets each individual app maker or e-commerce retailer acquire new customers for a price less than what that customer is worth to them in lifetime value."

"This, by extension, means that Shopify doesn’t stand alone either: the company is even more dependent on Facebook to drive e-commerce than Apple ever was to drive app installs."

"the key thing to understand is that ATT broke the Facebook advertising collective."

"On the app install side this was done by technical means: Apple made the IDFA an opt-in behind a scary warning about tracking, which most users declined."

"The e-commerce side is more interesting: while Apple can’t technically limit what Facebook collects via its Pixel on a retailer’s website, ATT bans said broad collection all the same."

"It’s unclear what happened to change Facebook’s mind; had they continued on their original path then their app advertising business would have suffered from a loss of data, but the e-commerce advertising would have been relatively unaffected (the loss of IDFA-related app install data would have decreased the amount of data available for that machine learning-driven targeting)."

"What seems likely — and to be clear, this is pure speculation — is that Apple threatened to kick Facebook and its apps out of the App Store if it didn’t abide by ATT’s policies, even the parts that were technically unenforceable."

"Ads were hard to tie to conversions, conversions were hard to tie to users, which meant that users and advertisers were hard to tie to each other, resulting in less relevant ads for the former that cost more money for the latter."

"Search advertising is the best and most profitable form of advertising."

"Amazon faces no data restrictions. That noted, Amazon also has data on its users, and it is free to collect as much of it as it likes, and leverage it however it wishes when it comes to selling ads."

"This almost certainly made a difference for Amazon as well: one of the most affected areas of Facebook advertising was e-commerce; if you are an e-commerce seller whose Shopify store powered-by Facebook ads was suddenly under-performing thanks to ATT, then the natural response is to shift products and advertising spend to Amazon."

"Amazon is pursuing customers and bringing suppliers and merchants onto its platform on its own terms; Shopify is giving merchants an opportunity to differentiate themselves while bearing no risk if they fail."

"Amazon may commoditize suppliers, hiding their brand from website to box, but if its offering is truly superior, suppliers don’t have much choice."

"That was increasingly the case with regards to fulfillment, particularly for the small-scale sellers that are important to Shopify not necessarily for short-term revenue generation but for long-run upside."

"What Shopify is doing is what platforms do best: act as an interface between two modularized pieces of a value chain."

"We expect that these changes will enable us to deliver packages in 2 days or less to more than 90% of the U.S. population, while minimizing the inventory investment for SFN merchants."

"Amazon, as noted, is well ahead of the curve here: because the company’s third-party merchant ecosystem lives within the Amazon.com website and app, Amazon has full knowledge of conversions and the ability to target consumers without any interference from Apple."

"First, Shopify doesn’t have any major customer-facing properties to display ads; it could potentially build some cross-shop advertising, but that doesn’t seem very ideal for either merchants or customers."

"I suspect the response of many close Shopify watchers is that such an initiative is not in the company’s DNA; that, though, is why the evolution of the Shopify Fulfillment Network is so notable: building and operating warehouses wasn’t really in the company’s DNA either, but it is the right thing to do if the company is going to continue to power The Anti-Amazon Alliance."

"Merchants can then use these audiences when advertising on FB, Snap, Twitter, and other ad platforms1 either as custom audiences or lookalike audiences which should result in higher-performing ads and lower cost per conversion to acquire customers/sales."

"The broader takeaway, though, is that Shopify’s real value proposition is working across markets, not creating an exclusive one."

"Facebook’s motivations are clear: conversions in Facebook Shops can be tracked in a way conversions on websites no longer can be, which will result in in more effective advertising; it is to Shopify’s credit that they are seen as such an important and credible partner that Facebook is going as far as incorporating Shop Pay as well."

"That is why it is a good thing that Shopify is integrating elsewhere in its business: profits in a value chain follow integration, and the more that Shopify is intertwined with the biggest players the more it needs to find other ways to differentiate."

"Ethical Wall = Value Wall"

"Journalists pride themselves on an ethical wall between the editorial and business sides of the newspaper. This, in theory, allows the journalist to pursue the “truth”, without concern for undue influence."

"As far as I know, this is nearly universally accepted as a good thing. It’s also a big red flag, at least if you are someone like me who is interested in how businesses are built."

"The problem with this arrangement is a familiar one: the end user is the product, not the customer, no different than advertising-based businesses on the web, such as Google or Facebook."

"While this sort of division usually inspires concern that the quality of the end-user product will suffer, the opposite is also the case: it doesn’t matter how good the end-user product is if the money-making side of the business isn’t in good shape. This is exactly what is wrong with newspapers, and why, to journalists especially, the demise of newspapers feels like such an intractable problem: the quality of their work is mostly irrelevant to the financial well-being of their employer."

"The infinite array of content = an infinite amount of advertising inventory, destroying its worth"

"The nature of Internet advertising makes it possible to gather much richer data about consumers than was ever possible offline"

"Commanding top rates depends not only on capturing consumers versus infinitely more competitors, but also knowing more about those consumers than anyone else. Targeting information is the new scarcity in advertising. It is the only way to sustainably increase average revenue per user."

"Unfortunately, advertisers don’t, and newspapers are paying the price for having long ago divorced the cost of their content from the value readers place upon it. To put it another way, it’s not that “the Internet has unbundled advertising from content creation,” it’s that advertisers (rightly) don’t give a damn about journalistic ideals."

"The Internet provide three huge advantages over newspapers:"

"Distribution is, for all intents and purposes, free."

"The addressable market – everyone with an Internet connection who can read the writer’s language – is multiple orders of magnitude larger than that of any traditional newspaper"

"The potential reach of any given post is equal to the addressable market, thanks to social networks like Twitter, Facebook, and even email"

"Unfortunately for The New York Times, when it comes to making money they’re competing with Google and Facebook. Most distressingly, though, when it comes to costs, they’re competing with the last 150 years. Everything from printing presses to sales and marketing is deadweight if advertising is not a sustainable model."

"newspapers made their bed with advertisers, and when advertisers left for a better product, the newspaper was doomed. To change destiny, journalists need to fundamentally rethink their business:"

"More and more journalism will be small endeavors, often with only a single writer. The writer will have a narrow focus and be an expert in the field they cover."

"Monetization will come from dedicated readers around the world through a freemium model"

"A small number of dedicated news organizations focused on hard news (including the “Baghdad bureau”) will survive after a difficult transition to a business model primarily focused on subscriptions, with premium advertising as a secondary line of revenue."

"This transition will be a painful one: the number of traditional journalists and newspapers will decrease dramatically. Moreover, those that succeed will need to have a much expanded skillset from journalists of yore, including basic website management, self-promotion, business skills, speaking ability, etc."

"the same principle of the best killing the average still applies."

"But the control of distribution that was so profitable IRL hasn’t ended online. It just moved, passing from newspapers, TV stations, and the post office to the companies in Andreessen’s portfolio, which happen to have zero cost of content: Google, Facebook, and Twitter (plus the ISPs)."

"map the demise of newspapers against the evolution of communication on the Internet:"

"Stage 1 was simply moving offline content online. This let anyone anywhere access the objectively best, like the New York Times. This decimated a lot of local newspapers, like the Wisconsin State Journal"

"Stage 2 was the introduction of user-generated content broadly, and social specifically. This dramatically increased the range of content available, even as it made it easier to find content subjectively better for any one person."

"Stage 3 is the mobile and contextual stage, highlighted by the rise in messaging. This is about delivering content that is not just personalized but contextually appropriate to my specific situation."

"The existential problem for the news is that the Internet has unbundled advertising from content creation. The new digital monopolies all have hundreds of millions of people creating free content for them. That’s where the big profits are."

"The equivalent of Google, Facebook, and Twitter in the pre-Internet days would be a newspaper that shut down its newsroom, kept the ad department (though replacing much of it with robots), and printed stuff other people wrote."

"The net result is that my news consumption looks a lot more like a power curve than a bell curve:"

"This, of course, is made possible by the Internet. No longer are my reading choices constrained by time and especially place."

"The implication of my news consumption being dominated by the tall skinny part of the power curve is that those who can regularly appear there – the best of the best – are going to win the zero sum game for my attention. And, for that, they will be justly rewarded."

"The reality of the Internet is that there is no more bell curve; power laws dominate, and the challenge of our time is figuring out what to do with a population distribution that is fundamentally misaligned with Internet economics."

"App stores have massively reduced barriers to entry, ultimately making apps less profitable than they were previously."

"Friction was the foundation of sustainability, and now friction is gone."

"Friction was the foundation of our job market, and now friction is gone."

"This blog will soon return to the more concrete world of high-tech strategy, value chains, and app store economics, but underlying everything is the seismic change that is only just beginning: if there is a single phrase that describes the effect of the Internet, it is the elimination of friction."

"With the loss of friction, there is necessarily the loss of everything built on friction, including value, privacy, and livelihoods. And that’s only three examples! The Internet is pulling out the foundations of nearly every institution and social more that our society is built upon."

"Pivot number two was their transformation from a content delivery provider to simply another network."

"What is revolutionary about on-demand streaming in general and Netflix in particular is that the service has commoditized time"

"On the other hand, Netflix’s absolute embrace of the commoditization of time sends an important message to both content creators and content consumers that the service is first and foremost committed to connecting each side of the content equation as efficiently as possible."

"When you think about it that way — that Netflix isn’t so much a network as they are a type of marketplace in which consumers can give their attention to creators — it becomes apparent that Netflix isn’t that far off from Uber or Airbnb or any of the other market-makers that are transforming industry-after-industry."

"instead of the sort of lowest common denominator fare that characterized the first several decades of TV, it’s far more important to have “must-see” shows and events, even if the number of people for whom said shows and events are must-see is relatively small; all that matters is that these fans base their pay-TV subscription decision on access to said shows and events."

"This reality — that networks were just as reliant on (another sort of) subscription revenue as Netflix — is what led to my conclusion that Netflix was “HBO with a unique delivery system.”"

"Formally, the law of conservation of attractive profits states that in the value chain there is a requisite juxtaposition of modular and interdependent architectures, and of reciprocal processes of commoditization and de-commoditization, that exists in order to optimize the performance of what is not good enough."

"The law states that when modularity and commoditization cause attractive profits to disappear at one stage in the value chain, the opportunity to earn attractive profits with proprietary products will usually emerge at an adjacent stage."

"If you think about it in a hardware context, because historically the microprocessor had not been good enough, then its architecture inside was proprietary and optimized and that meant that the computer’s architecture had to be modular and conformable to allow the microprocessor to be optimized."

"But in a little hand held device like the RIM BlackBerry, it’s the device itself that’s not good enough, and you therefore cannot have a one-size-fits-all Intel processor inside of a BlackBerry, but instead, the processor itself has to be modular and conformable so that it has on it only the functionality that the BlackBerry needs and none of the functionality that it doesn’t need. So again, one side or the other needs to be modular and conformable to optimize what’s not good enough."

"When the basis of competition changed away from pure processor performance to a low-power system the chip architecture needed to switch from being integrated (Intel) to being modular (ARM), the latter enabling an integrated BlackBerry then, and an integrated iPhone four years later"

"More broadly, breaking up a formerly integrated system — commoditizing and modularizing it — destroys incumbent value while simultaneously allowing a new entrant to integrate a different part of the value chain and thus capture new value."

"I discussed Airbnb last week: the service commoditized trust, divorcing it from the underlying physical property. That freed Airbnb to integrate trust into a worldwide network of hosts and guests:"

"Airbnb modularizes property allowing it to integrate trust and reservations."

"Uber has a trust element as well (as do nearly all the sharing companies), but even more important was how the service commoditized dispatch and modularized cars:"

"Netflix has pulled a similar maneuver: by commoditizing time and distribution the company has integrated production and customer management:"

"Note the common element to all three of these companies: all have managed to modularize the production/delivery of their service which has allowed them to move closer to the customer."

"it’s not only that Netflix is integrated around the customer experience, it’s that they’re modularized around the content creation as well;"

"Integrated profits are the yin to modularization efficiencies’ yang, and the most promising companies are the ones that create the biggest breaks with the past."

"A smiling curve is an illustration of value-adding potentials of different components of the value chain in an IT-related manufacturing industry…According to Shih’s observation, in the personal computer industry, both ends of the value chain command higher values added to the product than the middle part of the value chain. If this phenomenon is presented in a graph with a Y-axis for value-added and an X-axis for value chain (stage of production), the resulting curve appears like a “smile”."

"What makes this observation particularly ironic is that Acer is the epitomical company at the bottom of the curve. They put PCs together, but it was the critical component makers like Intel and Windows that captured most of the value on the left, and systems integrators and value-added resellers like IBM or Accenture that captured the rest of the value on the right"

"Acer and its merry band of 8 OEMs competed themselves to single digit margins and ultimately stagnant growth; there simply isn’t any money in the undifferentiated middle."

"Fortunately for Acer, their smartphone efforts have largely failed, so they are being spared the same cycle in mobile:"

"For traditional publishers, the home page may soon become akin to the print edition — nice to have, but not the primary attraction. In the last few months, more than half the visitors to The New York Times have come via mobile — the figure increases with each passing month — and that percentage is higher for many other publishers."

"Here’s the thing: the shoe has in many respects already dropped. When people follow a link on Facebook (or Google or Twitter or even in an email), the page view that results is not generated because the viewer has any particular affinity for the publication that is hosting the link, and it is uncertain at best whether or not their affinity will increase once they’ve read the article."

"If anything, the reader is likely to ascribe any positive feelings to the author, perhaps taking a peek at their archives or Twitter feed."

"Over time, as this cycle repeats itself and as people grow increasingly accustomed to getting most of their “news” from Facebook (or Google or Twitter), value moves to the ends, just like it did in the IT manufacturing industry or smartphone industry:"

"Traditional publishers, meanwhile, are stuck in the middle. The New York Times, the most august publisher of all, is worth a mere $2.03 billion"

"One of the great paradoxes for newspapers today is that their financial prospects are inversely correlated to their addressable market. Even as advertising revenues have fallen off a cliff – adjusted for inflation, ad revenues are at the same level as the 1950s – newspapers are able to reach audiences not just in their hometowns but literally all over the world."

"The problem for publishers, though, is that the free distribution provided by the Internet is not an exclusive. It’s available to every other newspaper as well."

"In short, publishers (all of them, not just newspapers) don’t really have an exclusive on anything anymore."

"the publisher’s demonstrated that they provide no value to their writers."

"I remain convinced that the most successful writers and publications will pursue a similar strategy: do what they do best and accrue outsized value relative to publishers that are rapidly shifting from platform to obstacle."

"You can also view AT&T’s decision to lock the Apple SIM to their network in a similar light: they are trying to stave off their inevitable future as a dumb pipe between valuable content and valuable devices."

"All of this is because of the Internet: by removing friction it removes the need for folks in the middle, and the result is that value will flow to the edges. In the case of publishing that is aggregators on one side, and focused, responsive, and differentiated writers and publications on the other."

"And, given that we are all humans and crave human interaction and affection, we are more than happy to give massive amounts of attention to messaging, to those who matter most to us, and who are always there in our pockets and purses."

"This, by extension, dictates that messaging is incredibly valuable: in a world of effectively infinite content and zero distribution costs the only scarce resource is attention, and if messaging is indeed the recipient of “massive amounts of attention” it has massive value."

"The big challenge in getting a messaging service off the ground in the United States is that, unlike the rest of the world, text messaging has long been free. The reason this matters is that while it is very difficult to get even one person to change their habit or workflow, it is exponentially harder to get a critical mass of people to change all at the same time."

"This, above all, is why WhatsApp in particular was able to become the fastest growing social network of all time, even with a skeletal team of engineers: the company basically offered text messaging for free just as people were getting their first smartphones, which was a delta of improvement that significantly exceeded the cost of changing how you and your family and friends communicated."

"Beyond the fact this is much more akin to how we actually talk in the real world, disappearing messages were particularly attractive to teens put off by the prospect of their parents, future admissions officers, future employers, and whoever else spying on what they said."

"Moreover, the primary means of communication was not text but rather a picture, often a selfie."

"Netflix started by using content that was freely available (DVDs) to offer a benefit — no due dates and a massive selection — that was orthogonal to the established incumbent (Blockbuster). This built up Netflix’s user base, brand recognition, and pocketbook"

"Netflix then leveraged their user base and pocketbook to acquire streaming rights in the service of a model that was, again, orthogonal to incumbents (linear television networks)"

"Rung 1: Stories"

"they were user-generated “shows” that forced you to use the app daily to not miss, and they could be private or public."

"stories were a natural extension of Snapchat’s original value proposition, but a fundamental change in the nature of the service all the same: whereas chats were reactive, based on notifications, consuming stories was more of a “sit-back” experience."

"Secondly, though, while using a PC required intent, the use of mobile devices occupies all of the available time around intent."

"Rung 2: Discover"

"Moreover, Discover doubled-down on the benefits brought by Stories: first, they were another way to occupy more and more attention, and second, they were an even more natural advertising vehicle."

"Secondly, Discover was a natural place to experiment with the brand advertising that is Snapchat’s future: professional content has long been associated with professional ads."

"Rung 3: Feeds and Optionality"

"tickers are a fantastic money-maker in their own right."

"the potential for stickers goes beyond direct sales. LINE made significantly more (~$318 million) from sponsored stickers, in which advertisers sponsor free sticker packs that can be acquired by following the company in question, thus establishing a direct marketing channel"

"first, by delivering an orthogonal product that appealed to an underserved market, and then leveraging that position into an array of products that have both expanded the addressable market and increased the service’s monetization potential."

"What has made CEO Mark Zuckerberg’s leadership so exemplary is the degree to which the founder has been willing to not only surround himself with experienced executives but also learn and grow in areas in which he has no experience."

"The result is a company that not only delivers compelling products but is also deeply committed to its advertising business and, by extension, the success of those using Facebook to reach consumers."

"Most successful companies, including Apple, including Google, seem remarkably capable of ignoring the naysayers and simply doing what is right for their company."

"And yet, even if it is possible to build just about anything, the ultimate constraint is the attention of the end user: what do they actually want to do, and does your product help them do it?"

"Instagram is an opportunity to put forward the best representation of yourself, complete with a feedback loop driven by likes."

"What makes the Snapchat threat to Facebook unique is that it does a fundamentally different job: by starting with ephemerality Snapchat gave its users, initially teens eternally eager to escape adults’ prying eyes, permission to be themselves."

"And so while Snapchat has photos and videos and messaging — just like Facebook and Instagram — it is not complementary but orthogonal."

"In a vacuum this is fine: by virtue of doing a different job Snapchat is not really a threat to Facebook’s (or Instagram’s) core use case or primary value proposition, which is owning identity."

"Meanwhile, Snapchat was laddering up: just before Facebook’s offer the network added Stories, adding the ability to broadcast (still ephemeral) collections of photos and videos to its core messaging product."

"It was and remains a killer concept: television for mobile in which users are the star of their own show, and the lack of an explicit “like” feedback loop was a feature, not a bug. Post whatever you like, don’t worry if anyone else agrees, and besides, it will all disappear tomorrow."

"The first mistake most incumbents make when building new products in response to threatening new competitors is to attempt to win on features."

"To return to the phone example, Nokia and Microsoft tried to build something distinctly different from the iPhone, with a completely different user interface, features like Live Tiles, and various content hubs."

"When Google launched their Facebook competitor in 2011 they touted features like Circles to organize your friends, Sparks to find content to share, and Hangouts to video chat. These made Google+ “better” and “differentiated”, which is another way of saying more complicated; meanwhile the most important feature — your friends — was nowhere to be found."

"The problem with focusing on features as a means of differentiation is that nothing happens in a vacuum: category-defining products by definition get a lot of the user experience right from the beginning, and the parts that aren’t perfect — like Facebook’s sharing settings or the iPhone’s icon-based UI — become the standard anyways simply because everyone gets used to them."

"Still, cloning isn’t enough. The fact features don’t offer useful differentiation does not remove the need for differentiation: the key is figuring out what else can be leveraged."

"Google, for example, may have largely copied the iPhone’s UI, but the key to Android’s success was the search company’s ability to leverage their advertising-based business model to offer it for free."

"in perhaps the most famous example of this strategy, Microsoft embraced web standards with Internet Explorer, extended their browser’s capabilities with features like ActiveX, eventually extinguishing the threat when Netscape couldn’t keep up."

"You can’t just recreate another product. But you can say ‘what’s really awesome about a format? And does it apply to our network?’"

"What Instagram Stories can do, though, is remove the motivation for the hundreds of millions of users on Instagram to even give Snapchat a shot."

"Getting consumer adoption of new products is hard; when that adoption requires a network, it’s harder still, at least if most of your network is not using said product; on the flipside, those same difficulties become massive accelerants once the product passes a certain threshold of your friends."

"because of your friends. They’re already on Instagram, and that fact isn’t so easily copied. Share"

"Facebook, on the other hand, is built on the social graph: its users’ relationships. And given that the very nature of humanity is to connect and communicate with other humans, the need that Facebook has traditionally met will be with us forever. The only danger is that another service somehow takes Facebook’s place as the Rolodex of the world."

"Facebook was not originally created to be a company. It was built to accomplish a social mission – to make the world more open and connected."

"I am starting to wonder if these two ideas — company versus mission — might not be more in tension now than they have ever been in the past."

"I’m increasingly convinced that Facebook has an absolutely massive business opportunity on its hands: to capture, almost completely, the imminent wave of advertising dollars deserting TV for digital."

"To do so, though, will require an embrace of Facebook’s status as the “homepage of the Internet” (on mobile in particular), and an abdication of sorts of the social interactions that built the company."

"Twitter may offer interest-based targeting, for example, but your typical brand manager simply doesn’t have the time or expertise to optimize every dollar across a broad array of platforms. Efficiency is just as much a feature of advertising as is targeting capability, conversion tracking, or price."

"I suspect that Zuckerberg for one subscribes to the first idea: that people find what others say inherently valuable, and that it is the access to that information that makes Facebook indispensable."

"Facebook is slowly but surely building a bridge between the left and right sides of that curve: publishers are being invited into a revenue-sharing content-on-Facebook deal now, but what is to stop the program from extending to individuals?"

"That was definitely more of a feature than a bug in China, where any information service was subject to not just overt government censorship, but also an expectation of self-censorship; all the better to control everything that end users saw, without the messiness of users explicitly recommending content themselves"

"Assuming that advertising revenue is a reasonable proxy for attention, it turns out that humans like pictures more than text, and moving pictures most of all; so it has gone on the Internet."

"The point was not to win users back from Snapchat, but to prevent Instagram users from even trying Snapchat out; the gambit succeeded beautifully."

"while part of Snapchat’s allure was the possibility of creating a new network in an app predicated on chat and disappearing media, what made Stories particularly compelling is that the experience was closer to video."

"The error the company made is obvious in retrospect: what has always made Facebook powerful is that its most valuable content is generated by its own users, yet the company was counting on 3rd-parties to make compelling videos."

"The crucial missing piece, though, is that TikTok isn’t really a social network."

"by expanding the library of available video from those made by your network to any video made by anyone on the service, Douyin/TikTok leverages the sheer scale of user-generated content to generate far more compelling content than professionals could ever generate, and relies on its algorithms to ensure that users are only seeing the cream of the crop."

"The single most important fact about both movies and television is that they were defined by scarcity:"

"So it is on TikTok, or any other app with user-generated content. The goal is not to pick out the hits, but rather to attract as much content as possible, and then algorithmically boost whatever turns out to be good"

"Unlike Quibi, though, it is also an entertainment entity predicated on Internet assumptions about abundance, not Hollywood assumptions about scarcity."

"At the same time, from a narrow economic perspective, the truth is that China has been limiting the economic upside of U.S. companies far longer than the U.S. has tried to limit China’s."

"one of the gravest errors made by far too many people in the U.S. is taking an exceptionally self-centered view of U.S.-China relations, where everything is about what the U.S. says and does, while China is treated like an NPC."

"But Chinese communists believe that the greatest threat to the security of their party, the stability of their country, and China’s return to its rightful place at the center of human civilization, is ideological."

"While traditional applications on Macs or PCs had full access to your computer — including your email — on modern smartphones apps exist in “sandboxes”, which, as John Gruber and I discussed on Dithering, are much more akin to a vault or a prison; apps can only access their own data, and a limited set of external data to which they are explicitly granted permission."

"The point, though, is not just censorship, but its inverse: propaganda. TikTok’s algorithm, unmoored from the constraints of your social network or professional content creators, is free to promote whatever videos it likes, without anyone knowing the difference."

"TikTok is not only a brilliant app that figured out video on mobile, it is also shaping up to be a major challenge to Facebook’s hold on attention and thus, in the long run, advertising."

"Two entrepreneurs not really knowing what to do, what’s next. We were working on a small location-sharing app called Bourbon. As part of Bourbon you could share your location, and the two parts of sharing your location were posting a photo and posting a video. We decided that we needed to do something new, so we created Instagram out of Bourbon."

"Right now, we are trying to build new experiences primarily in four areas."

"The first is creators, and I’ve talked a lot about creators and trying to help them make a living. And this has to do with the shift in power from institutions to individuals across industries."

"The second is video. Video is driving an immense amount of growth online for all the major platforms right now, and I think it’s something we need to lean into more — and I’m actually going to talk about that more in a minute."

"The third is shopping. Now the pandemic shifted, or accelerated the shift of commerce from offline to online by a number of years, and we’re trying to lean into that trend."

"the fourth is messaging. How people connect with their close friends has changed a lot over the last five years or so and it has moved primarily to Messaging and away from Feed and Stories products."

"The number one reason that people say that they use Instagram in research is to be entertained. So people are looking to us for that."

"So what you’re going to see over the next couple of months really is us start to experiment more in the space of what we call recommendations, so showing you things in Feed that you may not be following yet."

"From Tool to Network"

"Instagram didn’t even start as primarily a photo-sharing app: it was a photo-filter app, focused on making photos look good on ancient iPhone cameras and posting them on other social networks."

"Instagram’s initial hook was the innovative photo filters. At the time some other apps like Hipstamatic had filters but you had to pay for them."

"Instagram also made it easy to share your photos on other networks like Facebook and Twitter. But you could also share on Instagram’s network, which of course became the preferred way to use Instagram over time."

"the app famously booted up its initial network on top of the Twitter graph, allowing you to easily discover and follow everyone you already followed on Twitter."

"What I can tell you is that at our core visual imagery is everything. It’s in our DNA, and it’s what drives us…"

"Photos are certainly “moments” and “visual imagery”, but only a subset; video was the obvious evolution."

"The one part that we brought was photos, but we left video on the side. Why is that? Because we said the three things we want to be really good at are speed, simplicity, and beauty."

"One of the defining characteristics of digital services relative to analog services is that they need not be limited by medium: a magazine can only ever have photos, while a television show can only ever be videos, but when everything is 1s and 0s there is no need to be constrained by one particular manifestation of those 1s and 0s. Instagram has understood this from the beginning; the fact it started as only a photo app was due to the constraints of technology, not ideology."

"“I want to judge what’s important, not have some algorithm tell me what it thinks is important.”"

"Rather, an algorithmic feed is exactly what Facebook says it is: a way to drive engagement by showing users more of what they actually want to see, and, by virtue of driving engagement, gaining the opportunity to show users that many more ads."

"Facebook knows better than anyone that, when it comes to their services, revealed preference — what users actually do — is a far more powerful indicator than stated preference — what they say they want."

"Instagram’s biggest shift, though, and the episode from which you can draw a straight line to Mosseri’s video, was its introduction of Stories."

"Stories, pioneered by Snapchat, were native to mobile specifically."

"their ephemeral nature was also a powerful lure to keep you coming back to the app day-after-day."

"What differentiated Instagram was the product of its initial evolution — the network — and adding a new format to that network was, broadly speaking, no different than adding an algorithmic feed."