My favorite section of a used book store is the art books — they offer me a chance to pick something up that would be way too expensive otherwise. A few weeks ago, I was perusing a nook at a local bookshop in London and came across Airline: Identity, Design and Culture by Keith Lovegrove1. As I flipped through its pages, the photos of airplane interiors from the 60s and 70s exuded a sense of glamor and elegance. It makes you think that if you were alive then, you too would dress up in your tweed sport coat and dress shoes, breeze through a TSA-free airport and feel like Don Draper from Mad Men in your plush leather seat.

Of course it is tempting to wish for this bygone era of luxury and decadence. When cocktails and lobster were served in real glasses and real plates. And you could often get this on a coach ticket.

You want to go back to this golden age of no hawking of credit card offers2. Where you didn’t feel the need to drown it all out with noise-canceling headphones after you’ve been given your measly rationed Biscotti and water. Forget coach, not even the paid-thousands-of-dollars-because-their-company-is-covering-it First Class folks are spared today — they make the announcements from the front row!

So what the hell happened? 

How did we end up in this alternate dimension where it seems like a new episode of QVC is being filmed on your airplane during every flight? And how did piano bars, exquisite lounges, and just plain old dignity get stripped from American aviation?

In short, why is flying not sexy anymore?

The story here is one of de-regulation, revealed preferences, and political ambition. It’s also one of how government intervention can both support and hinder the growth of an industry. Importantly, as we go through the evolution of the industry, you will fee; a sense of inevitability towards the forces of deregulation. But how and when that deregulation happened is the story of how the grandest ambitions — judicial and presidential — of a few people breathed life into economic forces.

It’s a story that takes us through the decades from the wild west of the 20s to the New Deal to the booming 50s and 60s and culminates in the Airline Deregulation Act of 1978 and its aftermath. We will end up with lessons not just for the regulation of the airline industry, but for the broader concept of government regulation of fast-moving technological forces.

Let’s dig in, starting with a basic history of the industry.

Take off: 1920s to 1938

Ever since the first flight at Kitty Hawk by the Wright brothers in 1902, airlines have represented one of the pinnacle achievements of mankind. The power to fly across large distances has been transformational to the socio-economic makeup of the world. In the United States, the development of the airline industry for the first two decades after Kitty Hawk was haphazard. The military funded development and production of aircraft during World War 1, but it was only after the war wrapped up that the government took a proper look at what was happening in the “industry” — if you could call a bunch of uncoordinated routes and dangerous landings an industry. What it saw was that in a world where going up in the air was more for adventurers than for businessmen (with a fatality rate of 1 death per million mile3), airmail was the baby food that the industry was growing up on. No less a personality than Charles Lindbergh4 was the chief pilot on the St. Louis — Chicago airmail route.

Looking at this uncoordinated and dangerous situation, the 68th Congress passed the Air Mail Act of 1925 which primarily served to create a system of competitive bidding and subsidies for airmail service that airlines could bid on. While these subsidies were on the order of $7 million per year by 1930 and stimulated demand for airmail services, the competitive bidding process meant that profits were paltry. This means that (1) they didn’t make any money which tends to make businessmen unhappy and (2) there was no excess capital that could be reinvested into the industry to make aircraft better. This reinvestment was critical as the pinnacle of airline technology at this time was the Curtiss JN-4, which had two seats and a small cargo hold.

Unhappy, the major players at this time complained to the person in charge of airmail, the Postmaster General of the United States.

In response, the Postmaster General at the time led a campaign to give himself the authority over routes and mail rates in 1930. This was — in line with the political power that the Postmaster General could flex at this time5 — a successful campaign. The McNary-Watres Act of 1930 gave him complete authority over the nascent airline industry. Just as soon as Congress had christened him as the Godfather of the skies, he got all the major players together in what was later called the “Spoils conference” and divided the country into three areas — giving the southern route to American Airways, the central route to Trans Continental and Western Air, and the northern route to United Airways. This was, in effect, a cartel with the full backing of the United States Congress. 

Obviously, this was not great in principle — one man ruled supreme when it came to the skies and he could dole out patronage to whoever he wanted. But the noncompetitive bidding for the mail contracts allowed passenger service to grow as improvements in aircraft technologies were made from excess profits. For instance, for the first time ever, there was a New York to Los Angeles route, made possible by larger bodies and a less bumpy ride.

But it was not politically sustainable. When people learned of the back room deals that the Postmaster General had cut, there was a scandal in Washington, DC. Congress stripped the Postmaster General of his dictatorial powers over the skies of the country in the Black-McKellar Act of 1934 and made it a lot harder for existing carriers to bid on new contracts. As if on cue and no longer getting the highest level of subsidies, the industry started to operate at a loss.  

With a new President — Franklin D. Roosevelt — came the new ideology of the New Deal6 and the regulatory fever of the thirties was contracted by the airlines as well. One of the operating principles of this ideology was the idea of a goldilocks zone of regulation — there should be enough competition for companies to innovate, but not so much that they don’t have the money to do so.

With this in mind, Congress passed the Civil Aeronautics Act of 1938 which created the Civil Aeronautics Board (CAB) under the Department of Transportation as the regulatory body for the airline industry.

A quasi-political entity, the board had the power to control entry and exit, approve or modify ticket rates, set mail rates, control mergers, and optimize methods of competition7. It consisted of 5 members appointed for six year terms by the President with the consent of the Senate. It had a chairman (chosen by the President) who directed bureaucrats under him or her. It had two broad objectives: to both regulate and to encourage the growth of the airline industry.

The stage was set for the next 40 years of the airline industry.

Plenty of turbulence: 1940s to early 1960s

After World War II ended, there was a glut of pilots (more than 250,000 pilots were trained during the war period). If you can fly a Lockheed L-29 fighter plane over Tokyo, there is no reason why you couldn’t fly a Douglas DC-4 over Toledo. The number of pilots was often a limiting factor, but the industry now had the pilots to fly the planes. All that was needed were new routes for the CAB to approve.

And approve routes the CAB did. It doubled the number of miles in the airline network of the United States between 1938 and 1955. Better yet, many of these new routes were going to smaller carriers and the share of the Big Four of the airline industry (American Airlines, United Airlines, TWA8, and Eastern Airlines9) at the time went from 81% in 1939 to 71% in 1954. 

But the initial report card for the CAB was not just A-pluses down the sheet. It struggled to balance technological advances (note that airplanes were improving rapidly during this time period) and macroeconomic realities with its objective of a fixed utility-style rate-of-return for the airlines of around 10-12% across the entire industry.

This led to a low load factor10 of approximately 50-60%. Planes were flying half empty.

This entire system was doomed to fail because the airlines couldn’t dynamically change prices to meet the rate of return objective. Those too were set by the CAB. When this regulatory straitjacket and the technological necessities of a still nascent industry met the wrong curve of the business cycle, economic disaster ensued.

One such example was what happened in the late 1940s.

During World War 2, the predominant passenger plane in the United States was the Douglas DC-3, a 21 seater propeller plane. The next generation of aircrafts included the Douglas DC-4, a 44 seater four-engine plane, and the Lockheed Constellation with a pressurized cabin and 37 seats. These were meaningful advances in passenger capacity and experience back in the late 1940s, and the airlines wanted these planes.

To finance the transformation of their fleets, airlines took on debt. But in 1948, there was a brief recession and the industry was hard hit — passenger volume went down and operating margins turned negative.

In response, the CAB made the carriers increase these fares by 10% and shut the door to new entry for almost the next 10 years. Only by the mid 1950s when seats were being filled at these higher fares (driven by the booming 50s) would this ban on new entries be lifted under new chairman appointed by the new President, Dwight D. Eisenhower11.

This was a blueprint of how the CAB would regulate the industry for the next three decades.

Its response basically ran counter to the prevailing business cycle. When business was bad, it would ask airlines to increase fares and add subsidies to specific routes. When business was good, it would loosen restrictions to new entry. Almost by definition its policy prescriptions were always too little too late and the airlines had no choice but to follow them.

This blueprint was followed almost to the T again when another transformation of the airline industry’s fleet occurred with the advent of the jet age. Pan Am12 ordered 20 Boeing 707s and 25 DC-8s which could seat more than 100 passengers. Overall, the industry committed to more than a billion dollars in new equipment which added capacity and debt. To finance this, the CAB again increased fares first by 10% in 1958 and then by 5% in 1960.

Again, the airlines had little to no control in setting or changing these prices. This discouraged cost effectiveness and didn’t offer much in the way of customer choice. If you could afford to fly at these expensive rates, you did. If not — and most couldn’t — then that’s too bad, said the CAB.   

It’s worth mentioning here that this was not all bad. By coddling the industry with a fixed rate-of-return, the CAB ensured that technological innovations were always financed. From the DC-4 to the Boeing 707 to the DC-10 and the Boeing 747, the airline industry could always fall back on the ever higher fares set by the CAB. While terrible for the customers at the time, these advancements led to the development of the airplanes of today.

But even though the competitive urges of airline executives at the time could not find economic channels, it still found avenues of expression.

Even though prices was fixed, how did people decide which airline to fly? Well, sometimes there was only one airline on a particular route in the regulated world. So you didn’t have much choice. Sometimes, you had multiple airlines but there was only one that worked for your desired departure or arrival time. But on a popular route like New York—Chicago, there may be many airlines with similar departure and arrival times. How could an airline — say United — entice you to choose them when you would be paying the same price to American Airlines to go to the same place at the same time?

They could do so by making the flying experience luxurious — enter the “lounge wars.”

When the skies were luxurious: Late 60s and early 70s

The focus on “service competition” — focusing on the customer experience of flying — was always important with flying as the primary customers were wealthy businessmen with discerning tastes. It was even more important to differentiate yourself by your service when there was no difference in pricing between you and your competitors and this uniformity was mandated by the government.

But until the 1960s, airplanes were just not large enough to build anything inside them. So service competition was focused on making the individual customer feel special. This includes large seats, great meals, and the general hospitality. But this was not the golden age of decadent lounges and cocktail clubs in the air.    

That was enabled by the wide-bodied jets in service by the late 1960s, when airlines started to take out seats from large portions of their aircrafts which left them with enough space to put in other things to attract customers.

Some of these included:

• American Airlines installed piano bars with audience seating and in-flight movie projectors on their longer routes

• TWA countered with electronic draw poker machines13

• Continental Airlines had a bar in economy class called the politically-incorrect “Polynesian Pub” along with arcade games

• Southwest Airlines, then a plucky upstart, paired its tickets with a full-size bottle of whiskey. At one point, it was the largest distributor of Chivas Regal in the state of Texas!

• Passengers in coach on Southern Airways, known as the “Route of the Aristocrats”, were served complimentary glasses of Champagne along with a souvenir shot glass

It was the combination of government price regulation and the technological advance of larger, wide-bodied jets that enabled this expansion of luxury in the air. Some of the installations even explicitly played off CAB guidelines. For instance, even though seats were taken out to create space for a piano bar, the load factor calculations of a flight that the CAB assumed that the original seats were still there.

But these extravagances of businessmen with seemingly unlimited expense accounts were not sustainable. For they were about to meet the harsh economic realities of the early 1970s.

In 1973, an oil crisis was precipitated by the OPEC countries’ embargo of the shipment of oil to nations that had supported Israel in the Yom Kippur War. It translated into a 200-300% increase in the price of oil for a period of time. Combined with rising inflation, lower growth, and higher interest rates during these years, passenger demand plummeted. The CAB tried to counter by reducing the number of weekly flights by 10-38% across different city-pairs (reducing capacity would mean that more flights were more full and the airlines could continue to operate at a profit) with little to no impact.

This economic crisis of the early 1970s dovetailed with a more metaphorical — but still very real — crisis of the American public’s confidence in its government. This was the time of Vietnam and Watergate. A time when you didn’t need to fear just fear itself, but you would have had good reason to fear the crook in the White House. A time not too far away from the “Government is not the solution to our problem, government is the problem” days of Reagan.

In the midst of all that, a government agency setting extremely high fares and the top 1% engaging in karaoke in the air offended the nation’s sensibilities.

In particular, there was concern of the CAB — the regulatory body for the airlines — being “captured” by the airlines. This perception was created by (1) news leaking of closed door meetings with airline executives and CAB members where the public was not represented, and (2) a revolving door of employees between the CAB and the airlines.

Stephen Kotkin, most famously the author of the three-volume biography of Joseph Stalin, talks about how history is determined by structures and agents. Structures are the historical forces that make certain events almost inevitable. Agents are the people who give the forces a final push to make the events happen.

With the mismanagement of the airline industry under the CAB and broader political winds, the structures and conditions that could precipitate a call for the deregulation of the airlines were set by the early-1970s.

But critically, nothing happened. For it was not in anyone’s — at least no one with any influence — interest yet. The political will was the limiting factor to any changes in the airline industry.

For the agents were missing. But they would not be missing for long.

The Professor and The Lion: 1973 to 1978

If you walked along the dreamy corridors of Harvard Law School in 1973, one could find one such agent of upcoming events in a spry, almost-40 year old professor named Stephen Breyer14. Up until this point, Breyer had been an academic with a bent towards the commercial side. He had written extensively about deregulation in books like Breaking the Vicious Circle: Toward Effective Risk Regulation and Regulation and Its Reform, the latter of which was a hit in policy circles. Yet, despite his interest in the commercial, his ambitions were judicial and he would take frequent leave of absences to work on special projects for Washington insiders15.

Breyer knew through his research that airline deregulation could be an attractive political project. It had visibility and glamor (with the fancy lounges and all) for the broader public. It would be achievable too: neither the firms nor the unions were strong enough to resist a true push from Congress16, compared to other similarly regulated industries like trucking where the Teamster union reigned supreme.  

But Breyer was just an academic. In order to bring these ideas into the light and to make a name for himself, he would need someone with political power. And he found someone not just with power, but someone with the power of the most famous last name in the country.

Ted Kennedy was younger than John F. Kennedy and Robert F. Kennedy. He did not have the charm nor the intellect of his elder brothers. But he had the name. And on top of that name and a rock solid Senate seat in Massachusetts, he had built a portfolio of impressive legislative accomplishments tackling meaty liberal issues like civil rights and healthcare. He eventually came to be known as “The Lion of the Senate” for these contributions.

If Breyer’s ambitions were judicial, Kennedy’s were presidential. The Chappaquiddick incident in 196917 meant that he had not run for president in 1972, but he was eager to rebuild his image.

Kennedy knew many of the professors at Harvard, but it is also possible that Breyer and him met through one of Kennedy’s legislative aides who was a classmate of Breyer’s. When Kennedy asked for ideas that Breyer was interested in, the professor had airline deregulation at the very top of his list.

In airline deregulation, Kennedy saw a topic that voters could get behind. And unlike his other causes, this one would be popular with Conservatives (whose votes he would need if he ever wanted to be President) and help provide a common sense streak in his otherwise liberal image.

Along with a topic, he had a forum too. A forum he had created in the non-descript Subcommittee on Administrative Practice and Procedure under the Judiciary Committee, one of the 15 standing committees18 of the Senate. Its vagueness could have meant that it did not have jurisdiction over anything meaningful. But Kennedy turned this weakness into a strength and the subcommittee seemingly had jurisdiction over everything meaningful to the liberal cause that did not fall under the obvious purview of the other committees. In recent years, it had investigated issues like racial bias in the policies of the Defense and Transportation Departments (1969), the Selective Service System19 (1970), clemency for Vietnam War evaders, changes to the Freedom of Information Act, and other similar topics.

With this bully pulpit in the subcommittee and a deregulation expert in Breyer, Kennedy set hearings on the question Has regulation produced higher fares? in relation to the CAB in February 1975. In August 1974, Breyer took another sabbatical from Harvard to come work for the subcommittee.

But it was not going to be an easy fight. While the airlines occasionally suffered because of the policy whims of the CAB, they knew the devil they were dealing with and knew how to deal with it. They preferred the status quo. Congressmen were also eager to keep the high paying jobs that regulated airlines offered in their districts. De-regulation as a concept was new too, and there was concern around what it might do to a system that was falsely described as “the finest air transportation system” by the airlines.

Kennedy and Breyer had to be strategic.

Breyer first mobilized allies within the Executive branch — this being the Republican administration of Gerald Ford — who were philosophically hostile to government regulation of the airlines. He wanted to invite these experts from the Department of Justice’s Antitrust division, the Department of Transportation, and the Council of Economic Advisors to testify in front of the subcommittee to give the hearings a flair of bi-partisanship.

These were highly choreographed affairs. For example, one of the witnesses was John W. Barnum, the General Counsel for the Undersecretary and Deputy Secretary of the Department of Transportation, who later recalled a moment from the hearings:

Senator Kennedy started to quibble with some of my answers to the questions that his counsel [Stephen Breyer] had prepared for him to ask, and his counsel poked Senator Kennedy in the ribs and said with an audible whisper:

"That's the right answer, Senator. Ask the next question."

Breyer also prepared questions for the airlines to answer. This included questions on airline policies, revenues, costs, purchases, training programs, and general administrative procedures. To make sure that the hearings had the air of fairness (and to genuinely hear the other side of the arguments), this input from the airlines was critical.

Another group that Breyer reached out to was the CAB. He asked them around 50 questions around agency decisions, procedures, meetings that the CAB had with industry representatives, and other such concerns.

Breyer knew that the Senator had to tell a story to the other legislators and the American public — that of ineffective and potentially corrupt government regulation that was keeping fares high and strangling the full potential of the airline industry in serving the needs of the country. He structured the hearings such that the first day would present a problem, and the succeeding days would explore a particular aspect of the problem and how the CAB addressed it.

To tell this story, he also involved the press. Hearings were usually dull affairs, so a certain level of humdrumming of interest was necessary. In January of 1975, he met with reporters from the New York Times, the Washington Post, and the wire services and other publications. This would ensure that when the hearings would take place in a month, there would be adequate coverage.

The six days of hearing provided an opportunity for consumers, airlines, the CAB itself, experts from the government, and other prominent figures to present their views. Kennedy’s kickoff speech on day one summed up the thrust of his arguments:

Regulation has gone astray. Either because they have become captives of regulated industries or captains of outmoded administrative agencies, regulators all too often encourage or approve unreasonably high prices, inadequate service, and anticompetitive behavior. The cost of this regulation is always passed on to the consumer. And that cost is astronomical.

Through careful preparation on Breyer’s part and political machination on Kennedy’s, the hearing was a resounding success. Though the CAB was still likely not a household name, the public was now aware that it was responsible for sky high fares.

The next two years were spent on more hearings. These dove deeper into the issues presented in the first one. The time also offered the airlines to craft a response through substantive pushbacks on the real concerns of de-regulation and political leverage.

The airlines were generally opposed to de-regulation, but some in the industry knew that there could be advantages to it. United Airlines in particular was aware that their larger size — they had the largest fleet of airplanes and the most number of routes — meant that they could likely come out of deregulation with a stronger position than before. Smaller airlines like Southwest also preferred deregulation. Medium sized firms like American Airlines were concerned that they would be squeezed out. Then head of marketing for American and later its CEO, Bob Crandall, was heard after one round of hearings saying:

You fucking academic eggheads! You’re going to wreck this industry!

But no matter how much success he had had in making his pet project through his pet subcommittee a national topic through the hearings, Ted Kennedy was just a Senator. And in modern American history, while the engine that converts the will of the people into the statute books is Congress, the fuel for that conversion is usually provided by the Executive branch — the President. And in 1977, there was a new one in town20. 

The Peanut Farmer deregulates the airlines

Jimmy Carter was elected to the White House mostly because he was a good man. He was a clean break from the crooked President who insisted until the end that he was not crooked and his Vice President-turned-President who had the unenviable task of getting the country past Watergate.

Carter and Kennedy were not natural allies. Kennedy would have likely run against Carter in the Democratic primaries in 1976 had it not been for that one night in Chappaquiddick. He could have been President instead of Carter and always loomed large as a potential rival to him.  

But Carter was probably the least-plugged-into-DC person — he was previously Governor of Georgia — who was ever elected President. He didn’t know how to get things done in the city. How to get things done in Congress. But Ted Kennedy did.

So when the President’s transition team was looking to identify what could be quick economic wins for the administration, airline de-regulation and Ted Kennedy came up.  

In March 1977, less than two months into his Presidency, Carter sent a message to the Speaker of the House and the following (along with guidance on what the parameters of the law should be) was inserted into Congressional Record21:

As a first step toward our shared goal of a more efficient, less burdensome federal government. I urge the Congress to reduce Federal regulation of the domestic commercial airline industry.

With the President and Congress aligned, the airlines divided, and plenty of political futures to be made, there was one final roadblock. While the airlines’ workers unions were nowhere as strong as the trucking Teamsters, they were still formidable. And if they were opposed, the de-regulation bill could lose steam very quickly. But supporters of deregulation converted the unions to their cause by proposing and including a provision that prohibited “mutual aid” that airlines could provide one another if one of them was facing a strike. This was a large miscalculation. Of all the losers of de-regulation, the pilots and workers of the airlines would lose the most. Over the years, an onslaught of competition cut wages and benefits across the board.

While the backroom deals continued to get struck in exchange for support for the legislation, the President continued his. In his 1977 State of the Union address, he declared:

But I know that the American people are still sick and tired of Federal paperwork and red tape. Bit by bit we are chopping down the thicket of unnecessary Federal regulations by which the Government too often interferes in our personal lives and our personal business. We've cut the public's Federal paperwork load by more than 12 percent in less than a year. And we are not through cutting. We've made a good start on turning the gobbledygook of Federal regulations into plain English that people can understand. But we know that we still have a long way to go.

When the Airline Deregulation Bill of 1978, introduced as S. 2493, reached the floor of the Senate on April 19, 1978, it passed by a vote of 83-9. It passed the House on September 21, 1978.

On October 24, 1978, Jimmy Carter was flanked by Ted Kennedy, the new Chairman of the CAB Alfred Kahn, and airline executives as he signed the bill into law. Carter noted how rare it was to deregulate an industry22 — ““For the first time in decades, we have deregulated a major industry” — and in the style of the last president who had something to say about the airlines seemed to say that happy days were here again.

The airline executives may have been smiling at the bill signing out of politeness, but they had good reason not to be — they were in for a bumpy ride.

Adapting to the new world

While airline executives in 1978 did not have Darwin on their mind, they did follow his principles. Adaptations were necessary. 

Most adaptations to deregulation were made based on the size of the airlines making them.

Larger airlines like United and American Airlines adopted strategies through which they could take advantage of their size. Instead of schmoozing CAB officials, they invested in things like booking systems like APOLLO (United) and SABRE (AA) where their scale allowed them to sign up travel agents that worked indirectly for the airlines. For these larger airlines, it was also a waiting game — they knew that at least some smaller airlines would struggle with deregulation and go bankrupt. This would allow them to acquire defunct assets and routes on the cheap. For example, American Airlines acquired Air California in 1987, Eastern Air Lines in 1990, Trans World Airlines (TWA) in 2001, amongst others. The overall industry saw such consolidation.

For smaller airlines like Southwest Airlines, deregulation acted as a tailwind to expand into newer markets and they were able to offer competitive prices to attract new passengers from legacy carriers. In fact, this expansion started the day the bill was signed23:

Once the bill was law, more than 2,000 dormant airline routes would be instantly up for grabs. The CAB intended to dole out the unused routes on a first-come, first-served basis. So a spectacle ensued in which corporate representatives lined up along the Connecticut Avenue entrance to the CAB like rock fans waiting to buy concert tickets.

Some adaptations were adopted by almost all airlines. For example, given that the CAB had previously approved each route individually, most of the airline network looked like point-to-point connections. With those restrictions gone, airlines started to adopt a hub-and-spoke model that allowed them to serve more city-pair combinations and to consolidate expensive operations in their hubs, further driving down passenger prices.

Another development was the worsening of service quality. Now that airlines were able to price their tickets at more or less any price they wanted, fares crashed. No more piano bars and playboy bunnies. Airplanes were not sexy anymore.

And with lower prices, passenger volume skyrocketed as it was now within the reach of an average person to take a flight every once in a while.

One final — and not often-discussed — consequence of deregulation was the preemption of any state-level consumer protection law by the Federal Deregulation Act. This means that even if a state adopted laws making it illegal for airlines to engage in say, deceptive airline advertisements, it would not be valid because it is “preempted” by the following clause in the Airline Deregulation Act: 

A State, political subdivision of a State, or political authority of at least 2 States may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of an air carrier that may provide air transportation under this subpart.

Given that this preemption is made explicit in the Act, the Supreme Court has adopted an expansive view of Congress’ intent and not allowed state-level protections against deceptive airline advertisements (Morales vs. Trans World Airlines, 1992), devaluation of frequent flyer points (American Airlines vs. Wolens, 1995), or even a breach of the implied covenant of good faith (Northwest vs. Ginsberg, 2014).

While flying has become cheaper and within reach for most Americans, it is not glamorous anymore.

Lessons learned from Airline Deregulation

Let’s take a breather here. Note that when you fly, you spring almost half a million pounds of metal with a pressurized tube inside tens of thousands of feet in the air in a matter of seconds. To fly is a magical experience. It’s pushing beyond the bounds that nature has imposed on us. It’s a triumph of human achievement. Heck, we even have semi-reliable WiFi on planes these days!

With that healthy dose of perspective in mind, let’s get back to deregulation.

Whether this was good or bad depends on your point of view. On one hand, if you were one of the millions of people who had never stepped on an airplane because of how expensive tickets were, deregulation has been a huge democratizing force. On the other hand, if you were one of the businessmen whose large expense account paid for the lounges and piano bars, even first class today is a comparatively worse experience.

Regardless of where you are on that spectrum, most will agree that when the airlines were a transformative technology. And whenever transformative technologies emerge, there are immediate calls to regulate them. So what are the lessons that can be learned from the cycle of regulation and deregulation that the airlines went through?

Some of the following come to mind:

• Change happens through aligning ambition with forces: The most important takeaway for me is how it takes many people working over years to make large change happen — in this case the deregulation of an industry after four decades of government control. While the economic conditions and evidence of the CAB’s incompetency had existed for a while, it was only when it was politically expedient for certain individuals’ own goals — for Stephen Breyer to become more of a DC insider on his path to a Supreme Court seat, for Ted Kennedy to build his resume for his Presidency that never came, and for Carter to establish his administration as one that gets things done — that political power was used to unshackle the airlines. As likes to say, “Every policy output is the result of a political input.”

• Regulating complex systems have trade-offs: As we discussed, the airline flying experience might be worse, but more people than ever are getting to fly. In complex systems, there is usually no elimination of problems, just substitutions. It’s better to understand what side you want to be erring on and commit to the path.

• The old versus new ways: The deregulation process started in earnest in 1974 and deregulation finally occurred in 1978 — a process that took 4 years. That was okay when it came to the airlines because it is by nature a slow moving industry with large capital expenditures and decade-long fleet cycles. But when it comes to the industries that are in the regulatory scope of the government today, most move in product cycles of months or weeks. And to suggest that Congress moves any faster than it did in the 1970s would make for the start of a really good stand-up joke. So a legitimate question to ask would be, “Is the current political system set up to regulate or de-regulation anything meaningful today?” I’m afraid the answer is no.

• Ideological wave of the era: When the airlines were first regulated in a comprehensive manner, it was one of the last industries to be bound up in the style of the New Deal. When they were deregulated, it was the first strike in a ~20 year project of deregulation across American industries starting with President Carter and ending with President Clinton. If you’re a company in an industry ripe for regulation, it’s worth asking, “What are the broader ideologies in vogue when it comes to regulation?”

• Stated vs. revealed preferences: Very rarely is the public’s preferences for cheaper and more frequent service revealed against the stated preference of more comfortable travel. Yes, it’s not fun to be packed up like sardines with comically little seat pitch, but if you don’t have all the money in the world you can take a 4am flight with the cheapest fare. We, as a collective, have decided through individual actions that we want this system.

• Be flexible: The companies that survived deregulation were able to do so by identifying what characteristic about their business was uniquely suited to deregulation. For large companies, it was about making large investments that could be recouped over their larger customer base like travel booking systems and developing a hub-and-spoke model of flight routes. For smaller companies, it was usually an opportunity to expand into other markets adjacent to their current routes. You have to play to your strengths.

The history of the airline industry over the last 100 years shows that both regulation and deregulation created different problems, but my perspective is that only one regime allows most people to even experience it in the first place. In retrospect, truly luxurious air travel was a blip, existing for a period of less than a decade in the late 60s and 70s. 

When we look at what governments around the world are most interested in when it comes to technology, two candidates come to mind — Big Tech and AI. It is wishful thinking to hope that the government will get the balance of considerations right in how they approach regulation for these categories. 

If governments over-regulate, they will almost certainly stifle innovation. This doesn’t just mean that companies wouldn’t be able to take specific actions that would be economically helpful for a large part of the population, but also that there are certain actions that will be lost to the alternative history of the under-regulated universe. In other words, innovations that we will never know we lost. In today’s geopolitical environment, there is also a chance that other governments might go for fewer regulations and foster larger levels of economic gain for their countries:

If governments under-regulate, at least with AI, there is a potential existential threat of an out-of-control intelligence. That’s not a bad argument for over-regulation if you can agree on a high-enough probability of this happening. For big tech, there is the risk of entrenchment and lack of competition through the economic influence they exert on the demand and supply-sides of the ever-expanding list of markets they participate in.   

Obviously, it is not going to be easy.

In fact, I would argue that it is pretty tough for any institution or individual to decide conclusively what the right amount of regulation is for an industry. All one can have is a point-of-view, lay out the pros and cons, and be intellectually honest about their level of uncertainty.

All things considered, that’s not a bad way to approach any difficult task.

Thanks to Jackson Bubala and Albert Cai for their feedback on drafts of this essay.

America must take the long view in charting its course. China is a nuclear power. It is one of the world’s five major geopolitical power centers… In addition, Taiwan’s security interests and the interests of the people of Hong Kong are best served by close ties between its friends and Beijing. The United States and China also promote common interests on bilateral issues, such as intelligence cooperation, trade, and cultural exchange. And with the environment now becoming a major concern in the industrialized countries, how is it going to be possible to deal with global environmental problems without the cooperation of those who rule over one fifth of all the people in the world?

— Richard Nixon, In the Arena (1990)

It would be too good if the problem could be solved. Nature seldom proves favorable to man.

— Soviet physicist Georgy Flerov to Joseph Stalin to convince the latter to start the Russian nuclear program (1942)1

In the decades since President Richard Nixon’s first visit to China in 1972, the United States and China have had a cooperative relationship tied together in the knots of economic symbiosis. But over the last few years, those knots have become less cooperative and less symbiotic. Why did that happen, how is it manifesting itself, and what should the two countries do about it? 

This essay originally started as notes on Jacob Helberg’s excellent Wires of War. While reading the book, I found myself continuously distracted by looking up additional context for events and facts mentioned in the book2. This essay is largely a patchwork of that research for additional context with some light stitching throughout. 

I also think that I have a somewhat unique perspective on this relationship. I was born and raised in South Asia and moved to South East Asia when I was teenager where the specter of Beijing’s supremacy was never too far away. I’ve spent a decent amount of time in China and have lived in the United States since 2016. If nothing else, I have more of an ideological clean slate than most in the western world and understand the appeal of an autocratic government when things are not working like they are supposed to.

Even so, it’s important to remember that this is a topic that, perhaps more than others, requires humility from this writer. I’m not going to pretend to know everything that’s going on and much of the maneuvering in deep physical and digital waters of both countries is invisible to most of us. But I hope to provide a lay of the land as I understand it.

So first, let’s start with US-China 101.

US-China 101: How did we get here?

Given its recent successes, it’s easy to forget China’s past struggles. Given its population, it always had importance but it was a relatively minor player on the big boys table after the industrial revolution of late 17th and early 18th century. To buy into that technological table, you had to have the chips of colonies and currency. China had no colonies and little currency. This led to the “century of humiliation.” From the Opium Wars (1839-1842 and 1856-1860) which forced China to cede territories, pay reparations, and grant extraterritorial rights to foreign powers to their defeat in the Sino-Japanese War of 1894-1895 which resulted in Japanese occupation of Taiwan, China in the 1800s and early 1900s was not the model of a country on the up and up. 

Understandably, these historical foreign infractions still drive decision making in Beijing. For a parallel, consider that Jimmy Carter was the first elected Southern President of the United States since the Cold War3 — that happened in 1977, more than a hundred years after the Civil War ended in 1865. Multiple generations of great Southern politicians came and went during those years without ever having a serious shot at the Presidency. Historical wounds, whether foreign or domestic, run deep. 

After Mao’s death in 1976 shortly after the reopening of China to the West in 1972, the most important figure in the creation of the Modern Chinese state was Deng Xiaoping. Deng served as the de facto leader of China from 1978 to 1989 and his stated policy for Chinese global ambition was to “avoid the limelight, never take the lead, and try to accomplish something”4 When Nixon, Mao, and Deng collectively “opened up” China to the West, there were promises of liberalization not only in China’s economy, but in China's politics.

In fact, well after he had left office, Nixon continued to support the view that economic openness promises eventual political openness. Writing in the aftermath of the Tiananmen Square incident, Nixon said:

The true source of my optimism was a renewed sense that after some necessary retrenchment Deng’s economic reforms would continue and that with them would inevitably come renewed pressure for political reforms.

But where the western world once admired China’s promises, today it reckons with its practices.

The Silencing Symphony of the CCP

In a justification for central political and economic authority, Lenin said in 1902, “For the center… to actually direct the orchestra, it needs to know who plays violin and where, who plays a false note and why.”

Over the last decade, the Chinese Communist Party has directed the economic orchestra of China to create a prosperous symphony for many of its citizens. The story of creation of the global middle class is primarily the story of the creation of the Chinese middle class. In the 1950s, over 90% of the global middle class resided in Europe and North America. Today, over 20% live in China5.

Adding to this symphony are the notes of China’s advanced workforce. While initially it was just the factory of the world, its workforce is not about cheap labor anymore (you can find cheaper labor elsewhere.) Workers in China now have hard-won process knowledge — “the kind of knowledge that’s hard to write down as an instruction”6. Famously, Apple CEO Tim Cook said this about the comparison between US and Chinese manufacturing expertise: 

In the U.S., you could have a meeting of tooling engineers and I’m not sure we could fill the room. In China, you could fill multiple football fields.

On these notes are other notes of burgeoning innovations. Once, China used to be accused of innovation through IP theft. And while those allegations have not gone away entirely, it is now a true innovator in key segments like electric vehicles. Writing about the recent auto show in Shanghai, industry newsletter Sino Auto Insights writes:

In 20, 30, 50 years from now, we'll likely point to Auto Shanghai 2023 as that watershed moment. It's the moment most media outlets acknowledged that the foreign legacies that dominated the China auto market for the last ~35 years have been overtaken and unable to compete with the EV products that have been 

launched by China EV Inc within just the last few years.

The legacies haven't given up by any means, but the writing is on the wall.

Layered on this complex symphony are the notes of uncertainty caused by the United States about its role in the international world order. Since World War II, the United States has cocooned the world in a blanket of military7 and economic influence. The country shoulders global military responsibilities in exchange for its political and economic hegemony. What happens in the United States affects the world, sometimes even more than what happens more locally. And given the American electoral system, we have ended up in a world order where the farmers of Wisconsin decide global security policy. I love the farmers of Wisconsin, but it’s understandable that this state of affairs makes diplomats from Tehran to Tokyo nervous. Comparatively, the stability of the CCP’s traditions and doctrines can occasionally feel tempting.

This uncertainty has allowed China to add another compounding note to its economic symphony. It has become a friend and partner to much of the Global South, especially many African countries. It’s important to remember that most places are not as ideologically rigid as the western world and are open to compromising on terms as long as it meets their current economic and growth needs. In fact, many developing countries believe that you need someone who rules with an iron fist — “to make the trains run on time” — before enlightened goals like complete freedom of speech can be achieved. They are more than happy to finance the expansion of their needs today through financing and expertise from the Chinese. The story of the second half of the 21st century could very well be the story of the economic and political rise of the African continent, enabled by Chinese financing and expertise.

On the symphony are darker notes. Once China had to bide its time, now it has not only the industrial scale of the world’s first or second largest economy8, but also the ability to conduct asymmetric warfare digitally. You no longer need to compete with aircraft carriers (chillingly nicknamed “100,000 tons of diplomacy” by former Secretary of State Henry Kissinger) that can be placed in international waters just 200 miles away from your country in less than a day. You can just wreak havoc at the Pentagon with a few keystrokes. Traditional military force remains necessary, but no longer sufficient. All while the fate of Taiwan hangs in the balance.   

And if a few notes on the symphony are a little dark, some are darker still — and silencing. The Uyghur people in the Xinjiang province have faced systematic human rights abuses over the last few decades. There are allegations of mass detentions, forced labor, cultural assimilation, and surveillance. Reports suggest that over a million Uyghurs have been detained in camps, which China refers to as “vocational training centers.” Some, including the United States, have called this a genocide9. Few, if any, countries are free from blots in the historical record of human rights. But to do so at an industrial capacity in the 21st century offends and insults the collective progress humanity has made in this domain.  

And if this silencing orchestra has been composed by the Chinese Communist Party, its lead conductor is Xi Jinping. As comfortable with socialist slogans as he is with Sartre, Xi sees a strong Party with him at the top as essential to the stability of a strong China.

Lenin would be proud.

Haunted by historical scripts: The Second Cold War 

Understandably, many in the west have called this conflict a second cold war. This is a dual-edged sword. While it does clarify the scale of the conflict, it makes the western world more likely to follow the script as it played out last time. All while assuming that victory is assured at the end with the metaphorical Berlin wall (maybe in this case the Great Firewall) coming down at the end of it.  

The United States and the western world order are obviously animated by their historical winning streak. The last time the United States went up against an ideological counterweight, it won decisively. Xi and the CCP are acutely aware of this. From a New Yorker profile of him in 2015:

In 2009, he commissioned a long study of the Soviet Union from somebody who works in the policy-research office,” the diplomat in Beijing told me. “It concluded that the rot started under Brezhnev. In the paper, the guy cited a joke: Brezhnev brings his mother to Moscow. He proudly shows her the state apartments at the Kremlin, his Zil limousine, and the life of luxury he now lives. ‘Well, what do you think, Mama,’ says Brezhnev. ‘You’ll never have to worry about a thing, ever again.’ ‘I’m so proud of you, Leonid Ilyich,’ says Mama, ‘but what happens if the Communists find out?’ Xi loved the story.” Xi reserved special scorn for Gorbachev, for failing to defend the Party against its opponents, and told his colleagues, “Nobody was man enough to stand up and resist.”

For the Chinese, this remains a conflict that is driven partly on ideological grounds. Reports that say that China is not ideological driven are exaggerated, Xi Jinping has said that “Socialism with Chinese characteristics is socialism.”10 And Communism is definitionally deterministic and says that conflict with the capitalists is inevitable. Karl Marx in The Communist Manifesto says, “The proletarians have nothing to lose but their chains. They have a world to win. Workers of the world, unite!”

Historical scripts inspire and haunt both countries. 

At the broadest level, Chinese leaders have mimicked the old Soviet Union in their calls for a multipolar world. That’s “code for the dilution of American power in the post-war international system.”11 China aims to change international organizations and structures to — in the words of Xi Jinping — “lead the reform of the global governance system.”

They have also taken the baton from the Russians in terms of creating the non-Western digital world order. In Wires of War, Helberg describes how China is trying to take over every level of the modern technology stack, from semiconductors to the apps on the black mirrors we all carry around in our pockets. This has created a technological Gray War12 with China.    

To add to this digital world order, they are actively engaging in industrial espionage. This has always been the case amongst competing nations. During World War II, when the Soviet Union and the United States were “allies”, the Soviet stole troves of information about the ongoing efforts to build the world’s first nuclear bomb. And while some advanced sources were cultivated by the Soviets, much of this espionage was through the haphazard network of “fellow travelers”. But Chinese efforts are a lot more organized. Through programs like the Thousand Talent Program, they are actively directing programs for people to commit industrial espionage.

With the ideological goal of a multi-polar world, the resources and intention to wage a technological gray war, and a desire to get an edge through espionage, it’s clear that there is an ongoing Cold War with China. So what should the principles that should drive the response to it?

Neither Denial nor Despair: Principles of a US-led response

If the language of the Cold War animates this conflict, so must its events. And no event was more dangerous than the Cuban Missile Crisis in October 1962. The crisis was triggered by the discovery of Soviet missile installations in Cuba, capable of launching nuclear weapons towards the United States. The U.S. demanded their removal, imposing a naval blockade around Cuba to prevent further missile shipments. Tensions escalated as both superpowers engaged in intense negotiations and military posturing. Ultimately, a compromise was reached: the U.S. pledged not to invade Cuba, and the Soviets agreed to dismantle the missile sites.

Days before the compromise, Soviet Premier Nikita Khrushchev wrote to President Kennedy:

If you have not lost command of yourself and realize clearly what this could lead to, then, Mr. President, you and I should not now pull on the ends of the role in which you have tied a knot of war, because the harder you and I pull, the tighter this knot will become. And a time may come when this knot is tied so tight that the person who tied it is no longer capable of untying it, and then the knot will have to be cut. What that would mean I need not explain to you, because you yourself understand perfectly what dread forces our two countries possess.

When Khrushchev referred to the “dread forces” that the United States and the Soviet Union both possessed, he was of course talking about the nuclear arsenal that both countries still have across missile silos, submarines, and bombers. China is also part of the nuclear club. So, avoiding nuclear war is an easy one to start with in terms of guiding principles.

The other principles should be:

• Separation between the Chinese people and the CCP: This is critical not just because it reflects reality, but because there is a large Asian American population (~7% of the total population, largely concentrated in urban areas) in the United States. The United States does not have a positive history when it comes to racial discrimination against its own non-white population during times of conflict (see: Japanese internment camps during World War II, Arab Americans after the Patriot Act) so it is important to keep and emphasize this distinction at every level of government.     

• Alliance building: One of the things that the United States has to do in exchange for its hegemonic rights is play the role of a captain/coach/owner of alliance building when tackling large challenges. Unilateral actions are more likely to be rushed and misguided. Admittedly, occasional decisive actions must be taken — wars (whether cold or hot) are not won by committee. But still, it’s better to keep the rest of the world with you in this conflict. 

• Lean into the ideological attractiveness of the West: The Chinese state is ideologically unattractive to most, even developing countries. It’s a state where individual liberty is restricted and where economic achievements could be vaporized at the whims of the party leadership (just ask Jack Ma.) The West remains largely ideologically attractive in the freedoms that it affords its people. Though it’s not without its problems, millions and millions of young men and women around the world still want to come to the United States to build a better life for themselves. That’s an edge in the soft power war and it’s one that’s the United States’ to lose. 

• Abandonment of domestic ideological goals: Speaking of ideologies, serious domestic compromises have to be made over the next decade or two as this cold war with China reaches its crescendo. For example: whatever their view of unions, the Right should be thoughtful about not voting against critical infrastructure bills just because it mandates that a certain percentage of it has to go to companies with unionized workforces. It’s naive to assume that the Government doesn’t pick winners and losers in the United States — it just needs to now pick the right ones. Similar examples can be given for the Left. There’s simply bigger fish to fry.

The overarching principle should be one of neither denial nor despair. As we will see, the West is already taking many of the right steps. But it must be clear-eyed about the challenges that lay ahead. Unfortunately, these principles will occasionally evolve into actions that have to be explicitly anti-China. But in my view, it would be better to ruffle some feathers than to see the current generation of diplomats be orderly custodians of the decline of the Western world.

The reality of the US (mostly economic) response

First, an important acknowledgement here is that much of military preparedness is going to be classified. There is no way for most members of the common public to find out what these preparations and advancements look like. This has always been the case. During World War II, then Senator Truman had a committee to investigate inefficiencies in the military. When Truman came across a multi-billion dollar black hole dispersed through Los Alamos, Oak Ridge, and Hanford, he was simply asked to not ask too many questions — questions that would have the ultimate answer of “we’re building the world’s first nuclear bomb.” When it comes to military preparedness, we are operating in the realm of known unknowns. 

I will say this: much has been said about the American declining ability to create an ‘Arsenal of Democracy.’ Just broadly, I’m not going to bet against America’s ability to create bombs and bandages for any conflict it finds itself in. Importantly, it has never won the war with weapons that it came into the conflict with. Perhaps the latest example of this continued techno-supremacy is how effective the COVID vaccines have been compared to the other global alternatives.

With that in mind, let’s see what has already been done to counteract the challenges that China presents the United States with.

So far, the response has been primarily economic driven, focused on “de-coupling” or “de-risking.” Contrary to the Soviet Union, the global economy is deeply intertwined with the Chinese. China produces much of the goods that you find on the shelf at Walmarts scattered across rural towns in the United States and China’s urban centers power the profitable flywheel’s of many of the West’s largest companies. This makes the economic focus prudent. This focus has been further narrowed to critical industries like semiconductors. The ban on Chinese company Huawei, the passing of the CHIPs act, and the building of the TSMC factory in Arizona all seem to be directionally correct approaches. 

Another remarkable achievement has been consistency across administrations. When there is a new administration, employees from the old one clean out their desks across the marble buildings surrounding the White House, find new jobs in the private world, and geopolitical stances change as quickly as what’s the most relevant neighborhood in Washington DC. But a strong anti-CCP stance has stayed the same and has broad appeal across the country. 

And the rising tide of concerns about China’s autocratic streaks has found more permanent legislative channels through which it could flow towards resolution.

That channel can be found in Room 538 of the Cannon House Building flanking the United States Capitol on 27 Independence Avenue — the Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party created at the beginning of 2023. Led by Republican Congressman Mike Gallagher, this is one of the few rooms in Washington, D.C. where you’ll find a level of bi-partisionship that one would think was relegated to the history books like an extinct species of birds. The committee has the role of coordinating all concerns and investigations with the way that the CCP is projecting power inside and outside the United States, ultimately crafting a more coherent approach. And while I don’t expect the United States Congress to be the most insightful minds on subjects like Internet regulation, I do think that when it comes to geopolitics, they might have an edge on your average person.

There is something left to be desired when it comes to alliance building, but that’s a grand strategy project that’s not going to be sorted out in a couple of years. Multiple generations of politicians and diplomats will have to create a Western web of alliances that can hold its own against the centralized powers of the Chinese Communist Party led by Xi Jinping.

We should end on a cautionary note. There is little value in ensuring the supremacy of the Western world if its traditions of individual liberty and a desire for peace do not survive with it. Excessive adventurism can lead you to the civilizational graveyard pretty quickly. That has been the lessons that Great Powers across millennia have learned. The current hegemon would do well to remember that.

So when I saw all the interns at my day job using a new app that I had never heard of, I had to download Beli for myself. 

On its face, Beli is a simple app that users can use to rate and rank restaurants, create lists, and find good places to eat around town. And as the weeks have passed by, I’ve gotten many “[Person I know] just joined Beli!” notifications on my phone.

This anecdotal experience matches the data. As of March 31st, 2023, Beli shared with its users that it had more than 6 million rankings on the platform. At a rate of 5-10 rankings/user, that gives us 600,000 to 1.2 million users of the platform. More importantly, that is up from 2.5 million rankings at the end of November, 2022. Assuming those same average usage numbers1, the comapany had 250,000 to 500,000 users just a few months ago2.

This strong growth trend makes Beli worth diving deeper into — what are the factors that are animating this growth, how can Beli sustain it, and what are the challenges that are up ahead for this app?

And by identifying the specific factors that are behind Beli and the challenges ahead of it, we can explore on a few aspects of what makes consumer apps, specially vertical social networks, tick more broadly.

So, let’s start with how the app is used.

Proof of work: The Restaurant Rating

The fundamental unit of interaction or proof of work3 in Beli is the restaurant ranking. After you go to a restaurant, you can search for its name and add it. This brings up a list of comparisons against other restaurants you have previously rated. You choose which restaurant you liked more and after a couple of taps, you have placed the restaurant in a list of restaurants you’ve ever visited.

It’s a chess-like Elo ranking with custom parameters. This means that every restaurant is rated not on an absolute scale, like on Yelp or other review sites, but on a relative basis. For the cinephiles in the group, this is similar to the Facemash scene in The Social Network, bringing an end to the Facebook references in this piece.

This has one distinct advantage over the rest of the reviews available. It is personalized to you. This is generally a good thing: while nobody has totally distinct tastes, nobody has totally overlapping ones either. It also allows Beli to predict how much you’ll like a new restaurant that you have never been to, but might be considering.

Note that this by itself is not a defensible idea: it took me about 30 minutes using a little ChatGPT magic4 to create a rudimentary version in Google sheets. I know people who maintain robust spreadsheets that mimic Beli (see screenshot below.)

Global rankings are also limited in context. For example, one of my highest rated places on Beli is Bouchon Bistro in Yountville, California. So every time I rate any restaurant highly, it asks me for a comparison with Bouchon. The problem is that I’ve only been to that restaurant twice and while I’m there, I’ve always been on vacation — those experiences are very, very different from a work dinner or a brunch with friends. Rating all meals in the same way flattens the experience. While this issue is not exclusive to Beli (all ratings are doing this implicitly; you could argue that the goal of ratings is to standardize the experience), it becomes more important when the explicit promise to the customer is that of personalized ratings.

Lastly, there is currently a level of friction involved in this experience that is not ideal for building a sticky product. Every time you go to a restaurant, you have to remember to put in an entry afterwards. As the network of users becomes large enough for you to check the app on its own (consider how you might check Twitter or Instagram even if you don’t want to post anything there), this could become less of a problem. But it is a real one right now.  

Still, this proof of work works well and power users like it. It may be a bit excessive for the casual user, but for now, Beli can afford to and should ignore them. What all users need though is an app that encourages creating more ratings. To do this, all the elements of the app need to work together.

App design: It’s probabilities all the way down

Every pixel on our little black mirrors is precious. So what a team puts on the homepage is a strong reflection of their priorities and of what they believe to drive engagement and growth. To that end, other parts of the Beli app include restaurant lists with featured restaurants in the area, ratings from your friends you’re following on the app, and quick filters that you can apply to the feed.

More broadly, one way to look at an app design is to identify what parts of the user experience is deterministic vs probabilistic. For example, a feed like Twitter’s “For You” page is entirely probabilistic — tweets are ranked and presented to you in the order of how likely you are to engage with them. Higher probability means the tweet is closer to the top of your feed. On the other hand, its “Following” page is more deterministic — tweets are ranked chronologically (more recent tweets show up first) and only include people you follow.

Think of the extremes here: TikTok is entirely probabilistic; email has nothing but sweet, sweet determinism. 

If we look at the Beli app, there is a good balance of the two. That is a good thing. While most algorithm-driven content has a higher engagement rate, Beli is a relatively young app. Its users probably just want to see content from their friends as your friends are more likely to be in the same geographic area as you and have a similar willingness to explore new places. 

But the algorithmic angels should not be ignored for too long. There is a real social cache component to eating out and looking at people beyond our current circles can be pivotal in growing the app. This brings us to the exploration where we look beyond the mechanisms of the app to the deeper psychology driving usage.

Job(s)-to-be-done: Balance of utilities

If you spend any time on Instagram, you’ll definitely come across a photo of someone’s meal with a location tag of the restaurant. The phone eats first. 

There are two things being signaled here: you’re (1) signaling that you have the financial capital to be able to go to fancy restaurants, and (2) if it’s a lesser known place, that you’re “in the know” of what’s good. There are no Instagram stories at Wendy’s5.

It’s also generally true that no social network stays “cool” for too long. It would have been really cool to have Facebook before March 2004, when it was only available to Harvard students. As more people joined, it became less cool to a point that today, I only use it to send occasional messages to friends from high school who I have lost touch with. Take this to the extreme — do you really want to be on the same social network as your parents? — and this principle makes general sense.

But as the social cache of a network decreases, its practical utility often increases. If you were a Facebook user in March 2004, it would have been really nice to be a part of the “in crowd” but if you wanted to send a message to a high school friend who went to another university, you couldn’t. Once the Harvard restriction was lifted, you could. That’s a marked increase in practical utility.

Borrowing from Eugene Wei’s fantastic Status as a Service essay, we can think about this along two axes — with social capital on one axis and utility on another.

Most social networks can be placed on these axes. Importantly, people want to have social capital with their perceived in-group. Intuitively, status games that a high school teenage girl plays versus what a middle-aged man plays are very different.

So, where does Beli fall right now? The app has practical value in that you can choose where you want to eat based on the recommendation of your friends and strangers in the know. And it’s definitely a “cool” app that many people are signing up for — it’s a way for you to see where your friends are eating and show your friends where you are eating. I’d put it somewhere along the medium positive utility axes and a low social capital capital axes. This could definitely change in the future.

Hype behind a product is generally a good thing, but too much social capital too fast can be a bad thing. From the excellent piece on The Hype Subsidy by Sarah Travel:

Imagine building a marketplace where a hoard of people outside the company are deciding how much of a subsidy you should provide for transactions every week, and to you, it’s a blackbox. Whether it’s 20% one week and 80% the next, all you know is it’s there, but you don’t know how much.

To say the least, it would be difficult to optimize a marketplace under these conditions. People are using your marketplace for a broader set of use cases than you had anticipated, but would they happen without the subsidy? People are referring their friends, but would that happen without the subsidy? Etc.

This is what building in the midst of hype is like. Everything works better (and differently) than it would without the hype subsidy.

It can be tough to distinguish between real growth and what’s being driven by the hype subsidy. To an outsider observer like me, Beli’s growth has been fairly organic — they haven’t pulled any outsized stunts to shock-and-awe users or investors. All this is good: Beli has sustainable user growth (shared above) which means that they are likely to get stable user churn.

All things considered, it is difficult to make something that users want and Beli has done that. Its growth will always be driven by a combination of practical and social utilities and while one side or the other might dominate temporarily, it doesn’t seem like the company is leaning one way or the other. In doing so, it has remained true to its users’ needs.

But as it fights to onboard and retain those users, Beli has to be aware of the competition it faces on multiple fronts.

Competition: Chipping away at the Goliaths

Beli competes along both two axes of its utility — the practical and the social.

On the practical side, it competes with the likes of OpenTable, Resy, Tock, and frankly, just a simple “best places to eat in [City X]” Google search. These are all ways to find out where you want to eat. Beli might be better at these with its friend-driven recommendations and personalized recommendation scores, but the alternatives are not materially worse. 

Along the social utility dimension, Instagram is the most important competitor for Beli. People are already on Instagram and it's the de facto “let me tell you how cool my life is” platform, so using it to tell people that you are going to eat at a nice place is a common use case. The one possible counterpoint here is that Instagram’s pivot away from photos and stories to be more Reels-focused could change this, but for now, it’s a real competitor for Beli. 

Both the practical and the social point competitive forces point towards a power user-focused strategy for Beli. While there might not be a strong habit component for most people who go out to eat casually 1-2x a week, having a separate place that aggregates all your visits to all restaurants, creating themed lists, writing down your favorite items, etc. is helpful if you’re doing this a lot. On the social side, someone like a food influencer might want to keep all of their favorite restaurants and ratings in one place. They can share it with their followers and have them follow along. It might have some social utility for the casual user, but it would be limited.

With this understanding of Beli’s relative utility for its different user segments, its paths to monetization become clearer.

Business model options: Worship your power users

Monetization for a niche app like Beli can be challenging. Right now, the app is free to use. But with hundreds of thousands of users, they’ve likely started to think about how to generate revenue. There are some established and some not-so-established ways they can do this:   

• Display ads: Restaurants could purchase the ability to be featured on lists and to show up first in searches. This would be similar to the type of advertising that Google Maps does. Display ads would be easy to implement since they can be fully self-serve on the restaurant side and would require no tuning of algorithms on an ongoing basis. For the restaurants that would be advertising, they would know exactly what they are buying. On the user side, they are generally okay with ads if it means keeping the app free.     

• Subscription revenue: Beli can also ask for power users to pay a regular amount for more advanced features like turning off ads, ability to create more than a certain number of lists, to be featured on leaderboards, etc. If it can get a critical mass, they might be able to have enough paying users who are willing to pay to just support the existence and development of the app (and not necessarily to get any extra features.)

• Marketplace: A more interesting business model is one that Beli seems to be heading in the direction of. It currently has a feature where you can post a reservation that you have for a restaurant that you can no longer make. You post the reservation and presumably, some other Beli users can take it off your hands. This can be especially useful for cities where getting a dinner reservation is harder than getting into college and there are onerous cancellation fees. A marketplace like this would work in large urban cities and likely has large overlaps with current power users. It’s unclear if Beli currently takes a cut to facilitate transactions like this, but it could do that. This business model would require a large network of power users, so I’m skeptical in the absence of data — but it would certainly provide a useful service that some people would be willing to be pay some amount for.   

As Beli navigates this, its north pole should be its power users. The kind of person who is hunting for reservations at nice restaurants and who obsessively keeps track of all of them is likely to find enough value to either pay a small monthly subscription and engage in the marketplace of reservations. Advertising on the other hand can be a business model that supports a broader usage profile across the user base.

As it navigates this, it could be helpful to see what one version of success could look like in this space.

Lessons from a success: Letterboxd

The movie rating app, Letterboxd is an example of a vertical social network6 that Beli can learn a few lessons from7. It has carved out a specific niche among the die-hard fans of cult movies and the general movie going public alike. In doing so, it developed a business model that pairs ads (for free users) and subscriptions (for premium subscribers.)

Letterboxd has a similar premise as Beli — you can rate movies you’ve watched, add things to your watchlist, leave comments, and create lists. Given that, there are a few things that Beli can learn from Letterboxd:

1. Cultivate an authentic voice: Food can be made fairly pretentious8. So can movies. Something that is unique about Letterboxd is that reviews on the site have their own unique voice. The litmus test for this is that you can usually tell by reading a review that’s outside Letterboxd that it would be something that would be posted on Letterboxd. As one user shared in the New York Times’ profile of the app:

   If I’m writing a professional review, I’m writing for a general audience,” he said in a recent phone call. “Whereas on Letterboxd, I don’t worry about pro forma things like plot synopsis. I make jokes and references you would have to have a fairly deep film knowledge to understand. I find it much more liberating.”

   If Beli can encourage this kind of a “liberating” voice on its platform, then there is a whole new genre of food critics that could be enabled through the app.

2. Lean in on the patronage model: Letterboxd has a similar subscription model to what I outlined as a potential for Beli above. For $19.99/year, you get a handful of pro features. These features are nice, but none of them are critical to the usage of the app. Users primarily pay to support the development of the app and to enable a community that they like. I only pay for 3 app subscriptions (Bear, Paper, and Letterboxd), and Letterboxd is one of them because of the last lesson that Beli can learn.

3. Right sized ambition: A key element of Letterboxd's success is that there is no world domination plan. It’s a simple app that does what it says it does. It’s delightful to use. It’s fast. It didn’t try to pivot to becoming a Web3 app last year and it’s not going to try to become an AI app this year. People and companies struggle when they try to become something they are not. Letterboxd limits its scope but executes perfectly on it.

The comparison is by no means a perfect one. First, movies are generally not supply-constrained — if you want to watch a movie you can do so through any number of streaming services, independent theaters, and chain cinema houses. Food is not like that. There is also the case of the back catalog. Food is not like that either.

But the same general principles of being a niche app apply: can you provide a sufficiently useful and delightful experience for a particular activity that people are willingly to give you their attention and money?

Go-to-market: A Gen Z app at heart

Once you consider the factors of tough competition and a need to hone in on its power users as it broadens the user base, Beli’s go-to-market strategy becomes apparent. 

Most of its efforts have been focused on TikTok and Instagram reels. Restaurant features and video lists of the “Top 10 places to get a Bagel in LA” variety are the primarily content present on these platforms. This is particularly appealing to food influencers targeting the late Millenial and GenZ crowd.

This is not surprising at all. For my generation, a workout that is not tracked on your Apple Watch might as well have not happened. A weekend with friends that is not shared on your Instagram might as well have been spent lounging around on your couch. A thought that is not turned turned into a Substack might as well have never entered your brain9.

Analogues for this kind of an app exist beyond the food space. Kit.co is an example of a website where you can create a page that lists out the equipment you use that works through affiliate marketing and is popular in the podcaster/YouTuber crowd. There are other services like this across various verticals.

Overall, Beli is doing what it should be when it comes to their go-to-market strategy. They have staked out two platforms — TikTok and Instagram Reels — and are focused on executing on them. It aligns with their target audience and the broader tailwinds of these platforms shifting towards video-first10. 

Conclusion: What’s Beli’s scale of ambition?

Today, Beli is an app on the ascendancy with growth numbers that would make any up-and-coming founder jealous. Users are generally engaged and the team continues to add new features rapidly. Even in its current form, the app and go-to-market strategy mesh together to serve its power users. The competition from food-specific platforms and more general social networking apps is stiff, but Beli has been able to carve out a successful niche so far.

As it considers next steps, it needs to answer some key questions. Do they want to raise millions of dollars, hire a large team, and try to dominate every cultural conservation about food? And do the problems they want to solve require that?

Or they want to build something more limited in scope, but ultimately in greater service to a smaller number of people who are very passionate about food? It would still be a success, just not a flashy one.

There is nothing wrong with either option, but they do have real tradeoffs. The limited scope option likely eliminates large exit outcomes like an acquisition by a larger brand. On the other hand, momentum and growth like this can always be a flash in the pan and fortifying yourself with cash is an attractive option. Ultimately, founders have to ask themselves the question of what type of company do they want to build?

That perhaps, is food for thought for them to chew on.

Welcome to the quarterly round up edition of Snapshots. I’m writing this newsletter with a cortado by my side and the spring sun shining on my skin. I just spent the entire weekend in Sequoia and Kings Canyon National Park and am as zenned out as I will likely ever be.

At the start of the year, I wrote about momentum:

Momentum is a weird thing — it cuts both ways. The longer you have not written, the easier it is to continue to not write… But writing for me is a long-term affair, so I’m going to see if I can make up for this past year of not writing in 2023.

I’ve been generally happy with the baby steps on this goal so far. Momentum in one domain also begets momentum in other domains: more on this in later roundup editions.

For today’s Snapshots, I’m excited to share what I’ve been up to, what I’ve enjoyed the past few months, and what’s upcoming up on this newsletter over the next few months.

One big thing: Taking photos

Through these last few months, my trusty Nikon L35AF has been by my side:

If I think about a thread that ties these travels together, it’s that I went for one specific thing, but filled in events around it — the ultimately goal being to live in a way where all my different interests intersect.

Photography is easy to layer on other interests as it’s purely additive. Like traveling? Take photos of the places you’re going to. Like eating? Take photos of the things you’re eating. Like creating things? Take photos of things you’re creating. It's a way to capture the memories of something you were doing anyways. Analog photography is just more fun because you're not playing spec-games with the community — you would be using digital cameras if you were into that.

If you’re interested in analog photography at all and are curious about where to get started, please reach out. I’d love to help more people join the community to obsess about film stock choices and complain about rising developing costs.

Recommended

Here are a few pieces of writing/media I really enjoyed over the last couple of months. Typically, I have a “I wish I had written this” attitude towards pieces I recommend. But this time around, I’m sharing pieces I couldn’t have written — an intersection of deep expertise and an ability to communicate clearly using the written word.

• by : This newlsetter about the business of healthcare is fantastic. Olivia's day job is at a16z as a content lead, but her writing on Acute Condition is of full-time quality. My favorite pieces are ones on Walmart’s healthcare efforts and an exploration of Mark Cuban’s Cost Plus Drugs. If you’re an investor or founder in the space, her writing should be on your reading list.

• What’s going on here, with this human? by Graham Duncan: Everyone keeps saying “it’s all about the people.” Tough to argue with that, but I’ve never seen such a poignant exploration of that idea and how to translate into a hiring process before. Most interesting to me what the idea of the elephants you are riding:

  Seeing others clearly is about tuning into a process, a way of seeing. The psychologist Jonathan Haidt’s metaphor is good. Visualize yourself riding a huge elephant while you interview someone riding a second huge elephant (Haidt apparently came to this metaphor of rider and elephant during a psychedelic trip.) Haidt advises imagining your conscious mind as the rider and your unconscious drives as the elephant—powerful and willful and ultimately inclined to take the rider where the elephant wants to go most of the time. The key insight is that the rider is not always a reliable witness about the elephant they ride.

  Understanding the elephants that you and others are riding — the unconscious forces driving your decision-making in small and large ways — is the process of getting to understand the rider better. From a personal satisfaction point of view, few things are more important to spend time on.

• The conflict between the FIA and Liberty Media: The Formula 1 mania has captured the attention of fans in the United States in the only form palatable — a reality TV show named Drive to Survive. Behind this move is John Malone’s Liberty Media , which owns the commerical rights to Formula 1. We've talked about Malone on this newsletter before in the context of the book Cable Cowboy in which he is the main character. The FIA is the governing body of Formula 1 on the sporting side of things. A tension between the sporting side and the business side is natural, but it reached a peak when Liberty Media was considering a sale to the Saudi Arabian Public Investment Fund. Oriol Puigdemont at El Pais shared the story. When Liberty Media sells the commercial rights to Formula 1 to someone else, I promise to write a story about their economic stewardship of this sport that is so near and dear to me.

• 5-4 Pod: It’s pretty rare that a new podcast makes it into my regular rotation, but the 5-4 pod about “how much the Supreme Court sucks” has done that. The hosts have a captivating engagement style and they occasionally look at historic cases which is particularly interesting to me. Sometimes the snark is too much for my personal taste but the passion and form they bring to their conversations is addictive. If you’re interested in the law at all, I recommend you check it out.

Published

In case you missed it, I published three essays last quarter:

• Who Watches The Watchmen: The Rise and Fall of the Chevron Doctrine

  What can a legal doctrine from the 80s teach us about the deep dynamism in a seemingly stagnant governmental system? Turns out, a lot. Read the 4000+ words I wrote on the administrative state rather than go to therapy. You’ll learn about hidden pockets of political power, how interaction effects with various parts of the government can exacerbate a fundamental tension into a real problem, the lessons that you can learn about your own personal life from it, and more.

• Notes on Notes: Why people are wrong about the new Substack social network

  The central thesis of this piece is that comparing Substack Notes to Twitter is misleading. If Twitter is the public town square, then Substack Notes is the artistic neighborhood a few blocks away. If Twitter is the park where you can reliably run into a group of rowdy teenagers, Substack Notes is the quiet co-working space where you can hang out and catch up with like-minded people over coffee. Both are unique in what they offer — and that, as I lay out in this essay, is both good and bad for Substack.

• Lobbying, Emotions, and Diamonds: How Fred Rogers can help us think about authenticity in the age of generative AI

  It feels to weird to think that something made by a generative AI could make you feel emotional. I wrote about what the implications of this might look like and how the grading of diamonds may provide a solution here. I also share a video of a (very young) Fred Rogers who convinces the very model of a tough Senator into retaining $20M of public funding for PBS.

Upcoming

• An essay exploring the growth of the restaurant ranking app Beli which all of my friends have been using lately, and the lessons that can be learned from other vertical social networks

• Notes on Jacob Helberg’s book Wires of War

• An essay on the economics and politics forces behind the Airline Deregulation Act of 1978

Parting thoughts

As always, the central thesis of Snapshots remains simple: if you look at anything with enough depth, it will be interesting.

I know that I’m competing with your favorite influencer’s Instagram stories, your friend group’s juicy messages, and the latest fortune cookie wisdom on Twitter. Billions of dollars are spent on making these platform algorithmically perfect to maximize engagement. These are tough enemies to fight in the battle for attention. I’m grateful that you think that I’m good enough to defeat them at least a few minutes every now and then.

Thanks for reading.

Until next time,
Sid

Substack Notes has a “Home” tab where you will see notes from people you have and have not subscribed to. The notes here have to be algorithmically driven and are not human-curated. On the “Subscribed” tab, you’ll see notes from newsletters you’ve subscribed to in a chronological order (latest first). The engagement options are likes, replies, and restacks. No wonder people think this is trying to compete with Twitter.

But these similarities are misleading, and I believe that comparisons with Twitter by Musk and others are misplaced. Jack Dorsey, the co-founder of Twitter, repeatedly called it “the public town square.” If Twitter is the public town square, then Substack Notes is the artistic neighborhood a few blocks away. If Twitter is the park where you can reliably run into a group of rowdy teenagers, Substack Notes is the quiet co-working space where you can hang out and catch up with like-minded people over coffee. Both are unique in what they offer — and that, as we will find out, is both good and bad for Substack.

Let’s get into it3, starting with the positives:

On a positive note    

End-running the cold start problem

The biggest thing that Substack Notes has going for it is the lack of a cold start problem that plagues any new network. From Andrew Chen’s book of the same name:

If there aren’t enough users on a social network and no one to interact with, everyone will leave. If a workplace chat product doesn’t have all your colleagues on it, it won’t be adopted at the office. A marketplace without enough buyers and sellers will have products listed for months without being sold. This is the Cold Start Problem, and if it’s not overcome quickly, a new product will die.

Given that Substack already has 17,000 writers earning money and 35 million active subscriptions (including 2 million paid subscriptions)4, they don’t have to worry about finding users for the platform. In my anecdotal evidence, every time I have opened up the Substack Notes app, there have been at least 3-5 new notes. Engagement is strong and there is very much a “fresh cut grass” feel to the platform where everyone is trying to figure out how to best use it.

Another related point: this has finally gotten me to download the Substack Notes app because it’s way easier to interact with Notes in an app compared to on the web. There has to be something here in the way that adds to the Substack flywheel.

Newsletter readers like reading newsletters

Speaking of the flywheel, it is generally accepted that same channel promotions tend to work pretty well. If you’re a YouTuber, you should collaborate with other YouTubers because your audiences are already on the same platform — you don’t have to convince them to try something new. 

Newsletters are no different. 's Morning Brew5 famously put its first marketing dollars towards sponsoring other newsletters. That’s why in the collaboration hey-day of this newsletter6, I collaborated exclusively with other newsletters like on Sonos and Spotify, on Spotify and Succession, 's Divinations on Complexity Convection, 's S-1 Club on Coupang and Robinhood, by Jake Singer on lululemon, and others.

Following this principle, Notes can develop into the best newsletter discovery channel on the internet. If you like someone’s note on the platform, you can easily subscribe to their newsletter with a click or two. This is much easier than Twitter where you might go to their profile page or click into an article and then find a subscription link.

In fact, the app design of the app encourages this behavior:

Between notes, you get a block of suggested newsletters you might like and a subscribe button is prominently displayed below every Notes’ author. As the app grows, the Substack product team will certainly continue to hone in on encouraging the behavior of subscribing as much as possible.

One prominent criticism of the Substack business model has been that the largest newsletters might not want to pay them 10% of their earnings. I’ve always believed that this is misplaced because writers, first and foremost, want to write. They don’t want to run a technology platform. Over the last couple of years, Substack has developed features like Recommendations that have increased the value of the platform. If it can develop a true newsletter discovery in Notes, that is another source of encouraging more writers to join the platform and retain them while remaining writer-friendly.

Alternative paths to monetization while remaining ideologically pure

If remaining writer-friendly is one of Substack’s core principles, another is its founder’s dislike of ad-driven media. In many ways, they have developed the company’s brand as a counter position to the existing model of the internet. From A new economic engine for culture (brackets and emphasis mine):

When we started this company five years ago, we thought that the world might look a little different if readers and writers, rather than the companies that want to sell them stuff [read: advertisers], were the customers.

That’s a fine opinion to have. It might even be ideologically consistent. But it’s unclear how it’s consistent with a $625M valuation7. Ad-based models are widely profitable. A flat 10% take rate leaves very little margin for, well, margin expansion. A lot has been written elsewhere about their challenging financials and incentives (Ben Thompson; paywalled).

But Notes allows Substack to do something interesting. It allows them to pursue a display ad model in the Substack app. Not one that’s algorithmically determined (thus remaining ideologically pure8), but a simple pay-to-be-promoted to an audience of newsletter readers. This is an acceptable balance of trade offs — anyone who has a paying subscription to any newsletter (or a certain number of newsletters)/a separate in-app purchase would still get an ad-free experience, but if you’re only a free reader of Substacks, there will be some level of advertising-driven monetization ala Spotify or the New York Times.

In doing so, they could take inspiration from another orange-colored app, the podcast player Overcast. It is a simple podcast player made by Marco Arment that’s quite delightful to use. It has display ads on the Now Playing screen player and in category lists (Shoutout to 's podcast which I am a big fan of and was listening to when I took this screenshot.)

You can easily imagine a promoted flag in the suggestions box or in category searches on the Substack app.

While this is not a move that will single-handedly justify their valuation even if implemented well, the development of an ad network can be useful in expanding and diversifying its margins. All products have to evolve beyond their original use cases; this evolution allows Substack to remain writer-first.

Reduced dependency on other platforms

If there is one lesson to be taken away from the fiasco of getting Substack links blocked/marked unsafe by Twitter9, it is that you have to control your own destiny when it comes to the internet.

It’s true that Substack was dependent on Twitter for much of its initial growth. But critically, it has another key dependency: Gmail. You’re not really an independent platform if most of your content is consumed through another company’s client and it can push newsletters to the spam folder and tabs other than your primary inbox. I would guess that this was an important driver of why Substack developed an app — to reduce dependency on a platform where most of its readers consume newsletters10.

Since Notes is part of the Substack app, it continues the strategy of gaining independence from other platforms bringing in the experience fully in-house.  

Importantly, all this is pro-writer and good for Substack. They are creating a sanctuary for thoughtful writing on the internet. Around that sanctuary, they have built dams to block the relentless onslaught of the dangerous waves of the ad-driven internet. They provide protection from the virality-loving impression-based economy, the susceptibility to financial harm when sharing unorthodox opinions, and the overall unpleasantness that is the social media culture wars.

Not to rain on the parade, but

And despite all this, there is a key problem: it does not have the social media culture wars. So far, Notes has been a relatively positive community where the best intentions are assumed and the vibes are positive. 

That’s quite…. boring. 

Part of what makes Twitter work (and why reactionary platforms like Truth Social have not taken off in mainstream circles), is that the people that you disagree with (and maybe even hate) are on the platform with you. It’s not that fun to quote tweet in agreement; it’s much more viscerally satisfying to dunk on someone. 

If you’re on Substack Notes today, there is a lot of encouragement and positive discourse. I like that! It’s just unclear how that translates into a good social network with a large user base11. If the plan with Notes was to replace Twitter amidst its current comical mismanagement, one struggles to see how that’s possible.

The real opportunity for Notes

This dynamic (or lack thereof) is why comparisons with Twitter are misplaced. They are largely a function of the Twitterati elite's obsession with the platform. You need mass adoption of a platform to get Twitter-like dynamics going and the masses are not paying $50/year for a single author. Substack (and Notes by extension) is for a specific type of person.

With that target user in mind, the real opportunity for Substack Notes is to develop a vertical social network for reading. It could take on the likes of Goodreads12, Readwise13, and Pocket to become the home of all text-based content on the internet.  

If I could see the best genre recommendations, r/AskHistorians-quality discussions on topics, some elements of personal knowledge management tools, and a robust discovery network, the Substack app will earn a spot on every infovore’s homepage.

And all those features combined, amongst others by more creative minds that this vision of a reading-based social network would have, would be valuation-justifying.

And all this would be consistent with the principles of Substack, as laid out by the team:

• Great work is valuable and deserves to be rewarded with money

• The people have the power

• A free press and free speech are fundamental to a trustworthy media system

• We help readers take back their minds

Community and creation features in notes will facilitate more subscriptions for writers, paid and free. Since the business model will still be subscription-driven in this vision of the platform, the people continue to have the power to pay attention with their wallet. That in turn ensures free press and free speech. All that contributes to a platform where readers take back their attention and can focus on what they are reading.

Long road to a well-running economic engine for culture  

The sanctuary for thoughtful writing on the internet can be successful. And the protections it provides are valuable. To borrow Substack's own term, the “economic engine for culture” should be built.

And it is exciting to see Substack build that engine. As a writer on the platform, I am happy to provide (a very, very small) part of the fuel to power that engine. This is why Substack Notes should not be compared to Twitter. To do that is to misunderstand and underestimate the endeavor.

It’ll be a long road to build this engine and keep it running in a way that is true to the team’s principles. They will almost certainly have missteps. But the goal is important — and ambitious — enough that we should hope that they succeed.

The year is 1984. Apple is running Super Bowl ads about the first Mac computer. Los Angeles is hosting the Olympics. Tetris had just launched on IBM PCs. And discreetly tucked behind the Capitol building in Washington, D.C., the Supreme Court1 is delegating unprecedented levels of legal authority to unelected bureaucrats in the executive branch of the U.S. government.

This is the story of the legal cannon known as the Chevron Doctrine. It says that when a law about an executive agency that has been written and passed by Congress is unclear, the agency’s interpretation is given deference.

And while that may seem benign, dig a bit deeper and it reveals fundamental tensions between the United States’ three branches of government and a deep dynamism in the power structures of a country’s governmental system widely perceived to be stagnant. We find that more power can be delegated away from the ballot box of democracy with an off-the-cuff legal phrase than with formal declarations of authority. Ultimately, this benign technicality shows us the very fabric of laws that govern daily life.

In doing so, we find ourselves face-to-face with some pretty fundamental questions that have always plagued active citizens of conscious republics — what should and shouldn’t be delegated to people who are unelected? How do we maintain a system of government based on checks and balances while individual parts of the system go through turbulent periods? And how can the themes of this story help us in our personal lives?

Let’s dig in, starting with the basic question: what does an executive agency do?

Back to AP Gov: The Basics of US Government

Let's say you go to a doctor and they tell you that you are deficient in iron. You go to a pharmacy or supermarket and pick up an iron supplement from the shelf. On the back of that supplement bottle, there is a nutritional label of facts — a black and white table with a list of ingredients that the supplement is made of and how much of it is in the tablet you're planning on ingesting.

In the United States, companies who sell those bottles are subject to labeling requirements created by the Food and Drug Administration (FDA)2. It’s the executive agency in charge of regulating food and drugs; the watchmen in charge making sure that pretty much everything you put in your body is safe. It’s understandably important stuff, and likely more impactful to your life than dull grandstanding on C-Span.

But in the Constitution of the United States, the Food and Drug Administration isn’t mentioned anywhere — so how can it tell companies what's legal and what's not?

If you went to high school in the United States3, you might have taken an Advanced Placement (AP) Government class in which students learn that Congress — and only Congress — has the power to create laws that govern the land. The President4 is supposed to execute those laws. The Court gets to review these laws (and strike them down if they are unconstitutional5) and make sure that they are being implemented in the way intended by Congress.

In the United States, this system is lauded, because of the checks and balances it theoretically imposes on the powers of the three parts of the government: the Executive (read: Presidency), the Legislature (read: Congress, both the House and the Senate6), and the Judiciary (read: the Supreme Court and all other lower courts).

The various agencies like the FDA, EPA, CDC, etc. are technically under the Executive Branch. They don't have any inherent power. To do anything, like asking power plants to follow carbon dioxide emissions standards, the agency has to point to a law passed by Congress. In this case, the EPA can point to the Clean Air Act of 1963 and this particular section:

(A) The Administrator shall, within 90 days after December 31, 1970, publish (and from time to time thereafter shall revise) a list of categories of stationary sources. He shall include a category of sources in such a list if in his judgment it causes, or contributes significantly to, air pollution which may reasonably be anticipated to endanger public health or welfare.

(B) Within one year after the inclusion of a category of stationary sources in a list under subparagraph (A), the Administrator shall publish proposed regulations, establishing Federal standards of performance for new sources within such a category.

So, by pointing to (A) the Administrator (the EPA) can say that a power plant is a “stationary source” of air pollution, and by pointing to (B) it can say that it has the authority to assign it a “standard of performance” that it must match.

Every agency has a similar law or set of laws passed by Congress that defines the scope of their actions. The EPA (Environmental Protection Agency) has the Clean Air Act, the SEC (Securities and Exchange Commission) has the Securities Act, the FDA (the Food and Drug Administration) has the Public Health Service Act, and so on and so forth.

All well and good?

Maybe not.

You'll notice the date on the Clean Air Act passed by Congress — 1963 — is over 50 years old as of the writing of this piece. It would be reasonable to ask if the Act is relevant anymore.

You won’t be the first to ask that question. In fact, this question of whether laws can keep up with the on-the-ground realities has been asked since the founding of the country. In one of the Federalist Papers7, James Madison wrote:

All new laws, though penned with the greatest technical skill, and passed on the fullest and most mature deliberation, are considered as more or less obscure and equivocal, until their meaning be liquidated and ascertained by a series of particular discussion and adjudications. Besides the obscurity arising from the complexity of objects, and the imperfection of the human faculties, the medium through which the conceptions of men are conveyed to each other, adds a fresh embarrassment. The use of words is to express ideas. Perspicuity therefore requires not that ideas should be distinctly formed, but that they should be expressed by words distinctly and exclusively appropriated to them. But no language is so copious as to supply words and phrases for every complex idea, or so correct as not to include many equivocally denoting different ideas.

Madison is basically saying: “Hey, I get that not every law is going to be perfectly written by Congress. But you’ve got to do your best and then let things play out between the various parts of the government to figure out what it actually means.”

And at least in this case, Congress is as wise as James Madison. It has also anticipated this question. In cases where it understands that technology might outstrip its ability to pass specific legislation, it writes the law in such a way that it outlines the intended ends, but not the specific means. 

That’s exactly what happened in 1981, when the EPA changed its interpretation of what a “source” of air pollution is to exclude any new equipment for a power plant as long as the emissions from the power plant itself did not increase. Previously, every individual piece of equipment’s polluting potential had to be accounted for on its own. Now, the EPA said something along the lines of, “You have to make sure that the power plant itself does not make more than X units of air pollution. But if you buy a new truck that makes your total emission go over X units, that’s totally fine.”8

Note that while this is not a desirable conclusion if you want to minimize air pollution, there is nothing in the Clean Air Act of 1963 that says that this is not an argument that can’t be made — the law is not explicit about how to deal with these extensions of sources of air pollution. 

An environmental advocacy group, the Natural Resources Defense Council (NRDC), challenged the EPA’s novel interpretation of the law. Lower federal courts agreed with the NRDC and concluded the EPA could not change definitions of words used in an act of Congress on a whim.

At this point, Chevron, one of the energy companies that would be negatively affected by this ruling, appealed the decision, and it went all the way up to the Supreme Court.

So, you get the case Chevron vs. NRDC.

When it got to the Supreme Court, the case ruled that the EPA can, indeed, change the legal definition on a whim. Deferring to the agency’s relative expertise (regulating sources of pollution), the case said that agencies should have the authority to interpret ambiguous laws passed by Congress as long as the interpretation is reasonable.   

More precisely, it said the following:

First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.

If, however, the court determines Congress has not directly addressed the precise question at issue, the court does not simply impose its own construction on the statute . . . Rather, if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute.

This becomes known as the Chevron two-step test:

1. First, the court asks whether Congress has spoken to the exact issue at hand.

2. If it hasn’t, then as long as two reasonable people can disagree on what the law says and one of the two people is the agency in charge of executing on the law, what the agency says goes.

It’s saying that when things are unclear, the agency has the authority to interpret the law.

The Rise of the Chevron Doctrine

If you squint a little here, you can see how this interpretative power is the end of a very large legal wedge. And it’s a wedge with all sorts of legal entitlements and authority for federal agencies like the EPA, the CDC, the FDA, etc.

Now, you may say, “This sounds good. The agency has more expertise in a particular area relative to the court. Why mess with this and limit the agency’s authority to adjust and interpret the law in order to achieve its regulatory goals?”

There are three reasons why this discretion is concerning:

1. A regulatory body like the CDC, the EPA, or the FDA might be captured by commercial interests that they are meant to regulate. An entirely separate conversation can and should happen about the fact that 46% of the FDA’s funding in 2021 came from “user industry fees” — a phrase that should be used as an example in the dictionary under the word euphemistic — which means from the companies and industries the FDA is meant to regulate. Sometimes it is offensive to have to point to a legal statute to show that something is wrong; this is one such case. But subtler captures also happen, and it can be tough to discern the ripples on a still pond created by perverse agents lurking beneath in the quiet, murky depths of the administrative state.

2. Another such subtle capture happens through the revolving door of personnel going back and forth from the regulatory bodies and the industries they are meant to regulate. It’s entirely legal, and while some generous arguments could be made for “cleaning up from the inside”, it’s generally a way for companies to find convenient ways around regulation. In the context of Chevron, this implies having a precise idea of how aggressively the agency you previously worked at would be willing to implement particular laws that your current employer wants to skirt.

3. Federal agencies are arms of the executive branch. By deferring to the agency in cases of legal ambiguity, you’re giving the President a lot more legal authority than what is prescribed in the Constitution9. That might be fine while your guy or girl is in office, but do you really want to have created this legal entitlement when someone else occupies 1600 Pennsylvania Avenue?10

4. The Courts are an important bulwark against Presidential and executive overreach. For the Court to delegate interpretative responsibility to nameless bureaucrats at three-letter agencies is broadly undemocratic and against the system of checks and balances as described by the Constitution.

Congress can always make things clearer. But there are two important structural reasons why this is impractical. One, Congress cannot reasonably be expected to be an expert in every single issue and always be prescriptive in its regulation. The agencies will always know more about their own domains. Second, there are times where Congress is extremely divided and is not as productive in getting things done. That’s a natural feature11 of the democratic process.

But it feels weird to give agencies the legal equivalent of a blank check (or at least a check with a very large withdrawal limit) when it comes to interpreting vague laws. These agencies are not staffed with elected officials. Laws, under this deferential system, could be made (via interpretation) by people who are appointed by the President, throwing the system of checks and balances in disarray with huge ramifications for the American people.

Reversal: In Chevron’s favor

A sound rebuttal to this argument would be some series of points like this:

1. As discussed above, neither the President (elected directly by the people) nor Congress (also elected directly by the people) can speak to every single issue at hand. So necessarily, either agencies or the courts have to interpret the law when it is unclear.

2. Federal agencies have many constraints on their overall power: their purses are controlled by Congress, their senior leaders are appointed by the President, and any regulatory decisions with higher than $100M in compliance costs must be reviewed by OIRA12, which sits within the President’s office.

3. Comparatively, Courts are much less accountable. In many cases, the Supreme Court composition is determined by flukes of history. They are somewhat susceptible to an expansion of seats and a tightening of purse strings by Congress, but they can’t really enforce anything they do by themselves13. But many of these limitations are theoretical in nature, and invoking them seriously would lead to a significant escalation in the game of Constitutional hardball that has been played in the 21st century.

All these are fair arguments in favor of broad agency power but they are matters of practicality, not of principle. When we think of solutions to tough problems requiring a balance of trade offs, we have to be cognizant of the edge cases of how systems can be exploited and abused and corrupted — especially a system as powerful and potentially pervasive as the government. No matter how effective and well-meaning they might be, you don’t give institutions with their own agendas loaded guns and ask them to just be nice. 

Ends and Means

Note that at this point, it's important to have a more philosophical discussion about distinguishing between an action itself and the authority of an agency to take that action.

How you feel about Chevron at least partially depends on to what extent you feel like ends justify means.  

For example, you might agree with an action where the EPA forces every student in America to study climate science in high school. That might even be a socially desirable thing to do. But it doesn't have the authority to do that. It can't point to anything in The Clean Air Act or any other laws that says that this is in their purview.

So even if an action is desirable, it's not necessarily legal.

Should that not be the case? Should agencies be able to look past the law and do what they believe is best for the people?

It can be easy to feel frustration when an administration you like is in office and is hampered by these rules. But the system must be designed with a Rawlsian theory of justice14 and a tight veil of ignorance — the idea that systems must be designed in a way that avoids replying on what an individual’s position on a topic is. An informed opinion cannot be, “My guy or gal and their administrative state should be able to do whatever they want but the other guy’s oh, no no no!”

Carveout: Rent Moratoriums and COVID-19

There was a recent case that showcases this tension between desirability and legal authority on an issue of great importance — rent moratoriums during the COVID-19 pandemic — that related to agency authority.

The CDC issued a rent moratorium for a particular subset of the population at the end of December 2020, after the rent moratorium passed by Congress in the second round of the CARES Act was due to expire. A group of landlords in Alabama, the Alabama Association of Realtors, sued the CDC, saying that it exceeded its authority.

Let's get this out of the way: It’s tough to argue against the fact that rent moratoriums were a good idea. In the face of a struggling economy during the COVID-19 that led to the people who have the least to have even less, it made sense to enact rent moratoriums for folks who may have lost their jobs and were barely making ends meet. Congress had also allocated a bunch of money to help landlords with at least part of their lost rents.

But the question before the court was not whether the rent moratorium was a good idea, but whether the CDC — the Center for Disease Control and Prevention — has the authority to issue a rent moratorium. The CDC is a public health agency. How in the world could you argue that it has authority over rental decisions?

Even so, the CDC tried. It quoted this part of the Public Health Service Act of 1944:

The Surgeon General, with the approval of the [Secretary of Health and Human Services], is authorized to make and enforce such regulations as in his judgment are necessary to prevent the introduction, transmission, or spread of communicable diseases from foreign countries into the States or possessions, or from one State or possession into any other State or possession. For purposes of carrying out and enforcing such regulations, the Surgeon General may provide for such inspection, fumigation, disinfection, sanitation, pest extermination, destruction of animals or articles found to be so infected or contaminated as to be sources of dangerous infection to human beings, and other measures, as in his judgment may be necessary. 

You can see the authority that the CDC is trying to claim is under the “other measures” phrase. There is an argument that goes something like this: rent moratoriums would have prevented the transmission of COVID-19 because it is possible that some people who would have been evicted would have COVID that they could then pass on to others. Therefore, a rent moratorium is an “other measure” that the CDC can use to prevent this spread.

That makes sense in theory, but it’s certainly a very aggressive interpretation of that sentence. If you agree that rents are covered by the quoted section, then very little isn’t. As the Court said:

Could the CDC, for example, mandate free grocery delivery to the homes of the sick or vulnerable? Require manufacturers to provide free computers to enable people to work from home? Order telecommunications companies to provide free high-speed Internet service to facilitate remote work? 

Again, all of these might be desirable for society, but that doesn’t mean that the CDC has the authority to do this. If you think that they should be allowed to, then ask yourself the question: “Would I be okay with such a broad mandate if the other party was in the White House?”

The court said that since this is a power that would lead to “vast economic and political significance”, it expects Congress to have given explicit permission to the agency to take such an action. Which it never did.

Drawing a line: Chevron vs. Major Questions Doctrine 

And the current Supreme Court would agree with the fact that agencies cannot fill out legal blank checks with whatever authority they want to draw on from the bank of laws. In 2022, West Virginia and nineteen other states said that the EPA did not have the required authority to mandate the transition from fossil fuels to other forms of clean energy.

The Supreme Court said that while the EPA did have the authority to regulate greenhouse gas emissions, it could not force companies to change the overall mix of electricity production because that’s just too big of a deal. If the agency had the power to do that, then what couldn’t it do in the name of regulating greenhouse gas emissions? Could it, for example, order planes to stop flying because they have emissions? Could it ask people to not drive outside the hours of 8am and 8pm?

In doing so, they invoke the Major Questions Doctrine:

When agencies seek to resolve major questions, they at least act with clear congressional authorization and do not “exploit some gap, ambiguity, or doubtful expression in Congress’s statutes to assume responsibilities far beyond” those the people’s representatives actually conferred on them. As the Court aptly summarizes it today, the doctrine addresses “a particular and recurring problem: agencies asserting highly consequential power beyond what Congress could reasonably be understood to have granted.” 

It is possible to think of the Major Questions Doctrine as a version of the first step in the Chevron Doctrine: “has Congress spoken explicitly to the authority that the agency is claiming?” If Congress had thought that it was important (and thus under the agency’s purview), it would have spoken to it explicitly. You can also think about it as the second step of the Chevron Doctrine — the agency’s construction is not reasonable because Congress hasn’t authorized it. You can also just ignore Chevron altogether and note that since it’s so important, it's improper to give an agency automatic deference.

In this case, the dissenting opinion15 was scathing. To pick just one quote:

Some years ago, I remarked that “[w]e’re all textualists16 now.” It seems I was wrong. The current Court is textualist only when being so suits it. When that method would frustrate broader goals, special canons like the “major questions doctrine” magically appear as get-out-of-text-free cards.

It’s true that the Major Questions Doctrine is a sort of a deus ex machina for the court to say in any case related to agency actions, “You know, the vibes here are just not right.” and rule against the agency. In that, it is a blunt and highly discretionary tool of legal authority (see notes above about accountability of the judiciary).

But the Chevron Doctrine as it stands presents legal problems too. Primary among them, it fails to distinguish between actual discretionary powers granted to the agency by Congress and a case where the agency is filling in the legal blanks. Its simplicity is seductive, but it ultimately leads to an unsatisfactory balance of power outcome.

So just like a bank that might decrease your credit limit if you don’t make regular payments on a credit card bill, the Major Questions Doctrine is a way for the Supreme Court to limit the size of the blank check that was written to the administrative state in the 1980s.   

Lessons learned

It’s true that the reduction of the scope of the Chevron Doctrine via the Major Questions Doctrine makes it less important in administrative law, and ultimately in day-to-day life. But there are broader lessons here about how systems work that are worth cataloging.

First, it’s an important object lesson that there are pockets of power in the government everywhere. Political power in a liberal democracy should emerge at the ballot box. But if you have a large country, you have to, at some point, deal in abstractions. Authority has to be delegated down the rungs of government. But at what point do the abstractions and delegations become so abstract that they have no relation to the ballot box? It’s an ever-changing balancing act that requires each part of the government to be functioning as intended.

Second, there is an interaction effect with a dysfunctional Congress that was likely never considered by the founders of the country. In theory, there could always be updated versions of key legislation like the Clean Air Act that are passed by Congress to keep up with the most important advancements. But this has not been a productive time for Congress. When one part of a carefully designed system does not work as intended, it can lead to poor outcomes for the broader system.

Third, there is a personal lesson to be drawn from this dangerous dance of governmental delegation. In my experience, the most successful people I know are deeply aware of their personal delegation doctrines — what and what should not be delegated to others. They are very, very good at this judgment call. Delegating gives you a lot of leverage; you can get a lot more work done if you can bring others along with you on a journey. But you cannot delegate the most important things. By discovering this line and discovering it early, you can be most effective, not just efficient.

Lastly, the fact that such a doctrine exists, impacts most people living in the United States and is yet not spoken of outside the small halls of government is a travesty of civil education in the country. But a similar scathing statement could also be made of most countries in the world. David Foster Wallace once said, “The most obvious, ubiquitous, important realities are the ones that are hardest to see and talk about.” So, the question is, how do we develop and maintain a rigorous program of civil education in a democracy? And what should your role be in developing and maintaining that program?

That perhaps, is a major question for us all.

Many thanks to Varun Sharma and Michael Hodak for all the help editing this piece.

But it’s Chat GPT’s usage by my normie friends that has peaked my interest. How does my friend’s dad who wouldn’t even consider taking about cryptocurrency bring it up by himself? How are people already trying to think about a new job type — prompt engineers? How are high school students I know already using it to apply to and get scholarships? It’s a Cambrian explosion of creativity. And more than a hint of trepidation about what is to come.

I’m not alone in these observations. But I do think there is something I haven’t seen considered elsewhere: how do we feel about being manipulated by AI?

And if we acknowledge that we don’t want to be manipulated by AI models, then what could the future of ensuring human “authenticity” look like?

I. Emotional manipulation: Pulling at our heartstrings

During a recent trip to Denver and Boulder, in what has become an annual ritual, I picked up The Best American Essays 20221, an anthology of essays selected by Alexander Chee. One of the essays was Ghosts by Vauhini Vara. Its premise is simple:

I had always avoided writing about my sister’s death. At first, in my reticence, I offered GPT-3 only one brief, somewhat rote sentence about it. The AI matched my canned language; clichés abounded. But as I tried to write more honestly, the AI seemed to be doing the same. It made sense, given that GPT-3 generates its own text based on the language it has been fed: Candor, apparently, begat candor. In the nine stories below, I authored the sentences in bold and GPT-3 filled in the rest.

It should be no surprise to anyone who has used ChatGPT that the stories generated were pretty good. There was the sorrow, guilt, and angst typical in these stories. If Vauhini has chosen one of these stories and tried to pass it off as her own to her editor, I’m not sure that anyone would be able to tell.

That got me thinking: how would I feel if other authors whose works I had spent a lot of time with used AI-generated text without telling me. It made me feel a bit uneasy.

Take the thought experiment to a qualitative extreme.

Consider you are at the end of a book like When Breath Becomes Air by Paul Kalanithi, and read these final lines that the dying author wrote to his infant daughter who was never going to see her father as a fully conscious human being:

When you come to one of the many moments in life where you must give an account of yourself, provide a ledger of what you have been, and done, and meant to the world, do not, I pray, discount that you filled a dying man’s days with a sated joy, a joy unknown to me in all my prior years, a joy that does not hunger for more and more but rests, satisfied. In this time, right now, that is an enormous thing.

I know for a fact that that particular paragraph has made some of the most stoic guys I know weep on airplanes.

How would they feel if on the inside flap of the dust jacket it said something like, “Paul Kalanithi is an AI large-language model developed in Guilin, China by a team of seven anonymous teenagers.”?

I know it wouldn’t sit well with me. Maybe even make me furious.

That’s because part of what we consume is the context of who the author is. When I read that book, I (at least subconsciously) thought about how Paul was a part of the Indian diaspora with its focus on delayed gratification and a general reluctance towards outwardly displays of emotion. So a paragraph like that comes not just with the power of the rhythm that Paul builds with the short phrases and the fact that we know that this is the last chapter of the book with the inevitable just around the corner, but also the fact that I could see part of myself in him.

How could a large-language model, however well conceived and advanced, possibly replicate that sense of belonging? Of being seen by others as you see yourself? Whatever the wiz kids in Silicon Valley, Shenzhen, or Tel Aviv come up with next, I don’t think it’s possible to recreate that.

II. Political manipulation: Increasing the noise to signal ratio

Let’s move from emotional manipulation at a personal level to mass manipulation. Living in Washington D.C., the possibility of this is never too far out of my mind.

This story in the New York Times talked about using LLMs as lobbyists. There was also an academic paper about how effective this use case can be. It found that:

LLMs [Large Language Models] can simulate many different personas and be encouraged to take on many different approaches to tasks.

Read: we can create an endless volume of letters, voicemails, and other materials to persuade Congress and other stakeholders that there is wide agreement or disagreement about any topic. Basically, raise the level of noise about a topic2.

As one of the potential downsides, the authors concluded:

AI lobbying activities could, in an uncoordinated manner, nudge the discourse toward policies that are unaligned with what traditional human-driven lobbying activities would have pursued. This could occur through the more formal channels of written letters to regulators and congresspeople, or through the informal channels of influencing legislator’s perceptions of public opinion.

And that:

This does notimply the existence of a strongly goal-directed agentic autonomous AI. Rather, this may be a slow drift, or otherwise emergent phenomena.

If I have some confidence in our ability to be protective about the arts, I have little hope that we can maintain that level of integrity in other domains. At the end of the day, lobbying is an arms race and you cannot ask one side (or both) to put away something that can give them a massive advantage towards their end outcomes.

Pandora’s box has been opened. And it can’t be closed.

Compare this approach to lobbying to this testimony by Fred Rogers in May, 1969. Rogers went in front of the Senate Subcommittee on Communications about preventing the gutting of $20M of funding for The Corporation of Public Broadcasting which in turn funds PBS:

And this is what — This is what I give. I give an expression of care every day to each child, to help him realize that he is unique. I end the program by saying, “You’ve made this day a special day, by just your being you. There’s no person in the whole world like you, and I like you, just the way you are.” And I feel that if we in public television can only make it clear that feelings are mentionable and manageable, we will have done a great service for mental health. I think that it’s much more dramatic that two men could be working out their feelings of anger — much more dramatic than showing something of gunfire. I’m constantly concerned about what our children are seeing, and for 15 years I have tried in this country and Canada, to present what I feel is a meaningful expression of care.

Fred Rogers gives a couple of more examples, at which point Senator Pastore of Rhode Island who was the Chairman of the Subcommittee says:

Well, I’m supposed to be a pretty tough guy, and this is the first time I’ve had goose bumps for the last two days.

And then he says:

I think it’s wonderful. I think it’s wonderful. Looks like you just earned the 20 million dollars.

If that doesn’t move you, I don’t know what will. I’ve never quite seen anything like this: a public official changing his mind on national television in an instant by a thoughtful communicator.

How do we think about protecting the power of that from the noise created by AI-generated text?

III. Diamonds Are Forever (whether they are real or fake)

In another conversation, I asked a friend of mine how she would feel if she got a lab-grown diamond ring for her engagement. Her response?

Absolutely no way!

My understanding is that there is no structural difference between lab grown and naturally-occurring diamonds. But this is an understandable reaction. While diamonds are defined as a solid form of the element carbon with its atoms arranged in a crystal structure called diamond cubic, the colloquial meaning of the term is very much about naturally-occurring gems.

However culturally steeped that colloquial definition is, it’s an actual revealed preference that only about 10% of engagement rings in the US use lab-grown diamonds3. It’s tough to argue against the fact that even the most educated people go for the authentic version of diamonds with its pitfalls of opaque sourcing and higher costs.

Could that be a way we look at generative AI? Diamonds, both lab-grown and naturally-occurring, have a rating system based on the 4Cs: Color, Clarity, Cut, and Carat Weight.

Could we, in the future, adopt a similar system for writing, campaigning, and other domains? Next to a movie’s IMDB rating and Tomatometer rating will be an AI-ness rating — to what extent a movie was conceived by something that was not human?

Maybe there will be different dimensions of how augmented a piece of media is:

• Promptness: How often AI was used to fix writer’s block?

• Creation: How often AI was used to create entire sections?

• Post-production: How much post-production fixing was done without human direction?

Rough analogues already exist. People talk about how the stunts in a movie like Top Gun: Maverick were “real” and not done in post-production using CGI. We know that these “real” stunts are more dangerous and more expensive, but we insist at these being a higher form.

Each piece of media would have embedded metadata into these augmentation characteristics set by some standards board.

IV. Fin

I think we’ll continue to talk more about AI and its implications on this newsletter and elsewhere.

What’s most interesting to me is how the structures (commute becoming ever cheaper, but potentially plateauing in its decreasing cost curve) and the agents (Satya Nadella putting down his foot and making a directional bet on the future of Microsoft) interact towards the future that is being created. There is incredible path dependence in any of the key technologies that we have today, and I doubt that AI will be any different.

Until the next one,
Sid

It’s been a while since I’ve written here, and I thought it might be fun to share what I’ve been reading and watching over the last 12 months and build some momentum for the next year of writing.

Programming note: I’ve had a happening year, but one thing I’ve terribly missed is writing. Momentum is a weird thing — it cuts both ways. The longer you have not written, the easier it is to continue to not write… But writing for me is a long-term affair, so I’m going to see if I can make up for this past year of not writing in 2023.

With that bit of self indulgent pity party-cum-resolution out of the way, let’s get into it:

Books

• Lords of Easy Money by Christopher Leonard: The most important economic story of the last year was the successive increases in interest rates by the Federal Reserve. Chris weaves a story of well-intentioned1 actors who forced themselves into a corner with little maneuverability in their actions. All while not taking into account the full extent of the side effects of their decisions. But it is also a story of defiance — one guy who takes a stand and says “Not me.”

  
  Lords of Easy Money is a piece of modern economic history, and probably the one book you should read in the New Year. It also happens to be a worthy successor to his previous book, Kochland (not an easy book to follow.)

• Rubicon by Tom Holland2: The idea that people can learn from history is not new. Aphorisms abound: “What’s past is prologue”, “Those who don’t learn from history are commended to repeat it.”, “Only a fool learns from his own mistakes, the wise man learns from the mistakes of others.” That should be motivation enough to read history. But I believe there is another level to this thought that’s under-appreciated. It’s that there are some events that are so canonical that everyone who has come after those events has factored them into their actions.
  
  One such historical event (series of events, really) is the fall of the Roman Republic at the hands of Julius Caesar and the establishment of the Roman Empire by Augustus. The framers of every constitution have had these events in their minds while designing the checks and balances of power in their governmental structures. The story itself is colorful: there is a fascinating system, the cast of characters is intriguing, there are moral themes of decadence and decay, and a lot more. There are multiple generations of Romans at play, and each generation learns from the mistake of the previous one and adds successive nails into the coffin of the Republic. This is a period of history that people should know about because so much of later history is shaped by it. It ought to be more accessible.
  
  Tom Holland’s Rubicon is the most accessible entry I have found into this universe. While it does have its critics in capital-H History departments, I’d rather read a 90% historically accurate account with a splash of pizzazz than a 100% accurate account that would be more useful as a sleeping aid.

• JFK by Fredrik Logevall: Ah of course, how can any of these lists written by yours truly be complete without a presidential biography? And JFK by Frederik Novegall easily takes the cake in this category for the year. It is the first volume in a 2-part biography of one of America’s most liked presidents ever. What it uniquely captures is how a young JFK who had the 1920s version of a Tiger Dad3 develops his own worldwide.
  
  Most of my mental picture of Jack Kennedy comes from situations where he is not painted in the best light: the Years of Lyndon Johnson books by Robert Caro where he turns a blind eye to the legislative resource he has in his Vice President and his flagrant extramarital affairs. He’s born into enormous wealth in a world that has so little and has pretty much every advantage one can think of. So it’s fair to say that I did not come into this book with a positive view of Kennedy. It is important to recognize this because my mental picture was — if not transformed — definitely changed.
  
  Is the young JFK enabled by privilege? Definitely. But he is not ruled by it. He thinks independently at a time of great change (Europe in the 1930s), often at direct odds with his father and his elder brother. It’s in these pages that you see the shaping of a strong foreign policy President, and a weak domestic one. I can’t wait to read part 2.

• Dark Sun by Richard Rhodes: The creation of the atomic bomb by the United States in 1945 is likely the most important event of the 20th century. The second most important event is the creation of the atomic bomb by the Soviet Union in 1949. Dark Sun tells the second, less popular story. It reads less like a physics textbook4 and more like a spy novel. And that’s no accident — espionage is a core part of the story here.
  
  There are fascinating themes in the book. How do you/should you allocate resources towards a paradigm-shifting discovery in the middle of war that is by no means a sure shot? Are you justified in spying on your “allies” if they are not sharing something very, very important with you? How can scientists navigate the bureaucratic process5 when mistakes can be literally fatal? What does the psychological makeup of a country look like when it’s faced with something that it has no hope of competing against? 
  
  The story struck me with awe. To be a fly on the wall and feel what these people went through! If you’re interested in this timeframe/area of history, you can’t do better than Dark Sun.

• Becoming Trader Joe’s by Joe Columbe: When you look at a company like Trader Joe’s today, you subconsciously project into the past and assume that it always looked like what it looks like today — amazing frozen food and lovely little handwritten labels and all. But that’s obviously not true! There is obviously a story of how the company became what it is today. And no one can tell the story better than its founder, Joe Columbe.
  
  I read this in the first few months of the year, and looking back, I remember it as a series of capturing small opportunities and arbitrages. People with wine collections don’t have a place to store them? Build a massive storage cellar and charge people to rent out a few spots. The Wisconsin Cheese lobby stops the import of particular cheeses from Europe that compete with theirs? Import unpopular cheeses and use distribution advantage to lower the cost barriers for customers to try them, making them popular in the process.
  
  Note that this is not a coherent book. It’s more just a set of stories and Joe’s reflections on them. But that’s okay, because I think it is a more accurate representation of how it probably felt to be creating the company. If you’re into company histories or are a sucker for Trader Joe’s6, you can’t go wrong reading this book.      

• Life, on the Line by Grant Achtaz: Here’s one way I would guess you can become better across disciplines: read about excellence, without reading something that is explicitly meant to be about excellence. This is a book about excellence without being explicitly about excellence.
  
  It’s the life story of Grant Achatz, the chef behind the famed Alinea restaurant in Chicago. My favorite part of the book is about his time at The French Laundry in Napa, California where he apprenticed under Thomas Keller. You see a young chef with some talent and some ideas about what he wants to do being shaped by a master of his craft.
  
  You can whet your appetite for this book by watching the Netflix show Chef’s Table episode on him — it’s Season 2, Episode 1. 

Movies

This year, I enjoyed movies that offered a sense of novelty. This means movies that are not quite esoteric (I doubt I’ll ever be that person), but do offer something that stays at the back of your head for a few days or weeks after you finish the movie.

Here are some movies that hit that Goldilocks zone for me this year:

• Banshees of Inshirin by Martin McDonagh (2022): People often say, “You’re the average of the five people you spend the most time with.” It’s tough to argue with this, but I do take offense to its corollary, “You have to cut people who don’t add value to your life.” As if Barack Obama is going around firing his childhood friends!
  
  Banshees of Inshirin is an ode to friendship and an antidote to the “upgrade your friends” pseudo-motivational crap that goes around on social media. It touches on themes of loneliness, economic opportunities, and small town living.
  
  I highly recommend a watch.  

• Tokyo Story by Yasujiro Ozu (1953): Here’s a question that I’d love an answer to — why is the Japanese film industry so good at making movies about families? I am sure that there is an answer to my question gathering dust in a PhD dissertation on some library shelf.
  
  But in the meantime to experience what I mean, you have to watch Tokyo Story. The set up is deceptively simple. An elderly couple visits their children and widowed daughter-in-law in post-World War 2 Tokyo. What follows is an honest portrait of family dynamics and how “blood” relations are only a part of the family that we leave the world with.
  
  No wonder that it’s consistently rated one of the best movies ever. 

• Everything Everywhere all at Once by Daniel Kwan and Daniel Scheinert (2022): What Everything Everywhere All at Once achieves is co-opting a piece of a commercial conglomerate, the introduction of the multiverse in Doctor Strange: The Multiverse of Madness, and turns it into something a bit more absurd and a lot more touching.
  
  It’s self-contained. There is no need to wait for the post-credit scenes — there are none. This isn't that kind of movie. And it achieves this without compromising on the technical achievement.
  
  This "indie" production matches Marvel punch for punch in the out-of-this-world spectacle. It’s good to see a much smaller production budget that can still hit those high technical notes without giving into the uber commercialization of the Marvel movies. 

• The Godfather: Part I (50th Anniversary edition) by Francis Ford Coppola (1972): Another one of the greatest of all-time and what a treat to watch this in the theater! I don’t really have too much to say here, expect for the fact that if you get a chance to experience this movie in a theater, do yourself a favor and get that ticket.

• Decision to Leave by Park Chan-wook (2022): This South Korean movie makes the list because I found it to be technically very impressive, but never found myself engrossed in the story. From my conversations with my friends who are into movies, it seems like I am in the minority here so your mileage may vary.

• Flee by Jonas Poher Rasmussen (2022): If you decide to watch this movie, be ready to shed a few tears. A heart wrenching tale of what being a refugee is actually like. A reminder of how grateful you should be if you have a place you can call home that is safe.

• Tár by Todd Field (2022): There is something so tempting about a movie driven by a single character to an extreme. Think Uncut Gems and Adam Sandler’s character, Howard Ratner. Nothing in that movie works without Sandler’s virtuoso-like performance.
  
  That’s the top note of Tár and Cate Banclett. The movie explores themes of achievement, the dark side of it, and the reality distortion side of genius. Some say that this is a “cancel culture” film, I’m not sure I totally agree.
  
  If Banclett doesn’t clean up at the Oscars after this, now that would be a slap in the face to the legitimacy of the Academy.

• Turn Every Page by Lizzie Gottlieb (2022): I had the chance to go to the Virginia Film Festival in Charlottesville to watch this documentary about the relationship between writer Robert Caro and editor Robert Gottlieb. It’s such a joy to see two experts of their craft trade (metaphoric) blows about what should and should not be included in Caro’s literary masterpieces.
  
  It seems to me that Caro has been on a mission of expanding accessibility to his books. First, with his autobiographical Working and now this documentary. Not that I’m complaining — I hope the Caro gospel gains more acolytes.

And yes, of course Top Gun: Maverick was great. It’s the perfect nod to the now-nostalgic 80s/90s7. Someone has to write a pseudo-philosophical Substack essay on how Tom Cruise and the US are archetypes for each other. If one hasn’t already been written…

Photography

I really enjoyed learning analog photography this year. There are so many components of taking a photo that are hidden from you on a phone. I feel like I’ve re-learned something I already knew.

I’ll leave you with some of my favorite shots from the last year:

Happy New Year and hope to see you (and your inboxes) more often in 2023.

Sincerely,
Sid

I hope everyone is making it through the final stretch of the year before the holidays kick in. And I hope everyone and their family is safe through what feels like another setback in the ongoing COVID pandemic.

As a quick reminder to old subscribers and as an introduction to new ones, this is Sunday Snapshots, a weekly newsletter mostly about businesses and biographies with a side of randomness — everything from restaurants, the craft of writing, machine learning, shadow power, and ill-fated drawings. In alternating weeks, you’ll receive an essay and links to things I’ve been thinking about.

First, a quick follow up on last week’s essay Spotify Wrapped. Building on the theme of growth through social channels that we discussed in the article, the Swedish streaming company launched Wrapped: Blend. This allows two friends to build a playlist that is a mix of their top songs and music tastes. I can easily see a wider option set for this feature next year with friends being able to create playlists in a truly collaborative manner. Beyond the analytical, it was a delightful feature — kudos to the product and design teams at Spotify!

Now, on to some things I’ve been thinking about the last couple of weeks:

Books

Harry Truman, the 33rd President of the United States, had a sign on his desk that said “The Buck Stops Here.” It was a reminder to every one who interacted with him that no matter the topic, the final decision would be his and his alone. In Herbert P. Bix’s Hirohito and the Making of Modern Japan, a history of the Japanese imperial court in the first half of the 20th century, it’s clear that the buck stopped nowhere at all when came to the decisions that guided Japan through World War 2. The reigning emperor, Hirohito, lived in the shadow of his grandfather, the Meiji emperor who catapulted Japan from a feudal country into the ranks of the great powers. Empire was what the Japanese people wanted; empire is what they got. But hereditary power is a bit like a roll of the dice — you can never guarantee that you’re going to get what you need. In short, Hirohito was not what Japan needed. I’m writing a longer essay on the book for next week’s issue of Snapshots.

Continuing my journey into McPhee-land, I read Draft No. 4. It’s a collection of his essays about the writing process. McPhee has lived a full life and he brings this life’s worth of experience to his battle — every writer’s battle — against the blank page. There is certainly a lot to pick up but a few things that stood out to me. First was McPhee’s insistence on using the right word. This doesn’t just mean the word with the right meaning, but the word with the meaning that is most appropriate for a particular situation. He recommends writing with a dictionary on your side to help with this. He recommends starting with a lead and a punchline. He recommends writing out first drafts by hand. And much more. But that list does not really do this book justice. Sharing a bulleted list of lessons is a bit like me telling a kid that Disneyland is fun. It’s technically true but the magic is lost when you haven’t had the experience yourself. I highly recommend this book and I’ll be continuing my journey into McPhee-land by reading The Curve of Binding Energy.

Articles

I’ve written about The Amazon-Apple Book Duopoly in the past. This New Yorker piece about the The Surprisingly Big Business of Library e-books profiles OverDrive, the leading digital content provider for public libraries. You learn about the various business models that libraries have at their disposal for different kinds of books. It’s all fascinating and wonderful. But at the heart of it all is the lingering question of whether OverDrive, a supposed counterweight to Amazon and Apple, is too big itself. I think there are reasonable philosophical discussions to be had about the pros and cons of concentrated corporate power and you can base your legislative approach on those philosophical ideologies — like Lina Khan suggested in her Yale Law Review paper titled Amazon’s Anti-trust Paradox which I have written about before. But my take is that the regulatory leash should be extremely short when it comes to the dissemination of knowledge itself.

Some articles teach you something. Some articles confirm something you knew already knew. This article in the New Republic about Robert Caro’s Journalism Lessons falls under the latter category — it proves that I will read anything and everything by or around Caro. It’s a companion piece to the exhibit at the New York Historical Society which I had the chance to visit a couple of weeks ago and covers the usual Caro traits: his approach to creating a “sense of place,” his commitment to tracking down every lead1, and his unique writing style. A good introduction to his work. Thanks to longtime Snapshots reader, George Hodak, for sharing this article.

In Two stories about tacit knowledge, Strange Loop Cannon covers how implicit knowledge differs from process knowledge. The first is technical know-how — say what size of a screw is used in which part of a car. The second is more about the why — how was the decision made to use that screw in that part of the car? We’ve talked about process knowledge before when discussing how Chinese manufacturing firms have advanced process knowledge that will be difficult to replicate even if countries around the world moves away from its reliance on the whimsy of the Communist Party. Some process knowledge gaps can be eliminated by extensive documentation, but it’ll remain extremely hard to replicate.

Movies

Families are weird. Grief is powerful. Still Walking by Hirokazu Kore-eda captures that combination of weirdness and power in a graceful way. Most fascinating to me is how information is revealed slowly in still camera shots2. You are made to feel that information is being withheld — it is suspenseful in the very best sense of the word. It is also a food film but not in the technical-genius-of-a-Chef’s Table-episode way, but in a sitting-around-the-table-and-sharing-a-meal-together way, and I’m a sucker for those. Easily one of my favorite movies of the year. If you liked When Breath Becomes Air by Paul Kalanithi or The Sense of an Ending by Julian Barnes, then you’ll like Still Walking.

What I really liked about JFK Revisited by Oliver Stone is that it asks questions with a skeptical eye towards the JFK assassination in a way that feels unlike a crazed conspiracy theory. It’s well-informed and well-structured. If you’re interested in the questions that undergird growing suspicions of government, I recommend watching it.

Until next Sunday,
Sid

But companies — at least companies the size of Spotify — don’t do things just for fun. So what’s the point of Spotify Wrapped? And what can it tell us about Spotify’s business strategy? And are there broader lessons to be learned from this specific format of app engagement?

Spotify’s changing business model

There are two questions that every company has to answer:

1. How do they make money?

2. How do they grow?

For Spotify, the first question has historically been fairly straight forward. They make their money from users paying a subscription fee. This fee is $9.99/month for an individual plan in the US; international and group plan prices vary. The latest premium subscriber number stands at 172 million, which is up 19% from 144 million at the time last year2.

But that is not the only way they make money. They have an emerging business model that is ad-supported. In 2020, the ad-supported business comprised of 9.4% of top-line revenue. In 2021, this number was 12.9%.

And while that alone does not show that Spotify is committed to the ads model, their investments in podcasting do. It’s no secret that Spotify has been buying exclusive content — The Ringer, Gimlet Media, and of course, The Joe Rogan Experience have all been acquired by Spotify over the last couple of years. Building user profiles for targeted advertising is significantly easier with these podcasts which have specific subject matter and preexisting customer segments. This makes the platform more attractive to advertisers who have been working with these podcasts since they were independent. And of course, it also brings in hardcore podcasting fans into the Spotify universe.

In short, the composition of revenue is trending towards ads and Spotify is making significant investments in this segment.

Fast-forward the clock a few years and imagine that Spotify was an American company (alas it’s Swedish) and its CEO Daniel Elk was hauled in front of the US Senate. One of these Senators would ask an unintelligent question about Spotify’s evolving business model. Elk would pause for a second and take in the question. Maybe he would consult with his lawyers. And then he would say, “Senator, we run ads.”

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As for its growth strategy, most of Spotify’s growth comes from the two trial-period promotions it runs every year and generic brand/direct response advertising. This is in addition to any natural word-of-mouth. This is all well and good, but growth channels have asymptotes. From Crevices in the Rock:

Initially, a company attracts customers whose needs they perfectly serve. You need to spend little to no money to convince them to use your products. But after this low-hanging cohort of perfect customers is captured, things get a bit tough. You have to convince customers for whom the product is not perfect, but pretty good. Once you have exhausted that cohort, you go on to the next one and so on.

In reality, for the same product, on average you are going after will require more money to acquire and their lifetime value will be lower.

As a CEO/COO/CMO, what levers do you have to pull out of this spiral? You can change the pricing of the product, implement more efficient ways to advertise the product, etc. But one of the most powerful levers you have is the distribution channel.

Based on what we’ve talked about, the curves for a specific distribution channel over time look something like this:

Let’s say this distribution channel was social media platforms. While things looked great in the beginning when you had just started by attracting the highest affinity customers to your products, you’ve now run out of customers in that cohort. You’ve been pouring money into Facebook and Google ads with barely any bumps. Things look dire. But you can change the story by choosing a distribution channel.

When you get into a new distribution channel (and start again at t=0 in the diagram above), you get the benefits of customers who were potentially never exposed to your previous distribution channel. It’s a lot like a new school, a new job, or a new relationship — you get to start at square one. Yes, you have the baggage and benefits of your existing brand, but you’ve tapped into a new vein of potential customers.

The marketing channels of trials and traditional advertising have been firing on all cylinders since 2006 and are bound to go on the wrong side of the LTV: CAC ratio line soon for many cohorts (if not already there). So where do they go?

If we think more about the product that Spotify is selling — audio — at its heart, is a social product. But Spotify, at its heart, is not a social app.

Here’s where Spotify Wrapped comes in.

Spotify Wrapped has been a concept since 2013, but it really took off in 2019 when it became an in-app experience. Critical to this change was the option to easily share your personal music journey to other truly social platforms like Instagram and Twitter3. While there are no concrete numbers around the increase in subscribers that can be directly attributable to the format, it’s safe to say that it’s a number that is significantly greater than zero.

So we understand why Spotify invests in Spotify Wrapped — it’s a way to reach potential users which it may not have been able to reach otherwise through its usual marketing channels. And we understand how it it relates to their evolving business model — more users means more ads means greater negotiating power with advertisers means higher revenue and profits per user.

But what else can we learn from this unique format of in-app engagement?

Stages of format hype

With any interesting format, there are other companies which will “take inspiration” from it.

Robinhood and Strava are two companies that caught my eye last year:

The cycle looks something like this:

1. Something new and novel comes along with the first mover capturing a lot of value.

2. Others try to copy it. Some capture it successfully and some not so successfully.

3. The format either becomes ubiquitous or no one really cares about it anymore.

Formats remain novel for only a limited period of time. YouTube’s yearly “Rewind” videos were extremely popular, until 2018 when it became the most disliked video on the platform. If you squint your eyes a little bit, you can see this happening with Spotify Wrapped, with its cringe-inducing TikTok references this year.

Format fatigue is also a real thing. This happened with waitlists for new software after the ultra-premium email app Superhuman had a waitlist of 180K users. In 2019 and 2020, there were many apps with similar waitlists. While applicable for some, these mostly annoyed users and now waitlists are not as common.

All in all, if you want to hop on a format bandwagon, there is a limited window of opportunity for you to do so.

The bandwagon criterion

When deciding on whether or not to follow a new format trend, founders and executives have rely on the honest answer to the question: Does it give you a true edge over acquiring, retaining, or charging customers more?

Otherwise, it’s just a distraction and you’re better off focusing efforts on your core product. For many of the companies who will be trying to copy the success of Spotify Wrapped this December, I suspect the answer is the latter.

What do you think about Spotify Wrapped? Let me know by replying to this email or sending me a message on Twitter.

It’s been a couple of months since I’ve written here. And it’s been an extremely busy couple of months for me with travel, work, and some other projects that I’ve been helping with.

As a reminder, this is Sunday Snapshots, a weekly newsletter mostly about businesses and biographies with a healthy sprinkle of randomness — everything from restaurants, the craft of writing, machine learning, shadow power, and ill-fated drawings.

I’m excited to get back to writing consistently here every week — likely an essay on alternating Sundays with links to what’s been on my mind on the other weeks.

With that, let me share what I’ve been reading, watching, and listening to over the last couple of months:

Books

It’s tough to traverse the lake of 20th century history without feeling the reverberations of Franklin Delano Roosevelt’s actions underneath it. No other president changed the institution of the Presidency as much as FDR did. No other president changed the role of government in people’s daily lives as much as FDR did. No other President served as many terms in office as FDR did. And if FDR changed the institution of the Presidency, his wife Eleanor Roosevelt created the institution of the First Lady. Future influential First Ladies like Lady Bird Johnson, Nancy Reagan, and Michelle Obama followed in her footsteps in carving out a role for themselves in the administration. No Ordinary Life by Dorris Kearns Goodwin explores the transformer, the creator, and the nation they led in the aftermath of the New Deal and over the course of World War 2. It captures how the Roosevelt’s New Deal programs were in conflict with the desperate need for America to rearm itself in the lead up to war — corporations build aircrafts, mom and pop shops don’t. It also captures how unilateral some of the initial decisions of the war were — like sending military and financial aid to Great Britain as the Germany armies routed Europe and set their eyes towards the island nation. None of Roosevelt’s generals supported this, instead favoring to retain all available resources to protect the United States. But the buck stopped with him and he made the decision to help the England. The accessibility of the book, despite the occasional boring minutiae of government, is a great reminder of why Goodwin is one of our most celebrated popular historians.

Japan 1941: Countdown to Infamy by Eri Hotta covers the same timeframe on the other side of the Pacific, detailing how the Japanese military and political leaders boxed themselves in to a point where they only had bad decisions available to them in the winter of 1941. Strapped for resources, strangled by criss-crossing lines of chains of command, and without clear objectives, the book gives the impression that they almost had to declare war on the United States. Absent during most of it is the Japanese emperor who while retaining a lot of latent power, doesn’t want to be seen as directly making the military decisions. To learn more about this, I’m following this book up with Hirohito and the Making of Modern Japan by Herbert P. Bix.

On the lighter side of things, Is This Anything by Jerry Seinfeld is a great few-pages-a-day read with some of his best bits over the last 5 decades. And while the jokes in the book are funny, the sheer longevity of his career is nothing to laugh at. What strikes me as the driving force behind his success is a relentless quest to observe and question the mundane, combined with a systematic way to share the output of his adventures in human-watching. This output has transformed over the decades. What started off as a grinding 9 year sprint on Seinfeld has now been transformed into a breezing format on Comedians in Cars getting Coffee — I can’t imagine Jerry struggles through the later at all. Pair this with the conversation about his routines on this podcast.

And if people have been laughing at the NFT and DAO-mania hitting investors and early adopters alike, it doesn’t seem like they’ll be laughing for much longer. Things seem to get weirder and stranger. Underpinning it all is idea of the increasing importance of abstract value in the global economy, which is what Capitalism without Capital by Jonathan Haskel and Stian Westlake is all about. It’s distance from our now-crazy-times — the book was written in 2017 — is an asset (no pun intended!) as it is not influenced by said craziness and yet it accurately outlines some of the theoretical underpinnings of what is happening in the markets right now. More on NFTs and DAOs to come soon. Credits to Barrett Scruggs for recommending this book on Twitter.

Articles

While Jamie Dimon’s J.P. Morgan might be “too big to fail”, it seems like it not too big to kowtow to the Chinese Communist Party. The growing awareness of the autocratic nature of the CCP is matched only by the complete lack of understanding of its internal machinations in the West. The Triumph and Terror of Wang Huning by N. S. Lyons about the CCP’s primary philosopher-bureaucract fills a part of this gaping void. Particularly interesting is Huning’s belief that cultural integrity is a key ingredient — if not the key ingredient — for creating long-term economic prosperity. This view would explain some of the recent crackdowns on video games and private tutoring services in China. This philosophy has a “the good old days” feel to it and is reminiscent of American TV-driven monoculture before the internet. This has some obvious benefits, the primary one being that everyone is on the same page about the big things. But that monoculture got the US into a lot of trouble — to pick just one area, the government was able to convince the general populace into entering wars it had no business fighting. The tough tradeoffs in the changes involved here remain to play out in China, but the changes will not be voluntary for Chinese citizens.

Speaking of voluntary, would you voluntarily read 700 pages on geological formations about the North American continent? I, along with many others, would if it was written by John McPhee, whose genius is captured in The Mind of John McPhee. McPhee’s obsession with structure in his writing is well-documented and has some parallels to how Robert Caro starts his work with outlines. The theme of observation comes up again here — with McPhee being deeply curious about the mundane and having the literary abilities to transform it into something more interesting. I’m following this up with Draft No. 4, his book on writing.

Dieter Rams is widely known as one of the best industrial designers of the 20th century. Back when I would have shop class every day in high school, I remember poring over his designs and interviews. He is perhaps best known for his 10 principles for good design. It would be tough for me to think of a product that embodies these principles more completely than the Moka Pot. The Humble Brilliance of Italy’s Moka Coffee Pot is a general history of coffee couched inside a corporate history of the Bialetti Moka pot. I had fun reading it and poring over the patent filing.

Grand theories are seductive. I am not certainly not immune to their charms. So when I read The housing theory of everything by Sam Bowman, John Myers, and Ben Southwood, I was intrigued. A single solution to inequality, climate change, low productivity growth, obesity, and falling fertility rates? Sign me up! Of course, the jumbled web of correlations and casualties here would make even a seasoned conspiracy theorist confused. But I think it is worth reading, as it shows both the potential and pitfalls of a silver bullet theory.

And when it comes to potential, it’s clear what Amazon’s founder Jeff Bezos saw in its new CEO, Andy Jassy, to make Bezos hand over the reins to the trillion-dollar-and-growing empire. As outlined in Andy Jassy, Amazon’s new CEO, enters the right, it’s that Jassy is a boring company executive in the best sense of the word. Broadly speaking, this has been a good strategy for solving succession problems in the tech industry. Google and Microsoft (after the initial Ballmer stumble) have done very well under Sunder Pichai and Satya Nadella, both of whom by all accounts are just very good at making the company run without being “visionaries.”

From the road

New York City: I recently watched The Lehman Trilogy on Broadway. I’ll get to the show itself in a minute, but there is something to be said about the benefits of just not interacting with your phone for 3 hours. Maybe that's just me, but I suspect not. Back to the show. The acting was excellent — it gives you a true appreciation for the skill and preparation involved in live productions. The story itself is about the founding of the Lehman brothers and the company they created came out of every crisis stronger, until a crisis killed them. If you're in the New York area before January 2th, I highly recommend grabbing a ticket.

Austin: I visited the Lyndon Johnson Presidential Library in Austin when I was there in October. Presidential libraries are interesting because they are quasi-government entities run by the National Archives, but the foundation which runs a particular library seems to have the ability to stretch credulity on facts. The LBJ library certainly takes this liberty when it comes to the 1948 Senate election (which LBJ stole) and his mistakes in Vietnam. The library does do an excellent job of capturing a sense of the times with changes in culture and media during the years of LBJ with the help of compiled TV clips and memorabilia from the 60s and 70s.

Charleston: If the beginnings of all things are small, then the small beginning of the US Civil War was the bombing of Fort Sumter in Charleston Harbor. It was interesting to be in such an unassuming place that sparked a national conflict whose effects this country still lives through. On a side note, Charleston is probably the most underrated food city in the country — I got some good recommendations from Twitter.

Cape Cod: If you’re ever in the Cape Cod in Massachusetts, you’ve got to make a trip up to the Portuguese Bakery in Provincetown. I tried the Pasteis amongst other things and was not disappointed.

Movies

I re-watched In the Mood for Love (2000) by Wong Kar Wai recently. What a movie. The colors. The composition. The soundtrack. The tension. The acting. Did I mention the colors? There are a few movies (see: Marriage Story and Scenes from a Marriage) that tried to capture similar themes, but In the Mood for Love remains the best in this genre.

Few movies have had a phenomenon named after them. Rashomon (1950) by Akira Kurosawa stands above the rest even in this sparsely populated group. It captures the fallibility of witness testimonies and the human desire to re-write the past in our mind in a way that makes us look better. Pair it with The Sense of an Ending by Julian Barnes.

People largely enjoyed Dune (2021) by Dennis Villeneuve and I was not an exception. Again, it’s a feat to keep someone engaged for 2 and a half hours. The world building is solid and the CGI as an addition to, instead of a replacement for, real-world stunts was great.

Tampopo (1985) by Juzo Itami is just a light movie which is fun to watch. More food-centric movies please!

If there is a cinematic predecessor to Bong Joon-Ho’s Parasite, High and Low (1963) by Akira Kurosawa has got to be it. The composition is good and the action is extremely well-paced. There are very few movies which can make laying out criminal evidence exciting, but High and Low manages to achieve this. It leaves you a bit uneasy, but in a good way.

Until next Sunday,
Sid

But above all else, I was not prepared for the brutal winters.

During the first of these bone-chilling winters, I noticed a phenomenon which I had never seen before as someone who had spent most of his life within a few latitudes of the Equator.

Outside my freshman dorm on the bank of Lake Michigan was a road. All across this paved road, there were tiny crevices. And in those crevices was water. And while in the always-too-short-lived Fall the water was liquid, as soon the temperatures dropped, it turned into ice. And as soon as it turned into ice, the road started to crack. That entire winter, maintenance crews bundled in neon jackets and yellow hard hats would come to clear out the cracks and crevices of any liquid, but the water would find a way. It would keep cracking up the road which thousands of students walked on every day for the entire season.

The Uptick

There is another road, the road not to moldy and alcohol-laden freshmen dorms, but the road to the future of retail. It’s a road which is not paved with concrete, but is being increasingly paved with the paraphernalia and infrastructure of e-commerce — warehouses, shipment boxes, delivery trucks, and the human and financial machinery that lubricates it all.

COVID-19 certainly did not halt the paving of this road in this manner. In fact, it accelerated it. The now famous “uptick” in e-commerce sales as a percent of total retail sales in the United States in 2020 shows that as we moved towards lockdowns, the road kept being paved.

But just like the crevices in the road in front of my college dorm, there are things that are resilient to disruption. Though they are ignored in the zeitgeist of how the Stripes and Shopifys of the world are changing commerce, brick and mortar stores remain a powerful force.

And nowhere is this more apparent than in the recent IPOs of Warby Parker and AllBirds.

The DTC Darlings

Every one around me who wears prescription glasses has at least considered buying them from Warby Parker. That level of cultural penetration is impressive for a brand that’s only been around for a bit more than a decade. In some ways, Warby Parker is one of the quintessential DTC brands, lagging behind only the likes of Dollar Shave Club and Harry’s. And it did so without any gimmicks. It just took a market effectively monopolized by Luxottica and offered consistent pricing ($95 across all frames), easy-of-use (you could receive multiple pairs in a shipment and send back the ones you didn’t like), and a digital-first approach. That last fact was so rare in 2008 that business school professors and investors across the world were faced with a gluttony of “Warby Parker for X” pitches in the early 2010s.

But in 2013, the company opened its first store in New York. And the retail bug has bitten the company — 85% of their 145 retail stores were opened in the last 5 years and they believe that their “growth strategy contemplates a significant expansion of [their] retail store footprint.”1 Specifically, they plan to open “30 to 35 new retail stores in 2021 and will seek to continue this pace of rollout into the foreseeable future.”

Prior to COVID, their channel mix was 65% to 35% in favor of retail! After a bend towards online sales in 2020, it’s back to a 50-50 mix for the first half of 2021. And these sales are profitable — their “four-wall margins” (which reflects the sales of each store relative to the direct costs required to operate the store such as rent, utilities, wages, etc.) of 35% for an average sales per square foot of $2,900.

As for Allbirds, perhaps the first and only time yours truly will be earlyish to a footwear trend, I remember getting a pair of the original grey shoes in 2016. This was before they became a mainstay of every wardrobe in San Francisco and “tech boy” starter packs. But become mainstay they have. Effectively cornering the ~$100 price point for large swaths of urban customers, they have used this perch to launch new initiatives in the apparel category. But despite the delightful turn-open packaging that’s clearly designed with shipping in mind, retail remains an important part of their strategy. They opened their first retail store in San Francisco in 2017 and every time I happen to be in front of their Georgetown location in DC or their SoHo location in NYC, they are full of customers. The numbers back up that anecdote — they have 27 stores across the country which drive 11% of their revenue in 2020. This number was 17% in the ancient days of 2019.

But more importantly — and interestingly — Allbirds goes into the numbers of how the retail and online channels interact with each other. They note that “in the three months after [their] Boston Back Bay store opened in March 2019, the Boston DMA region saw a 15% increase in website traffic, and 83% increase in new customers, and ultimately, a 77% increase in overall net sales, as compared to a comparable control market.” Those are very impressive numbers! Zooming into the customer level, multi-channel repeat customers represent 12% of their total repeat customers and on average spend ~1.5x more than their single-channel repeat customers.

So what’s happening? How did these digitally-native DTC darlings turn into brick and mortar geniuses? And what lessons can investors and other companies learn from this?

Shades of LTV:CAC

If there is one equation that executives learn to live by, it’s the ratio of lifetime value to customer acquisition cost or LTV:CAC. The ratio answers the simple question of “is the money you are spending on acquiring customers worth the money they will spend on your products and services?”

And while it is technically correct that you always want the alligator to be eating the LTV side of the inequality2, a single number can hide a lot of nuance. In the case of companies like Warby Parker or Allbirds, it hides a lot of nuance between the stages of growth a company goes through.

Ideally, as a company get larger, things become more efficient on both sides of the ratio. You have greater brand awareness so your acquisition costs go down and your lifetime time goes up by a combination of expanding products and lower costs due to volume pricing power for your inputs.

But that ideal scenario rarely happens. In fact, often the exact opposite happens, even to the best companies. As Nathan Baschez and I wrote in Complexity Convection:

Businesses are born simple. They attract early cohorts of users with equally simple needs. Then, as users get the hang of things, their needs become more sophisticated. So the business listens to its customers and adds complexity into the product. It’s a co-evolutionary process, where everybody is optimizing according to their knowledge and incentives.

And what is true for businesses in general is also true for marketing specifically. Initially, a company attracts customers whose needs they perfectly serve. You need to spend little to no money to convince them to use your products. But after this low-hanging cohort of perfect customers is captured, things get a bit tough. You have to convince customers for whom the product is not perfect, but pretty good. Once you have exhausted that cohort, you go on to the next one and so on.

In reality, for the same product, on average you are going after will require more money to acquire and their lifetime value will be lower.

As a CEO/COO/CMO, what levers do you have to pull out of this spiral? You can change the pricing of the product, implement more efficient ways to advertise the product, etc. But one of the most powerful levers you have is the distribution channel.

Based on what we’ve talked about, the curves for a specific distribution channel over time look something like this:

Let’s say this distribution channel was social media platforms. While things looked great in the beginning when you had just started by attracting the highest affinity customers to your products, you’ve now run out of customers in that cohort. You’ve been pouring money into Facebook and Google ads with barely any bumps. Things look dire. But you can change the story by choosing a distribution channel.

When you get into a new distribution channel (and start again at t=0 in the diagram above), you get the benefits of customers who were potentially never exposed to your previous distribution channel. It’s a lot like a new school, a new job, or a new relationship — you get to start at square one. Yes, you have the baggage and benefits of your existing brand, but you’ve tapped into a new vein of potential customers.

That’s exactly the purpose that retail stores serve for Warby Parker and Allbirds.

Here’s what Warby Parker have to say about the value of their stores:

Our retail stores serve as valuable marketing vehicles for introducing new customers to our brand and driving repeat purchases and, in turn, positively impact our Sales Retention Rate. Customers are drawn to the vibrant appeal of our retail storefronts and the distinctive in-store experience. We have designed our stores to be convenient, fun, and inspirational — and pride ourselves on the service our teams provide.

Note that they highlight stores as a marketing channel first and as a sales channel second.

Allbirds says more or less the same:

Our stores serve as an effective and profitable source of new customer acquisition, increase awareness of our brand, and drive traffic to our digital platform.

After you’ve been accustomed to declining ROI on your marketing, this can feel a bit like cheating. And yes, it’s a different set of competencies — running a story on Bond Street is very different from running a Shopify story from a basement. But it’s a necessary set of competencies to develop if you want your company to not just grow, but to grow up.

At the end of the day, you want to increase the value that you are creating and capturing. To do so, you need successive ways of new distribution channels.

Every distribution channel will plateau in growth, and you’ll have to continuously find new ways to acquire the marginal customer. That’s the nature of the beast.

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Bullet and Bandages

It is true that what works for Warby Parker and Allbirds does not necessary work for every DTC brand. In fact, it can be pretty tough to tell if a new product will be successful or not — every social media feed is filled with a deluge of pastel-colored goodness.

It is also true that retail is a bit more zero-sum in a way that is not true for e-commerce. There are only so many stores in a particular area compared to the endless scrolling of e-commerce that is just a few taps away.

So if I were a public or private market investor, instead of trying to pick the next Warby Parker or Allbirds, what makes a lot more sense to pick is the infrastructure and tools that will power the next wave of Warby Parkers and Allbirds. Instead of betting on someone to win the war, just buy the bullets and bandages.

There are a few opportunities that I see in this space:

• Powering the next big thing: How can you make the process of setting up and managing a retail store as much of a turnkey solution as possible? What are the complexities that you can manage to make the retail experience for new DTC brands as easy as possible so that they can focus on their core competencies? There are several players in this category, but the one that sticks out to me is Leap Retail. They provide a two-sided marketplace of brands and landlords to find and manage retail stores of brands such as Rent the Runway, Birdies, Naadam, Koio, Faherty, and many more. Companies like Leap will start off by making money on the marketplace matching services and then have the opportunity to “ladder up” to payment processing, inventory management, and other such services.

• Serving the mom and pop shops: On the lower end of spectrum is an opportunity to power the mom and pop stores. The most compelling player in this space is Square with its unique combination of physical POS terminals and the Cash app. I recently went to a coffee shop in DC and noticed a “Save 10% with Cash App” option at a Square POS terminal.

  

  That’s just one example of the type of strong end-to-end integration that Square can enable for retailers. Since its founding days, Square has done an incredible job of managing the complexity needed to accept payments at physical retail stores and its integration with the Cash app on the consumer side makes it a compelling choice for mom-and-pop shops and SMEs looking to get started.

• Storefront inventory marketplaces: There is also another way to look at marketplaces — instead of a marketplace for the entire store location, what if you had a two-sided marketplace of brand-agnostic retail locations with available storefront inventory and brands willing to pay to feature their products at these locations. Chicago-based Showdrop offers exactly this functionality. It offers a compelling option for companies not quite ready to make the big jump to a full-fledged store yet but are ready to tap into the growth available in the brick-and-mortar channel.

• Incumbent accelerator programs: While not exactly providing infrastructure, programs like Target Accelators can lead to a high magnitude change in a company’s trajectory and hence warrant a mention here. At the end of an arduous application progress is a very big carrot — potential access to shelf placement in Target’s highly lucrative 1,900+ stores across the United States. For Target, the program allows them to pick the best up-and-coming brands as their inventory. Other large retailers like Walmart likely have or will soon have similar programs.

• Do the opposite: With every positioning comes a counter-positioning. If there is money to be made in helping the next wave of DTC companies figure out how to do retail, there is money to made in helping the existing set of large retail giants figure out how to do e-commerce. The best example of this which I have seen is Narvar — an end-to-end solution which powers the post-checkout experience — think order emails, shipping reminders, returns, etc. — for companies like Lululemon and Patagonia.

If you’re an investor or a company in this space, I would love to talk and get your feedback on the piece. Please reply to this email or send me a message on Twitter.

Seasons

As the winter receded on the banks of Lake Michigan, the roads got a respite from the constant cracking. And just like the seasons, cycles of attention will come and go. But the crevices will remain.

The digital infrastructure available to an entrepreneur today enables anyone to get started with just an idea. Potential customers are jump a click away. But they are a click away for you, they are also a click away for your competitors. Your access to them through digital distribution channels is unlikely to be differentiated or defensible.

On the opposite side, while it may seem like brick and mortar stores are dying, their zero-sumness has in-built defensibility. And as long as companies need to grow up to become larger versions of themselves in search for the next best customer, physical storefronts will continue to be an attractive channel for acquiring those next best customers.

So the crevices will endure and, dare I say, thrive.

Thanks for the incredible response to last week’s essay. It’s great to be back writing weekly and the best part about it is hearing your feedback and comments in response to my pieces. As always, I’m just a email reply away. If you are not subscribed, you can do it here:

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This is part 2 of a two-part series on The Power Broker by Robert Caro. We pick up where we left off, with Robert Moses at the zenith of his power and influence. If you have not read part 1 of this two-part series, you can read it here.

The loss of the Battery Park Bridge battle did not affect Robert Moses’ power over the city. In fact, over the next two decades, Robert Moses would amass greater power and authority — absolute authority in most cases — over the public infrastructure that millions of people across New York would interact with centuries to come.

And if the veneer of invincibility had been scratched due to the fight — it was still largely intact. For while the reformers knew that it was Roosevelt who had defeated Moses, the complexities of how a President might influence the War Department to issue a report on potential bombings of a bridge over a water way and how that would hault the construction of the bridge was difficult for the public to understand. Moreover, the public still associated Moses with the magic word “parks.” And the magic word was now wrapped in a loom of public authorities and crisscrossing responsibilities — a loom which ensured that the mirage which was Robert Moses’ popular image would stay intact.

Why the press loved Robert Moses

And if there was a force in any democratic society which could have reigned in this false image, it would be the city’s press. But the city’s press were enamored with Moses.

There were several reasons for this.

One reason was that in the beginning of his career in the 1920s, Moses’ actions were actually beneficial to the public. Even if he did cut an unsavory deal with another powerful entity in New York, he did it to get things done — things which were useful to the public at large.

Another reason was the one that all journalists face — they had to fill pages. And no one’s actions filled pages better than Robert Moses’ building of public works. The sheer scale and speed of his efforts were so unparalleled — and largely remain so — that any journalist covering him would never run out of copy. There was always something to write about.

The last reason could be explained not by what he did, but when he did it. His first important post was as the Chairman of the Long Island State Park Commission in 1924. He remained in power until 1968. For most of that period in American history, there were plenty of cause for doom and gloom. The horrors of the Great Depression, the shock to the American psyche in the initial parts of World War I, and the first bouts of the Cold War. In New York, the problems were less psychologic and more financial in nature. The state was always strapped for money. If one looked at its balance sheet, one would not recognize it as the home to the economic capital of the world. It was in this context that admiration for Robert Moses is best explained. Here was a man who despite depressions, despite wars, and despite economic duress was building and creating public works. The sheer hustle and bustle against the backdrop of doom and gloom moved New Yorkers. And if the hustle and bustle moved its public, the effect it had on its journalists was no different.

This meant that while Moses’ actions were increasingly questionable, the overwhelming public feeling towards him was that of admiration.

The Political Machine of New York

He took full advantage of this admiration. And no where did he take more advantage of it than when it came to matters of his ultimate — and often only — goal which was the acquisition of personal power.

After the governorship of FDR came the mayorship of Fiorello La Guardia. It was a mayorship which starved the political machine of New York — a machine which was used to keeping their greedy appetites for money and power satisfied. And if the gravy train was out of service while La Guardia was Mayor, it promptly resumed service as soon as he left office.

And when the gravy train resumed service, Robert Moses was its coordinator, driver, and conductor all at once. From part I:

Each bridge, each parkway, each park, each beach, each public work poured in concrete created the foundation not just of the work itself, but of Robert Moses’ iron grip over the state and city governments of New York.

Everything in a project was a source of power.

Insurance contracts for a bridge he was building? Wouldn’t it be convenient if those contracts went to a key politician’s son-in-law’s insurance company?

Landscaping contracts for a park he was building? Wouldn’t it be convenient if those contracts went to a regional player’s landscaping company whose support Moses needed for another project?

Labor contracts for a tunnel? Wouldn’t it be convenient if those contracts went to a labor union which was opposing one of Moses’ works and would drop those opposition for a cut of the wages?

Robert Moses the idealist would have hated this dispensing of patronage. But that was no longer an issue — that Robert Moses no longer existed. Hating patronage? When it came to anything related to public works in the city or state of New York, Robert Moses was now the patron saint of patronage.

Each deal he made forged an increasingly stronger grip over his dominions. For if someone wanted to bring him down, they would have to bring down others. And while others might be sensitive to public opinion, his command of the several state councils and commissions were immune to public opinion.

Moses’ political mentor Governor Alfred E. Smith — who was the only person Moses would ever call “Governor” — had warned him that public opinion was “a slender reed to lean on.” Moses had internalized and codified that lesson into the statute books of New York State.

Reality Distortion Fields

This immunity to public opinion led to the permanent shaping of the New York Metropolitan Area towards the automobile and away from public transportation.

In 1900, when Robert Moses was 12 years old, the number of automobiles in the United States was 8,000. In 1903, it was 33,000. In 1912, the number was close to 1,000,000.

Growth trends like that are not associated with trends. They are associated with eras.

And at the beginning of Robert Moses’ career building public works in New York, the era of the automobile was truly at its peak. It was against this backdrop of high demand that Moses’ first projects were appreciated by the public. His highways and expressways were like a nervous system connecting organs across the New York Metropolitan Area. At the beginning of his career, when his power was not absolute and when he was not immune to public criticism and when the executive brand of the state or city government could have curtailed his influence, he learned that roads and bridges and highways were good and the public loved them.

But the public’s love affair with the automobile did not continue. The reason was simple: by the 1940s and 50s, there were now too many of them on the road. What used to be journeys characterized by speed and comfort turned into journeys which happened at a snail’s pace. Highways which were created to solve bumper-to-bumper traffic faced bumper-to-bumper traffic themselves.

There were solutions in sight. Automobile transportation is low-density. Relative to the space it occupies on the road, a car does not carry that many people. What is needed in a dense metropolitan area like New York are modes of transportation which are high-density. These are buses, ferries, and above all else, trains. In an urban context, this takes the form of a subway system.

Robert Moses was uninterested in building subways. He had grown up in the age of the automobile and he had no reason to believe that the public’s love affair had come to an end. His personal experience getting driven — the man who was perhaps the greatest champion of automobiles in post-World War 1 America famously did not have a driver’s license — was no different in the 1950s than the 1920s. It was comfortable for him back then and it was comfortable for him now. And if gridlock was a problem for the public, it was not a problem for Robert Moses. The isolation at the back of the car gave him a chance to catch on his work which now had ballooned to being responsible for more than a dozen institutions.

Effectively, he had a reality distortion field. And protecting this distortion was the political reality of his command of his various posts — no Governor or Mayor could just “fire” him. Protecting the distortion field was his physical isolation from the public — his home on Randall Island has its own infrastructure for transportation and enforcing laws. If the Pope had Vacation City, Robert Moses had Randall Island. And if the Pope had his Bishops, Robert Moses had his Moses Men.

And as time passed, protecting the distortion field was a factor not political or physical in nature, but one that was very personal — Robert Moses was going deaf. It’s not like he listened to anyone anyways, but now he couldn’t even if he wanted to.

And nowhere did this separation of his perception of the public’s needs from its realities become more apparent than when it came to his preference of highways over subways. In the 1950s, one of his big projects was extending the Long Island Expressway. The extension would cost hundreds of millions of dollars and while Moses did have the money, he did not have enough money to fund this and to fund all his projects.

So he created an alliance. An alliance with the Port Authority of New Jersey. The Port Authority was another institution which was quasi-public like Moses’ Triborough Authority. But unlike Moses’ authorities, the Port Authority had no projects to pour money into. So Moses suggested a partnership which would benefit both of them — Moses would get his highways and the Port Authority would get to use its money productively (and get part of the toll revenue from its roads).

The expressway did not have a subway line. The expressway had no provisions for a subway line in the future. And not only did it not have a subway and no provisions for one, but it was built so it could never have a subway line. Were buses allowed on the expressway? There were not. And again, they were built so low that buses would never be able to traverse them.

Robert Moses, through the construction of the Long Island Expressway extension, destroyed any chance that Long Island had of a well-designed mass rapid transit system.

But these problems were to come in the future, and the present was on Moses’ side. Until he made a mistake which shattered the image that the public had of him.

The shattering of the legend

Robert Moses had always been associated with parks. But then he set out to destroy a part of a park. And note just any part of the park, but a part of the park where mothers brought their children to play together. And not just any park, but Central Park. And not for another park purpose, but for a parking lot of a private restaurant. And not just any restaurant, but a restaurant for rich people.

If the complexity of Robert Moses’ power over the city had been a problem before, now there was nothing complex about the situation at all. On one side were mothers, children, and the public trying to enjoy the only stretch of playground near their houses. On the other side was a private restaurant looking for a more convenient parking location for its wealthy patrons. And on the other side along with the restaurant and those wealthy patrons was Robert Moses.

The mothers protested. For the first time, the balance of public opinion based on the word “parks” was not on Robert Moses’ side. And in opposition to him the words “mothers” and “children” were added to the word “parks.”

But Robert Moses was not a man of words, he was a man of action. And if there was a challenge to his power, he would not tolerate it. He asked his crew to go ahead with the demolition of the playground and the construction of the parking ground. He won this battle like he had won countless before this one.

But there were a few key differences between this battle and the other battles. First, this was not a battle between parks and something else. It was very clearly a battle against Robert Moses’ preference for a parking lot of an expensive restaurants and mothers and their kids’ playground. Second, the victims of his decision were not helpless immigrants of a slum or poor residents of an apartment block which he had razed to build a highway, but rich families of the Upper West Side. Many of them had connections to the press. Lastly, it was on a location that was sacred for even the most cynical New Yorkers — Central Park. Any attempts — no matter how small — to change its landscape was seen affront to all New Yorkers. In this case, the public and the press saw Robert Moses as leading that affront for private benefit.

So even though he had won the battle, it was a Pyrrhic victory. The most important casualty of the battle was not the playground, but Robert Moses’ image. It was finally laid bare for what it — a carefully crafted image that hid immense naked and raw power which did not care for principles or the public.

In the court of public opinion, things would never be the same again for Moses.

Meeting Nelson (and losing)

But he was still shielded from it. For his authority came not from the whims of the public but from his command of the various public authorities and state and city commissions. No one, not even the Governor, could take all of those away from him. And even if he or she could take away 1-2 of these positions which were in his or her dominion, Moses would still have more than a dozen left.

But he could lose them. And that’s exactly what happened.

Nelson Rockefeller became Governor of New York in 1959. The scion of the wealthiest family in America had power, was accustomed to using it, and had a willingness to use it. And he had a ruthlessness in using it that reminded the New York politicians of another powerful figure — Robert Moses.

Rockefeller wanted to modernize the system of regional commissions which gave Moses so much power. Moses obviously did not want them to be touched. Rockefeller used the fact that Moses was turning 70 before the expiration of his next term as the head of a couple of commissions against him as public officials were required by law to retire at 65 unless extensions were given by the Governor.

Moses had always gotten these extensions before.

But Rockefeller wanted to make his brother Laurance the head of these commissions. So Nelson Rockefeller started to publicly say things like “New York State is fortunate to have Laurance Rockefeller following in the footsteps of Robert Moses” without consulting with Moses. Moses’ birthday came and with that date came the day Robert Moses could no longer serve on public authorities of New York State.

Moses had lost his first keys to power — the chairmanship of councils of parks.

And if he had age to blame for this loss, he would have nothing and no one else to blame but himself for the next loss.

He still had his public authorities. Being only quasi-public, they were exempt from the retirement age requirement. His command of these public authorities were based on bond contracts that the authority issued against the toll revenue of its works. If he was not the head anymore, its trustees could sue it on governance grounds.

Rockefeller wanted to subsume these authorities under a larger state authority — the Metropolitan Transportation Authority or the MTA. He needed Moses’ support for this. And he got it by promising Moses a position on the board of the MTA and by promising him that his public authorities would remain largely autonomous.

Nelson Rockefeller lied.

Once the legislation to subsume authorities under the MTA went through, Moses would not be appointed to its board and his authorities would not be autonomous.

There was a certain symmetry and irony to this fall of Robert Moses’ career. He had gotten his first taste of power through tricking state legislators into giving him broad authority over anything related to parks in New York State. He was stripped of all his power through legal trickery as well. The “best bill drafter in Albany” got a taste of his own medicine.

But there was another factor that was the final nail in the coffin of Robert Moses’ career. The bondholders which held the bonds of his authorities could still have sued the government for governance malpractice. But trustee for these bonds was Chase Manhattan Bank.

This, by itself, was not special — Chase Manhattan Bank had been and was to be the primary trustee of bonds for most of the public works built in New York. But there was one thing that was special about the current Governor and the head of Chase Manhattan Bank — they were brothers. And Nelson Rockefeller’s brother had no interest in suing him.

As Caro writes:

What was necessary to remove Moses from power was a unique, singular concatenation of circumstances: that the Governor of New York be the one man uniquely beyond the reach of normal political influences, and that the trustee for Triborough’s [the largest of Moses’ public authorities] bonds be a bank run by the Governor’s brother.

After 44 years of holding absolute power, the reign of Robert Moses was over.

The legacy of Robert Moses

Many of the ends of Robert Moses life were noble: the building of public works at the scale that he built them remains unparalleled and his model of quasi-public authorities became a model for more efficient governance for high-priority projects across the country. These ends would not have been a reality today were it not for Robert Moses. With today’s context, these ends are even more impressive — infrastructure projects in America today are notoriously slow and expensive.

But underneath this bright tapestry of unparalleled achievement run threads much darker in their nature. He was a racist — he kept the water temperature of the swimmings pool at his facilities cold because he had heard that African Americans only swim in hot water. He was a classist — one of the reasons why he didn’t like buses on his expressways which connected the cities to the beaches he had built on Long Island was because poor people were much more likely to come on a bus than a car. He was a dictator — immune to public opinion, he never sought it as reality diverged from his perception of the needs of the public.

And while Robert Moses would probably agree that the ends justify the means, the thousands of people he displaced from housing complexes would disagree. The millions of residents of the New York Metropolitan area who have to go to work every day in cramped quarters on subways would disagree. And the future generations bound to the tyranny of the concrete jungle that he helped shape would disagree.

But that does not mean that we should forget Robert Moses. For the real legacy of Robert Moses is as a cautionary tale of what happens when power is concentrated in a single man’s hand over the lives of tens of millions of people.

Until next Sunday,
Sid

I’m excited to be back from the newsletter’s short summer break. I spent the last month having conversations with many of you about the kind of pieces you would like me to write. I intend on incorporating this feedback as the newsletter moves forward. Most importantly, I took the time to recharge and rest.

And if you missed Snapshots over the last few Sundays, I’ve got a long piece below to make up from it. Let’s get into it:

When you think of New York City, there are certain names that come to mind. Of course, contemporary names like Bloomberg, Trump, and de Blasio are among them. But there are also older names. Names like La Guardia and Roosevelt. Like Vanderbilt and Kennedy. Amongst those names there is one name that is often forgotten in the popular imagination. A name which did as much, if not more, than those other names to shape the modern city and state of New York.

That name is Robert Moses.

Robert Moses never held any elected office — in fact, his one run for Governor of New York State in 1934 was a rare low point in his career. But this master of the art of political power ended up requiring no office at all. The story of The Power Broker is the story of how an unelected bureaucrat became the most influential man in post-WW1 New York and remained so for 4 decades.

Robert Caro, the author of The Power Broker, was a reporter at local newspaper Newsday when he was assigned to cover the proposal for a bridge in the state legislature. Everyone seemed to think that the bridge was a terrible idea and that the proposal would not pass. When Caro wrote about the bridge, he wrote that it was unlikely that it would get built.

A few weeks later, the proposal came to a vote and was promptly passed. “What happened?,” Caro asked around. “Robert Moses was up here yesterday,” said one of his friends. Thinking back to that moment, Caro writes in his memoir Working:

Underlying every one of my stories was the traditional belief that you’re in a democracy and the power in a democracy comes from being elected. Yet here was a man, Robert Moses, who had never been elected to anything, and he had enough power to turn a whole state government in one day. And he’s had this power for more than forty years, and you, Bob Caro, who are supposed to be writing about political power and explaining it, you have no idea where he got this power.

Soon after, when Caro was a Nieman fellow at Harvard, he took some classes in urban planning. In these classes, professors would explain why bridges and highways were built where they are built using a combination of factors like population density, traffic patterns, elevation of grades, etc. During one of these lecture, Caro thought to himself:

No that’s not why highways get built where they get built. They get built there because Robert Moses wants them there!

To get a sense of Robert Moses’ accomplishments, it is safe to say that it would be tough to walk a mile in New York City without interacting with one of his projects. Whether it’s one of his bridges or one of his parks or one of his tunnels, if you’re in New York City, you’re a tourist in a landscape painting whose chief painter is Robert Moses.

But despite all his knack for getting things done, there was one problem. One big problem. While he would always get things done, he would only do so if they were done his way. And his way was not always the right way. His racism and quest for increasing his personal power in service of his dreams became increasingly important factors in his decision-making. And they would continue to be important factors — often the only factors — when it came to Robert Moses’ decision-making until the scion of one of America’s wealthiest families became the Mayor of New York City.

But that is a story for the next part of the story. For now, here’s the story of Robert Moses the reformer, the idealist, the builder, and the power broker.

The silver-spooned reformer

Moses’ mother was the key figure in his early life. A philanthropist, she educated the large swaths of Jewish immigrants flowing into New York City with a paternalistic attitude. In some sense, she wanted to civilize immigrant Jews so that their behavior would not reflect poorly on assimilated Jews — immigrants a few generations ago themselves — who were familiar with the ways of American life.

Robert Moses would adopt these paternalistic attitude and contempt for people who station in life was below his — the attitude that says “I know better than these uneducated men and women that I am supposed to be helping.” And he would cast these paternalistic attitudes in concrete in his pursuit of increasing his personal power. For one example, his bridges that lead to his beaches would have low clearances so that buses — filled with the city’s poor — could not enjoy access those beaches.

Studying at Yale for his undergraduate degree, he went to Oxford for a master’s degree. At Oxford, he wrote a thesis that would foreshadow his dictatorial style of management. He believed that all governments should be modeled on the British system with the upper crust of policy-making jobs reserved for the elite, aristocratic class while the supporting underbelly of clerical positions should be open to everyone. Of course, this would be anathema to the meritocracy-loving Yankies across the pond, but Moses firmly believed that it would be the most efficient way to structure governments.

Coming back to New York City, he first completed a PhD at Columbia University and then dove into the reform politics of New York state. He joined the Municipal Civil Service Commission in 1914. At the Commission, he wrote a re-organization report for how the bureaucracy of New York state should operate.

It was the work of an idealist. The report outlined how jobs should not be given on the basis of patronage, but on the basis of ability. And ability should not defined on the basis of individual discretion, but should be standardized across the board. And the report went further — promotions within the bureaucratic hierarchy should not be decided by your connection to the right people, but on the basis of open examinations.

The work was doomed to fail. For there has never been a more corrupt state government than Tammany Hall of New York State in the early 1900s. And jobs were the most important carrot that Tammany politicians had when convincing key figures across the state to support them. While the report did get gain some credence in reform circles, it was dismissed by all serious observers.

Robert Moses’ report on the re-organization of New York State’s bureaucratic machine had the same fate as most government reports — they gathered dust at the top of bookshelves in old government offices as the Tammany machine kept humming along.

“Executive support”

After his stint at the Municipal Civil Service Commission and his inability to make an impact there, Robert Moses did a post-mortem on his experience. Amongst the items he highlighted was something he called lack of “executive support.”

This “executive support” which Moses was describing could be more aptly — and simply — called power. At the Municipal Civil Service Commission, Robert Moses had no power at all.

This feeling was new to Bob Moses. He had grown up with a silver-spoon. But while his silver-spoon had gotten him into the halls of Yale and the spires of Oxford, in the reform era of the New York politics, he didn’t need pedigree. What he needed was something much colder.

He needed power.

Robert Moses would get that power. And he would get it through an unexpected source.

If there was a man who had the opposite composition from Robert Moses as Alfred Emanuel Smith, New York state could not have produced it. Al Smith came from the Lower East Side of Manhattan. His education was completed not at Yale or Oxford or Columbia, but at the Fulton Fish Market where he worked night shifts to make sure that his family could make ends meet.

And if executive support was what Robert Moses wanted, he was never to find a shortage of it during Alfred E. Smith’s rein as Governor of the New York State from 1923 to 1928.

The Playbook for Power

Under Smith, Moses started to write the playbook for the acquisition and use of personal power that he would perfect over the next 4 decades. That playbook looked something like this:

• Create independent institutions with broad authority which bypass typical authorization requirements using “executive support”: The first examples of this were the Long Island State Park Commission and the State Council of Parks which gave their respective heads — Moses, for both institutions — of the bodies legal jurisdiction over anything even tangentially related to their intended purposes. Did the State Council of Parks have full control over parks in the state? That makes sense. But it also had dominion over any structure which in its entirely or partly fell under the physical space of the park. So the State Council of Parks had equal power over a set of park swings and a bridge whose one access lane happened to skirt the edge of the park. The only person he needed to convince to give him this power? The Governor. And the Governor was happy to oblige as long as he got the credit for getting things done.

• Start projects before they are approved: This is the classic “ask for forgiveness, not permission” tactic applied to public works by Moses. If Moses started building a bridge, a park, a tunnel, or any public work before it was authorized, even a legal judgment in opposition to it forced officials to tear down what was already built. And which official — or even judge — wanted to be a destroyer?

• Underplay how much your projects are going to cost: By sharing not just conservative estimates but estimates which he knew to be wrong, he would build half of a bridge and then ask for more money. Were officials really going to leave a half-built bridge unfinished? Even though money was scarce for state of New York in the 1930s and 1940s, Robert Moses’ projects would never not be build for lack of money.

• Get behind a cause that the public loves: Among the many reasons for Moses’ strength was the fact that the media — including the illustrious New York Times — adored him. They adored him because he was for a cause that everyone loved which was the cause of building parks and beaches and bridges and housing.

To this deck of winning cards, Robert Moses would later a trump card — the institution called the public authority. In some ways, public authorities were simply an extension of his independent institutions card. But they could also sell their own bonds to bankers and other financial institutions and individuals giving them a source of independent revenue. If money was not a big concern for Moses before, once he mastered the art of public authorities, it would not be a concern for him at all.

Over the course of his life, Moses would lead many such public authorities. But in his crown jewels of these institutions, there would only be one koh-i-noor — the Triborough Bridge Authority. As the head of Triborough, he would command vast sums of money collected through tolls on its bridges in a debt-stricken New York State. So when it came to the financing of public works in the state and city of New York, Robert Moses was completely independent.

Taking on Governor Roosevelt (and winning)

And he exercised this independence.

During the time of Robert Moses’ hold on the reins of public opinion and public works in the state of New York, there was another master of public opinion in the state. And this master of public opinion would rein in the sentiment not just of the state, but of the country. In fact, he would rein in the sentiment of not just the country, but of the whole world.

That man was Franklin Delano Roosevelt.

On paper, FDR and Robert Moses were similar men. Raised in aristocracies and educated at elite institutions, both men seemed destined for greatness.

But the similarities ended on paper. And where the similarities ended, animosity began.

There was little actual reason for the animosity. If there was, it has been lost to history. The current understanding is that it can most concisely be explained by the famous Highlander quote:

There can only be one.

And while the fights between Bob Moses and Roosevelt were to become the stuff of political legend, the battles were mostly one-sided. For Robert Moses consistently out-dictatored the person who was — during his time as the 32nd President of the United States — to be called “The American Dictator.”

There was a reason why the fights were one-sided. For though Robert Moses needed FDR’s cooperation when FDR was Governor of New York State, FDR needed Robert Moses more. Despite any personal charm they might have, any public official needs to get re-elected. And to get re-elected, they need a record of things done during their administration.

A record of things done. Not planned. Not started. But done. And no one was better at getting things done than Robert Moses.

And so Roosevelt would not be able touch Robert Moses as the Governor of New York State. To do that, he would have to ascend to the highest office in the country.

The city and its considerations

Most of Moses’ early creations were focused on New York State. But that was to change as he got increasingly involved in the creation of public works in New York City.

And as Moses moved towards the city, he should have realized that the considerations were different. On Long Island, space was not a consideration. In New York City, space was the consideration. And the poorer the neighborhood, the less underutilized space they had so space was even more of a consideration. To figure out how to best use the free space the size of a building lot in a poor neighborhood, Robert Moses could have listened to the occupants of these neighborhoods. These occupants lived lives which were very different from his own experience. That experience was an experience of a coddled childhood and even adulthood — Moses’ mother gave him an allowance well after he was married, into his mid-30s.

And while Robert Moses the idealist would have listened to the opinions of the occupants of these poor neighborhoods, Robert Moses the builder did not care much for the beneficiaries of his projects. Because for all the other beneficiaries of Robert Moses’ projects, there was one beneficiary who always seemed to benefit more than others — Robert Moses himself.

Each bridge, each parkway, each park, each beach, each public work poured in concrete created the foundation not just of the work itself, but of Robert Moses’ iron grip over the state and city governments of New York.

Everything in a project was a source of power.

Insurance contracts for a bridge he was building? Wouldn’t it be convenient if those contracts went to a key politician’s son-in-law’s insurance company?

Landscaping contracts for a park he was building? Wouldn’t it be convenient if those contracts went to a regional player’s landscaping company whose support Moses needed for another project?

Labor contracts for a tunnel? Wouldn’t it be convenient if those contracts went to a labor union which was opposing one of Moses’ works and would drop those opposition for a cut of the wages?

Robert Moses the idealist would have hated this dispensing of patronage. But that was no longer an issue — that Robert Moses no longer existed. Hating patronage? When it came to anything related to public works in the city or state of New York, Robert Moses was now the patron saint of patronage.

Taking on President Roosevelt (and losing)

With this absolute hold on power, Robert Moses would develop some blindspots. One of these blindspots was his old nemesis, Franklin Roosevelt.

Moses’ animosity with Roosevelt would not stop once the latter was in the White House. If anything, the stakes got higher and the elbows got sharper.

In some sense, FDR’s Second New Deal through the Works Progress Administration enabled many of Robert Moses’ projects. New York State and New York City were too poor to pay for his ambitious, large scale projects. And Moses had not stumbled upon the public authorities trump card which were to give him immense financial resources. So the federal government financed many of his projects.

But this would not be unnoticed by Roosevelt and he was anxious to get back.

He got that opportunity when it came to the question of building a crossing from Battery Park in Manhattan to Brooklyn in 1939. Robert Moses wanted to build a bridge. Everyone else wanted to build a tunnel. A tunnel would be better since it retain the beauty of Battery Park and the Financial District by keeping traffic underground, said engineers.

But Robert Moses no longer needed to concern himself with the opinions of engineers. Only he — through his command of the massive toll-based war chest that was the Triborough Bridge Authority — had the money to build anything. A bridge he wanted to build and a bridge he was going to build. Reformers who did not want to see their beloved neighbor destroyed appealed to higher authorities, but no one in the state could help them. Robert Moses had absolute power over the construction of public works in the state.

In a last ditch effort, one reformer sent a letter to the President of the United States.

And if “executive support” from the state government had given Moses absolute power, the Executive at the head of the federal government showed Moses how deep the tentacles of his power could reach.

Since the approved bridge that would connect Battery Park to Brooklyn passed over the East River which served as an entrance to the Brooklyn Navy Yard, Moses needed permission from the War Department.

Well, the commander-in-chief of the country was the de facto head of the War Department! And these permissions — which Moses and others treated as inevitable and mere bureaucracy — were never given. In its rejection, the War Department cited that an enemy could bomb the proposed bridge and block critical access to the Brooklyn Navy Yard. Moses responded that there were other bridges on the East River which could also be bombed to block to the navy yard.

Sound as that argument may have been, the War Department and Roosevelt did have to listen to it — just like Robert Moses had not listened to others in his proposal of the bridge. He had finally gotten a taste of his medicine.

And that taste lasted for a long time. He regarded it as his greatest defeat and even after the tunnel that was built would be incorporated into his empire, he would say that “a bridge would have cost half as much, you know, carry twice the amount of traffic, could be built in half the time…”

Corruptio optimi pessima

While the reformers of New York State would rejoin in how the President had stopped Robert Moses, a little perspective would have dampened their mood. Yes it was true that the President of the United States had stopped Robert Moses, but it was also true that the President of the United States was needed to stop Robert Moses. The reformers and aristocratic class of New York State had no power and no voice in the creation and operations of public works in the state anymore.

And if Robert Moses was swift in victory, in defeat, he was swifter still.

Unable to touch a President at the zenith of his popularity, he first subsumed the tunnel building authority under the Triborough empire giving him a monopoly on almost all transportation infrastructure in the state. Then, he ensured that none of the reformer associated with the opposition of his bridge ever got a government contract in any construction in the state of New York. Some of these opposition leaders were experts in their fields. Barring them from engaging in construction meant the state lost irreplaceable process knowledge.

But none of this mattered to Robert Moses. What mattered — the only thing that mattered — was the acquisition and use of power towards the achievement of his dreams. Those dreams revolved around the creation of public works at an unprecedented scale in the way in his image.

Were the means to this end unsavory? Maybe. Probably.

But as Robert Moses would say, “If the ends don’t justify the means, what does?”

Until next Sunday,
Sid

TL;DR: Sunday Snapshots is going on a short summer break and will be back on August 1st.

More details for those interested below.

This newsletter has shown up in inboxes for 109 consecutive weeks since May 2019. Over those 109 weeks, it has been a force for good in my life through the relationships I have built with readers, the added richness in my non-online life conversations, and of course, by being a forcing function for me to put down thoughts about things that are interesting to me. And at least accordingly to some readers, it has been a force of goodness in their lives too.

But over the last couple of months, I have felt the act of creating compelling narratives on books I’m reading and businesses that I find interesting increasingly difficult. I tried to solve this by pivoting to essays a few weeks ago. And even though these essays have found a receptive audience, it did not change the fundamental issue of the serious creative blocks I was facing.

Some of it is due to the fog of being on the internet (especially Twitter) where you experience a kind of mind-meld. You start to loose your original voice. I distinctly remember when issues used to be littered with inside jokes and witticisms without comprising on rigorous analysis. Truth be told, I have not felt that voice on my fingertips for some time now. When I send something out on a topic without giving it the proper treatment that it deserves, it feels intellectually dishonest. I have pushed through this feeling on enough weeks to know that this is not just a particular week’s problem.

It has become clear to me that I need to take a break.

First and foremost, I will use the time to de-compress. Then, I intend on getting back on the horse by reading and listening to a couple of books I’ve been putting off. It’s possible that you still see a collaboration or two with me during this time. If not, I’ll be back soon enough on 1st August.

See you on the other side.

Until a few Sundays from now,
Sid

Every business model has its strengths and weaknesses. For example, a one-time upfront payment model like Adobe had for its flagship product Photoshop offers significant revenue at the start of a customer lifecycle and de-risks the entire endeavor. On the other, a subscription model can lead to higher lifetime value and certainly forces an organization to continue to innovate on features and usability. And there are of course other dimensions that a business model could be judged on.

But if I could choose a single business model for a company that I’m in charge of, I would choose ones that are practically government-granted monopolies. Think the big utility companies, those in the business of extracting natural resources, and companies in the military-industrial complex. It’s legal regulatory capture at its finest.

Slightly behind this crowd are companies based on soft regulatory capture. Clear, the company responsible for those cute blue check-in kiosks at your local airport’s security checkpoint — in case you haven’t forgotten what an airport security checkpoint looks like — is one of these companies.

They are going public soon and with travel picking back up again in the country, it’s an interesting time. What follows is an explanation of Clear’s original offering, how they weathered COVID-19, and what that says about their future ambitions.

Clear’s original offering

Clear’s original offering was pretty simple — get customers to pay an upfront annual subscription fee for a faster experience through security checkpoints at airports. This model has some interesting characteristics:

• It’s rivalrous: There is a finite amount of space available in an airport terminal. So, there is a practical upper limited to how many companies can be genuine competitors to Clear in its original vertical.

• There is natural expansion built-in: Once you have a Clear kiosk/check-in line in one airport, it’s easy for those original customers to expect that at other airports. More importantly, once you have cleared the regulatory hurdle for one airport, it’s easy to clear it for other airports.

• There is upfront friction: Signing up for a service like this is not as simple as logging in some credentials on a web form. You have to go in to give your fingerprints and other biometric information at the beginning of the membership process. There’s built-in friction to that process. You’re unlikely to churn after going through that upfront effort.

COVID-19: The company’s resilience

Of course, 2020 was not the hottest year for travel-centric companies. With air traffic down considerably, it’s not surprising that Clear should have faltered as well.

But that is not what happened.

Instead, Clear’s revenue was up 20% to 230.8 million in 2020 and net loss were down to $9.3 million from $54.2 million.

How did they do this?

The floor on natural churn I mentioned above is part of the story — if you were a frequent business traveller before the pandemic, it’s possible that you’re fine with eating the one year cost of the subscription for future use of the platform.

But let’s not discredit Clear’s efforts here. It launched its Health Pass feature which allows users to show healthcare data such as COVID test and vaccine records. This use case is not just limited to airports, but can also be used at sporting and dining events.

Clear’s new markets

That last sentence offers a glimpse into Clear’s future. Having linked identity and security in the one of the most regulated industries, Clear now wants to extend its reach into more mundane, but potentially larger and more lucrative ones. Hypothetically, the market could be anywhere where you have to stand in a line — a physical one or a digital one.

That’s a broad expansion of the addressable market and while partnerships and investments from the NFL and Danny Meyer’s Union Square Hospitality Group are interesting, they are not done deals by any means. These venues do not operate like airports — the barriers to entry are much lower and the theme of “regulatory capture” does not really apply here. What is true is that there are very few identity-authentication companies which have been able to amass 5.6M members. Fewer have physical kiosks in every major city in the United States. The scale of the company when it comes to linking identity and biometrics might only be eclipsed by the federal government.

Clear the platform

The most exciting version of the company is one where the company is a platform upon which other companies build on. There is an opportunity here to layer on all sorts of offerings. You check-in through a Clear kiosk border control at arrivals and automatically have an Uber ordered to pick you up. With the same use case, you can check-in to your hotel where the process is also Clear-enabled. And these are some of the less imaginative ones!

Clear has been able to build a pretty formidable company right in front of our eyes and I’m pretty excited to see where the company goes next.

Until next Saturday,
Sid

I’m visiting Chicago this week. On Friday afternoon this week, I found myself in the West Loop neighborhood between plans and decided to check out a store that I have visited intermittently since 2018.

Foxtrot brands itself as a contemporary convenience store chain. From my experience, it’s a big of a catch-all one-stop shop for the millennial lifestyle. In the fridge, you can find Jeni’s ice cream tubs alongside Recess sparkling waters. In the store front, you can find Marvis toothpaste alongside Banza Pasta. At the back of the store, you can find local wine alongside White Claws. If you want to know which brands your local 24-35 year old demographic is consuming and you happen to be in Chicago, D.C., or Dallas1, you should pay a visit to your nearest Foxtrot.

It is apparently pretty good at doing this, as they recently raised a $42M Series B2. The chief investors in the round included David Chang of Momofuku and subsequent Netflix fame, folks from sweetgreen, and the CEO of Whole Foods.

So what are the key drivers of this business? Fundamentally, the company differentiates itself through perceived or actual superior curation for the millennial demographic. To grow, it rides on the demand wave of delivery-based-convenience stores by utilizing the logistics rails laid down by DoorDash. And to retain its best customers, it offers them an incentive to spend more.

Ultimately, the company is creating a playbook on how to do retail right in the 21st century.

Curation as a service

You don’t go to Foxtrot to buy Tide Pods. You go to Foxtrot to buy Dropps.

This points to a broader “problem” that Foxtrot solves for. There has been an explosion in DTC companies over the last half decade. These have been fueled by a variety of factors including a low interest rate environment, the proliferation of business-in-a-box platforms like Shopify, and overall solid consumer sentiments.

How do you distinguish between them? Humans look for approval from tastemakers like Foxtrot. By having your product displayed at a hip location like Foxtrot, you can signal to customers and investors that you are a brand which they should back with your money. 

Long gone are the days when the retail strip mall in the suburbs would be the center of taste making. Today, that happens either on the internet threw a slurry of hyper-targeted advertising or through an upscale retail location like Foxtrot.

It’s kind of a win-win for both the companies being stocked on the shelves and for Foxtrot. The DTC companies get to test out how their products perform in a physical retail setting that informs broader relationship decisions with bigger retail partners like Target and Walmart. And Foxtrot gets to stock its shelves with premium products.

And of course in classic Michael Scott style, it’s actually a win-win-win because the customer wins as well, by having the latest and greatest products available to them within a 60 minute window — which brings us to delivery.

Delivery enablement

Foxtrot promises 60 minute delivery in neighborhoods near its stores. While that fact by itself is not that interesting, there is a broader trend that is interesting here. Many stores and logistics-based platforms3 are plugging into the DoorDash network to create delivery experiences that were impossible for companies below a certain threshold — a threshold that was pretty high.

In some sense, DoorDash is acting like a platform of platforms. By enabling marketplaces like Farmstead, it allows them to go much beyond the prevalent view of them as a restaurant-to-customer delivery app. From DoorDash: Re-Inventing Last-Mile Logistics:

The DoorDash of today isn’t the end state DoorDash. DoorDash is aggregating consumers, Dashers and merchants on its platform and adding great value to each party. This paves the path for the company to one day dominate last-mile logistics and upsell their customers with higher-margin products and services. Each new vertical DoorDash makes available to users will help achieve achieve greater density and offer additional benefits to users. The end state DoorDash will have great barriers to scale, as well as the most consumers, the widest selection of merchants and Dashers. With the advantages of scale, DoorDash will offer its merchants and users the lowest costs and the highest earnings potential for Dashers.

The merchants in that line is not just restaurants, but businesses like Foxtrot. This allows these businesses to grow their delivery presence in risk-free way since they do not have to hire their own drivers and cars.

As a side note, these delivery rails provided by DoorDash enables all kinds of new opportunities to play with delivery experiences for small companies — you can plug-and-play into one of the largest delivery fleets in the world like you’re firing up a virtual server using AWS. That’s incredibly powerful and deeply under appreciated.

Loyalty program

In the boardrooms of growing companies which contemplate some sort of subscription or loyalty program, the inevitable question an executive will ask is simple: how do we avoid simply giving our best customers a discount or a freebie? In other words, how can companies make the loyalty programs work in a way that benefits the company?

Foxtrot tackles this in a way that reminds of the Amex black card4 — admission is based not by paying something upfront, but by passing a spending threshold. This means that you are not attracting deal pickers who will suck off margins, but loyal customers who would shop at your stores any ways. The free coffee is nice and pretty smart, as it ensures that people will come into your stores much more frequently. With $100 not being a crazy high bar for monthly spend for a convenience store, I can definitely see customers shift spend away from other retailers towards Foxtrot.

It’s a simple and smart program that seems to be working for them. During my 10-15 minute visit to the store, I saw 2 customers log in with their app to get a discount on their purchases.

What’s next?

In the near future, Foxtrot is looking to expand into new geographies. Given its current portfolio of only 3 cities, that certainly seems like a good priority. I’m excited to see how the lessons and tactics they have learned in Chicago, D.C., and Dallas fare in new markets. In capturing new markets, they will continue to re-invent the 21st century retail playbook that they have been writing over the last few years.

Until next Sunday,
Sid

Recently, I’ve been trying out audiobooks for the first time. I had always strayed away from them thinking that they would be bad for retention. I don’t think I was wrong about the retention piece but I do think that there is value in being able to consume narrative-based books like biographies and novels passively. I’ve enjoyed listening to books on walks, on cramped airplane seats, and in Ubers to and from. And as everyone knows, if you want to listen to audiobooks, you probably want to use Audible. Audible, of course, is owned by Amazon.

Which brings us to today’s topic — how the Amazon-Apple duopoly on books and the infrastructure around it is one of the biggest long term threats to freedom of information. And more importantly, what can we do about it?

The landscape

In some ways, Amazon the retail giant was enabled by books. In what is now tech legend, the story goes that fellow DC resident Jeff Bezos realized that books were the perfect item category to be sold online — it had so many “SKUs” that it was impossible for even the large bookstores to stock all of them. So Amazon started off as “Earth’s biggest bookstore” and the rest, as they say, is history.

Today, Amazon owns not only a large majority of the physical books sold in the United States, but also also almost all of the digital sales. To put some numbers around this dominance, book sales totaled around $1B in the U.S. with roughly an 80/20 split between physical books and ebooks1. According to some estimates, Amazon owns up to 70-80% of this $1B pie2. Even if those estimates are aggressive, those numbers suggest some serious concentration in the market. The company is so powerful that Senators who write about the “Tyranny of Big Tech” have to end up linking to Amazon pages of their books3.

And when it comes to e-books specifically, there is pretty much only one rival. Amazon had a significant first-mover advantage in the space and have solidified that lead through the ecosystem lock-in created by the Kindle. When the Kindle first launched in late 2007, Amazon priced best sellers at $9.99 to create this lock-in. This worked – through 2009, it sold around 90% of all e-books. Publishers were scared by this since most titles cost between $12 to $30. They worried that this would “permanently drive down the price that consumers were willing to pay for all books.”

Which brings us to Apple. In the scenario above, publishers were handed a lifesaver by Apple’s iBookstore, where they were allowed to price books however they wanted and give Apple a 30% cut. When MacMillan, one of the big publishers, demanded that Amazon adopt a similar pricing structure, Amazon delisted MacMillan’s books. They ultimately brought them back and since other publishers placed similar demands, Amazon’s ability to price e-books at $9.99 became limited. This was critical to a healthy ecosystem since publishers fund up-and-coming authors through the sales of bestsellers. Reduced revenue (and corresponding reduced profits) from bestsellers would have meant that publishers would not have been able to fund new authors – a critical component of a healthy information ecosystem. Although Amazon was thwarted in its attempt, the fact that the information ecosystem had to be saved by Apple is itself a testament to the immense power wielded by platforms.

But Apple’s walled gardens don’t get a free pass here either. Their 30% cut means that publisher margins are further squeezed. Even if you buy the argument that the 30% cut makes sense for apps and games that Apple uniquely enables, the company has done pretty much nothing for the book industry in terms of enabling innovation or increased security. At least Amazon made an e-reader!

Why is it important?

These platforms are dominant across many categories. So there is a legitimate question to be asked here about why their dominance in books is particularly important.

Intellectual Institutions

Well, books are one of our most cherished intellectual institutions and they will likely continue to hold that position. When John F. Kennedy was in the midst of the Cuban Missile Crisis, he would carry around and occasionally read excerpts from his copy of Barbara Tuchman’s The Guns of August about how World War 1 was started because of European nations’ inability to understand each other’s diplomatic nuances. According to Robert Kennedy, that book had a major impact on JFK’s thinking at the time. At the risk of sounding like a luddite, no TikTok video is ever going to prevent nuclear holocaust.

If access to all or most deliberative content is controlled by Amazon and Apple, then it is possible in the future that they restrict access to content contrary to their interests. Both have showed a willingness to censor or edit their selections in the bad — Amazon for economic reasons by promoting titles published by its own publishing house and Apple by limiting access to controversial titles because it sees itself as the arbitrator of what is good.

I cannot imagine that it is good long-term for a well-functionary democracy to have this much power over one of our most prized intellectual institutions concentrated in the private hands of two mega-corps.

Lost innovation aka deadweight loss

For the more libertarian minded in the audience, here’s an economic reason why this duopoly is suboptimal. Despite the fact that I believe the academic discipline of economics to be largely hokum, the concept of deadweight loss is particularly useful in explaining "lost innovation” in industries.

Because of Amazon’s superior pricing power and stronghold on the e-book market and Apple’s control of the iOS platform, they have been able to dominate the market. So they don’t really have a reason to innovate. The Kindle’s hardware and software has remained unchanged for years (decades?) now. Over on the Apple side of things, the story is not too different. The Books app has not received too much love from Apple in-house developers.

Losing talented writers

The final issue with the current situation is that new talented writers never see the light of day. When publisher margins are squeezed by tech platforms, they are unable to aggressively fund new and upcoming writers. These new writers are funded by the profits from existing, bestselling writing that the publisher co-owns with the author. This means that publishers will be less likely to take aggressive chances with new authors, ultimately leading to lower diversity of authors.

This is analogous to what is happening in Hollywood with the proliferation of sequels. Since each movie costs an increasing amount to create and market, the bar for success (critical yes, but mainly financial success) is much higher resulting in studios increasingly choosing safer bets in sequels of established movie franchises.

What’s Next?

So how we break this duopolistic structure? Well, part of the answer is not by breaking it all and simply doing an end-run around it. Couple of quick thoughts on what this looks like:

• Online writing: Thankfully, we need fewer gatekeepers to offer us access to our audience today than we did 20 years ago. Example, for better or for worse, I don’t need anyone’s permission to write and share this newsletter. It’s completely free for me to do. And in my own small way, I have an audience of readers who are willing to read more things from me. If I ever wrote a book, the readers of this newsletter would likely be my first customers. It’s possible that I could publish the book via a number of file hosting sites and never need to go through Amazon or Apple. If I could do something like this, other people much smarter than me could definitely do it.

• Genre-specific mediums: Some genres of high-quality writing will likely remain under the aegis of its own gatekeepers. Think medical or law journals. It’s tough for me to envision a world in which they are controlled directly by Amazon or Apple.

At the end of the day, what is most important is that we recognize the enormous power these platforms hold over our lives, especially when it comes to the information that we consume every day. It is surprising to me that this is not a larger part of the anti-tech rhetoric in media and on Capitol Hill.

Every now and then, a company comes along which shows why a particular business model should exist. One relatively recent example of this was Zoom, which had its IPO in early 2019 and showed how internet enabled tiny SaaS companies with deep engineering expertise can outpace the likes of Microsoft and Cisco.

There is another company that had its IPO earlier this week that fits the genre of business-model-affirming and follows in the footsteps of Harry's, Allbirds, and Warby Parker to take its rightful place in the DTC Hall of Fame — Figs (NYSE: $FIGS).

If you're not in the healthcare industry, you may not have heard of Figs before. But if you are, it is almost impossible to ignore their colorful scrubs with the subtle white crosses on a grey capsule-shaped background. And that's the point — Figs have created an amazing product for a historically ignored customer and in doing so, have created a cult amongst nurses. To top it all off, they have the rarest thing of all these days — a profitable direct-to-customer company at IPO!

In today's newsletter, I want to share their story, explore what led to their success, highlight some of the important numbers, try to predict what the future holds for the company, and the lessons that founders and investors can learn from Figs' success.

Lululemon walked so Figs could run

Founded in 1998, Lululemon did not become the ubiquitous customer brand for everyone from my yoga-loving friends to my friend's dads until the last half a decade. But it set customer expectations way before then. See this founding story from Figs’ website: 

The ah-ha moment happened when Co-CEO and Co-Founder, Heather Hasson was grabbing coffee with a friend and nurse practitioner almost a decade ago. She couldn’t believe that her friend, who spent 16-hour days serving others wearing boxy, scratchy, uncomfortable scrubs— and worse still — she didn’t have any options available to improve her situation. Heather could not help but think about how many apparel companies were focused on giving professional athletes every possible advantage through cutting-edge materials and purpose-driven designs. So she thought: What about the people saving lives? Who is focused on them? With a background in fashion, Heather set her sights on revolutionizing the industry by creating technically advanced apparel and products for the modern healthcare professional. 

This is something we see all the time in markets. One player moves the entire market forward. Apple launched the original iPhone in 2007 with touchscreens and we have never looked back. Amazon made two-day free delivery an expectation and now every e-commerce company has to cut into its margins to meet those expectations. In a similar way, Lululemon made comfortable and functional apparel an expectation for those willing to pay the price premium. If they wear already wearing a brand like Lululemon for their workouts, why should nurses expect any different from their day-to-day uniform?

From that "ah-ha" moment, Heather recruited co-founder Trina Spear. They bought an initial inventory using their personal savings and sold their now-iconic scrubs from the back of a van in the parking garages of hospitals. The rest, as they say, is history.

The canonical DTC company

What I like most about Figs is that it is a company uniquely enabled by the internet. It's not that scrubs did not exist before the internet, but that the end user of the scrubs was not necessarily an important stakeholder in the design and purchasing decisions.

Before the internet enabled a company like Figs to reach out directly to nurses and other healthcare professionals to sell scrubs, there were mass-market scrub makers which would sell directly to hospitals. So some accountant in the finance department of a hospital would make the decision of what scrubs all the nurses would wear for the whole year based on little more than numbers on a spreadsheet. Even if nurses were asked to buy their own scrubs, little variety existed in the market because it was not profitable to create high-quality technical apparel if you could not reach the target audience at a reasonable cost.

The old models of advertising such a product would be to put out an ad in the newspaper, buy a banner in front of hospitals, purchase some airtime on the local radio, or put up flyers in high-visibility areas. But it was tough to measure the impact of any of these initiatives. Moreover, you were competing against products that had much more mass appeal compared to your relatively niche market. If Proctor & Gamble wanted to buy the same advertising spot on a newspaper for $10, it made a lot more sense for them to buy that space because they would likely see a much higher return for it since they have a much broader customer size compared to your target customer of nurses.

For all its ills, internet-enabled targeted advertising enables a company like Figs to exist by allowing them to market in a targeted way to customers who are much more likely to be nurses. And it allows them to do so without having to compete with a behemoth like P&G.

Simple put, with Facebook and Instagram, Figs would not exist1.

Enabled by this targeted advertising, a company like Figs can engage in a bottoms-up selling strategy. Instead of a company having to convince someone in accounting that buying their scrubs makes financial sense, Figs has to convince nurses that their scrubs are superior. In some ways, it's a tougher problem — you have to do the selling one-on-one to each individual customer. But word-of-mouth marketing exists, and it particularly exists for Figs. From their S-1 filing2:

Hospitals and other healthcare institutions, which often employ thousands of healthcare professionals working in close physical proximity on a daily basis,serve as ideal environments for growing awareness of our brand through word of mouth.

Figs have executed so well on this vision of "cutting-edge materials and purpose-driven designs" and word of mouth advertising that the numbers are very pretty.

When the numbers are this pretty

Let's look at the heart beat of every DTC company — the direction of the metric which determines whether or not the founder and the executive team sleeps well at night or not — the Life Time Value to Customer Acquisition Cost ratio, or the LTV: CAC ratio.

While they don’t share LTV, they do share a proxy metric — net revenues per customer and Figs' have been steadily increasing. In 2020, they made $202 dollars per customer on average and spent only $39 dollars acquiring them. This was up from $168 of net revenues and down from $101 in 2018, respectively.

This has allowed them to get to a place where every DTC e-commerce company wants to be — a customer is profitable on their first purchase. From their S-1:

In 2020, we successfully increased our marketing efficiency such that we achieved 1.3x our CAC on a customer’s first purchase contribution profit.

Okay, so the company is acquiring new customers efficiently. But taking a step back, this is not the only way that a company can continue to grow. Another way is to sell more to existing customers. Figs is doing this well too.

As a percentage of total net revenue, revenues from existing customers has become an increasing part of the pie — from 44% in 2017 to 62% in 2020. This means that existing customers are not just satisfied from the current offerings, but are willing to try out more products from the same brand — not always a given in the DTC universe.

The secret to this financial success is two-fold.

First, they have chosen a good market. Nurses are a neglected customer base who have the financial resources to try out something better. The average resident nurse's salary in Washington, D.C. is $94,8203 which is almost double the average individual income of $49,542 in the city4. Figs also don't believe affordability to be an issue. Again, from the S-1:

As a testament to the affordability of our products, in 2020, approximately two-thirds of our customer base earned less than $100,000, and approximately one-third of our customer base earned less than $50,000. Due to the high proportion of our customer mix that is comprised of students and young professionals whose earnings will grow over the course of their careers, we believe we are well positioned to retain and increase engagement of these customers, expanding our share of their uniform and lifestyle wardrobe over time.

Add to this the fact that nurses wear scrubs every working day for hours on end which means that they would be willing to pay a premium for better comfort and quality, and you’ve got near-perfect product-market fit.

The second is that they have expanded out from their core products to offer limited edition scrub styles and other lifestyle products like socks, jackets, and athletic wear. These currently only form about 18% of net revenues, but that number is likely to increase as the company expands. These products are also likely to have higher margins5 and so the profitability profile of product mix goes up over time.

This combination of profitability at first purchase, strong cohort performance, a solid core market, and the potential to expand into others profitable products makes Figs a benchmark for DTC apparel companies.

Future of Figs

The new Drake song asks the proverbial question, "What's Next?" In the case of Figs, what’s next looks pretty good. They will continue to execute on their playbook of acquiring new customers and selling adjacent products to existing customers. Let's breakdown what those two will look like and what potential risks might the company have to mitigate:

1. Acquiring new customers: This can be a tricky thing to do. Companies typically acquire their best customers first and the marginal customer needs an increasing level of convincing (read: marketing dollars) to be acquired. One of the better strategies here in Figs' context would be to acquire customers in previously untapped markets. International growth can certainly be a big portion of this but selling to more rural parts of the country would likely also be more dollar-efficient.

2. Selling more to existing customers: The adjacent product strategy, coupled with limited edition drops and thoughtful partnerships, is pretty much the standard playbook right now. What will be interesting to see is if they can execute it in a way that companies like Allbirds have. Reputational risks are also really important to manage given the word-of-mouth nature of their marketing. A bad report on their manufacturing practices and/or examples of their products not performing well could have higher-than-average impact on the willingness of existing customers to refer others when the job at hand is literally dealing with life and death situations.

As things stand right now, I don't believe competitor risk is a really thing for Figs today, as it has far more brand recognition than the other players. It is still in the early innings of eating into the traditional top-down scrubs market. 

Lessons for founders and investors

A well-executed strategy offers many lessons for investors and founders. Here are three that I took away from Figs:

1. Look at a highly regulated industry where barriers to entry are really high and build around it: Healthcare tech companies are notorious for being difficult because of the slew of regulations and barriers. But given that the healthcare industry is so large, not all of the economic value is in the core service of providing healthcare. You can build in the adjacency of such a large market and have a great product that appeals to a subset of stakeholders in that market. Another company that comes to might here is RigUp, created a marketplace for on-demand services and workers in the oil and gas and alternative energy sectors, and was later rebranded as Workrise to expand into the broader market of blue-collar jobs.

2. Apply what's happening in other industries to your domain: Around the time when Heather and Trina started Figs, there was a surge of DTC companies being started in every industry. They became the leaders in scrubs which underscores the massive first mover advantage.

3. Keep it simple stupid: Too many companies launch a skew of initiatives and fashionable products before nailing down what their company will be built around. Focus remains underrated. 

Figs seems to be getting rewarded for all the good work they have done by Wall Street. They closed their IPO week 22% up from the initial listing price of $22, valuing the company at more than five billion dollars. As always it is with IPOs, it'll be interesting to keep up with the next phase of their growth and how they deal with being a publicly traded company.

Until next Sunday,
Sid

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This summer, I want to try out a new experiment. Instead of curating links and books from across different mediums, I want to take one topic and write a short essay about it every week.

Today's topic is a book titled Battle Cry for Freedom about the American Civil War by James McPherson.

Ever since I read Master of the Senate by Robert Caro, I've wanted to learn more about the Civil War. Caro writes about the grave injustices against African Americans across the American South — injustices that had their origins in the gravest of all injustices, the practice of slavery.  And the more I scratched the surface, the more I saw the inexplicable link between America's present and the Civil War of 1861-1865. To show what I mean here, let's look at some themes that are somewhat unique to American political discourse: 

• Freedom: Both sides in the war purported to be fighting for freedom. In the case of the Union1, the case was freedom fromslavery. In the case of the Confederacy, it was the freedom to own slaves. The Confederate states did not want the Federal government to intervene in their internal matters. All except one. When it came to the Federal Fugitive Slave Law — would a slave from Alabama who escaped to Massachusetts be legally returned to his or her owners in Alabama — the South wanted a strong Federal government. These tensions between what states want the Federal government to take control of and where they want to be left alone continue to exist today.

• Economic growth: In the 1800s, the nature of economic growth between the South and the North was very different. The North was a vibrant economy with trading posts across the Northeastern corridor. More importantly, the North had an industrial economy with all the efficiencies that come from automating and standardizing repeated tasks. The South on the other hand was heavily dependent on slave labor for the production of its main cash crop — cotton. Industrialists in the South were richer on average than their Northern counterparts, but all of this wealth was invested in land and slaves. The investment cycle of the southern economy was selling cotton to buy slaves to sell more cotton in a vicious feedback loop of human suffering.

• Territorial growth: The initial sparks of conflict were the result of territorial expansion. As the United States gained more territory in the first half of the 1800s (New Mexico, Texas, etc.), there was a question on everyone's mind: would slavery be allowed in the new territories? Slavery was banned in the Northern parts of the country and it was an institution that defined the South. So would the expansion of the country be Northern or Southern in nature?

Against the backdrop of these themes was American’s accession to the world economic stage. At the time of the Louisiana Purchase in 18032, the United States was no really a major world power. But the potent cocktail of immigration, urbanization, and industrialization changed that:

• Immigration: In the first half of the 19th century, the United States saw an influx of more than five million immigrants. Attractive to these immigrants was the relatively high ratio of land to people compared to Europe and Asia and the prospect of better opportunities.

• Urbanization: While the country as a whole remained rural, the urban population grew three times faster than the rural population. From 6% in 1810 to 20% of total population in 1860, this was the highest rate of urbanization in American history.

• Industrialization: Supporting this immigration and urbanization was the increased industrialization of the country, led by the Northeast. One cornerstone of this industrialization was how export oriented it was. America’s transatlantic trade exceeded internal commerce. The reason for this was the vast distances that goods had to travel over the mainland. This set the stage for the railroad empires of the Vanderbilts and the Hills. As immigrants from across the world slashed the hard rock mountains across the continent, transportation costs were slashed in tandem — ultimately bringing the country together literally.

Put these two set of themes — one of America’s values and the other of America’s ascension — together and you set the stage for one of the most consequential military conflicts that the world has ever seen. Consequential not just because of what it said about the character of the two opposing armies, but consequential because of the shear numbers:

American lives lost in the Civil War exceed the total of those lost in all the other wars the country has fought added together, world wards included.

We will explore the book in two additional parts: the second part of the book will cover the attempts made to stop the conflict and the third part will cover the conflict itself.