Sunday Snapshots (23rd February, 2020)
The Revolt of the Public, Business insights from F1, The Bundler's Dilemma, and John Wick
Hey everyone,
Greetings from Evanston!
I’ve been working on a new project this week and that always makes me think about opportunity costs:
By working on this project, what am I saying no to?
All our decisions are bets that that decision maximizes our happiness in the short or long term.
For example, when you say yes to go to an event, you’re saying no to everything else you can potentially do – spending time with your significant other, working on a task you’ve pushed off for weeks, reading a new book, etc. These high costs must be weighed against the benefits of going to the event. It better be a great event!
Life is not a never-ending feed that you can keep scrolling through. It’s a fragile and fickle thing. It must be used up with considered thought and judgement. Memento Mori. Let that guide your decisions this week.
With that bit of thought leadership out of way, in this issue of Snapshots, I want to:
Wrap up my takeaways from The Revolt of the Public by Martin Gurri
Tell you how Formula 1 can help you make business decisions
Explain what I call The Bundler’s Dilemma
Share a piece on how the John Wick universe represents cancel culture
And more!
Book of the week
Last week, I laid out the basic frameworks of Martin Gurri’s The Revolt of the Public. Hierarchy vs. Networks. Information flowing the path of least resistance. No sacred cows.
This week, I want to talk about some of the implications that we can analyze once we have these frameworks. Two come to mind:
The population, the public, and the crowd: Those sound like synonyms, but there are key differences.
The population are the non-elite. The 99%. The ones who find it difficult to shape global events.
The public are the people who are interested in a given topic.
The crowd are the people who are willing to mobilize for a given topic. This could be in the form of a physical mobilization or mobilize online.
Typically, when we think we are looking at what the public or the population thinks, we are looking at what the crowd thinks. This is similar to the “tyranny of the minority” concept I talked about a couple of weeks ago. Notice that the crowd does not need to have interest in the topic. It just needs something to mobilize against.
Monopoly on symbols: I watched The New Pope this week. A particular scene and dialogue stood out to me. Around the middle of the fifth episode, Pope John Paul III (played by John Malkovich) has to establish legitimacy and condemn an act of terrorism in one moment. He comes up with a single word – “No.” What exactly does that mean? Well, as the advisor to the Pope Sofia Dubois says in response to a question along those lines:
The Pope merely provides symbols. The vulgar task of explanation falls on others.
Symbols were the domain of hierarchies. Now, the networks have access to them as well. A Tunisian street vendor who sets himself on fire can become a catalyst for a revolution that sweeps an entire continent.
The upshot of all this?
The rise of Homo informatics (Gurri’s moniker for the networked individual) places governments on razor’s edge, where any mistake, any untoward event, can draw a networked public into the streets, calling for blood. This is the situation today for authoritarian governments and liberal democracies alike. The crisis in the world that I seek to depict concerns loss of trust in government, writ large. The mass extinction of stories of legitimacy leaves no margin for error, no residual store of public good will. Any spark can blow up any political system at any time, anywhere.
The public asks not what they have done for you. They don’t even ask what you have done for them. They ask, “What have you done for them lately?”
Don’t be naive and think that the networks are winning. The hierarchies are fighting back. In fact, the very tools that the networks are using to try to tear down the hierarchies are being used by the hierarchies to attack networks. For the hierarchies, the obstacle is the way.
This book is clearly very important to understanding our current age. I found myself torn between longing for the stability of hierarchies but at the same time feeling like I belonged to the networks. If you enjoyed these topics, grab a copy of the book and let me know if you do (it really makes my day). I would also recommend The Seventh Sense by Joshua Cooper Ramo which has similar hypothesis but attacks these problems from the perspective of how an individual can succeed in these turbulent times. If The Revolt of the Public shows you the battlefield, The Seventh Sense tells you how you can march through it.
Long read of the week
Tie Dissolution in Market Networks: A Theory of Vicarious Performance Feedback
I love watching Formula 1 and wake up at all sorts of weird times during the season to catch races across the world. It’s no surprise that the high pace, expertly choreographed, and ego-driven world of F1 racing has insights that can be applied broadly.
In this paper, Henning Piezunka and David Clough use F1 as a testing ground for the following argument:
We develop the argument that firms learn not just from their direct experience with a given exchange partner but also from other firms’ concurrent experience with the same partner. When two firms (A and B) procure the same component from a supplier (S)—a constellation we refer to as “joint component usage”—each firm can observe the other firm’s performance and use such observations to supplement knowledge from its own direct experience with the supplier. Whether firm B performs above or below its aspirations likely affects firm A’s decision to dissolve or keep the tie with the supplier. We thus develop a theory of vicarious performance feedback (VPF) in which a focal firm’s behavior is influenced by the performance trajectories of other firms to which it is indirectly tied.
They came to the conclusion that this theory is more relevant for suppliers. They also outline some mitigation methods:
The main managerial implication we draw from this work relates to the supplier rather than to the customers. Our work highlights how customers of the same supplier pay close attention to one another, which negatively impacts the supplier if the inferences drawn from this observation are unfavorable (Sa Vinhas, Heide, and Jap, 2012). The supplier may be able to mitigate these negative comparisons through strategic communication. First, if a customer suffers an episode of poor performance after a string of successes, it is in the supplier’s interest to carefully frame this occurrence as a result of external factors when communicating with other stakeholders. Second, and more subtly, the supplier can attempt to downplay the customer’s historic record of success, so that the comparison against this record looks less surprising. In either case, the supplier should be aware of the heightened risk of losing multiple customers after one of them has a failure and should increase its client retention efforts for all customers, not just the focal one.
Side note: Rolex did a series of ads with Formula 1 that I love. Check out one of them here.
Business move of the week
The Bundler’s Dilemma
Let’s say you commit a robbery with your friend. You both get caught. The police takes you into a separate room as your friend and gives you four options:
Don’t snitch on your friend, and if they don’t snitch either, both of you walk free.
Snitch on your friend (how good of a friend are they really?) and get 1 year in prison if they don’t snitch on you (maybe they were a good friend after all).
Don’t snitch on your friend, but if your friend snitches on you (they were also given option 2), you will get 10 years in prison.
Snitch on your friend, but if they snitch on you as well, both of you get 5 years in prison.
What would you do?
Welcome to the Prisoner’s Dilemma. Separate entities looking to maximize their own “payoffs” deciding whether to cooperate or not.
The same dilemma applies to organizations looking to do collaborations and partnerships. They all seek to answer the question – would we be better off without them?
No where is this more apparent in media organizations looking to “bundle” their subscriptions together. This week, The Information and Bloomberg Media decided to offer a promotional bundle.
Some Quick Maths
If you’re a new customer to both organizations, you get your first year of access to both organizations at $499. An annual subscription of The Information costs $399. An annual subscription to Bloomberg Media costs $415. You’re getting a $814 subscription for $499. So, you “save” $315 or ~40%.
It’s important to note that these are promotional rates. So, at the end of the first year, your subscription for the Information will renew at $399 and your subscription to Bloomberg Media will renew at $415.
Hopes and aspirations
We all have hopes and aspirations. Yes, even companies.
In this case, The Information is hoping for legitimacy outside the tech community. $399 is a lot of money to pay for news and insight when someone like Ben Thompson’s Stratechery costs $12/month. And by virtue of setting the bar for tech analysis, Ben Thompson indirectly also sets the bar for how much that tech analysis should cost. If you are charging $399, the market is smaller. By partnering with Bloomberg, they are symbolically expanding their relevance. This hopefully leads to an actual increase in subscriptions.
Bloomberg Media is a much larger company. So at first look, it’s weird that they are partnering with The Information. But it’s simply the law of large numbers at play. Once you get big, you have to play at the margins. They have to do these types of partnerships to increase stickiness of their offerings and attract new customers at those margins. On the last point, current and potential readers of The Information are folks interested in technology with high discretionary spending – even the bundle costs $499, otherwise known as a lot of money for most people to pay for news. The tech space has matured in the last few years and an increasing number of “common” people are looking to understand it better. By partnering with The Information, Bloomberg Media can attract these readers.
Problems and Solutions with Bundles
The core problem with bundles is that the entity bringing value to the bundle has little incentive to join it.
If you’re the company that brings value to a bundle, it’s better for you to go alone and keep all of the revenue from new customers. Typically, even the increase in the number of customers won’t improve this math.
One potential solution is to have a proportional revenue split such that you get paid out based on your value. Even overlooking the measurement problems (how do you agree upon a way to measure which entity users are engaging with the most), it just doesn’t make sense for the player with all the cards. Importantly, it also distorts the direct relationship to the customer and everything that comes along with that – better analytics, greater margins, etc. This is one of the big reasons why Apple News+ has not worked out. Newspaper like the New York Times and Wall Street Journal that would bring value to this bundle have allowed access to none or very few parts of their catalog.
The other solution is to ensure that both parties are on equal footing. For example, if the aforementioned New York Times and the Wall Street Journal did a bundle together and went with a 50:50 revenue split, maybe that could work out. That sounds like a neat idea. In reality, this would lead to current subscribers (who are paying full price) to move to the discounted bundle and would be disastrous for both entities in terms of revenue.
The only way to make it work is to have one party get direct monetary benefits and another party get indirect monetary benefits. In this case, Bloomberg Media knows that an increasing number of people want to understand the tech industry beyond the usual click-bait stuff. This bundle attracts the people interested in tech with a high purchase appetite (as I’ve mentioned before, $399/yr for news is still a very high price). That makes this a win-win for both parties.
Things Fall Apart
Here are some scenarios that could I can see playing out for the Bloomberg Media x The Information bundle:
Both of them get mutual boosts in legitimacy and retain a large percent of subscribers that signed for the bundle. These customers now subscribe to both companies at full price.
The Information gets a large boost in legitimacy in the larger media landscape and retains a large percent of subscribers from the bundle past the first year. Bloomberg Media doesn’t meet its internal target for how many customers they wanted from this bundle and cancel the partnership. Bloomberg will bow out of the bundle. The Information gained more from the promotional bundle.
Bloomberg Media gets a large boost in legitimacy in the tech circle and retains a large percent of subscribers from the bundle past the first year. The Information doesn’t meet its internal target for how many customers they wanted from this bundle and cancel the partnership. The Information will bow out of the bundle. Bloomberg Media gained more from the promotional bundle.
Neither of them retain enough percent of subscribers from the bundle past the first year and decide that it’s this was a terrible idea to begin with. They both mutually decide to stop offering the bundle.
Only one scenario – the first one – leads to the bundle surviving. Given that it’s the one in which customers pay a ton of money, I wouldn’t bet on it. Both The Information and Bloomberg Media have looked at these scenarios and have bet that they will come out in front. Given that they have zero marginal costs, they can afford to experiment like this.
There is a factor that could lead to scenario 1 that we haven’t considered. Many people can expense their subscriptions to publications on their business credit cards. This makes the exposure hypothesis a lot more plausible. I still think that in this case, The Information will come out ahead. But Bloomberg Media might be happy with the marginal increase that they will see.
Bundle or not to bundle
In general, here are the laws of bundling:
If you’re the entity with all the cards, don’t bundle if there are no non-monetary benefits.
If you’re the entity with no or fewer cards, look to bundle.
Never bundle under an “umbrella” like Apple News+. You lose the direct relationship to the customer which is not worth the short-term increase in revenue.
Random corner of the week
The John Wick Universe is Cancel Culture by Eugene Wei
Eugene Wei is one of my favorite authors and I’ve mentioned his work on Snapshots before. His latest piece on how the John Wick Universe is an example of cancel culture is fantastic.
He likens Wick’s dog and his car as the beliefs we hold sacred. The hit squads in the movies to the “mob” or as you now know, the “crowd” on social media. The Continental hotel chain to the social media platforms. And so on.
It’s really fascinating. I can’t tell if he’s just stretching everything to fit the cancel culture framework or the analysis is just crazy good. It’s a great read either away!
If you’re a fan of the John Wick series, you’ll definitely enjoy it. It also pairs well with The Revolt of the Public.
That wraps up this week’s Sunday Snapshots. If you want to discuss any of the ideas mentioned above or have any books/papers/links you think would be interesting to share on a future edition of Sunday Snapshots, please reach out to me by replying to this email or sending me a direct message on Twitter at @sidharthajha.
Until next Sunday,
Sid