A Rising Tide Lifts All Boats
In this podcast, Brad Gerstner explains how each new generation of winners scales quicker and with more capital efficiency. I think this phenomenon also explains one of the catalysts of the passion economy and answers the “why now?” question. From the podcast:
“How much of the incremental value creation was accruing to the private markets and why that was? You had platforms that were now allowing companies to scale faster and in a more capital efficient way. Compare where Google and Priceline went public to where Bytedance is going to go public - with every successive generation, the winners scale faster and in a more capital efficient manner. All of that value creation accrued to the private market investors - compare those valuations to Salesforce when it went public - GCP, AWS, and Azure allow companies to scale faster and, as a result, for the winners, the first $10-25B of value creation is likely to accrue to the private market. If you want to participate in the bulk of value creation, you can’t not be in the private market.”
The same thing is happening with the value of individuals. They are accelerated by the platforms that they are built upon. Social media, online payments, creation tools, business infrastructure as a service, (all the classic things that have lowered the barriers to content production and distribution) have allowed creators to be more “capital efficient” or rather, retain more of their own value as they produce it for the world. Before this phenomenon, Ben Thompson’s writing on the business of technology could never have reached the scale it is at today without a publisher. He would have written for Bloomberg or the WSJ, and he would have been an employee earning a salary. Eventually, he may have gained enough recognition to start his own business, but he would have given up a significant portion of his value sitting at a WSJ desk in the form of opportunity cost, i.e. not writing his own blog and monetizing it directly. His writing would have earned more subscribers for the WSJ, but his only reward for it might be a higher salary or more job security.
A group of talented entrepreneurs that start a company are able to focus on what they are uniquely suited to do while outsourcing legal, accounting, HR, payroll, computing infrastructure, bookkeeping, etc. to others, receiving those things “as a service.” This allows them to be massively more capital efficient, as they won’t have to hire individuals with those skill sets or spend time and resources learning/doing it themselves.
That “capital efficiency”, which really comes from cheap and easy access to resources and knowledge shows up in 3 ways for both startups and creators.
More plentiful experiments. if it’s easier to start a company, you get more startups. (while the number of new companies in the US has been declining, the number of big bets on big ideas is no doubt increasing.) If it’s easier to start creating content and monetizing it, more people will try it and they won’t have to quit their day jobs.
More direct competition. As a result of the game being easier to play, it’s obvious that there will be more players and more competition, but now you have more startups working with the same open source tools, using the same back-office, the same advertising methods, etc. Content creators are reaching their audiences on the same platforms, using the same editing tools, business tools, etc.
More value creation early in the process. Companies are reaching scale quicker, and more of that appreciation is accruing to private market investors. In the same sense (but maybe a stretch) creators are reaching scale much quicker or without the help of traditional media orgs or companies. If you are a celebrity, you already have an audience that will consume whatever you do, but that audience was most likely built on the back of a movie studio or a record label or a publisher, and most of your value probably accrued to them. Now, more creators are becoming “celebrities” by themselves and capturing more of their value.
In this Stratechery piece, he writes that in the 15 years after the first American car company was founded, 223 automakers were started - then 168 more in the 9 years after that. But by the mid-1970s, the Big 3 were pretty much established. However, just because new car companies stopped succeeding doesn’t mean that the impact of the car slowed. In fact, the half-century afterward saw the proliferation of suburbs, big-box retailers, and drive-thrus. It was the fact that the presence of cars was an assumption that allowed innovations like these to exist.
The implications for tech companies are obvious (see standing on the shoulders of giants), but for creators, it feels like we’re still in the first generation of figuring out what we can do with new capabilities, not yet taking them for granted. YouTube and SoundCloud and Patreon and Podia seem obvious, like roads and stoplights. In this sense, it feels like our energy would be best spent thinking about and looking for the shopping malls or suburbs - the things that will come about now that the presence of YouTube, Patreon, Kapwing, Tongal, Stripe, Shopify, Podia, etc. can be taken for granted - rather than the next car company.