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David Pakman's Blog

The Auto Industry Won’t Create The Future

In the collision between consumer technology, cloud computing and cars, the legacy auto companies are lacking key ingredients for the future of the automobile. Here are the vectors for auto disruption.

This post originally appeared on Medium.

The potential is so exciting, you can almost taste it — a world of self-driving electric cars, eliminating 1.25 million annual traffic deaths, reducing massive amounts of climate-altering emissions, urban parking lot real estate turning into parks and ending the dangers of drunk and distracted driving. We all seem to know what we want. But who will bring it to us?

I believe this inevitable transition creates a very clear set of vectors for disruption of the traditional automotive industry and, like other industries transformed by technology (newspapers, travel agents, the music industry, traditional retail, etc.), many new winners are likely to emerge. Let’s examine why.

1. Innovation

As every industry becomes a technology industry, its pace of innovation must accelerate. Those of us used to Moore’s Law as the single most-defining characteristic of the information age know that rapid innovation is a constant. If you don’t quickly innovate, your competitors will, and you will get lapped in one tech cycle. Cultures of rapid innovation, while common in technology, are less common in industrial age companies. Think about the length of product cycles in the car industry—new car models take three to five years to develop and launch and then sit stagnant for six years in the market, devoid of meaningful improvement or new innovation. The only way to get new feautures? Buy a new car.

The technology industry will most certainly take a different approach to cars. We think about building and deploying hardware platforms into the market, on top of which we frequently update the OS. The OS enables developers to build thousands or millions of apps which bring new functionality to the user. We know the user expects the product to meaningfully improve over time with over-the-air updates. And when we do need to rev the core hardware, we do so rapidly, typically in one-to-two year cycles.

A good example of this is the phone. Today, consumers are getting rapidly updated mobility features for their cars (navigation, for example), but they are getting it on their phones and not from the traditional auto companies.

Complicating the car industry’s ability to rapidly innovate is the fact that they have largely become system integrators. They develop very few components of a car, instead sourcing almost all key components from tier one suppliers such as Bosch and Continental. Take a look at this graphic:

When so much of your product is designed and built by suppliers, you may lack key engineering leadership within to substantively and quickly produce innovations not generally available to your competitors. While new entrants to the car industry will certainly utilize tier one and two suppliers for much of their components, they will likely choose to produce proprietary innovations in some areas where neither today’s car companies nor their suppliers typically excel. We will get to a few of those areas below.

(I am confident several readers will point out that Apple sources tons of its iPhone components from third party suppliers. While true, Apple designs the most important components themselves—the CPU, the OS and many default apps. This article helps explain why that is so critical. In addition, Apple works deeply with its suppliers to direct development around areas most likely to benefit the end user. The same cannot be said of the majority of the existing car companies.)

2. Electrification

Tesla, Google, Apple and other expected new car entrants are centering their designs around electric vehicles. This is true for many reasons, the biggest being that electric motors are much simpler than internal combustion engines. Removal of this complexity, in some ways, is a resetting of the core expertise required to produce a great automotive product — goodbye combustion engine, carburetor, transmission, exhaust, emissions systems and fuel economy management; hello batteries, power optimization, charging systems, and engine controllers. Some of these new capabilities are native to consumer electronic manufacturers who have been dealing with battery life and power optimization for some time, albeit on a very small scale. A bunch of car companies have produced an electric car. But building an entire organization around this and nothing else will produce a focus and an innovation trajectory likely to outstrip that of companies who do it as a side project.

3. Software

Perhaps the most significant shifting of the automotive tectonic plates is the move to software. The future of the automobile will largely be built by software developers. Yes, existing combustion engine cars have embedded systems with lots of code in them to handle everything from HVAC to automatic transmissions. In fact, the complexity in integrating these many layers of software together is causing lots of consternation at the traditional car companies, given this is not their main areas of expertise. In addition to this, future cars will utilize software in profoundly different ways.

Of course we know that Tesla (currently) and Apple (future) are trying to re-imagine the interface between the driver and car, and their dashboards are (likely to be) gorgeous and vastly improved over the mostly superfluous dials and gauges car manufacturers think we need to see (when was the last time you had to check your RPMs or engine temperature?). Good hardware, software and UX designers will be behind all of that. But future vehicles equipped with ADAS systems and eventually autonomous capabilities will need to make trillions of driving decisions based on lots of sensory data.Vision, LiDAR, sonor and other sensors will combine with real-time streams from the internet, from other vehicles and even from municipal environmental data sources (our portfolio company INRIX is one such data supplier). These inputs are analyzed in real-time, likely with a combination of local on-board and cloud-based compute resources to make driving decisions. Such complex AI systems will be adaptable machine learning systems which continuously refine their decision-making models.

Understanding this makes it less of a surprise that Google leads the way in autonomous vehicle development today. Google’s search engine is an at-scale example of just such a system and much of Google’s core development expertise is in cloud-based predictive systems.

There are two main reasons why legacy auto companies are unlikely to excel in these areas. The first, is that very few of the world’s best AI engineers, data scientists and cloud computing experts work at auto companies today. And while there are certainly talented engineers at these companies, despite the many Silicon Valley-based research centers opened by the car companies in recent years, companies like Google, Tesla, Apple and Uber have been a bigger draw for the extraordinary technology architects and data scientists looking to disrupt the auto industry through software. The second reason is data.

4. Data

Connecting some cameras and sensors to a Mobileye chip and doing some lane-centering or adaptive cruise control is the easy stuff. To reach truly autonomous driving is much, much harder because the system first has to learn. There are no existing set of rules we can program into a car which will prepare it to anticipate and avoid all hazardous situations it may eventually encounter. Effective autonomous driving systems must use machine learning to develop sophisticated models which can adapt to many different circumstances. Machine learning systems require large data sets to reach optimality.

Do you remember when Google offered “Free 411”? They weren’t doing it to be generous. They did it in order to capture millions of different voices and speech patterns to train the speech recognition systems now used by Google Now. Google is accustomed to using data scale to reach performance levels others cannot match. This is precisely the network effects which allow Google search to still out-perform competitors. Google, with 63% search marketshare, just has more data than everyone else. They see more searches and more clicks than anyone and can train their algorithms accordingly.

The same data scale advantages will affect self-driving cars. This is why Google has driven their current fleet of 48 self-driving cars more than 1.2 million miles — to gather data and train their systems. That slow-moving pedestrian between two parked cars? That’s a hazard. Sunlight reflecting off a puddle of water to your left? Not a hazard.

Tesla, too, is heavily focused on this. Check out this passage from VentureBeat.

The best self-driving cars will be those that are part of the largest network or fleet, sharing data and learning among them. This is a problem for the existing automakers. They have no data. If they were onto this, they would be equipping their current automobiles to gather this data and to train systems back in the lab. (I have heard Uber intends to do this, as their driving footprint is very large.) In addition, almost all of the components for self-driving cars built by legacy auto companies will come from the tier one suppliers. Those guys also have no data. In fact, they are likely to have even bigger problems gathering it, since they have no direct relationship with drivers—our data would not be available to them.

5. Direct consumer relationships

I have written before about how the shift of attention from mainstream media properties to social media platforms requires brands to now have a direct relationship with their customers. One of the biggest vectors for disruption in cars is the existing manufacturer/dealer model. The model where auto companies sell to dealers who, in turn, sell (with terrible experiences) to drivers is an idea who time has come and gone. Tesla, as the first successful direct-to-consumer auto brand, has this right. They don’t have dealers, they have showrooms. They don’t haggle with us over price. (I remember once hearing car companies defend this practice by stating that consumers actually prefer to haggle over price.) How does the industry react to this modern model of engagement, allowing one to actually know and understand one’s customer? They sue to protect dealers.

Modern car companies will not use legacy dealer networks. They will sell directly to consumers and engender long-term relationships with them.

6. Executive Dismissiveness

The final signal that the auto companies won’t bring us the future can be heard from the mouths of the most influential executives at those companies today:

“I think, like so many Silicon Valley techies, that they believe they are smarter than the world’s automobile business, and that they will do it better. No way.”
– Bob Lutz, former vice chairman of General Motors

“There is absolutely no reason to assume that Apple is going to be financially successful in the electric car business. Electric cars are generally money losers. If I were a shareholder I’d be very upset.”
– Bob Lutz, former vice chairman of General Motors

“I have no idea who will be first to market with an autonomous vehicle.”
– Mark Fields, CEO Ford

“We’re in the car business today, and they’re not.”
– Mark Reuss, Product Development Chief, GM (speaking about Google)

You might remember these quotes from one of the co-CEOs of Blackberry:

“[Apple and the iPhone is] kind of one more entrant into an already very busy space with lots of choice for consumers … But in terms of a sort of a sea-change for BlackBerry, I would think that’s overstating it.”
– Jim Balsillie, February 2007

“As nice as the Apple iPhone is, it poses a real challenge to its users. Try typing a web key on a touchscreen on an Apple iPhone, that’s a real challenge. You cannot see what you type.”
– Jim Balsillie, November 2007.

It’s true that Apple, Google, Uber and the many new upstarts working on the future of cars know nothing about the car business as practiced the last one hundred and seven years. The key here is that the future of the car business is going to be dramatically different than the past.

I am confident many of the existing automotive companies will produce cars with autonomous features. And some of them will be quite good. And eventually they will produce some fully autonomous electric cars too. In the meantime, there are many super-strong, thoughtful entrepreneurs with lots of incredible hardware and software experience working to fundamentally redefine what consumers should expect from cars.

The history of innovation and disruption teaches us that, at the point of major technological platform change, new entrants can emerge and take meaningful marketshare and value away from the incumbents. I believe we are on the cusp of such a change. It might make sense to take that transition very seriously. I know we are.


Amino: Communities For The Mobile-Only Generation

In the 1980s, those of us with personal computers used our Hayes Smartmodems to connect to bulletin board systems (BBS). These were electronic message boards that allowed people to chat asynchronously with each other, usually about geeky topics like Dungeons and Dragons or phone phreaking. Shortly thereafter, with the arrival of the pre-web internet, Usenet’s newsgroups arrived and hundreds of thousands of those lucky enough to be connected to the internet expanded the conversation to include literally thousands of topics with arcane titles like andcomp.dcom.telecom. Connected computers were the enablers of topical conversations, even during the earliest days of computing.

Once the web emerged, these largely text-based conversations got spruced up and turned into online forums. There are now millions of them, and many are powered by software like phpBB and vBulletin. You probably encounter them multiple times a week. They are brilliantly optimized for the desktop web, their pages (and knowledge within) SEO really well, and have helped millions of us find answers to highly specific questions and interact with like-minded people. They are the largest repositories of conversations and communities on the pre-social web.

With the emergence of Facebook and other social networks, many of our conversations shifted to these modern communities. But these networks are general and largely non-specialized, so it has become harder to find active communities and conversations around passions like black and white photography or Pokemon.

And now that the mobile web has overtaken the desktop web, this need has become even greater — on our mobile devices, where do we go to talk about our passions?

Amino has the answer. They have created scores of mobile-only passion communities for the teen and millennial generation and are on their way to create thousands. Their communities are highly mobile-optimized (in fact, they are mobile-only) and utilize best practices from the most successful feed-based social platforms. Their users love them (check out their appstore ratings!) and, more importantly, are highly engaged in both creating and consuming content. If you care about anime, video games, Star Wars, Harry Potter, or even wrestling, you will find your community on Amino.

Amino, like many of the most valuable internet companies, createsplatforms for self-expression and communication. We have an investment theme around this at Venrock (check out YouNow, for example) and we are excited to welcome Amino into our portfolio.

Ben and Yin founded the company to create the most active communities on the mobile internet. We think they have done a tremendous job and understand the needs and passions of their largely teen and millennial audience better than anyone. We are pleased to announce that we led their most recent financing and are excited to join our friends at USV to work with this fantastic team to build the best place for passions in the world.


May I Have Your Attention, Please?

The currency of the media business is attention.
So where are we spending it?

(This post originally appeared on Medium.)

The currency of the media business is attention. Those who have it have been granted your permission to speak to you, entertain you, inspire you, inform you or just plain piss you off. Each time we make a choice to play a game, read some email, scroll through a feed, snack on a video or swipe left or right, we are making or breaking the future of a media company. As a VC, I have to make bets on where the world is going. So, in order to evaluate media-oriented companies, I follow the attention.

Over the past ten years, thanks to the rise of social networks and smartphones, there has been a meaningful shift of attention away from legacy media properties like the nightly TV news, print newspapers and magazines, and onto consumer internet platforms like Facebook and YouTube. This shift has been particularly dramatic among teens and millennials. I believe the media habits of digital natives are predictive of what the future holds for most of us. Growing up with a supercomputer in your pocket connected to most of the world’s population and knowledge has created an irreversible pattern of behavior unlikely to revert to the ways of previous generations. Let’s take a look at some of the numbers.


The chart above shows the growth of mobile devices and the decline of print and radio. Television, even when the numbers include DVR time-shifted and on-demand viewing, has fallen back down to its 2008 levels. Since there are only twenty-four hours in a day, it is helpful to look at this on a share basis.


But this data is for all age groups. Let’s take a closer look at millennial attention.

MilltimespentTVSo, no surprise that millennials use mobile devices more and watch less TV. You can see in the chart at the left that traditional TV viewing is declining for most age groups, but for people under age 24 it has completely fallen off a cliff. The idea that this behavior will reverse itself as digital natives age sounds like wishful thinking at best.

Attention Apocalypse

With mobile completely eating our attention, what do we do while on these devices? How do we divide our attention?

mobiletime.001First, we spend 86% of mobile time in-app. The idea that the mobile web is a credible channel through which to reach consumers is largely disproven at this point. We spend a third of our time on gaming and another third of our time on social networks and messaging apps. This helps explain Facebook’s aggressive M&A strategy around properties like Instagram and WhatsApp and also helps explain Google’s weakened position as a result of our shift to mobile. Without YouTube and Google Maps, one might argue their properties are of decreasing relevance.


Concentrating on social and messaging has allowed Facebook to completely dominate mobile. In fact, nine out of the top 10 apps globally last year were social apps or messaging platforms.

The killer-app of the mobile generation is the platform for self-expression and communication. Given this, it is baffling that none of the traditional media companies have invested in, built or acquired any of the hundreds of global properties which have hoovered our attention away from their legacy properties. In fact, the audience sizes being drawn to these new platforms are massively dwarfing audience sizes of traditional media properties. You wouldn’t know that from reading the “media” sections of The New York Times and The Wall Street Journal, who still produce thousands of stories discussing the rise and fall of cable TV programs and chronicling the comings and goings of journalists from one print property to another. Yet they comfortably ignore YouTube celebrities, Viners and Twitch broadcasters with much larger audiences. Hola Soy German, for example, has a larger audience than the NBA Finals and the World Series, but has barely been mentioned once in the NYT. Neither have ever mentioned Nightblue3 who has more than 100M views on Twitch.

To help put this into perspective, I put the following chart together, comparing the relative audience sizes of traditional media, online media and social platforms. Note that I cropped the largest eight so you can see the relative size of the tail. The red bars indicate social properties where the content is largely provided by the community, or in my parlance, platforms for self-expression and communication.

Audience JPG.001

Social and mobile have fundamentally altered attention. Platforms for self-expression and communication are the largest and most important media companies of the millenial age, dominating share of attention and engagement for young people. And the behavior of the young is predictive of the future. Facebook, YouTube, Twitch, Tumblr, Snapchat, Reddit, WhatsApp, Instagram, Vine and YouNow were all catalyzed by teen use first, and later spread to older age groups. If you want to know which companies to bet on, just follow the attention.

David Pakman is a VC at Venrock, investing in pioneering early stage internet companies like Dollar Shave Club and YouNow. He is the former CEO of eMusic, co-founder of music locker pioneer MyPlay, and co-creator of Apple’s Music Group. Sources for this data: Alexa, eMarketer, Nielsen, Temkin Group, Statista, SNL Kagan, Experian,, MarketingCharts, Forrester, CrowdTap, Ipsos, Inmobi, Deloitte, Veronis Suhler, comScore, IAB, Flurry Analytics, AppAnnie, NetMarketShare and Simmons National Consumer Studies. Special thanks to Nurzhas Makishev for compiling and triangulating the data.


Here is what Jay-Z should have launched with Tidal

“The transition from CDs to digital hasn’t worked well for the music industry. Sales are down and too many people listen to music without paying for it. We think that is because digital music is too expensive for the value it delivers. For too long, music has been both too expensive for fans and doesn’t produce enough money for artists. We wanted to completely change the game. So we did.

We, the sixteen superstar artists on this stage, used our incredible power and leverage over the music industry to demand completely new economics from the labels and publishers. So today, we are launching Tidal5. For $5 a month, you get music streaming of 20 million songs to any device. And to help artists, we are introducing the same economics as the iTunes and Google Play stores into music. 70% of all Tidal5 revenue will go to the artists and 30% will be split among the operations of the service and to the labels and publishers.

We wanted to find a way to attract more buyers into digital music and we knew the only way to do that was to get prices much lower. That’s a gift to our fans. But we also needed to get way more money into the hands of the artists. And we did that too. We used our power for good. And we hope you enjoy it.



The Inevitable Evolution of Online Sharing — Live Video Conversations

It’s been an incredibly exciting few weeks as the world comes to hear more about the latest category of social sharing — live mobile video. (Disclosure: we have been bullish on this space since our investment last year in YouNow.) Given that we have had the pleasure of observing this phenomenon for a bit, I thought I would share a few thoughts.

It’s Not Broadcasting, it’s a conversation

Many people are calling these live video feeds “broadcasts” which presume they are one-to-many and are one-way. The internet has taught us that all media must be participatory now. We all have an expectation that we are not just observers, but that our voices as viewers must be part of the content itself. From likes to comments, the web is built on the “post-respond” engagement model. For any of these apps to be successful, they must engender engagement. And to be engaging, the viewer must be a participant in some way. In YouNow “broadcasts”, the chatting audience is as much a part of the content as the “broadcaster”. This is what leads to successful long-term engagement.

utility vs. platform

Meerkat launched as a livestreaming utility built atop the Twitter network. Like and Twitpic before it, Meerkat itself is not a platform. One does not browse Meerkat to find content, one waits for announcements in the Twitter stream. If they are useful, utilities for social networks very quickly get absorbed into the platform as a core function, leaving no room for third parties. We saw that with link shortening and image hosting, and now we are seeing it with Periscope.

However, much like YouNow, Periscope is more of a network. It uses your existing Twitter graph to build your Periscope graph, but ultimately users will prune and grow their Periscope graph to look very differently than their Twitter follow graph. The Periscope app includes some (limited) forms of content browsing. I expect, given what happened to Meerkat, and with the very talented Josh Ellman as a board member, they will quickly move in the platform direction. Platforms are much more valuable and more sustainable than utilities.

native media format

All successful social networks have a native content form to them in which users become expert. There is a form to a great Facebook post (baby and party pics), a great Tweet (witty observation and link to interesting news), a great Instagram pic (beach and sky pics with awesome filters), a Vine vid (successful loop), etc. So too with live video streams. We can see it on YouNow, as users become expert at creating engaging performances and successfully interact with (and involve) their audiences. I expect we will see the same with Periscope streams (just not yet. Give it time.)

I really think the promise of these products is in creating more conversations between creator and consumer, rather than being millions of new cameras for livecasting the world. It’s tempting to think of this in terms of crowd-sourced news-gathering, which is a compelling use case, for sure. But the web has taught us that social media must be interactive to be successful. Sure, it will be supercool to watch Mario Batalli cook in his kitchen. But that’s the TV model. Unless he personally interacts with his audience (and is really good at it), I don’t think it is web native enough to work. So I suspect the winning formats for all of these products are the ones which are most participatory.


A Few Lessons I’ve Learned

A young entrepreneur asked me a great question the other day, “What are some things you learned later in your career that you wish you knew earlier in your career?” I didn’t have a great answer at the time, but of course it got me thinking. There are a few key lessons I have focused on these past five years or so that weren’t part of my thinking early in my career. I’m not sure I would have cared for these thoughts back then, but I thought I’d share them.

Be comfortable being uncomfortable.

Most of the great things in life are hard. The circumstances that lead to great accomplishment are often uncomfortable — strange and new, out of your comfort zone, and filled with challenges. Getting your mind programmed to be comfortable in the midst of challenge, conflict and uncertainty brings you great benefit. You won’t shy away from the conflict or uncomfortable conversations often required to influence outcomes. Your mind becomes in control of your body. In physical challenges, your mind usually quits before your body does because it is opting to avoid discomfort. It tells you your body is failing before it actually is. Take control of this and get comfort around the fact that many situations in life are not comfortable, but you can still handle it. Hang in there. Be in control.

Develop an expert point of view earlier than the consensus.

By the time everyone agrees on something, it has already happened. You can’t innovate ahead of the curve unless you see a future that most others don’t yet see. You also have to be right about it, but not every time. You can change your view about the future when you see evidence that it won’t happen the way you thought it would. For me, I first try to become expert on something by going super-deep on the topic, learning everything I can about it, talking to many people about it, and using the technology or product in question as much as I can. Once I do, I usually find that many of the people talking about it aren’t truly experts. In fact, I believe many of the loudest voices are often the most wrong.

I remember in 1996, John Markoff, then the most senior and well-respected technology writer at The New York Times, called Microsoft’s Active Desktop, “the most fundamental change to personal computers since the machines were invented in the 1970’s.” To me, this sounded like not just silly hyperbole, but a fundamental misreading of where things were going on the internet. Given his vaulted position at The Times, many people believed Markoff and accepted his view that Microsoft would dominate the next phase of the internet. As we all now know, Active Desktop was an inconsequential product and a failure, and more than fifteen years later, Microsoft is still struggling to be consequential on the internet.

I work to develop my own point of view about where things are going. I work to validate that by looking for data or evidence. Then, if I feel passionately about it, I try to bet on this outcome. And in many cases, my point of view is different than most others. This gives me confidence that I might be on to something (or just be totally wrong). Consensus scares the heck out of me. Really loud voices tend not to be right. My job, as both an entrepreneur and a venture investor, is to beat the consensus long before it happens, but to be right that it will.

Be fact-based in your observations and beware of confirmation bias.

We live in a world filled with data, so use it to make observations. Don’t live life purely on your gut. I gain confidence in my point of view by seeking out research or data that supports my hypotheses. But I force myself to be open about the data I find, knowing that we have a psychological tendency to seek out data which confirms our preconceptions. In short, be honest with yourself about what you observe and challenge your point of view.

Figure out what you are good at and depend on it.

Are you great at reading people, generally right about their capabilities? Are you an astute observer of markets and trends, usually right about who will win or what will happen? Are you a product savant whose obsessiveness with simplicity produces outstanding experiences? Are you a natural leader, able to convince a room full of people to follow you into an uncertain future? Are you an outstanding sales person, able to convince people to part with their money? Or, are you a total introvert who wants to avoid interaction with people but can architect a massively scaleable web application? Maybe you are a mixture of these things? Knowing what you are good at and building your undertakings around that is a quicker path to success. Yes, you can improve in all areas of weakness, but certainly engineer the game to play to your strengths.

Be self-aware, know your short-comings, and find mentors.

We all suck at plenty of things. The only way to get better and to level-up is to first recognize our own limitations and to work with experts to teach us. Self-aware people recognize their short-comings, are not afraid to talk about them, and seek out experts to teach them how to improve. Asking for help is not an admission of weakness. It’s the path to improvement.

Big companies are slow, do not innovate and are unwilling to self-cannibalize.

When I was younger I thought this might be true but now I have seen it happen over and over and over again. Sure, there are exceptions, but in general, startups can move very quickly and innovate on the home turf of large incumbents. As organizations get bigger, executive pay structures often do not encourage companies to cannibalize their existing business even when they see a new technology coming that may impact them. And power is more fleeting these days then in decades past. Do not be daunted by the presence of large incumbents when you can capitalize on a technology shift and catch giants flat-footed. There are too many examples of this common cycle of disruption working time and again.



Brian Williams and Abundance vs. Scarcity in Media

The physical world’s native economic basis is scarcity. Value is determined by demand for each item produced. If I make only five gold Ferraris and thousands of people are just dying to have one, the value of those will increase.

In the digital world, we live in a world of abundance. We can make infinite perfect copies of anything produced without significant marginal cost. We can satisfy pretty much all the demand for digital goods, so it’s hard to drive value by limiting quantity.

The same shift is occurring in media. In the legacy media world of newspapers and TV shows, tons of scarcity exists: editors can only fit eight stories on the front page of a newspaper, cable companies only have capacity for a few hundred channels, and TV networks can only offer 24 hours of programming a day. In media governed by scarcity, editors and programmers must make hard decisions about who and what to talk about and hope their audience cares for their choices. In the archaic world of television news, the choice of an “anchor” really mattered. After all, each of the three terrestrial broadcast networks could only have one, and this anchor was going to appear on TV each night for 30 minutes or so. The investment in anointing a single personality around which your network’s entire credibility was built was significant, and made sense.

Consider now the digital media companies of the present day. The most valuable ones are platforms, not programmers. Facebook, Twitter, Pinterest and YouTube, for example, are platforms for expression through the sharing of content produced by, or curated by, their users. All of these are built natively for abundance. They have infinite inventory, can support an infinite number of creators and users, and make no decisions about which content or which personalities are “right” for their audience. The audience decides entirely whom to friend or follow, what to “like”, and what to ignore in their feeds. (Algorithms can help make this process easier.) In this model, platforms are not reliant on a few editors or a few personalities to represent their brand. And they are immune to the inevitable rise and fall of the popularity of people and topics. In fact, they welcome it.

Excitingly, early adopters of these platforms are motivated to figure out the essence of what makes them work. They produce and refine lots of content on them and watch audience engagement until they master the platform. There are now millions of creators who are great at YouTube and Vine, Instagram and Twitter. More of these platforms will emerge, and more creators will blossom. Abundance.

Traditional media, by their selection of what to cover and feature, confer an artificial sense of importance to anything or anyone appearing in their pages or on their programs. I heard an NPR story the other day featuring someone whom the reporter profiled as “a great tweeter.” According to whom? And why this person? It was classic scarcity media — anointing one to speak for many. There are millions of great tweeters in the world and featuring one as an example of what Twitter is like is kinda silly. This person’s true relevance on Twitter is indicated by the engagement metrics around their tweets, a topic not discussed in the story.

So how does this relate to Brian Williams? Well, the reason we know about him is because NBC chose, in a scarcity-based media world, to build their entire news brand around him. And now he has significantly tarnished this brand. This will have a real economic effect on NBC as a result. Brands built in the age of scarcity take significant risks when they use celebrities (or any one individual) to act as a proxy for their products. Endorsements bestowed upon athletes carry the same risks — unnecessary in a digital world of abundance. On digital platforms, brands are built by the stories brands tell and the content they share. They rise and fall based on their ability to engage us and capture our attention in the streams. We care about them when they do, and often ignore them when they hire a celebrity spokesperson to speak on their behalf.

The age of abundance in media requires a more democratic approach to programming. In this world, platforms take little risk in the inevitable imperfections of humans. They cherish it. Because when it happens, they are the places where we all go to talk about it.


A Sensible Approach To Net Neutrality by the FCC

Today, FCC Chairman Wheeler announced a sensible approach to ensuring that the internet will remain an open platform. Many folks in the traditional telecom and cable industries have described the use of Title II as a blunt and archaic tool not appropriate for the internet. And others have derided the very notion of internet regulation as anathema to free markets and the internet more broadly.

Most of us who have lived on the internet since its early days feel strongly and personally protective of its level playing field. In order to protect this openness, it became necessary for the FCC to step in. And once that moment came (prompted by some previous court decisions), the FCC had a choice on how best to maintain the openness and freedom to innovate so important to both our society and our economy. When presented with this choice, it became clear to me and many of us who build internet companies that classifying the last-mile internet as a telecommunications service rather than an information service was the best way to maintain the essentially openness of the internet. That is why I supported the use of Title II (with the appropriate forbearance of non-relevant regulations) in this case. I am pleased that Chairman Wheeler and his staff listened carefully to the millions of comments which poured in — most in support of these important protections. And I am also thankful President Obama and his staff took such keen interest in this issue and shared their point of view with the public.

We don’t want ISPs and cable companies being kingmakers on the internet. We want the users — all of us —to get to try every product or service no matter who provides our last-mile internet connection and to vote with our attention and our money as to who wins and loses. The FCC’s new rules will require ISPs to stay out of the way and not to allow or demand companies pay them for faster traffic. This is a great development for the internet as we know it and love it.

While it’s true that any regulation can bring unintended consequences, the other choices of either (a) doing nothing or (b) continuing to use Section 706 as a means to enforce these protections both, upon closer inspection, are worse options that will likely lead to an uneven internet.

Here Is What Happens When Your Brand Doesn’t Know Its Customers

Watch the video, then click to see the hundreds of comments…


The Artist’s Share

There is a commonality in the Hachette/Amazon and Spotify/Pandora/Recording Artist debates and it looks something like this:

  • By not paying enough royalties to the licensor (book publisher, record label), authors and artists are being starved.
  • We are told this is critically bad for authors and artists who can no longer earn a living.
  • Thus, creators won’t create, and art and culture ultimately suffer.

None of us want there to be fewer books or songs in the world. But frequently lost in this debate is a discussion of the presence, or perhaps obsolescence of the middleman and the amount of revenue they keep. Spotify, Pandora, Amazon and the other licensees of ebooks and music are ultimately just retailers. Their job is to acquire and retain customers, and sell them as much music and books as they can. They license their content from book publishers and record labels. The terms of the license are set unilaterally by the publishers or the label as they have exclusive authority over the titles they represent. The publishers and the labels form agreements with their authors and artists. These agreements dictate how much of the money received from retailers gets paid out to the creators. Spotify, Pandora, and Amazon have no control over the terms of the relationships between the creator and the middleman publisher or label.

For every dollar spent on books or music, we know how much retailers keep. In the case of Spotify, more than 70% of every dollar they collect gets paid to record label and music publisher middlemen. In the case of Amazon, we see from their gross margins that they pay out about 70% – 80% of every dollar they collect to the book publishers. Pandora pays out about 55% – 60% of the revenue it receives. Apple, the world’s largest retailer of music, pays out 70%. Most retailers of media, through both analog and digital eras, squeak by on about 30% gross margins and pay about 70% to the middleman. (Apple, in their AppStore, keeps 30% of app revenue and pays 70% to developers.) The argument is often made that “these retailers build their businesses on the backs of the creators and should keep a relatively small share.”

Fair enough. Except how much of the money collected by the book publishers and record labels makes it back to the actual authors and artists—the creators without whom there would be no art? And in a changing digital landscape, are the analog legacies of these payments appropriate for the digital world?

In music, the deals between record labels and artists have two types of royalty structures: a) a percent of revenue paid to the artists for recorded music that is sold (a CD, a digital download) and b) a different percentage for music that is licensed (for use in a film, or perhaps a digital streaming service). Different artists have different deals, and massive superstars can demand better terms, but on average, revenue sharing for music sales are in the 15% – 18% range. That is, the artist receives only 15-18% of the wholesale payments the record label receives from sales. In real dollars, for a $1 download, Apple keeps $0.30, pays $0.70 to the label and the label pays $0.10 – $0.13 to the artist. That is a shockingly low amount and helps explain why artists often feel bitter about digital music sales. If retailers only keep 30%, why do the record labels keep more than 80% of the money they receive?

Traditionally, they claimed they served an invaluable role in the creation of music. They advanced money to the artists to live, they paid for studio time, they guided the recording process and helped select material, they manufactured the records and CDs, they shipped them in their trucks to their distribution facilities and then to the retailers. They also paid for music videos and marketing activities. If the labels needed 80% share to cover all of these costs, that might make some sense. Except in record deals, the artist is actually billed for most of these costs and has to repay them (“recoup”) by allowing the record label to withhold royalties until their advance and many of these costs are recouped. Interestingly, the overwhelming majority of these activities are not needed in the digital age (trucks, manufacturing) or cost a whole lot less to perform (electronic distribution).

In the digital world, many artists have successfully argued that digital services are being licensed by labels and thus the licensed royalty amount should apply. Again, this is negotiable, but generally is about a 50%/50% split. That is, half of the royalties collected by the labels get paid out to the artists, subject to deductions and recouping of costs. In the previous iTunes download example, the artist would receive about $0.35 for every $0.99 download sold.

In book publishing, for eBooks, many book publishers pay out about 25% of royalties they receive directly to the author and pay out about 5% – 15% of the retail price (or about 25% – 30% of the amount the publisher receives) for physical book sales.

In their most recent financial statements, Warner Music Group indicates that they are paying out to artists about 52% of the revenue they collect, far less than Apple, Amazon and Spotify pay to record labels and book publishers. In the case of book publisher John Wiley & Sons, they pay out to authors only about 29% of the revenue they collect, keeping 71% for themselves.

If retailers “build their business on the backs of the creators,” so too do the record labels and book publishers. Are they entitled to the majority of profits of every sale? Are they even any good at the marketing skills required to excel in the digital age? With audience proving grounds like Kickstarter and IndieGogo, how much creative direction and marketing does an artist need in this new world? It’s time not just to revisit the very purpose of these legacy middlemen, but also to re-examine the amount of money they take for their services.




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