Scott Galloway's Blog, page 13

Truth

The search for truth is the pursuit of comfort in the face of doubt. Over the past few centuries, the scientific method — and the empirical proof it offers — has increasingly become the world’s go-to for answers. We plant and harvest crops based on meteorology, not astrology; we administer levothyroxine, not leeches.

Statecraft has a mixed relationship with truth, as it offers an alternative form of comfort: acquiescence to authority. In an uncertain world, a strong leader who promises bread, shelter, and reasons why someone else is to blame for our problems has a seductive power. Mass media, beginning with the printing press and speedballing with broadcast media, has made the state’s relationship with truth the biggest arrow in the quiver of both democracies and autocracies. As Sacha Baron Cohen said, democracies are based on shared truths, autocracies on shared lies. But both are shared via media.

Recent events in Russia are troubling — nobody wants chaos in the leadership of a nuclear-armed state — but also heartening: They validate that the world cedes advantage to truth. Regimes based on lies end badly. Joseph Goebbels, the architect of the Nazis’ anti-truth regime, helped Hitler build Germany into a global power, but its dominance was unsustainable. The day after Hitler shot himself, Goebbels murdered all six of his own children and took his own life.

Putin is Goebbels’s heir, the modern master of nihilist propaganda. Rather than institute any specific lie, Putin’s objective is to undermine the notion that there is a truth. He “uses the media to engineer a fog of disinformation, producing just enough distrust to ensure that the public can never mobilize around a coherent narrative,” as Sean Illing wrote in Vox. The approach has proved so effective domestically that he’s exported it to the West, funding advertising and social media campaigns to sow confusion in American and European politics. Steve Bannon brought the strategy to the Trump campaign with the descriptor: “Flood the zone with shit.” The ultimate irony is the U.S. financed and built our adversaries’ weapons of choice: social media. As Ian Bremmer puts it, we used to be the largest exporter of democracy; now we’re the largest exporter of weapons that attack democracies.

Steroids

Lies are steroids: They’re effective in the short run but carry severe side effects that manifest in unpredictable ways over the medium and long term. Putin is discovering nihilism begets apathy, and a populace that doesn’t care about anything ultimately doesn’t care about its leader. Last week, a trusted thug turned mutineer, seized a Russian city, and drove an armored column halfway to Moscow. Instead of resisting the traitor, Putin’s nominally loyal citizens responded with the same apathy he’s beaten into them. In the U.S., Trump’s disinformation campaign did not win him reelection, and it may land him in federal prison.

Beyond creating apathy, anti-truth as a theory of governing suppresses innovation and economic growth, as neither the market nor the laws of physics respect lies. The founders of Moderna are billionaires; RFK Jr. will go down in history as a stain on his family’s legacy. Where success is a function of proximity to power instead of actual value registered, sycophants triumph over innovators. But ultimately, the country or company fails. The truth also makes for a better business strategy, as it illuminates problems, rendering them more vulnerable to attack.

The Musk zealots posing as advisers enabled the mother of all “let’s buy it so we can break it” moves. Submersibles imploding and $45 billion immolating in an instant are both manifestations of the same techno-narcissism that infects the U.S.: believing you’re above basic principles of citizenship, truth, or physics.

Handoff

Rule by force of personality requires a combination of charisma and ruthlessness. Those who possess it are not great at sharing, so they often drop the baton. Or hold on too long, which has happened in both Russia and China, where lone leaders have extended their tenure past constitutional limits.

Truth is easier to pass on than narrative. Contested transfers of power don’t go well in anti-truth regimes. There is no referee, no framework that allows the losing side to retire from the field. Political disputes become wars, and autocrats have to jail or kill their opponents. Democracies offer the 2nd-place finisher a position in society — and because they accept the role of dissent, the presence of the loser isn’t an inherent challenge to the prevailing power. The runner-up can become one of the nation’s most respected citizens (e.g., Jimmy Carter). In an autocracy, the best they can hope for is securing safe haven in a foreign country before being executed in their own. Fun fact: After an assassination attempt on an autocrat, a country is 13% more likely to move toward democracy if the attempt is successful.

Elections in autocracies are coronations, testimonies to power, not truth. In 1927, Liberian President Charles King won a third term with 234,000 votes despite there being only 15,000 registered voters in the nation. In 1995, Saddam Hussein won 99.99% of the Iraqi vote. This year, Xi Jinping became China’s first party leader since Mao to achieve a third term in a landslide: 2,952 votes for, zero against.

Self-Deception

Autocrats suffer from their anti-truth diet when they begin to believe their own lies. When truth is not valued, flattery and conformity prevail. Putin’s generals told him what he wanted to hear, and he grossly miscalculated the cost/benefit of invading Ukraine. This happens in democracies, too, when truth is sidelined. George W. Bush developed a faith in alternative facts that defined his presidency. His historic blunder in Iraq was based on “intelligence” which should have been badged “belief dressed up as fact.” Common to both regimes was/is the exiling of dissent. Truth can admit doubt, but authority cannot survive it.

The Good News

Over the long term, democracy is steadily beating autocracy. A hundred years ago, for every five autocracies there was one democracy. Today, democracy is the most popular form of governance.

Truth can be hijacked, but it’s difficult to kill — a reason it’s so enduring. You can manipulate, distract, and conceal, but it remains. Ricky Gervais made this point deftly:

If we took any holy book and destroyed it, in a thousand year’s time that wouldn’t come back just as it was. Whereas if we took every science book and destroyed them all, in a thousand years time, they’d all be back.

Immunities

Despite garnering cultural relevance, lies have not prevailed at the ballot box. In races identified by the Washington Post as “competitive” in 2022, just 10 out of 47 candidates who’d denied the legitimacy of the 2020 election prevailed. And 9 out of 9 election deniers running in state elections for offices with authority over the voting process lost.

Neither party is free of lies. The liar of the month, RFK Jr., has established the illusion of domain expertise by repeating lies, with confidence, including how vaccines cause autism and U.S.-issued remdesivir treatments were designed to kill Ebola patients. But the truth will prevail. The American people will recognize that all peer-reviewed research confirms vaccines do not cause autism, and that Ebola killed remdesivir recipients, not remdesivir. Kennedy is polling at 14%, but that’s another way of saying he’s 50 points behind the frontrunner … who the majority of his party believe shouldn’t run again. Side note: The trolls demanding that real scientists debate RFK Jr. miss a couple key points. That debate has already happened, in labs, trials, and billions of injections. And, yes, the dissenter’s voice is important. In the case of vaccines, that voice was the control group … and it was nullified — billions of times. 

Another side note: Last week, in Cannes, I had dinner with the CEO and co-President of Spotify. They are impressive men, and I love Spotify’s service. But it’s also becoming a platform to rival Meta’s spread of misinformation when it fails to fact-check owned content it distributes to tens of millions of young men.

Are You There?

I have written about my insecurities as a teen and young man. It wasn’t that I didn’t like what I saw in the mirror, but that I wasn’t there … I was invisible. My translucence was a function of trying to shape a narrative and person around what I thought others would be most impressed by or wanted to hear. This artificial soul had a difficult time developing into physical form that could be present and counted on. I believe part of becoming a man is presenting yourself, in your situation, in your most authentic form … risking upset or worse, indifference. And that’s the question. When we look in the mirror, before judging the image, we should ask ourselves: Am I here? Is this really … me?

Life is so rich,

P.S. This week on the Prof G Pod, I spoke with Matt Klein, founder of The Overshoot. We discussed demographics and why a recession isn’t imminent — listen here.

P.P.S. Want to form better relationships with the people you work with? Pick up Michael Bungay Stanier’s new book How to Work with (Almost) Anyone — it’ll change the way you work.

The post Truth appeared first on No Mercy / No Malice.

Origin Story

Every one of us has an origin story: We define ourselves by our background, the narrative of what made us who we are. However, people often don’t let the truth get in the way of a good story, and the narrative of “I” is often that, a story.

James Frey found no takers for his novel, so he repackaged it as a memoir, his story, which became the No. 1 bestseller A Million Little Pieces. Biographies and memoirs are America’s second-favorite book genre. Ronald Reagan tried to curry favor with Israeli leaders with a story about how he helped liberate Nazi death camps in WWII. He didn’t — did his military service in Hollywood. P. Diddy built an empire on allusions to his criminal past, but he attended the same prep school as the founder of Sequoia Capital before attending Howard University. Fabricated military service is apparently so common that Congress passed a law against it.

People embellish their origin stories, as it’s the only thing others have to go on — from potential employers and friends to potential mates. We are the product of our circumstances, personally and professionally, and a good origin story confers meaning to our life and career. We should recognize that and embrace it … but also be honest about it.

Self-Made? No Such Thing

The most important factor in determining a person’s future is when and where they are born. Each of us, born into any other situation, would experience a different outcome. Just as the market trumps individual performance, so does circumstance. I likely would not be an entrepreneur or an academic had I been born in South Sudan. If I’d been born in 1920s Germany, I’d likely have been a Nazi who perished on a Russian field.

This isn’t just true across continents and centuries — it’s also evident at a micro level. Being born one year earlier or later can make a big difference. People who graduate into a recession earn less for 10 to 15 years than those who graduate amid prosperity. Fate also changes block to block: One of the strongest signals of life expectancy (and much else) is the ZIP code where you’re born. Within the same city, life expectancy can vary by 30 years based on ZIP code. Meanwhile, an American female whose parents rank in the bottom decile of earners has a 3 in 10 chance of having a teenage pregnancy. For daughters in the top decile, it’s 3 in 100.

This all confirms a basic point: The cards you’re dealt matter … a lot. Your income is the clearest indicator of how much money your kid will make when they’re 30. Churn is increasingly a rare-earth element in the U.S. Per a Georgetown analysis, “It’s better to be born rich than smart … The most talented disadvantaged children have a lower chance of academic and early career success than the least talented affluent children.”

However, the people dealt the best cards can’t see their hands. The myth of the “self-made man” is rife among U.S. citizens who’ve never faced a draft or registered a devaluation in their currency — people who are remora fish on investments made by the U.S. government. Tech has raised a cohort of people who simultaneously credit their character for their success and blame a rigged market for their failures. The real cage match in tech is entitlement vs. empathy. The former is winning, and that results in a staggering accumulation of power that’s amoral, focused only on the aggregation of more power regardless of what happens to people with less. (Side note: I hope they beat the shit out of each other. Is that wrong?)

iStory

Until 40, my story was that I was the son of a single immigrant mother who lived and died a secretary. I overcame those humble beginnings to achieve significant success because, you know, I’m awesome. After 40, my eyesight began to wane, but I could see clearer: I was born a straight white male in 1960s California, which gave me state-sponsored access to elite universities (UCLA and Berkeley). UCLA had an acceptance rate of 76% when I applied — this year it’s less than 9%. Later, Berkeley admitted me to its MBA program with a GPA of (no joke) 2.27 from UCLA. Total tuition for all seven years? $8,000. I came of professional age in an era of processing power and the internet. I lived in San Francisco, where, in the decade of the nineties, more wealth was created within a 7-mile radius than in all of Europe since WWII.

I was given a rocket ship, built by others. To be clear, I’m talented and navigated the ship well … but I wasn’t going to soar without the sacrifice and talent of millions of others. The ship blew up several times, but I survived, and there were other vessels waiting. “Luck” doesn’t begin to describe my situation. My freshman college roommate, born gay, took his own life at 33 when his HIV progressed to full-blown AIDS. Two decades later, I’m in Ibiza with friends finding a quiet place to FaceTime my boys and get updates on our dog Leia. (She’s not feeling well.)

Like others, I have faced hardship (an absent father) and tragedy (lost my mom early). But each of these losses has played a role in my good fortune. I make my living communicating, and much of this skill isn’t the result of my own hard work. My dad can captivate any room, and even though he wasn’t around much, I inherited some of his ability. My mom’s sickness, and our inability to access good care, was a hugely motivating, defining moment for me. I saw the rough cut of the American story and decided to get my shit together in hopes of living a richer life and garnering the resources to take better care of the people who mattered to me. Capitalism is brutal — and motivating. Lately, the balance has swung too far to the former. But that’s another post.

Coming Home

Supposedly each of us has bits of every material present at the dawn of the universe. It makes sense — at least the morning after mushroom chocolates (see above: Ibiza) — that our matter will also be present in galaxies/stars/planets/organisms birthed trillions of years from now. Our stories may or may not make the journey, but the emotions they inspire will become instinct, then DNA, and this matter will disperse. So the question is, distinct from the story you and others tell about yourself, how do you make people feel? When people come in contact with you, do they feel insecure or inspired? Do you leave people cold or comforted? Do you bring joy, harmony, love?

I’m in a deficit here — I’ve taken more than I’ve given. I have a debt to pay. I’ve started with my boys and am working outward from there. Still time. It’s a comforting thought, that bits of us will live on and arrive at distant places trillions of years from now. We all have our longest journey still ahead of us. When you get there, when you show up, what will be felt?

Life is so rich,

P.S. This week on the Prof G Pod, I spoke with Kai Ryssdal, host and senior editor of Marketplace. We talked economics, fatherhood, being a good partner, and more. Listen here.

P.P.S. Section’s new Marketing Mini-MBA bootcamp is launching this fall. Cohorts are limited to 100 people, so join the waitlist to be the first to hear when enrollment opens.

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Techno-Narcissism

I’m at Founders Forum in the Cotswolds … which they assure me is somewhere outside of London. There are a lot of Teslas and recycled Mason jars as … we’re making the world a better place. As at any gathering of the tech elite in 2023, the content could best be described as AI and the Seven Dwarves. The youth and vision toggles between inspiring moments and bouts of techno-narcissism. It’s understandable. If you tell a thirtysomething male he is Jesus Christ, he’s inclined to believe you.

The tech innovator class has an Achilles tendon that runs from their heels to their necks: They believe their press. Making a dent in the universe is so aughts. Today, membership in the Soho House of tech requires you to birth the leverage point that will alter the universe. Jack Dorsey brought low-cost credit card transactions to millions of small vendors. But he’s still not our personal Jesus, so he renamed his company Block and pushed into crypto, because bitcoin would bring “world peace.” Side note: If anybody knows @jack’s brand of edibles, Whatsapp me. Elon Musk made a great electric car, then a better rocket … and recently appointed himself Noah to shepherd humanity to an interplanetary future.

When techno-narcissism meets technology that is genuinely disruptive (vs. crypto or a headset), the hype cycle makes the jump to lightspeed. Late last year, OpenAI’s ChatGPT reached 1 million users in five days. Six months later, Congress asked its CEO if his product was going to destroy humanity. In contrast, it took Facebook 10 months to get to a million users, and it was 14 years before the CEO was hauled before Congress for damaging humanity.

 

 

The claims are extreme, positive and negative: Solutionists pen think pieces on “Why AI Will Save the World,” while catastrophists warn us of “the risks of extinction.” These are two covers of the same song: techno-narcissism. It’s exhausting. But AI is a huge breakthrough, and the stakes are genuinely high.

Existential Egos

It’s notable today that many of the outspoken prophets of AI doom are the same people who birthed AI. Specifically, taking up all the oxygen in the AI conversation with dystopian visions of sentient AI eliminating humanity isn’t helpful. It only serves the interests of the developers of nonsentient AI, in several ways. At the simplest level, it gets attention. If you are a semifamous computer engineer who aspires to be more famous, nothing beats telling every reporter in earshot: “I’ve invented something that could destroy the world.” Partisans complain about the media’s left or right bias, but the real bias is toward spectacle. If it bleeds it leads, and nothing bleeds like the end of the world with a tortured genius at the center of the plot.

Land Grab

AI fearmongering is also a business strategy for the incumbents, who’d like the government to suppress nascent competition. OpenAI CEO Sam Altman told Congress we need an entire new federal agency to scrutinize AI models, and said he’d be happy to help them define what kinds of companies and products should get licenses (i.e., compete with OpenAI). “Licensing regimes are the death of competition in most places they operate,” says antitrust scholar and former White House senior adviser Tim Wu (total gangster). Similar to cheap capital and regulatory capture, catastrophism is an attempt to commit infanticide on emerging competition.

Real Risks

Granted, we should not ignore the dangers of AI, but the real risks are the existing incentives and amorality in tech and our ongoing inability to regulate it. The techno-catastrophists want to create a narrative that the shit coming down the pike is not the result of their actions, but the inevitable cost of progress. Just as the devil’s trick was convincing us he didn’t exist, the technologist’s sleight of hand is to absolve himself of guilt for the damage the next generation of tech leaders will levy on society.

This has been social media’s go-to for years, obfuscating their complicity in teen depression or misinformation behind a facade of technical complexity. It’s effective. Dr. Frankenstein, having lost control of Frank, should have warned “I’m worried Frank is unstable and unstoppable,” so when his monster began tossing children into lakes, he could shrug his shoulders and claim, “I told you so.”

To be clear, the monster is in fact a nondomesticated animal — it’s unpredictable. The techno-solutionists promising the end of poverty and more avocado toast, if we would just get out of their way, are not to be trusted either. AI sentience is a stretch, but there are plausible paths to horrific outcomes. Even “dumb” computer viruses have caused billions of dollars in damage.

Light Beer

My first thought, after witnessing all the hate manifest around a light beer, was that we’ll likely see AI-generated deepfakes of woke commercials produced by brands, for other brands, to inspire boycotts by extremists. As Sacha Baron Cohen said: “Democracy is dependent on shared truths, and autocracy on shared lies.” AI, like the products of many of our Big Tech firms, could widen and illuminate the path to autocracy. On a more pedestrian level, we’re going to witness a tsunami of increasingly sophisticated scams.

The first AI-driven externality of tectonic proportions will be the disinformation apocalypse leading up to the 2024 presidential election, and in other NATO country elections, as the war in Ukraine continues. Vladmir Putin’s grip strength is weakening: His historic miscalculation in Ukraine has left him just one get-out-of-jail-free card: Trump’s reelection. The former president has made it clear he would force Ukraine to bend the knee to Putin if he gets back in the White House.

Putin has generative AI at his disposal. Expect his Fancy Bear operation to compile lists of every pro-Biden voice on the internet and undermine their credibility with smears and whisper campaigns. Also, a barrage of deepfake videos of Biden falling down, mumbling, and generally looking like someone who’s (wait for it) going to be 86 the final year of his term. Side note: President Biden will go down as one of the great presidents, and it’s ridiculous he’s running again. Yes, I’m ageist … so is biology. But I digress. Anyway, expect information-space chaos.

There’s more. AI has shortcomings and limitations that are causing human harm and economic costs already. Both the catastrophists and the solutionists want you to focus on sentient killer robots, because the actual AI in your phone and at your bank has shortcomings they’d rather not be blamed for.

AI systems are already responsible for a Keystone Cops record of blunders. Starting with the cops themselves — the deployment of AI to direct policing and incarceration has been shown to perpetuate and deepen racial and economic inequities. Other examples seem lighthearted, and then insidious. For example, a commercially available résumé-screening AI places the greatest weight on two candidate characteristics: “the name Jared, and whether they played high school lacrosse.” These systems are nearly impenetrable (it required an audit to suss out the model’s obsession with Jared) — who knows what names or hobbies the AI was putting in the “no” pile? Amazon scientists spent years trying to develop a custom AI résumé screener but abandoned it when they couldn’t engineer out the system’s inherent bias toward male applicants, an artifact of the male-dominated data set the system had been trained on: Amazon’s own employee base. AI driving directions plot courses into lakes, and systems for assessing skin cancer risk return false positives when there’s a ruler in the photo.

Generative AI systems (e.g. ChatGPT, Midjourney) have problems too. Ask an image-generating AI for a picture of an architect, and you’ll almost certainly get a white man. Ask for “social worker,” and the systems are likely to produce a woman of color. Plus, they make stuff up. Two lawyers recently had to go before a federal judge and apologize for submitting a brief with fake citations they’d unwittingly included after asking ChatGPT to find cases. It’s easy to dismiss such an error as a lazy or foolish mistake, and it was, but we are all sometimes lazy and/or foolish, and technology is supposed to improve our quality of life, vs. nudge us into professional suicide.

Second-Order Effects

Over the long term, productivity enhancements create jobs. In 1760, when Richard Arkwright invented cotton-spinning machinery, there were 2,700 weavers in England and another 5,200 using spinning wheels — 7,900 total. Twenty-seven years later, 320,000 total workers had jobs in the industry, a 4,400% increase.

However, the path to job creation is job destruction, sometimes societally disruptive job destructi​​on — those 2,700 hand weavers found themselves out of work and possessing an expired skill set. A world of automated trucks and warehouses is a better world, except for truck drivers and warehouse workers. Automation has already eliminated millions of manufacturing jobs, and it’s projected to get rid of hundreds of millions of other jobs by the end of the decade. If we don’t want to add fuel to the fire of demagoguery and deaths of despair, we need to create safety nets and opportunities for the people whose jobs are displaced by AI. The previous sentence seems obvious, and yet …

My greatest fear about AI, however, is that it is social media 2.0. Meaning it accelerates our echo-chamber partisanship and further segregates us from one another. AI life coaches, friends, and girlfriends are all in the works. (Disclosure: we’re working on an AI Prof G, which means it will likely start raining frogs soon.) The humanization of technology walks hand in hand with the dehumanization of humanity. Less talking, less touching, less mating. Then affix to our faces a one-pound hunk of glass, steel, and semiconductor chips, and you have crossed the chasm to a devolution in the species. Maybe this is supposed to happen, because we’re getting too powerful, and other species are punching back. Shit, I don’t know.

Techno-Realism

In sum, AI is here and generating real value/promise. It’s imperfect and hard to get right. We don’t know how to get AI systems to do exactly what we want them to do, and in many cases we don’t understand how they do what they’re doing. Bad actors are ready, willing, and able to leverage AI to speedball their criminal conduct, and many projects with the best intentions will backfire. AI, similar to other innovations, will have a dark side. What’s true of kids is true of tech: bigger kids, bigger problems. And this kid, at 2 years old, is 7 feet tall.

The good news, I believe, is that we can do this. We haven’t had a nuclear detonation against a human target in 80 years, not because the fear of nuclear holocaust created a “moral panic,” but because we did the work. World leaders reached across geographic and societal divides to shape agreements that defused tensions and risks when nukes and bioweapons became feasible — in no small part thanks to huge public pressure organized and pushed forward by activists.

The Strategic Arms Reduction Treaty that de-risked U.S.-Russian conflict throughout the ’90s wasn’t just an agreement but an investment that cost half a billion dollars per year. All but four of the world’s nations have signed the Treaty on the Non-Proliferation of Nuclear Weapons. Blinding laser weapons, though devastatingly effective, are banned. So are mustard gas, bacteriological weapons, and cluster bombs. Our species’ superpower (cooperation) isn’t focused only on weapons. In the 1970s the world spent $300 million ($1.1 billion today) to successfully eradicate smallpox, which killed millions over thousands of years. Across domains, we come together to solve hard problems when we have the requisite vision and will.

Technology changes our lives, but typically not in the ways we anticipate. The future isn’t going to look like Terminator or The Jetsons. Real outcomes are never the extremes of the futurists. They are messy, multifaceted, and, by the time they work their way through the digestive tract of society, more boring than anticipated. And our efforts to get the best from technology and reduce its harms are not clean or simple. We aren’t going to wish a regulatory body into existence, nor should we trust seemingly earnest tech leaders to get this one right. I believe that the threat of AI does not come from the AI itself, but that amoral tech executives and befuddled elected leaders are unable to create incentives and deterrents that further the well-being of society. We don’t need an AI pause, we need better business models … and more perp walks.

Life is so rich,

P.S. This week on the Prof G Pod, I was joined by Ian Bremmer, president and founder of Eurasia Group. We talked China, U.S. diplomacy, and Ukraine’s counteroffensive — listen here.

P.P.S. If you’re wondering how you should be using AI at work, join our new Generative AI Business Strategy workshop on July 27 at 12 p.m. ET. Sign up here.

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Isn’t That Spatial?

This millennium, Apple has introduced a string of landmark products: the definitive portable music player, the most popular tablet computer, those ubiquitous wireless earbuds, an iconic lightweight laptop and the standard issue coder’s laptop, a new way to pay, a smartwatch that outsells the entire Swiss watch industry. And the iPhone, the most successful consumer product in history. That track record, not the product, is what made Monday’s mixed-reality headset announcement so compelling.

The Vision Pro is a technical achievement: Marques Brownlee said the positive aspects were “the best I have seen in any VR headset by a mile” and Robin Roberts looked as if she would hug Tim Cook after her demo. My youngest has already asked for one.

Yet

Yet I believe these $3,500 ski goggles will be the company’s first major commercial failure of the century. The device will age as well as candy cigarettes — and Tim Cook knows it. He’s reportedly been skeptical of the product, and he never donned the device during the keynote or the “hands-on” session afterward. Can you imagine Steve Jobs wearing the Vision Pro … ever?

Cook reveres Jobs, and Jobs’s signature management principle was “focus means saying no.” So why did the greatest CEO in history, as measured by shareholder value added, green light the Ishtar of computing products? Hubris, a shift in our culture, and an existential struggle with Mr. Cook’s enemy. Hint: It’s not Microsoft.

iHubris

Betting against a first-generation Apple product is a bad trade — from infamous dismissals of the iPhone to disappointment with the original iPad. In fact, this is a reflection of Apple’s strategy: Start with a product that’s more an elegant proof-of-concept than a prime-time hit; rely on early adopters to provide enough runway for its engineers to keep iterating; and trust in unmatched capital, talent, brand equity, and staying power to morph a first-gen toy into a third-gen triumph. So the critical question isn’t if the Vision Pro itself is a great product (it’s not) but whether it has the genes for success.

I See Dead Products

If you peer around enough corners, you’ll start seeing things that aren’t there. Headsets are a bad form factor, full stop, and no headset-based product will achieve mass adoption.

The obstacles are seeded deep in our DNA. We’re highly discerning about what we put on our face, as it must enhance, not impair our ability to assert dominance, attract mates, and make connections. Jewelry signals wealth and strength. The $250 billion cosmetics industry helps us mimic visual cues for health and reproductive fertility. There is no version of a headset or goggles that makes us seem more appealing. None.

Headsets obstruct our peripheral vision, exposing us to stalking predators. Also, they’re uncomfortable. We are a long way from making three screens, a glass shield, and an array of supporting hardware light enough to wear for an extended period. Reviewers were (purposefully) allowed to wear the Vision Pro for less than half an hour, and nearly every one said comfort was declining even then. Avatar: The Way of Water is 3 hours and 12 minutes.

Bad but Expensive

Consumer culture, income inequality, and Bernard Arnault have dulled our response to pricing pain, but $3,500 makes you take notice. After sales tax that’s approaching $4,000, for a product that will be obsolete in two years. Two grand a year rivals the lease payments on an entry-level car. Back at HQ, the iPhone, possibly the most utile product in history, costs $1,000 and is viable for three-plus years. Splurging on an 85-inch 4K flat-screen TV will cost you $1,500, but it will last about seven years, and your entire family gets to watch at the same time.

The nosebleed price limits trial, even by influencers and institutions. Media companies and design schools aren’t going to buy several of these; they won’t be handed out at all-hands or to the person who was closest to the pin at the company off-site. The price will come down, but even at $2,500, will this replace all your Apple products? That’s still more than an iPhone, Macbook Air, Apple Watch, Airpods Pro, and four Airtags. This isn’t spatial computing, it’s spatial consumption.

Missed Connections

The Vision Pro was developed and approved for production in a different time. Covid meant a product designed to use alone at home was appealing. Knowledge workers were working at home, and a reasonable view, notably in Silicon Valley, was that this was the new normal.

But society is recoiling from the isolation era. The dangers of isolation and loneliness have eclipsed the threat of viral contagion. The Surgeon General has declared an epidemic of loneliness. The Times reporter who tried the Vision Pro noted his visceral response upon returning to virtual isolation: “I could feel myself shutting down.”

The Vision Pro demo video is a Covid time capsule: a parade of solitary, indoor individuals. The brief family scenes are cringe-worthy. My sons get pissed off when I keep my airpods in at a football match, but we’re going to wear headsets at our kids’ birthday parties?

AntiMeta

For the first quarter-century of its existence, Apple was defined as much by its competition with Microsoft as its products and advertising. But the two titans settled into an armistice. For a time, it looked like upstart Google would be Apple’s nemesis, but that rivalry didn’t stick either: each business is so successful in its own domain, the conflict isn’t worth the ammunition. This town (Earth) turns out to be big enough for both of them.

However, Tim Cook loathes Mark Zuckerberg. Publicly, Cook’s veins run ice cold. Nothing is personal. He smiled when Trump called him “Tim Apple,” and gave the president a tour of Apple’s Texas factory. But Cook let the mask slip in response to a question about how he’d act in Zuckerberg’s position vis-à-vis privacy — “I wouldn’t be in this situation” — before plunging a $10 billion shiv in Meta’s back, requiring apps to ask iPhone users for affirmative consent to tracking.

The grudge match isn’t personal, it’s existential. Meta’s singular strategic objective is to escape second-tier status and, like Apple and Alphabet, control its distribution. And its path to independence runs through Apple Park. Zuckerberg is spending the GDP of a small country to invent a new world, the metaverse, where Apple doesn’t own the roads or power stations. Vision Pro is insurance against the metaverse evolving into anything more than an incel panic room.

Yugo

Apple doesn’t have to own the headset category to win the war against Meta, or even sell that many. The company just has to keep the category unsettled and splintered so Meta doesn’t own it. It has the cash to play spoiler — it generates over $100 billion per year in free cash flow, more than enough to engage in a high-cost, low-ROI arms race.

Sunday, Meta’s Oculus was a mediocre product but still best-in-class. Just 24 hours later, it was the Yugo of tech hardware. Half the memes on Twitter this week were some variation of “lol Zuck big mad.” Sure, the Vision Pro is 7x the price of the forthcoming Oculus 3, but consumers believe the price will come down, developers want to design for the highest-quality product, and engineers want to work on it. After 30 minutes in the Vision Pro, influential tech reviewer David Pogue wrote that the display resolution was so clear it made the displays in the Oculus “look like a screen door.” This may be the first product in history that’s primary purpose is to remind consumers who can’t afford it how crappy the competition they can afford really is.

Drive

Three years ago, the Apple product people expected was the Apple Car. The car likely isn’t dead, it just isn’t the company’s focus and won’t be coming soon. But as bad as the timing was for a headset, it’s that good for a car. The EV market is on fire, with unit sales expected to increase 36% in 2023. (AR/VR headset units declined 20% in 2022 and are expected to rise only modestly in 2023.) And it’s anyone’s game. Tesla is vulnerable, its design getting stale and its CEO unwinding 280 characters at a time.

The waiting list for an Apple Car announced this week would have been the most valuable asset ever created in the absence of the asset. It’s not unrealistic to believe that Apple could entice 7% of EV buyers on Day 1. At a sticker price of $100,000, that’s $100 billion. Think about this. In 24 hours, one of the largest-revenue businesses in history could have illuminated a path to 30% revenue growth. That’s the true cost of the Vision Pro.

(Note: I find it comforting to see smart people make stupid mistakes.)

Bias

I believe the Vision Pro will be remembered as a Neanderthal, an evolutionary dead end — a heavy, thick-browed experimental species destined for extinction. Admittedly, there’s a bias here. I am troubled by the direction this and other tech platforms and products are taking us. Covid didn’t cause social distancing, the tech industry did. We are mammals, and mammals suffer when we are not in the physical presence of other mammals — whether you are an orca isolated in a tank, a dog left at home alone, or a consumer sequestered behind your latest expensive gadget. Real grief, rejection, joy, eroticism, victory, and love are experienced in the presence of others. Headsets render us nauseous, uncomfortable, and alone. Worse, they make us less human.

Life is so rich,

P.S. More on why I think the Vision Pro will not be successful on this week’s Prof G Pod, a conversation with NYU colleague Adam Alter on his latest book, “Anatomy of a Breakthrough,” and what to do about feeling stuck.

P.P.S. Join our free event on How to Build a More Diverse Leadership Team next Thursday. Sign up here.

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Yes

I recently spoke at the WSJ Europe CEO conference, and within days a clip from my talk was viewed 7 million times on TikTok. Rewarding, as Elon Musk had spoken earlier in the day and received … fewer. Yes, I’m petty that way.

Anyway, the gist of the clip was that young people’s time spent outside of the house is a forward-looking indicator of their success. I received a ton of feedback, mostly correlated to age. People my age agreed, and younger people felt my comments failed to read the room (i.e., how the world has changed).

I believe your 20s are for making money, establishing relationships, and getting in shape — finance, fellowship, and fitness. It’s true that some variation of these objectives can be accomplished online. However — as with sex and concerts — the in-person experience is better and yields greater returns. In sum, get out of the house.

Epidemic

One piece of feedback that resonated is everything has become so expensive that it makes sense to spend more time at home. Half of Americans spend more than a third of their household income on rent, transportation has skyrocketed, and incomes are not keeping up: Over the past sixty years, income has increased only 15% after inflation. However, the anger (I believe) is tied to relativity. Specifically, relative to older generations, the young haven’t shared in the immense prosperity the nation has registered over the past several decades. Yeah, their life is better in many ways, but when it’s much better for an older generation, who keep voting to give themselves more money … young adults get justifiably pissed off. One of my TikTok critics put it perfectly: “It’s expensive to not be at home.” Think about this: A generation believes, and not without some reason, they can’t afford to leave the house. In America we have mistaken prosperity for progress.

A hundred years ago the greatest threat to young people in America was scarcity. We’ve come a long way since then. Food insecurity has reached record lows; so has child poverty. Now threats stem from abundance. Among children, 1 in 5 are obese, up fourfold from 1965. Extreme wealth inequality has hamstrung access to economic security — the older generation has become twice as wealthy in the past three decades, and young people have witnessed their wealth get cut in half.

Prosperity, distributed inequitably, has made us less happy, as many young people turn to online, lower-risk means of pursuing dopamine. Young adults’ loneliness rates have increased every year since 1976. In the past decade, teen depression rates have doubled. One-third of Americans report having fewer than three close friends (up from 16% in 1990), and 12% say they have no close friends at all. As reported by the U.S. Surgeon General: Loneliness is a national epidemic. I also wrote about it here.

Vaccine

No single thing caused our loneliness crisis, and there is no one remedy. However, stepping outside is a step in the right direction. Being outside offers a wealth of positive benefits: It lowers blood pressure and heart rate, enhances immune function, and decreases the likelihood of diabetes and cardiovascular mortality. Exposure to sunlight increases testosterone levels in men, while trips to the park improve health outcomes and create resilience in children who’ve experienced trauma, abuse, and poverty. Spending two hours per week outside has been shown to significantly increase health and happiness. Some doctors prescribe time spent in nature. The Swedes have a word for this, friluftsliv, “living close to nature,” and they offer tax breaks for companies with policies that encourage it. The biggest threat to this lifestyle? The crowding out of the outside world by our devices, consumed mostly in the inside world.

Meeting strangers and experiencing novel environments is fundamental to human growth. Our podcast producer, Caroline, said this week that she’s cultivating a practice of “say yes to everything.” I love this. The comfortable and the familiar are the harbingers of weakness and fear. Without rejection and awkwardness, you won’t experience victory or true satisfaction … that you’ve achieved something. Greatness is in the agency of others, as is true reward.

A common saying in my youth: “Nothing good happens after 2 a.m.” This was mostly true, as the “after” part usually involved (more) alcohol and chasing a high and an environment that peaked at midnight. The chase, if repeated too often, can begin to impair your ability to register progress during the day, which is key to your success at night. Simply put … it’s all about what you do during the day. I believe this should be modified for a post-Covid world to “it’s all about what you do outside of the home.” The point of differentiation between those making a living and those having a significant impact will, I believe, be a function of their success in the physical presence of others.

The American Dream/Dystopia

The American Dream used to be buying a home. The new American reality is never leaving it, as it costs so much to get into that many don’t feel they have the disposable income to venture outside. Accounting for inflation, house prices have risen 118% in the past 60 years. When I was a kid, the median home cost just over 2x median income. By the time I graduated from business school in the 1990s, it was nearly 3.5x, and now it’s well over 4x. More people are renting, and rents are going up.

Spending outrageous amounts on housing levies additional costs on your well-being, because you stop … living. This is all part of a dangerous trend in America: an economy increasingly built on scarcity that benefits the incumbents — the old and financially secure. Limiting freshman college seats, housing permits, and new customers sends the value of existing degree holders, houses, and Big Tech shares soaring. We need legislation that creates a torrent of housing permits, reverses the flow of capital and opportunity back to young people, and pursues antitrust enforcement. But I digress.

Second Place & Sloppy

Going on to the second place and being more forthright with your emotions are asset classes that are oversold. Similar to Florida real estate in 2010, they offer huge returns. After brunch/CrossFit/writing class, walk around or grab coffee. Organize a backyard BBQ or beers on the roof. Also, when any positive feeling or thought strikes you, emote it. Tell your friends you hope you’ll be friends for life; tell people you are attracted to them; laugh out loud and touch people. We are emotional, physical beings — to not express our emotions in person, through shared experiences, is to be less human. Less alive.

Species

We are a social species — a million years of evolution have made us most comfortable in small groups of other humans, telling stories and challenging one another. That’s not to say we should make a prison of our instincts; nature makes us crave salt and fat, too. Nor does this mean excluding digital contact. I celebrate that my father can see his grandkids on FaceTime, and I’ve recorded podcasts from Tokyo, Osaka, Riyadh, San Diego, Seattle, Austin, New York, and London … in the past month. You’re reading or listening to this thanks to online media, and it was TikTok that brought a message to 7 million people and catalyzed a dialogue.

For most uber-successful people, however, online activity is leverage for relationships and achievements established in person. The only way you will be loved by others, get to love them, and live a life you do not deserve is to take uncomfortable risks. Today the risks are mundane but offer greater returns. Say yes, go to the second place, and be promiscuous when it comes to expressing your regard, interest, and love for others. You will experience disappointment, sore muscles, hangovers, and awkward moments. And looking back, you will regret none of it. Say yes.

Life is so rich,

P.S. Section is launching five new business bootcamps in fall 2023. Each is limited to 100 people, so join the waitlist now to secure your spot:

Vet Your Business Idea BootcampLaunch Your Solopreneur Business BootcampGrow Your Small Business BootcampMarketing Mini-MBAAI for Business Bootcamp

P.P.S. This week on the Prof G Pod, I spoke with author Ryan Holiday about parenting and how to practice patience, rethink outsized reactions, and teach discipline.

The post Yes appeared first on No Mercy / No Malice.

Goals

In the past 30 days I’ve been approached by three groups asking if I’m interested in joining a consortium to bid on European football clubs. The prospect violates two of my core investing tenets: stoicism, and boring > sexy. I try to remain unemotional and avoid investments with sex appeal (i.e., things that sound cool). They attract too much capital, which drives down returns. However, I also thought I’d never go on a cruise, and I just returned from one. Aging changes you, and my midlife crisis wants to sit next to me in the owner’s box.

I’m not alone in this. There’s a gold rush for sports franchises right now, with buyers coming into the market and valuations rising. Some thoughts on the sports team market:

Nonprofit

Historically, the economics of sports teams are ugly. Despite being one of the most iconic assets in sports, Manchester United lost £116 million last year and £92 million the year before. At one point, the Brooklyn Nets were losing $395,000 per day. It makes sense: Teams are mostly owned by uber-wealthy men whose competitive juices dilute the fiscal discipline that built their fortunes. (Teams also make great tax shelters.) In sum, sports teams are the fourth wives club, where instinct, arrested adolescence, and the fear of death have an orgy on a bed of money. As in a fourth marriage, a lot can go wrong. It’s sports: By definition, each team has a chance … at losing every time they walk onto the pitch.

For over a century, team ownership has been a minefield. In 1880 a saloon owner named Christian von der Ahe bought the St. Louis Brown Stockings. After a few good years, the Stockings fell to the bottom of the league, their stadium burned down, von der Ahe’s creditors kidnapped him, and his wife filed for divorce. Just a few years ago, Hall of Fame catcher Mike Piazza spent $10 million to buy an Italian football club, bankrupted it in two years, and left town after receiving multiple death threats. He’s still married.

However … as with a Birkin bag, a Picasso, and a college degree, the value of a sports team is only loosely tied to fundamentals. And recently those values have turned upward. In the past decade the average value of MLB, NFL, and NBA franchises have exploded 242%, 303%, and 629%, respectively. (The S&P gained 163%.)

 

Fueled in part by foreign money (mainly American and Persian Gulf), Premier League football clubs are also registering valuations in the billions.

 

Why has the river of team economics reversed direction? Is this a bubble, or a shift in fundamentals that will make the increase in value more enduring?

Born Every Minute

Like any asset, sports teams trade on supply and demand, and demand is a function of the number of uber-wealthy people desperate for relevance. A sports franchise is the most conspicuous consumption imaginable. A nice car and a house mean you’re prosperous. A plane makes you interesting. Owning a sports team cements you as fucking fascinating. Only 550 people have ventured into outer space, roughly the number of people who own large stakes in major league teams. Pro tip: It’s more impressive to be an astronaut. Especially a real astronaut, like Sally Ride, vs. the son of a private equity billionaire. But I digress.

Just as crypto and SPACs, for a short time, were driven by Greater Fool Theory, sports teams are driven by Greater Fear of Death Theory. A Lamborghini impresses the valet; a sports team impresses Kim. And there are a lot of wealthy men arriving at the realization that biology is unimpressed by their money. So they spend it on their last meal of sorts: a sports team.

 

Big Leagues

Even as we mint more billionaires, sports offer increasingly “soft” returns to wealthy people and organizations. Foremost is wealth that needs washing. As we wrote a few weeks ago, the amount of Gulf state money pouring into sports is staggering: Qatar spent more on the 2022 World Cup than host nations spent on the last seven tournaments combined, and it saw the greatest attendance in World Cup history. (BTW, the winners of this year’s French and English championships will be Qatar and the UAE.)

The rise of influencer culture and the monetization of fame has also increased the value of sports teams to celebrities, as they can leverage their own brand to promote the team. Ryan Reynolds and Rob McElhenney’s celebrity wattage (complete with a Disney docuseries) has powered Wrexham A.F.C., an obscure lower-division Welsh football club, to global fame. Bill Murray has juiced the value of several Minor League Baseball teams he’s invested in, and Matthew McConaughey’s Austin F.C. finished second in its second year in Major League Soccer.

Hedge

Forces ranging from streaming to AI to globalization are creating drama in the sector that produces drama: entertainment. Online ads are awful, TV ads are worse, and radio ads haven’t been heard by anyone under 65  since they were 40. Live sports are different: Brands that advertise during sporting events still feel seen — because they are. Sports are immune to time-shifting; being the person who doesn’t want to know the score because “I taped the game for later” has morphed from being annoying to futile. Live viewers can’t skip commercials — and can’t ignore the logos, product placement, and naming rights.

The result is not just more revenue, but something increasingly scarce in media: reliable revenue. Once, ticket sales were the primary revenue stream, but broadcasting rights, coupled with corporate sponsorships, have expanded the foundation supporting these organizations. Manchester United now gets twice the revenue from broadcasting deals as ticket sales, and over the past decade annual sponsorship revenue across the NFL, MLB, and NBA has grown from $2.2 billion to $4.7 billion.

Fueling the left-brain business results is a right-brain experience that can’t be refactored or replaced by generative anything. You haven’t heard of “Leeds United AI,” as it doesn’t exist. Real humans, occupying the same physical space, under lights and between lines, where anything can happen — human experience. From the Colosseum to medieval jousts to that wild Aztec ballgame where the losers (and sometimes winners) were sacrificed, sports have always had an inherent value that’s singular in a world of sameness. There are few greater hedges against technological disruption than sports.

Monopoly

A decent investment thesis is to put money into unregulated monopolies. Sports still operate like a 19th century trust, with all the major parameters under careful joint control to protect returns for the incumbents. Sports teams are natural monopolies — fan loyalty discourages anyone from opening up a competing franchise near an established team — and leagues enforce this by controlling where a new team can start up. There hasn’t been a new Football League club in England since 2002, when Wimbledon’s team moved to Milton Keynes and a new club was formed in its place. Before that, the last truly new club was Burton Albion, formed in 1950. The U.S. Supreme Court has largely exempted Major League Baseball from antitrust law, and other leagues have been permitted to collude on revenue and salaries in ways that would land any other industry’s management in prison.

Professor Canary

It’s become increasingly clear that I am the canary in the business media coal mine. Vice, Bloomberg Quicktake, CNN+, and BBC+ all offered and began production of TV shows centered on an angry professor. At least three of those networks are dead.  When networks are so overinvested they’re calling me, it means the air has become noxious and you need to escape the mine. Similarly, if I’ve been asked to bid on sports teams, we may be at the top.

Soccer Dad

I played golf and soccer as a child. I wanted to be closer to, and impress, my dad, and that’s what he was interested in. I didn’t have natural soccer talent, but I became a decent golfer. About 20 years ago, my dad got too old to play golf, and I’ve maybe played three rounds since. Pro tip for dads: Your kids don’t inherit your interests — it’s your job to foster and adopt theirs. Truth is, I didn’t care much for soccer. But my sons love it, so I love it. Only we call it football. I played twice today in the backyard with my 12-year-old, and this Sunday I’ll be with both sons at the Emirates stadium watching Arsenal play Wolves.

I don’t watch the game so much as I register moments that inspire my boys. I observe their reactions. I hope I’m alive when they have kids, so we can share, and discuss, the intensity and range of emotions you have for your children. The only time I ever feel “this is enough” is when I’m with my boys. And football provides some of those moments. They call it “the Beautiful Game.” Maybe. What’s clear is that football offers us something increasingly scarce: an in-person experience where men are encouraged to express their emotions and bond with one another. Dozens of people and organizations are paying billions to feel younger. That’s fine. I’m grateful, as I’m getting older and enjoying some of the ROI on the billions invested: I feel closer to my sons.

Life is so rich,

P.S. For more on the economics of big-time European football, check out our Prof G Pod interview with Rory Smith, the New York Times soccer correspondent.

P.P.S. Want to hear my Predictions on the Post-Covid Workplace? Join me and Josh Bersin next Tuesday at 1:00 p.m. ET, and come with questions.

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Struck

Forty years ago, 190,000 British coal miners went on strike. The U.K. government, which owned the mines, met none of the strikers’ demands. The strike ended a year later with the union gravely weakened. Over the next few years, the British coal industry dwindled to nearly nothing.

This month, TV and movie writers walked off the job, demanding higher pay and protections from technological disruption. I believe the Writers Guild of America, like the U.K.’s National Union of Mineworkers back in the ’80s, has incorrectly assessed the situation and will exit the strike severely impaired.

Coal

There are real differences between the miners’ and writers’ strikes. The miners’ strike was controversial within the union itself, and some regions refused to take part. In contrast, the Writers Guild voted 98% in support of this action. The media is fawning over the writers, as are Hollywood stars. Actors who command millions bringing coffee to writers who make $2,000 per episode of Jimmy Kimmel Live are just adorable. “We stand with you … please don’t touch me.” Anyway, the differences won’t make a difference.

None of that solidarity matters, as British mining and scripted entertainment share one thing: Both were/are in structural decline and on the wrong end of a tsunami of alternatives. U.K. coal production peaked in 1913, and by the 1970s an erosion in demand had morphed into a collapse. The problem wasn’t a lack of coal — the British Isles sit on a 300-million-year-old layer of carbonized jungle — but changing consumer preferences and surplus competition. Electrical generation shifted to cleaner North Sea natural gas, even as imported coal was undercutting Newcastle’s finest on price.

The situation was so bad, the U.K. seized the mines to keep them running, as the operations were losing hundreds of millions of pounds per year. What prompted the final faceoff by the striking miners was existential — the planned closure of dozens of mines. They screamed at change, but progress wouldn’t listen.

Somewhere Else

Today, entertainment is no less relevant than energy was in the 1980s. But we’re increasingly getting it from somewhere other than a Hollywood writer’s room. The rise of reality TV (birthed by a writers’ strike in 1988) created an entire genre that relies less on writers. Cops, one of the first big reality shows, was conceived as content that could be produced during the strike.

Live sports are more popular than ever — 94 of the top 100 telecasts in 2022 were sporting events. Apple paid $2.5 billion to stream Major League Soccer and is rumored to be readying a bid for the Premier League. There’s more of it to come: MLS, XFL, WNBA, PLL, hockey in Las Vegas. Even within the narrowing genre of scripted TV, there’s the accumulated competition of history: Friends wrapped in 2004, but in 2015 Netflix paid $118 million to infinitely stream all 236 episodes.

The big threat isn’t other TV … it’s other than TV. Social media is, at its core, unscripted entertainment. YouTube has 122 million U.S. users every day, and YouTuber MrBeast has three times more subscribers than Hulu. But the biggest hands around the windpipe of scripted TV belong to TikTok. Short-form video, written and produced by amateurs, floods our lives by the gigabyte, endless in volume and variety — commanding 95 minutes a day of our attention.

The younger the viewer, the more they prefer TikTok to television. Stranded on a desert island with Wi-Fi and only one screen, two-thirds of Gen Z say they’d choose TikTok over the entirety of television and streaming. Put another way, writers shouldn’t be picketing outside studios in Los Angeles, but Bytedance HQ in Beijing. Also, the culprit isn’t some cartoon-villain studio exec, but your nephew who’s never had cable and prefers to spend 45 minutes scrolling TikTok to paying $6.99 a month to watch The Witcher. He’s never heard of Stephen Colbert.

It’s tone-deaf to ask Dad for an increase in your allowance the week after he’s lost his job. Comcast’s gross margin has melted from 27% to 4% in the past five years. Disney’s, from 16% to 4%. Warner Bros. Discovery, once a cash-generating titan, posted $7 billion in losses last year. Paramount lost $511 million last quarter on streaming and is cutting its workforce by 25%. Netflix is the only streamer that’s been able to increase its margin, but subscriber growth has hit a wall — so it’s cutting $300 million in costs. Of its existing viewership, 100 million are using passwords borrowed from friends/siblings/kids.

For Sale: Writer’s Room, Barely Used

Similar to the miners watching the mines close, writers have felt winter coming for years. Adjusted for inflation, the median writer-producer salary has declined 23% in the past decade. Much of this is due to streaming. While a traditional 22-episode broadcast program guarantees writers 30 to 40 weeks of work, the average 10-episode streaming series only guarantees 20. And streamers pay writers little or nothing in “residuals” — payments received when a show goes into reruns and syndication, once a huge source of security in an insecure sector. Studios are also getting craftier about relying on junior writers, reducing the number of writers on a show, and barring writers from working on other shows for longer periods. Ten years ago a third of writers worked at what’s called the “Minimum Basic Agreement,” the minimum amount studios have to pay. Today half do.

In anticipation of the 1984 miner’s strike, Thatcher built up massive coal reserves, key to breaking the strike. The staggering overinvestment in content that streamers engaged in over the past decade hammered profit margins, but also built a reservoir of shows consumers can’t see beyond. I watch a lot of TV, but my Netflix queue will outlast the writer’s strike fund by a decade.

Q: What do late-night TV and downtown office space have in common?

A:  Neither will recover.

Few kids grow up dreaming of being a miner. One sign of how fucked up our nation is? The most cited career American youth aspire to: “influencer,” a creator who runs ads during their content. Entertainment professionals have always had to contend with bus and planeloads of hopeful young people arriving in LA and NYC. Now those millions arrive each day on people’s phones.

The One Where a Robot Takes Your Job

On our Markets podcast this week, Prof G Media analyst Mia Silverio interviewed some of the picketing writers in New York. And they assured her that what they did, the magic of their creativity, was a distinctly human trait, not something AI could replicate. Their union isn’t as confident as they are, though. One of the sticking points in the negotiations has been the use of AI. Specifically, the union wants to bar the studios from using it. While the writers have a valid point asking for a form of residuals from content that informs large language models/generative AI, asking studios to not use AI has the same probability of succeeding as demanding they give up texting and air-conditioning.

As with near-every technological innovation, AI will inspire job losses in the short run and then, over the long term, net job creation. Automation destroyed jobs on the factory floor, but at first we didn’t see the jobs that heated seats and car stereos would create. There will be a plethora of new service providers in the streaming business that leverage AI. In addition, there is usually a “winner takes most” effect. A decent writer gets culled, a great writer earns more. In sum, AI won’t take your job, but someone who understands AI will.

Pro tip: While you’re on strike, let your Netflix queue grow and play with Notion AI.

The writers strike and its outcome will boil down to incentives and leverage. The studios need a pause that cauterizes their unsustainable spending. However, the break would need to be multilateral so no one company grabs share by maintaining those higher levels of investment. Enter the gift to end all gifts, providing the studios a recalibration of the economics of streaming without the risk of losing share. “I just don’t feel a sense of urgency to end this strike,” said every studio head.

Hand Speed

When I moved to New York, I began practicing yoga, believing I’d meet hot women and find inner peace. Neither happened, so I took up boxing. My trainer was “blown away” by my hand speed and suggested I enter a tournament. Twenty seconds into the first round of my first bout I was distracted by bright lights. They were the ceiling lights staring down on me, as I was flat on my back regaining consciousness. I had grossly miscalculated the parties involved and their relative strength. In 6 to 12 months, Hollywood writers will see the light. A light that inspires one question: What the fuck just happened?

Life is so rich,

P.S. Post is a social platform for real people, real news, and real conversations, founded by Noam Bardin. Also, I’m there (disclosure: investor). We publish No Mercy / No Malice on Post as well as sending it by email — you can see it there every week by following me.

P.P.S. If you’re a leader worried about a pending recession, we’re offering 100 free seats to our upcoming workshop: Recession-Proofing Your Business. Grab a seat before they’re gone.

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AiLONE

I run two organizations. Prof G Media is a (wait for it) media company that produces books, videos, podcasts, TV shows, talks, and this newsletter. The second organization is the aircraft carrier squadron that runs my life outside of work. The tutors, trainers, accountants, landscapers, financial planners, lawyers, nannies, health aides (Dad), dog walkers, and other professionals whose job is to make my life nicer and easier. Think Downton Abbey, except the Abbey is a Marylebone apartment and the patriarch is (much) less charming.

AI-sistants

The chatter about AI has focused on how it will change (first) organization, the world of work, and/or annihilate us. But the most valuable tech companies to date, with the exception of Microsoft, have been consumer-facing. And it’s likely the major AI disruptors will (again) be consumer offerings. One big change: The butlers, maids, and valets of the rich will be introduced to the broader world. Instead of servants downstairs, we’ll have servers.

Except the servers will be housed in some nondescript tilt-up building next to an inexpensive source of energy to keep it cool, where they’ll sweat plowing the fields of my indulgent life, where I’ve created a series of mazes I need others to help me navigate. Note: I’m especially proud of the previous sentence. Generative AI and smartphones and smart speakers promise the power of personal and professional assistants to everyone with an iPhone. That’s good news … mostly. Technology democratizes access (good thing), but also sequesters us from one another. The tech elite are opting out voluntarily with a nihilistic vision of go bags and bunkers.

The backstory is that the performance of digital assistants might be finally catching up to the decades of promise. Emphasis on “might.” MIT had a chatbot called Eliza in 1966, and the progress since has been steady, if not remarkable. Sixty years later we started to lose interest — the number of Americans who use voice-activated assistants declined. That’s about to change.

Nuance

We’re on the eve of war — the AI Assistant Revolution. The invading AI army established a beachhead years ago. Remember paper maps? Until recently, successes were limited to AI-friendly contexts: those with a lot of structured data, limited and predictable queries, and not much nuance. Pre-ChatGPT, our AI assistants were kids: They took everything literally and needed to be set up for success. The real innovation unleashed by large language models is soft skills — specifically, their ability to manage the ambiguity of human experience.

Intelligence is synonymous with nuance, or the ability to recognize and deliver it. Google describes its AI mission: “More than answers, we’ll help you when there’s no right answer.” The hardest decisions in life are having to choose between the bad options rife in a difficult environment. Bear markets and bad relationships require intelligence (i.e., nuance). Bull markets and good relationships only require bravado and presence.

Dystopia

We’ve learned, painfully, that converting any asset or substance to another, for economic benefit, produces externalities. Fossil fuels to energy produces carbon; plant calories to meat calories results in deforestation and methane. The worst are the rage emissions spewed into our environment as Big Tech converts attention to ads. The externality when we convert the patterns between words to information and insight (i.e., AI)? A: Dehumanization. The people who invented AI — now that their options have vested — are full-time catastrophists. But they’re hyping the wrong catastrophe. I’m less worried about SkyNet declaring war on the species or being turned into a paperclip than an epidemic that causes more death, disease, and disability than Covid-19: loneliness.

The U.S. faces an epidemic of isolation. Loneliness among young adults has been increasing since 1976. (The increase has been steeper among those with lower incomes.) Teen depression would be at similar levels, given its trajectory, with or without the pandemic. Put another way, Covid didn’t inspire social distancing … social media did. A more honest moniker for the sector is “asocial” media. Studies find that when people reduce or eliminate social media from their lives, their self-esteem and sense of connection often improve. AI-driven assistants present a similar risk.

According to the U.S. Surgeon General (an impressive man who makes you feel good about America): “Evidence across scientific disciplines converges on the conclusion that socially connected people live longer.” Social isolation is associated with a 29% increase in the risk of heart disease and a 32% increase in the risk of stroke. Put another way: loneliness kills. 

A reliable indicator of how much a new tech product will drive us apart is the intensity of the founder’s promise to bring us together. Facebook’s mission statement has become less recognizable than an ’80s pop star’s face, but the Zuck and Sheryl promised (repeatedly) they would “connect people.” They then built algorithms that send images of nooses and razor blades to 14-year-old girls experiencing suicidal ideation. Tinder aims to spark relationships but increasingly results in sadness and anxiety. We’re then told that the solution to tech’s externalities is … more tech.

On cue, Tinder’s former CEO is raising venture capital for an AI-powered relationship coach called Amorai that will offer advice to young adults struggling with loneliness. She won’t be alone. Call Annie is an “AI friend” you can phone or FaceTime to ask anything you want. A similar product, Replika, has millions of users. AI sex-robot vendors saw sales increase 50% during the pandemic, and sextech is expected to become a $53 billion industry by 2026. So, Natalie 2.0 (a sex doll) should make the same as Beyoncé and Tom Cruise, as the industry she works for will approximate the scale of the combined global music and movie businesses.

We’ve seen this movie before, literally. It was called Her. A lonely introvert in the midst of divorce purchases an advanced AI assistant that helps him with everything — from therapy to cooking to setting him up on dates — and they fall in love. Also Ex Machina, another great film about the collision of tech and loneliness. What sci-fi gets right, and the innovator class papers over with earnest TED talks on bettering the world, is that human connection is why we’re all here. And inserting AI between ourselves and those around us dulls those connections.

Secret to My Success

Sexbots are a sure thing, and AI assistants are inexpensive and don’t need vision and dental. Also, they are not real and don’t nourish our soul. We’re not wired to live in a world where we have friends but don’t experience friendship. Human relationships are about competition and compromise, about listening and bouncing off one another in unexpected ways … in person. They are about, among many things, the risk inherent in relationships. These risks include disappointment and rejection.

Rejection has been key to my success. Specifically, my willingness to endure it. In high school, I ran for sophomore/junior/senior class president … lost all three times. Based on my track record, I decided it made sense to run for student body president, and I (wait for it) lost. I asked four girls to my high school prom and didn’t go — 0 for 4. (Note: I did get asked to the prom by a girl from another school.) I have raised over $1 billion for my startups and investments. However, I pitched (conservatively) $100 billion in capital over the better part of a decade, before raising a dollar. I was rejected (initially) by UCLA. But here’s the thing, I recovered. More than recovered — I got stronger.  And that made the victories feel more … victorious.  Twenty years ago, under the glare of the midday sun, I approached a woman at the Raleigh Hotel pool who was sitting with two friends. I was so attracted to her, I decided it was worth the risk of rejection — I’d learned that the downside doesn’t present that much … downside. It’s risk, it’s growth, it’s life.

AI assistants are the ultimate helicopter parent, bulldozing obstacles and the risk inherent in establishing new relationships. We are breeding a generation of asocial people who don’t know what it means to be rejected, forget a name, miss a flight, and find unexpected joy. AI, and mobile technology, have strip-mined a key component of what it means to be human, what it means to be a mammal. Happiness is a function of your willingness to take an uncomfortable risk and have something wonderful … really wonderful … happen in person. Technology offers productivity and prosperity. However, joy is in the agency of others. The most important skills are forged, not taught.

My oldest son’s middle name? Raleigh.

Life is so rich,

 

P.S. This week I spoke with Brian Chesky, CEO of Airbnb, about community building, AI, and relationships. Listen here.

 

P.P.S. I’m sitting down to talk about How to Have a Breakthrough with my colleague Adam Alter next Tuesday. Join us, and come with questions — the best ones get a copy of Adam’s new book.

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Storytelling

I’m on a flight from London to LA, where I’ll kick off a six-city tour (then to San Diego, Seattle, Austin, NYC, and Miami). In each city, I’ll stand in front of several hundred people with a hundred-plus charts peering down from behind. Then I’ll tell stories. My favorite part is the Q&A, which is a real test of skills. Plus, people are, generally, wonderful. Most are (offline) super nice and ask a question that reveals something about themselves, and we all feel closer. One query I get often is “What class/skill would you suggest our kids take/learn to compete in the modern economy?” Or some-such. I think most expect me to say computer science, STEM courses, or some bullshit about the wonders of a liberal arts education that foments curiosity. But hands down, the skill I would grant my boys is singular: storytelling.

The arc of evolution bends toward good storytellers. Communities with larger proportions of skilled storytellers experience greater levels of cooperation, and … procreation. Their evolutionary fitness is buttressed, as storytelling translates to more efficient transmission of survival-relevant information. Storytellers themselves are more likely to receive acts of service from their peers — and among men, being skilled in storytelling increases attractiveness and perceived status to potential long-term mates. My dad used to tell me that men get turned on with their eyes, women with their ears. It turns out his theory is backed by science.

Narrative vs. Numbers

Data may be more truthful, but in the battle between narrative and numbers, most of the time humanity picks narrative. Among CEOs, 7 in 10 sometimes ignore data insights in favor of “trusting their gut.” More potent than statistics in cancer awareness campaigns are personal narratives — advertisers know this and have unleashed the power of stories to increase cancer screening rates.

Social change follows the narrative. The meatpacking industry famously registered structural upheaval not in response to data on worker conditions, but Upton Sinclair’s novel The Jungle. Today, attitudes towards gay and trans people are softening in many communities thanks to personal stories in television and other media — and the right is weaponizing this, creating hysteria about a supposed plague of boys playing girls sports and using their bathrooms to harden those attitudes and whip up the base. Social media algorithms, at their core, connect bursts of media (scenes) into a story. But they’ve learned that the stories we can’t look away from are often those that validate our anxiety and depression, that confirm our suspicion that other people are awful.

Story Inc.

Storytelling has flourished, becoming a large and profitable industry. In Hollywood, a disagreement between the storytellers and their corporate employers over how to divide those profits has taken late-night talk shows off the air, threatens the continuation of hundreds of television shows, and imperils swathes of the Southern California economy. Also, it’s producing some excellent picket signs. Like everything else, this is partly an AI story — one of the points of contention is how to manage AI’s role in writing. Video games have evolved from bouncing pixels off one another into a $250 billion industry dependent on stories that sprawl across dozens of games, and are pored over and loved by generations of players.

Companies are defined by their stories, which can shape their economic output. Public relations is a $100 billion-per-year industry, and growing. Amazon employs 1,900 in its PR and communications division. That’s almost double the number of journalists at the paper their boss owns. Across Amazon, Apple, Google, Meta, and Microsoft there are now almost as many PR/comms employees as there are screenwriters in America. However, they don’t need to strike, as they’re paid a shit-ton. Sheryl Sandberg was paid $1.8 billion to tell stories of gender equality and personal loss to distract from the stories her algorithms were telling our teens.

Elon Musk built the ninth-most-valuable company in the world not because he knew anything about electric cars, but because he’s a master storyteller who inspired a team of world-class engineers to build a better one. I don’t like Musk, but I’d still rather have dinner with him than Mary Barra. The previous sentence is not true, but it fits my narrative.

I got my start building companies, telling stories. Later I became a professor, where the students pay $170,000 in tuition for me to deliver a three-hour lullaby. Note: My agent (NYU) takes a 97% commission. Now I tell stories on a stage in front of 150 to 15,000 people who pay between $100,000 to $250,000 to see if I can weave my observations about tech, society, economics, and fatherhood into a story. And my largest source of wealth creation has been pre-IPO stock, awarded in exchange for helping CEOs craft a story they can tell institutional investors. Like most skills, storytelling is an amalgam of nature and nurture.

Nature

My dad says he’s been married/divorced four times. It’s probably 5 or 6 — he’s that kind of guy. A strong jawline and mesmeric storytelling, wrapped in Glaswegian elocution. At any gathering, my father manages to draw a circle of people around him who listen to stories of his upbringing in Depression-era Scotland, peppered with jokes that are impossible not to laugh at. In ’70s California this meant my dad could not only think with his dick, but also listen to it. He left us when I was 8, and I resented him a great deal. Not so much for not being there for me — he tried. But for how callous he was to my mom. It was difficult to embrace someone when the most important person in my life (my mom) viewed him as her enemy.

What made it easier was recognizing that my ability to take my sons to the World Cup, and take care of the woman he left, comes (somewhat) from my dad being my dad. There’s no getting around it: I inherited some of his gift — and for the past 30 years I’ve made my living off of it. I also inherited a bunch of his shittier qualities, but that’s another post.

Nurture

There are ways to get better. Some thoughts on learning to fly, and telling good stories.

Listen: Good communication starts with the message, which comes from knowledge and observation. In part, this means listening to others: read widely and ask questions. But more important: Listen to yourself. Cultivate an internal voice that tells you what’s flawed or missing in the popular discourse. People prefer a counter-narrative. Be the hunter who tracks straight to where the prey is actually hiding.

Evaluate: Stress-test your ideas against available data, either in conversation or by writing it out. Science rests on this process — the “scientific method” of developing a falsifiable hypothesis, then conducting experiments to prove or disprove it. By the time I give a talk on a corporate campus in Redmond or a cruise ship (next week: Summit at Sea), 10-plus people will have touched/listened to/fact-checked/designed the deck, often in groups. Most of the concepts we consider for this newsletter or my talks never see the light of day, exiled by data and other folks who make me seem (much) smarter than I am and save me from myself. Something I wish I’d recognized earlier: Greatness is in the agency of others.

Frame: This is where innovation melds with communication. You have an idea you understand and believe in, but how do you express it in a compelling manner? Try things out. I’ve had success with extended metaphors, personal anecdotes, and presenting information visually. As I’ve gotten older, I’ve started to embrace the personal. It comes easily, as I’m a narcissist. But also, people are looking for a connection, and a good way to connect with several hundred strangers at once (or with just one person) is to be vulnerable. Making people feel something bests any business insight. In a remote world swamped by a tsunami of digital information, the rare earth metal is humanity.

Be Fearless: The fear is real, and it can end the game before it starts. People say it’s fear of speaking. I think it’s more than this — it’s fear of rejection. The fear that someone will validate your insecurities and rebuff your advances, be it initiating a conversation or presenting an idea.

However, the willingness to subject yourself to rejection is like sleep: Without it, you can’t succeed. I believe there are two main sources for my courage to get onstage and say provocative things: My mother, who showed me she loved me every day of my childhood; and my atheism, knowing that my relationships with the people I love and who let me love them — they are the only things that really matter.

My 15-year-old son has mostly gone mute, as he’s decided everything and everyone is unfathomably uncool. I ask (demand) that he start a conversation when we’re together or at the dinner table. My 12-year-old is a terrorist at home, but painfully shy in public. I demand — and he hates this — that he speak to strangers when we’re out of the house. On Sunday we ventured to the Battersea Power Station mall, which was awesome, and I told him to speak to the guy staffing the help desk and shape our plan for attacking the mall. Not exactly a TED talk … give it time.

Deliver: Once you know what to say, say it. Embrace an economy of words. Ask yourself, “How can we say this visually?” Brevity makes things easier to understand and signals directionality and confidence. It demonstrates that you are actually saying something. Think of the last several emails you wrote. The length and formality of the email is inversely correlated to your comfort with that person. My presentations are often 150 slides long, but I (try to) circumnavigate tech and society in 60 minutes. I assume the listener knows a lot and likes me, and I like them … so we can get right to the point. We’re friends.

Kids

What I want most for my two sons is not that they become Nobel prize winners or members of Congress, but that they live rewarding lives full of meaningful relationships. And that they are good citizens. Most of that’s on them. Parents tell themselves a story that kids are blocks of clay we mold. Pro tip: They come to you not fully formed but in roughly their own shape. We’re not engineers, but shepherds. In our limited time as their shepherd, we can arm them with skills that increase their prospects for success. Learning math, going to college, landing a job — all powerful tools. But the weapon of mass attraction is the ability to communicate. I wish I’d figured this out earlier: Money, mates, and meaning are all moths to the flame of storytelling.

Life is so rich,

P.S. This week I discussed the loneliness epidemic with U.S. Surgeon General Dr. Vivek Murthy on the Prof G Pod. Listen here.

P.P.S. Bring your team to sprint with me in May. Request a demo of our team experience here, and I’ll see you in class.

 

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The Mother of All Pivots

The name of the podcast I co-host with Kara Swisher is “Pivot.” I don’t like the name, but I’ve had my hands on the wheel for so long at my own companies, I’m down with sitting in the backseat and occasionally asking, “Are we there yet?” Besides, Kara does most of the work and has a better feel for pods than me. But that’s not what this post is about.

A “pivot” is a strategic change in business model, direction, or target market. Think Netflix’s shift from DVDs to streaming, Adobe’s move to subscription, or Amazon’s launch of AWS. Sounds easy, but real transitions require a staggering investment and a leap of faith that make shareholders queasy. And, most of the time, they don’t work. Meta’s stock doubling in the last six months is a function of the market’s belief that The Zuck is waking up from his Big Gulp, Venti Grande Ayahuasca hallucination re a $20 billion-per-year investment in the metaverse. Meta’s earnings this week revealed Reality Labs (its opium den posing as a business unit) saw revenue decline to $350 million while losing $4 billion in the last 3 months. This means the birth control known as Oculus is pacing to lose the combined profits of Honda, BMW, and General Motors in ’23.

These bets are dwarfed by the greatest redirect in economic history: The Gulf States’ attempt to pivot from oil-based economies to something more sustainable.

Party’s Over

For the past century, the Gulf States have run on oil — and still do. State-owned oil giant Saudi Aramco is now more valuable than the next 10 largest energy companies combined, and last year it booked $161 billion in profits — likely the largest net income figure ever recorded.

Only, there’s a catch. The well is running dry. Regardless of the cadence of the move to renewables, the battery running the Gulf EV goes dead some time this century. Data re the oil remaining under the sand are closely guarded state secrets for the Gulf nations. But Bahrain is expected to run out within the decade, Oman in two decades, and the Kingdom by the end of the century, possibly sooner.

The plan to redirect this wealth into something else is unprecedented: building a next-generation civilization from scratch. Scratch, plus a few trillion dollars.

Its Own Moon

The scale and boldness of this bet is peerless. Let’s start with a 105-mile-long glass-domed mega-city in the desert to house 9 million people with no cars, staffed by robots, and powered entirely by wind and solar. Oh, and it will have a ski resort. And its own moon.

This sci-fi mega-city is the centerpiece of Saudi Arabia’s Neom project, budgeted at $500 billion. Keep in mind, that’s the budget — and 9 out of 10 mega-projects go over budget. Saudi Arabia is also building the Diriyah Gate, a $20 billion property development that will add 20,000 homes to the historic district of Diriyah, and the Red Sea Project, which will build 1,000 homes and 50 hotels across 22 small islands. Meanwhile, Qatar is building its own “city of the future” fit with a 90,000-capacity sports stadium, a dedicated entertainment district (“Entertainment City”), and the country’s first six-star hotel. No ski resort, though.

Bait

The secret sauce in the Gulf State pivot isn’t the oil money itself, however. That’s the bait. The prize is other people’s money. Specifically, rich people’s money. The plan, distilled, is to become the global headquarters for the mega-wealthy. This strategy increasingly makes sense as wealthy people continue to weaponize even democratic governments whose policies crowd more of the spoils into the top .01%.

The best way to attract the rich is to give them what they want. Which in 2023 means three things: luxury hospitality, world-class entertainment, and low taxes. The Gulf has gone all-in on all three.

The Saudis have launched their own ultra-luxury hotel brand, the Boutique Group, and Qatar owns The Plaza Hotel in New York and The Savoy in London. (Pro-tip: These weren’t property or even hotel acquisitions but brand acquisitions.) The United Arab Emirates built the iconic Burj Al Arab and has its own luxury hospitality university. Ever fly Emirates, Etihad, or Qatar airlines? (Think in-air shower spa.)

Middle Eastern interests now own many of the world’s most iconic football clubs, including Manchester City, Paris Saint-Germain, and Newcastle United. Qatar spent $220 billion on the FIFA World Cup (more than the last seven World Cups combined), and many critics accused it of “sportswashing” — using love of sports to distract from its human-rights record. And sportswash it did: The Qatar World Cup had the in the tournament’s history, as well as of the world population watching the final. I attended, and the investment, sample size of four, had its intended effect.

Saudi Arabia operates a Formula One Grand Prix site and the LIV Golf tournament, which nabbed several high-profile golfers and offered Tiger Woods $800 million to join (he declined). They’ve also pledged billions of dollars toward finding the “Arab Damien Hirst.” The Emiratis are building a $27 billion culture center on Saadiyat Island featuring the Frank Gehry-designed Guggenheim Abu Dhabi and the Jean Nouvel-designed Louvre Abu Dhabi, and Qatar commissioned Nouvel to design its $434 million National Museum of Qatar.

Marketing for these mega-projects is multipronged and not always subtle. Last year, my 12-year-old emerged from a YouTube K-hole and said, “Dad, did you know you can stay in a hotel that’s in the biggest building in the world?” That didn’t sound that great to me, but it did to him — and sure enough, we stayed at the Armani Hotel in the Burj Khalifa, the tallest building in the world, on our World Cup tour of the region. We have been to the Gulf three times in the last six months.

The Middle East is a museum of superlative landmarks, the branding brash and effective. Dubai has the tallest Ferris wheel, Jeddah’s F1 track is the fastest, and after the race, your family of four can drop $2,200 on a lovely but unremarkable dinner at the world’s most expensive Greek restaurant (Nammos). My dad didn’t speak to me for two days when I ordered a $3.25 malt shake at the Lahaina Baskin & Robbins in 1977.

The final puzzle piece: taxes. Or lack thereof. Saudi Arabia, the UAE, Kuwait, and Qatar have some of the world’s lowest tax rates. Similar to what London did 30 years ago, Dubai is committed to deregulating its financial sector. The city is drawing in new firms with reduced licensing fees and capital requirements for hedge funds that domicile there. And the UAE is attracting wealthy Russians with its bold position on the war in Ukraine: neutral.

Hard Power

Speaking of … the only thing that bests soft power is hard power — the ability to deliver violence abroad known as military spending. The Kingdom’s military expenditures reached $75 billion last year, the fifth highest in the world, and more than any nation in Europe except Russia. Big military spenders either invade nations (Iraq, Ukraine) or have the world on tenterhooks guessing where they will invade (Taiwan). To believe Saudi won’t flex its power is naive.

Back to the big shiny stuff they’re building. …

The Elephant in the Private Zoo

What’s not to like about this plan? The sheer audacity is notable. But the Gulf nations have experience with massive projects — you don’t pump 13 million barrels a day without knowing how to build — and a deep appreciation for outside experts. They are recruiting, from the four corners of the Earth, people and small firms that range from banks to ad agencies, paying them multiples of what they can make at home, and asking them to build the future. It’s not without huge issues. Some of those Western experts have quit; according to the Wall Street Journal, Neom CEO Nadhmi al-Nasr is on tape telling underlings in a meeting, “I drive everybody like a slave. When they drop down dead, I celebrate.”

Western consultants being overworked is not what gives us pause about this vision. Al-Nasr’s reference to workers dropping dead was probably meant metaphorically, only it’s not just strong language — we don’t know how many migrant workers died building the World Cup venues in Qatar, but the Qataris have admitted to over 400. And there’s no escaping that the Gulf nations hold a different view of personal liberty than the West. On some levels, this is easy to address, and these envisioned cities will enjoy some additional liberties. Alcohol will be widely available, there won’t be dress codes, and there are signals of an increasing tolerance for people’s religious and sexual preferences that isn’t enjoyed elsewhere in most Gulf nations. We’ll see. The track record isn’t great.

The concerns become dystopian fast. Neom will be run by an operating system called Neos, and every resident will have a unique ID number, with 24/7 tracking. No need to carry keys, since Neos will know which doors you are supposed to be able to open. No need to carry money; Neos can put it on your tab. No need for Mohammed bin Salman’s security apparatus to hack your phone to listen in on all your conversations, either.

If You Build It, They Will Come

Will rich people want to live in a future built by the same people who murdered a journalist? The sober answer is yes. People care about human rights. However, most people, most of the time, care more about their prosperity even if it comes at the expense of others. Think Big Tech.

The early indications are that using money to attract money … works. The Gulf has become a premier destination for fundraising efforts. In just the past few weeks, venture firms including Andreessen Horowitz, Tiger Global, and IVP have held high-profile events in the Gulf. “The Four Seasons in Riyadh,” according to one prominent venture partner, “is basically Palo Alto.” An executive in the UAE’s investment company said, “We came to San Francisco looking for them in 2017. Now everyone is coming to us.”

Some are coming to stay. Ray Dalio is setting up a branch of his family office in Dubai, and big-name hedge funds, including Millennium, ExodusPoint, and BlueCrest, all have offices in the Gulf already. The UAE registered a net inflow of 4,000 millionaires in 2022, and in Dubai, $57 billion in real estate changed hands, up 80% from 2021, including 86,000 residential properties and 219 homes worth over $10 million.

There is merit to the suggestion that a decent strategy for success is to find the largest pile of money and stand as close to it as possible. The largest pile can now be seen from all continents, and millions will migrate. Does this represent a subjugation of Western values to money or the realization that capitalism’s self-interest is the premier force in a modern world? The answer is yes. Strategy is leveraging your strengths to do something that is really hard, ideally impossible for others. The Kingdom’s strengths are unprecedented capital and a willingness to play the long game. So, how does this impact you? Nothing draws human capital like capital. If you live in the West or South Asia, one of your kids may well end up in the Gulf. Is this good or bad? I don’t know. It just … is. We’re witnessing the mother of all pivots.

Life is so rich,

P. S. This week on the Prof G Pod I talk with Bill McKibbon about media shakeups and the state of climate change. Listen here.

P.P.S. I’m teaching Business Strategy and Brand Strategy back-to-back in May. If you haven’t signed up yet, you can check out lesson one for free.

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