Scott Galloway's Blog, page 16

Cognitive Dissonance

My dad claims “communication is with the listener,” usually after he says something absurd he’d rather not own. I believe most men born before 1970 are biologically incapable of apologizing … “I’m sorry” is admitting defeat to the universe. My dad also often says “perception is reality.” These are two sides of the same coin: We hear what we want to hear — or what the powerful want us to hear. Trump and Elon’s flying monkeys create a reality for them, perceiving every imbecilic action as leadership or part of a genius plan mere mortals don’t have the capacity to understand. Subsequently, their perception/reality: They alone can save us.      [image error]

Noise

Psychologists Amos Tversky and Daniel Kahneman earned a Nobel Prize for their research into how we create subjective realities. They identified unconscious patterns of thinking — they called them “cognitive biases” — that can lead us to illogical and irrational decisions. In my experience, strong institutions help protect us from these biases. Wealth and success, however, feed them.

Living in a penthouse apartment in the Bahamas with his friends and Adderall, taking breaks to be fellated by the most powerful men in finance or read love letters from Sequoia Capital … what was SBF’s reality? Was he commingling funds between distinct corporations unbeknownst to customers (i.e., fraud) or cross-collateralizing appreciating assets to make others wealthier and the world a better place (see above: genius)? Pro tip: There is an objective truth … and it’s the former.

We’re all at the mercy of these thought patterns. “Reality” is increasingly subjective. A perfect storm of our need for idols, algorithms based on rage that dictate what we see, and the politicization of science has left us adrift, floating through an archipelago of alternative facts. And everyone’s map of the sea is unique. Elon posts a picture of fake guns on his bedside table — some find it baller, others disturbing. He shitposts elected officials — some find it waggish, others gross. Reducing Twitter’s headcount by 50% was justified or cruel based on … the listener.

One flavor of these mental thickets: confirmation bias. This is where we unconsciously value certain facts over others so we can draw a conclusion that aligns with our preexisting beliefs.

Social media is a nuclear reactor of confirmation bias, especially when the conversation on social is about social. Peer-reviewed quantitative research has found that Twitter’s algorithms amplify right-wing content. Facebook is similarly favorable terrain for the right. It’s not intentional: Right-wing content just turns out to be better uranium for the rage fission reaction. But that hasn’t stopped the right from claiming it’s being suppressed. (The irony: Those claims get more traction thanks to the algorithms they are complaining about.) The basis? Confirmation bias. Listing only the (anecdotal) evidence favoring their view and declaring “a pattern has emerged” while ignoring contrary evidence and science. Elon draped himself in right-wing credibility on this issue over the past year, pandering to the right’s baseless, subjective victimhood with promises to restore “free speech.” The right confirms this, acting as if letting the Babylon Bee back on Twitter makes you John Stuart Mill.

Confirmation bias is bipartisan. Many who don’t like Elon want Twitter to fail. So when they heard anecdotes about technical glitches on the app — which is common across practically all apps — they concluded the entire thing was crashing and burning. I was guilty of this: “I wouldn’t be surprised,” I told Jim Acosta, “if you see the site go down in the next week.” Though grounded in reason, my confirmation bias was working part-time here. (The next week, media outlets reported I had claimed Twitter would be out of business in a week. Click-bait bias? Anyway.)

Another example: self-serving bias. This is where you irrationally take credit for wins but blame failures on something else. (Common among narcissists and assholes.)

After Twitter’s daily active users increased this quarter, Elon posted a Fox-like (distorted) chart that made the number appear extraordinary, and a product of his leadership. In fact, the growth was merely on trend. Meanwhile, Twitter’s revenue decline is extraordinary. But that’s not his fault, Elon claimed. It was “activist groups” pressuring advertisers. Elon’s sycophants also adopted the self-serving bias on his behalf. Nothing that goes wrong is his fault; it’s the media, it’s the government, it’s the woke left. But when two rockets land concurrently on two barges? 1,000% Elon.

Another example: Referring to the potential performance of candidates he’d endorsed in the 2022 midterms, a former president said, “If they win, I should get all the credit, if they lose I shouldn’t get blamed.” He went on to complain that “when they win, I won’t be given any credit.” We’ll never know.

The flip side? The ridiculous “Elon didn’t create Tesla, he bought it with his dad’s emerald fortune” narrative. Here are some objective facts. The number of months Tesla existed before Elon invested $6.5 million (source: selling PayPal) and became chairman of the board: 7. The number of cars Tesla produced before he came on board: 0. Elon may be a narcissist, but he’s built at least two remarkable companies, Tesla and SpaceX (with, at most, some early seed capital from his father).

Signal

So let’s attempt to discern the signal from the noise. Twitter is not just a billionaire’s plaything, it’s a global communications network that, at its best, sustains humanity’s first global conversation. What is going to happen under Elon’s ownership? At the outset of his Twitter acquisition adventure, he claimed he wanted to make Twitter “an inclusive arena for free speech.” He also emphasized that his mission was “not to make money … I don’t care about the economics at all.”

Elon might mean what he says about free speech. But the second part, about not caring about the economics? That appears to be bullshit. I know this, not because I can read minds, but because I can read income statements. And Twitter’s is ugly. Elon has no choice but to care about the economics: The economics will determine the platform’s fate and Elon’s control over it.

At this rate, even after Elon’s significant headcount reduction, Twitter could lose several billion dollars over the next year, and again in the next. Active users and traffic are important only if Twitter can sell high-priced ads against that traffic. But if the only ads customers see are for local businesses and counterfeit fashion brands, all that traffic just means additional server costs, moderation costs, and more overhead. Fifty of Twitter’s 100 largest advertisers have stopped spending on the platform. It’s highly likely the other 50 have significantly reduced theirs, which could mean revenue from Twitter’s major advertisers is down 70% or more. If this is a proxy for the rest of the ad base, then Elon — in less than a month — has turned a $5 billion business into a $1.5 billion business. Put another way, Musk might have paid 30 times revenues for the platform. The faster growing, more profitable Meta and Google, trade at four and six times revenues, respectively. In the first month, this is already the second worst acquisition in history.

It’s still early, but Elon’s commitment to free speech appears to amount to letting right-wing trolls back onto the platform and selling blue checks for $8. Despite media reaction, the blue check proved the most powerful ROI vehicle in the history of media. One (fake) account was able to destroy $5 billion of Eli Lilly’s market cap with a single tweet announcing the company would offer insulin for free. Note: It isn’t.

Meanwhile, as he plays to the red cheap seats, Elon is winking and nodding to advertisers that all the rhetoric is just jazz hands. He assured advertisers he wouldn’t let the site descend into being a “free-for-all hellscape.” In fact, he’s claimed the company’s content moderation strategy “remains absolutely unchanged.” This is mostly true. Outside of readmitting the Babylon Bee and some other bits of right-wing noise, he hasn’t opened the floodgates.

However, with nearly the entire content moderation team escorted by security out of the building, you are likely going to see several Cat 5 objectionable content shitstorms hit the platform.

The relationship between content moderation and value creation is clear; it’s positive. In sum, the more moderated a platform, the stronger the growth and enterprise value. The Wild West of (no) moderation are 4chan and 8chan. They are literally worthless, garnering a fraction of the traffic of Twitter. The “free speech as a strategy” platforms — Gettr, Rumble, and Parler — are out of business, they just don’t know it yet. The quasi-moderated platforms Facebook, Instagram, Twitter, and YouTube are collectively worth about half a trillion dollars. And the most ascendant digital media company in history is likely the most moderated: TikTok. Whatever you believe a private firm’s approach to free speech should be is mental masturbation. Moderation drives revenue, and revenue is oxygen.

Driving away advertisers is asphyxiating Twitter. But it gets worse. Elon has saddled the business with an unsustainable debt load that requires $250 million in quarterly interest payments. But wait, it gets even worse, because much of that debt is floating — meaning every time Jerome Powell opens his mouth, Twitter’s interest payments increase $100 million.

What all this means is that Elon may have to come up with $3 billion or $4 billion a year until he turns the SS Twitter around, or the Wall Street banks he spent six months jerking around will escort the firm into bankruptcy court and take the keys away from him.

And there’s a decent chance he won’t be able to come up with the cash. Yes, he’s the richest man in the world. But wealth and liquidity are not the same. Elon’s liquid wealth (i.e. wealth he can convert to cash) is mainly in shares of Tesla. According to the automaker’s SEC disclosures, Elon has pledged 277 million of his 445 million shares toward personal loans. And those disclosures were made before he bought Twitter — it’s possible he’s pledged even more. On top of that, he’s already sold $35.8 billion of his Tesla holdings just in the past year, to pay taxes and buy Twitter. Stocks trade on supply and demand, and as Elon sells he’s increasing the supply. In his last round of selling, he dumped $4 billion of TSLA onto the market between November 4 and 8. The stock price fell every single one of those days, from $215 to $191 overall. (The S&P 500 was up 3% over that period.) For typical billionaire purchases (i.e., $100 million yachts), Elon’s liquidity needs will not move Tesla stock. But  billions here,  billions there — he risks a downward spiral that could result in margin calls and the stench of a forced seller that will keep new buyers of TSLA at bay.

Regardless, Tesla is a $600 billion company, which does provide Musk with some breathing room. However, about that …

Pre-shock

The earthquake to the pre-shock of Twitter is happening at Tesla. Specifically, Elon’s not-so-great, really bad, awful decision to acquire Twitter is contaminating the EV maker. Tesla’s brand equity has taken a hit, as it’s inextricably linked to Elon and his actions. Apart from where you live or the university you went to, a car is the ultimate self-expressive benefit brand — you are what you drive. And buyers will increasingly decide they do not want to express many of the qualities Musk is displaying. Specifically, he has politicized the brand, and a core cohort of his market (affluent Democrats) are less likely to buy a Tesla. True story: I recently sold my Falcon ModelX and, before selling, took a dump in the passenger seat. The first part of the last sentence is true.

In the past month alone, the net favorability of Twitter among Americans declined 5%. That’s bad for Elon. What’s catastrophic for Elon is the contagion: Tesla is faring worse. In the same period, net favorability of the Tesla brand dropped 6%. Among Democrats, it’s down 20%. Few brands fall this far this fast.

The brand erosion, coupled with the explosion in EV choices, will likely dampen growth. The earthquake to the pre-shock of $30 billion in immolated value at the Blue Bird is the possible destruction of $300+ billion in shareholder value I believe Tesla could register over the next 12 months. The past 12 months have seen the most powerful force in the markets — that is, reversion to the mean — rear its ugly head. And there is serious reversion knocking at the door here. That said, even after the 50% decline that TSLA has experienced the past year, it could get cut in half again and still be worth more than the most iconic German and U.S. car manufacturers, combined.

Q: How do you lose the value of seven Twitters? A: You fuck up the Tesla brand with … Twitter.

Note: There is serious confirmation bias all over the previous paragraph.

What Can Be Learned?

The gelatinization of truth in our society, combined with an idolatry of innovators, has created warring cults that prey on our biases. My favorite saying is “nothing is ever as good or as bad as it seems.” In the U.S. now, nothing is ever as “anything” as it seems. SBF spoke at the Dealbook conference yesterday. Afterward, this question was posed to me (several times): Do you believe him? Yes, I do believe him. I believe he believes he did not commit fraud. He did. We, as a species, cannot choose whether we worship — it’s hard-wired into us. We can choose who we worship. And we choose to worship tech billionaires who demonstrate a lack of grace, personal hygiene, or guardrails. SBF is a spectacle, but if not him … it would have been someone else. Opting for the individual, the innovator, over institutions led to “trustless” systems we couldn’t trust. And confirmation that power corrupts.

Elon paid 30 times revenues for a super virus that has escaped the Twitter lab to infect Tesla, where it may destroy a third of a trillion dollars within a year. Why does this make me happy — joyous, even? I must be biased.

Life is so rich,

P.S. Last call to sign up for Predictions 2023 on December 7. Don’t miss it.

 

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The Cosmic Opportunity

Day-to-day news is relentless, especially when the news medium … Twitter … is the news. In the moment, it’s easy to let insignificant issues command an unreasonable share of time, energy, and attention. Yours may not be a billionaire bulldozing social media, but you likely have one. Someone at work, an argument with a friend, something in the news … anything. We are programmed to think we’re the center of the universe; that right now is the only moment, what’s on the surface is the only reality. Sometimes, it helps to pause, and reflect on other moments.

Two years ago, we were trapped in what felt like a moment that would never end, with no travel, home school, little socializing (Zoom happy hours, are you kidding me?) and the unseen threat of a microscopic virus haunting every interaction. Yesterday I had Thanksgiving dinner with my family and my friends. In person.

I wrote the following piece mid-pandemic. Reading it now, I am grateful. Grateful that, at the very least, things feel … normal.

[The following was published on May 1, 2020.]

So, there was a time when there was … no time. Before the Big Bang (a dot that exploded) there was no time. Are we pre dot? Sheltering in place, time feels amorphous and nonlinear.

Time has a lot to do with our perception. Our focus on different things at different levels of intensity creates deceleration/acceleration and other opposing forces that coexist. It feels like forever since I hung out with friends and expectorated droplets into the air of an overcrowded East Village restaurant. Concurrently, time has lost purchase. The last six weeks have been a blink of the eye. Time stands still, yet accelerates.

So, around 14 billion years ago, within a trillionth of a second, the dot exploded, inflated the universe, and set in motion a series of events where stars gravitated together to form galaxies. Planets coalesced around newly forming stars, including our own sun. And 3.7 billion years ago, life took root on Earth.

Time is linked, and benchmarked, to motion — the rotation of the earth and moon that mark our days and years. Recently, the markers of coming and going to work and week vs. weekend have become amorphous. In this fluidity of time it feels as if gravity is pulling me toward my own singularity. If the previous sentence sounded like “time flies,” trust your instincts.

As an atheist, I believe that my soul’s progress and motion is finite. My atheism, while lacking the comfort of an invisible friend, motivates me to focus on how to slow down the most linear and irreversible of things … time. I don’t count on an expansion, the infinitude of an afterlife. For me it’s all here, now. Or maybe it’s just the edibles speaking. But I digress.

Variance

My colleague professor Sonia Marciano introduced the concept of variance, and the gangster move of focusing on the piece of the supply chain with the greatest discrepancy. If you’re a car manufacturer and dealerships present a broad range of experience, then you should focus your resources on dealerships. Apple and Amazon recognized the huge delta in distribution and fulfillment and achieved the greatest unlocks in retail history with Apple Stores and Amazon Fulfillment. Look for opportunities where variance and weight are highest.

Time is linear, but motion through, and progress against, time can fluctuate due to an exogenous shock (a global pandemic). There are moments — when the progress of your peer group has greater variance — that offer unique opportunities to detach from a fixed path and cover more distance relative to peers, in less time.

Functional Speed and Thanksgiving in Europe

Hall of Fame receiver Jerry Rice wasn’t that fast, but he had “functional speed,” the instincts to accelerate or decelerate when it mattered most. When I started L2, we used to go to Europe over Thanksgiving, as Europe was open for business on the Thursday/Friday of that week. If I sound like a workaholic, I’m not. I am outstanding at not working and have a passion for it. However, my leisure is possible because I recognize when to come to play — turn on the jets.

We’d do Burberry/Unilever in London on Thursday and LVMH/Chanel in Paris on Friday. In sum, we worked while others were resting … and lapped the competition. It’s not just working harder than your peers, but knowing when to go hard at it … when there’s variance.

This. Is. That. Time.

The motion/progress of corporate America toggles between 0 and 100% during a pandemic. As Condé Nast and Axios spend most of their time laying people off, or applying for PPP loans only to be shamed into returning them, Facebook strikes a deal with JioMart in India to monetize a 400 million strong WhatsApp. While most firms and people are operating at reduced speeds, this is the time to go to Europe over Thanksgiving, and apply functional speed.

Note: not suggesting anybody travel right now … it’s a metaphor.

The Profound Opportunity

The cardinal opportunity in this pandemic is the chance to repair and strengthen relationships. The majority of medals and recognition bestowed on our women and men in uniform is a function of one thing: grace under fire. Your character, and the perception of your character, is a sum of all your actions across your entire life. But the sketch of these actions is traced over with the indelible ink of the grace, or lack thereof, that you demonstrate in times of crisis.

The chart below is a decent framework for helping yourself and others. Isolation fosters introspection. If the growth zone is too far off right now, or if you’re struggling with mental health or addiction issues, then just getting through the day is good enough during a pandemic. You’re a loving person and a responsible citizen? That’s mostly what’s asked of you. You might find, however, that taking a moment to think big picture, or how you could help others, can elevate you above the fear zone. Generosity produces more endorphins in the brain than self-interested behavior.

Take pause, arrest time, and ask yourself:

Do you have the relationship with your parents you want?Is your relationship with your siblings where you would hope it is if you had to say goodbye right now?Could you better embrace the camaraderie and joy of friendships diminished due to perceived slights or a lack of effort to stay in touch?

I’m still too insecure, self-conscious, and clinging to a bullsh*t cartoon of masculinity (quiet = strength) to express the admiration, affection, and love I feel for family and friends. Working on it.

It’s all going so fast. It was a blink of an eye when I looked up at the commencement crowd at Berkeley’s Greek theater and saw my mom waving at me. I got a job, got married, and was just starting to be the caregiver she was to me. And then, in a blink, she was gone.

That was 25 years ago. In another blink, I’ll be near the end. One of my fears is that time continues to accelerate, and I’ll have let my own insecurities and bullsh*t get in the way. That they will diminish the opportunities to achieve the only thing that matters: deep, meaningful relationships … and it will be too late.

The pandemic has created variance and a meaningful chance to lap the competition. And it’s given us a profound, maybe once-in-a-lifetime opportunity to be the man or woman our kids think we are, and our parents hoped we’d be.

There are so few absolutes. One is that no one, near the end, wishes they had been less forgiving, less generous, or less loving during times of crisis. Time has slowed, for the moment, and we are given the opportunity to repair and strengthen in weeks what can take decades.

Life is so rich,

P.S. Learn what it takes to get a business within striking distance of $1 trillion. Enrollment for my Business Strategy Sprint closes Tuesday — sign up here.

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AI

Lately tech has been about failures. How technology has failed us. The more sober assessment is that humans are failing tech. Social media may be ruining childhood, and crypto has immolated billions of dollars. But it’s grown-up children that are ruining social media and pumping crypto. The problem? Tech has moved to the front of the house when it’s meant to play a supporting role. Answers in search of questions.

Each year brings a new new thing in tech: wearables, mobile, 3D printing, blockchain, Web 3.0, the metaverse. Some live up to the hype, most do not, and a few exceed it. So … what is the tech of 2023? And more important, will it support societal improvement, or merely transfer more capital to the fast movers and the already wealthy? Artificial intelligence. I believe we’re in the midst of a great leap forward in AI, and that this tech will be transformative, not just lucrative, thanks to its utility.

Just in the past few months we’ve seen progress in AI capabilities that has left even skeptics impressed. A “golden decade” one researcher called it. A scientist at the Max Planck Institute said, “This will change medicine. It will change research. It will change bioengineering. It will change everything.” This year’s State of AI report shows a hundred slides of accelerating progress. In 2020 there wasn’t a single drug in clinical trials that had been developed using an AI-first approach. Today there are 18. An AI system developed by vaccine pioneer BioNTech successfully identified numerous high-risk Covid variants months before the WHO’s tracking system flagged them. Ukraine has used AI to reduce the time needed to order an artillery strike from 20 minutes to less than 60 seconds.

Investment has followed. Over $100 billion has been invested in AI startups since 2020, and funding doubled in 2021. There are 102 AI unicorns in the US and 38 in Asia.

Category vs. Intensity

AI is not strictly defined, but (roughly) it’s a computer system that makes decisions in an independent and flexible way — distinguished from other computational processes by the category of problems its solves vs. their intensity. A calculator processes numbers with speed and precision no human can duplicate, but it produces rote, unvarying results based entirely on its own internal logic. It’s not “intelligent.” The system on my phone offers three options for each word I type; it is “intelligent,” because it’s making complex decisions based on evolving inputs. Computers often do things humans cannot. What distinguishes AI is that it does things humans can do, but usually better, faster, and cheaper.

AI has been in pop culture for generations. (“I’m sorry, Dave, I can’t let you do that.”) And it’s quietly been present in our lives for almost as long. Some places AI is having an impact today include: 1) Navigation apps: Plotting the best route across town, assessing different roads and conditions, and offering an eerily accurate ETA. 2) Fraud detection: AI systems can catch fraudulent charges before you know you’ve lost the card and deny them. 3) Social media: TikTok’s ability to discern our preferences and addict our children (and parents) is AI feasting on swipes, likes, and scrolls (i.e., data). While Tim Cook kneecapped the Zuck with the ability to opt out of tracking, AI has been the workaround for the Chinese app. The weapon of choice in the war between Big Tech players is AI.

AI’s contributions to transportation, finance, and media already dwarf any value recognized from crypto. Fun fact: There are few AI companies domiciled in the Bahamas. AI will generate continued progress across disciplines, just as the internet and PCs do. That’s newsworthy, but not what’s motivating billions in investment.

What’s different about AI is that it solves real-world problems, specifically problems that are … fuzzy. These have proven stubbornly resistant to traditional computing. Fuzzy problems are all around us; communication is rife with them. Speech recognition, for example, was stagnant for decades. AI is pushing it forward; we are closing in on substantive natural language communication (e.g., Siri will suck less and Alexa will be even better). Content moderation is a fuzzy problem, and difficult for humans. Investing, driving, and a lot of semi-skilled tasks are also fuzzy. Robotics is a set of interconnected fuzzy problems. The majority of life’s challenges and questions have no one right answer, but augur questions (additional data capture) that gets us to better answers.

AI recognizes patterns and evaluates options. Which Twitter post keeps me engaged, what price on Amazon inspires me to hit the buy button, and whether or not I meant to leave my AirPods at home. The past few months have witnessed an explosion of “generative AI” — systems that create new options.

Look What I Made

Within a few months of one another, three different image-generating AIs were made public. Dall-E, Midjourney, and Stable Diffusion are variations on a theme. You enter text, and in a few seconds the system generates an image. Ask for “a portrait of an alien with Kodak Professional Portra 400 film stock, shot by Annie Leibovitz” or “Cookie Monster reacting to his cookie stocks tanking” or “Homer Simpson as a Greek god statue,” and boom. Dall-E was developed by OpenAI, a company originally funded by, among others, Elon Musk. It also received a billion-dollar investment from Microsoft. The app has 1.5 million users producing 2 million images a day. Stability AI closed a $100 million round last month. Midjourney is already turning a profit — one of its images was an Economist cover, and another won a prize at the Colorado state fair. A sign of things to come: They’re approaching the web traffic enjoyed by major stock photo houses.

Coming soon are text-generating AIs. The user enters a text prompt and asks for a type of output (promotional email, blog post, FAQ) and the system spits it out. Jasper, an AI writing tool, recently closed a $125 million funding round. Microsoft’s GitHub CoPilot, which has been in the field for a year, offers programmers suggestions as they code, a more robust version of Google Docs’ type-ahead recommendation feature. GitHub claims that once coders enable CoPilot, they let it write 40% of their code. Look for a profusion of “CoPilot for ___” apps coming soon. These systems work best in structured environments such as coding. They struggle in more freeform areas such as humor. Alan Turing suggested this test for artificial intelligence: Could it convince us it was human? But a better test may be if it can make us laugh. See above: Fuzzy.

These systems could supplement or replace human creators in many sectors. They can be powerful tools for ideation, generating many variations on a theme, particularly something that can be subsequently tweaked and improved by a human artist. Designing logos and writing tag lines, for example. AI is already being used by some media outlets to generate passable stories on topics including local sports, where there is ample data from which the system can create text. (“The Giants led at halftime, only to fall behind by 14 when the Mustangs scored two touchdowns in the third quarter.”) Video generation is under development, and with it, customized media. (“Siri, show me a 110-minute movie about a handsome bald man who overcomes great odds to make his fortune as the world’s greatest bartender, in the style of Stanley Kubrick.”)

The profusion in generative AI systems stems from a technical breakthrough made a few years ago by researchers at Alphabet’s Google Brain research group. These systems are “neural networks,” software that “trains” by reviewing examples — poems, recipes, faces, songs — that build an internal map of references. (It does not store the examples themselves in a library, just as our brains don’t store images of things we remember.) Once a system has reviewed a few million faces, it can reliably distinguish a fresh face from a face it has seen before, or, in the most advanced form, produce an entirely new face.

The Google breakthrough is called a “transformer” — it’s better than previous systems at seeing the whole picture (or text, or DNA strand, etc.). Computers, even advanced AIs, like to proceed step by step, and aren’t good with context. This is why a lot of AI-generated art looks like a bad Picasso, with noses coming out of the side of heads and people with no arms and too many legs. The system knows a face has a nose, but it’s not good at keeping the nose in the right place relative to the eyes and mouth. The transformer design uses clever tricks so the system can “think” about noses and eyes and mouths at the same time. Once transformer neural networks came online, improvements came fast. These two images were generated just a few months apart — the images are not perfect, but improving.

Hype Cycle

Froth accompanies turbulence, and with the increased pace of AI, the hype machine is kicking into gear. Generative AI images are the Bored Apes of AI (which is a thing), and no doubt there will be AI scams, or people with large social media followings pumping and dumping AI-centered investments, tokens, projects, etc. The comparison with crypto is worthwhile. Partly as a cautionary tale, but also for contrast.

Crypto was supposed to change the world. Before sinking into Bahamian sand, FTX likened itself to the invention of: the wheel, the toilet, coffee, the Constitution, the lightbulb, the dishwasher, space travel, and the MP3 player. Crypto is half of a revolutionary technology. The promise half: digital money that removes intermediaries and trust. Created by an entity known only as Satoshi Nakomoto and running on something called a blockchain opaque enough to appear to have massive promise. Unrealized potential. All of which attracted capital. More capital meant more storytellers, more storytellers meant more promise, more promise meant more capital, and the wheel turned.

To date, the new wheel is a highly levered Ponzi scheme, because crypto is missing the other half of any enduring technological innovation: utility. We know AI has utility. It’s powering our search engines, medical research, and fraud detection. Judge a technical revolution by its utility, vs. hype. The year 2022 is not the crypto equivalent of 2000 for the internet, as in 2000 most of us were using the internet.

Similar to any tech that scales, or any mechanism that refines one thing into another, creating economic value, AI brings externalities. AIs that evaluate résumés tend to favor White men, because that’s who’s in the sample set. AIs that evaluate crime risk tend to disfavor Black men, for similar reasons. It’s computationally intensive and requires expensive data centers that only governments and the wealthiest companies can afford. But it has a story, and utility. Something 2021 and 2022’s technologies (Web 3.0 and the metaverse) did not offer.

Predicting the Future

AI still can’t predict the markets, much less the future. The best method, still, of predicting the future is to make it. In three weeks I will travel to Doha with two rabid fans (my 12- and 15-year-old sons) who will demonstrate enormous vocal and emotional support for a team so as to pull the future forward and witness the following:

Similar to Hal 9000, I’d like to believe I can dream.

Life is so rich,

P.S. Making predictions is a shitty business – yet I persevere. Predictions 2023 is happening on December 7. Sign up here.

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Hubris

The rich get richer.

Data supports it. In the past three decades, the share of U.S. wealth held by the top 1% has gone from 24% to 32%. Like most cliches, “the rich get richer” became a cliche because it’s true… of money, and power. The powerful tend to aggregate more power, incumbents get reelected 90% of the time.

It makes sense. Money buys you power and influence, which begets more money, which buys more power and influence. This is the basis of capital accumulation and wealth creation — a virtuous upward cycle. It’s also the reason we (should) have progressive taxes and regulation: to prevent the natural order of economics from doing its thing, making rich people richer and poor people poorer.

What makes less sense? Why does one person or firm not have all the power? Why don’t a few families control all the wealth, one or two governments control the globe? Why isn’t there a president of Earth? As much as it seems that power and wealth are centralized, the world’s richest man owns just 0.04% of the world’s net worth.

Throughout history, nobody has come close to amassing total control. The mightiest empires were still minority owners of planet Earth. Before her death in 1901, Queen Victoria oversaw a kingdom that spanned roughly a quarter of the globe’s land surface and ruled just 23% of the world’s population. At its peak in 1300, the Mongol Empire controlled about 18% of the Earth. The Roman Empire was even smaller (4%).

As they gained territory and resources, each empire continued to expand. Brits in 1910 had witnessed six decades of growth. With each land grab came greater stores of resources, more coffee and molasses to import to their island. This created new markets and business opportunities to fund more land grabs. And the wheel turned.

However, from the British Empire to the Qing Dynasty to the Ottomans, they all have one thing in common: They all fall.

Balance

A celestial pillar of the universe is that it abhors absolute control. No individual or institution has ever achieved it. Apex predators cannot eliminate their prey without starving themselves. If there are too many wolves eating too many deer, the wolf population declines, as they run out of deer to feed on. Balance is fundamental to ecological systems, and the same is true (over the long term) in our human-made world.

But Why?

A powerful entity or person collapsing under the weight of their own success is not a novel concept. The Ancient Greeks had a word for it: hubris, an excessive confidence in defiance of the gods. For us, it means excessive confidence preceding downfall. Which more or less equates to the same thing, because for the Greeks, defying the gods almost always led to death.

A more recent version of this ancient story that fits our tech-obsessed moment is Frankenstein. Inebriated on his own brilliance, Dr. Frankenstein tries to defy the natural order and create life. In doing so, he makes something too hideous to contain, and that’s his doom. His last words in the novel are an instruction to “avoid ambition.”

Corporate

Corporate hubris takes various forms. Research shows overconfident CEOs are prone to distorting their investment decisions: They overinvest when cash flows are strong, and cut too deep when they need external financing. Case in point is Meta, where we’re witnessing hubris play out in dramatic form. The unconstrained boy-king is betting his company — his shareholder’s company, really — on a fever dream in which he is God in a world littered with Nissan and Nespresso billboards, a “metaverse.” More recently, FTX founder Sam Bankman-Fried believed he could defy the laws of economics and borrow against large sums of a fake currency he made up. Essentially, Bankman-Fried constructed the Burj Khalifa on a foundation of quicksand. And now comes the fall.

A desire to keep things as they are can also initiate a slow burn to the ground. The innovator’s dilemma is not a function of arrogance, but limits — the limits power imposes. A colleague of mine at NYU, Aswath Damodaran, has done important research on the life cycle of successful corporations. Vibrance and innovation fuel their ascent, but the comforts of cash flows and the desire to keep them flowing make them slow and afraid. The best companies build moats so they can protect their earnings and extend their lifespan. The next best firms recognize they are maturing and age gracefully: They return money to shareholders, distribute dividends, and pay debt down. Also, few CEOs invest the GDP of Costa Rica into a megalomaniacal, yet lame, attempt to replicate our world … without legs. A digital Frankenstein, if you will.

Success can be our undoing when we’re promoted beyond our true capabilities. The Peter principle holds that because people get promoted on the basis of prior performance, they will inevitably rise to the level of their incompetence. Our brains make it easy for our ambition to exceed our ability: The Dunning-Kruger effect describes a demonstrated cognitive weakness, that the less we know about something, the more we overestimate our knowledge. That’s why stupid people, and people who make great cars and then buy media companies, are so dangerous.

This has been a banner week for the powerful coming undone. In no particular order, the largest social network company in history, Meta, which has lost more than two-thirds of its value over the past year, announced it was laying off 11,000 people; the most prominent crypto billionaire lost nearly his entire fortune after he overleveraged his empire to keep it expanding; and the richest man in the world … impregnated a bathroom sink before putting on a master class on how power corrupts.

Elon’s comical first few weeks at Twitter have gone worse than expected, and most people expected a train wreck. As I write this, the most recent news is that Twitter’s senior InfoSec and Privacy executives quit. They haven’t disclosed the details, but it seems likely they were asked to do something they believed to be illegal or unethical. That’s in the midst of an ongoing collapse of verification on the platform, a new policy that “comedy” is allowed (unless you’re making fun of Elon), and a steady flow out the door of the engineers who know how Twitter’s service actually works.

The inevitable collapse of the powerful is a good thing, and I’m glad we live in a universe that embraces this as a governing principle. Absolute power and wealth concentration are incompatible with the innovation that characterizes humanity’s upward movement. The crashing to Earth can cause collateral damage, but it’s a creative destruction.

What is the lesson, what can be learned? Every day, no matter how successful we become, we need to earn our success. We need to be kind and appreciative; we need to surround ourselves with people who will push back on us and question our beliefs and actions. We need to demonstrate humility. You are never more susceptible to a huge mistake than right after a big win, when you begin to believe the falsehood that your success is all about you. Yes, you’re brilliant and hardworking, but greatness is in the agency of others, and timing (and other features of luck) is everything.

The flip side is less discussed but more important. When you’ve fucked up, when things are going poorly — a relationship ends, you have professional disappointment, or you’re in financial stress — forgive yourself. Mourn, then move on. And moving on means finding the people and activities that give you the strength and confidence to believe you have value, that you are the solution to your firm’s needs, and that you could make someone else’s life wonderful. I have known many really successful people. But there’s a distinction between success and happiness. The delta boils down to registering one truth and surviving the accompanying emotions: Much of your failure, and your success, is not your fault.

Life is so rich,

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

Elephants in the Room

In 2017 I wrote a book about Amazon, Apple, Facebook, and Google called The Four. After working my ass off for 25 years, I became an overnight success: speaking gigs, appearances on cable news and talk shows, book and podcast deals. I spent a bunch of time with elected officials, and powerful people wanted to have lunch with me. People were fascinated — shocked, even — by this simple observation: Big Tech is powerful, maybe too powerful.

Much of the concern was a function of the ad-driven nature of platforms — algorithms that tapped into good/bad aspects of human nature to addict us. Most people knew how Facebook and Google made money, but not how they actually worked, how the ad revenue was fueled by the collection of data and the harvesting of attention. In fact, the phrase “Big Tech” was barely known back then. (Check the Wikipedia entry for Big Tech and see which NYU professor is credited with defining the category.) I just read the last sentence and realized I still crave other people’s affirmation. #Pathetic.

Anyway, things are different today. We know we’re being tracked, and we understand how digital platforms make money. We also know they are lucrative, as in, among the fastest growing, most profitable businesses in history. Since A Beautiful Mind won Best Picture in 2002, Google has grown its revenue 625-fold. Digital ads transformed the company from a garage project into a multinational corporation, and turned Meta from a college-campus website into the largest media business in the world. If you had to bet everything, it wouldn’t be a bad idea to go with whoever controls our attention. Meta or Google? Safe bets. Snap? Riskier, but the moppets love it. It’s fun to flirt with other sectors and firms, but these companies are the smart, safe bets.

Until now.

Sea Change

This is proving to be a historically bad year for tech. Few saw it coming. If you bought Facebook stock in 2015, you’ve lost money. If you purchased shares of General Motors, IBM, or Chevron, you’ve made more money than Meta shareholders. Seven years of gains, erased in 10 months. Meta’s meltdown is shocking, but not singular. Google is down 40% this year, Amazon 45%, and Snap 80%. These losses are unprecedented in the Big Tech era.

As with bankruptcy, the sell-off happened gradually, then suddenly. Last week was a turning point. Amazon, Google, Meta, and Snap all missed big on earnings. The common theme? Ads. Or lack thereof. We knew the Mad Men era had come to an end; we weren’t expecting the end of Ad Men. But let’s be honest, advertising sucks. Cable ads provide a glimpse into what it’s like to have restless leg syndrome, and digital ads, while more relevant, are carbon — the noxious byproduct of converting attention into shareholder value via algorithms that bring out the worst in the species. I’ll say it again, advertising sucks.

In a surprising turn of events, ads have become Big Tech’s Achilles’ heel. Google’s ad revenue grew just 3% this quarter, down from 43% growth a year ago. For the first time, YouTube ad revenue declined. Snap registered its slowest ad revenue growth ever. Meta’s ad sales, which make up more than 98% of the business, were a trainwreck. Meanwhile (and yes, this brings me joy) the company continues to incinerate $2 billion a month feeding Mark’s fever dream that he is a god of new worlds. BTW, it appears people are more likely to worship Tom: MySpace has more traffic than Meta’s Horizon Worlds.

Macro

What is/are the meteor(s) that have struck the Gengis & Khan of ads? Meta says the problem is “the uncertain and volatile macroeconomic landscape.” Google blames “the challenging macroclimate.” Snap, “macro headwinds.” Macro, as in, rising inflation, interest rates, and supply chain issues all conspiring to depress advertising demand. And it makes sense, because if people stop spending money on stuff, then the businesses that make that stuff have less money to spend on advertising.

But here’s where it gets scary for these companies’ shareholders: The “macro” culprit is a ghost, as people haven’t stopped spending. U.S. consumer spending beat expectations in September, rising 0.6% for the second month in a row. Meanwhile, the U.S. economy is doing, well, fine — U.S. GDP grew 2.6% last quarter. Of course, there’s still a lot of uncertainty. Growth has slowed, and we’re by no means in the clear. But the weakness we’re seeing in the macroeconomy is a drizzle compared to the Category 5 shitstorm we’re seeing in digital advertising.

The state of the economy is a distraction here. Something else is killing ads, and tech companies are reluctant to acknowledge it because, unlike the economy, it’s not cyclical but structural. Hint:

Elephant No. 1

The elephants in the room are Apple and TikTok. Apple is the larger of the two, figuratively and literally. Last week, the Cupertino giant cemented its position as the most enduring tech company in history: Facing the same macro headwinds as Google and Meta, Apple beat earnings expectations on both the top and bottom lines. At $2.4 trillion in market cap, the company is roughly 10 times more valuable than Meta. Three years ago, it was twice as valuable. It’s getting easier to understand why the Zuck wants out of this universe.

Executioner

Apple may be the last thing an ad-driven platform sees before everything goes black. A year ago, Apple’s iOS upgrade forced apps, including Facebook and Instagram, to ask users for permission to track their data. Meta relies on that data to serve personalized ads that garner greater clicks and sales. So if users opt out, the ads become less effective, and Meta, dramatically less valuable.

But few predicted the change would hurt Meta this much. Turns out when Apple’s privacy prompt pops up, only 16% of users agree to being tracked. And if data is the new oil, ad platforms are losing 84% of their Brent Crude. Apple has gone Putin on Meta’s Germany by cutting supply — though this decision was positioned more virtuously, in the name of privacy, vs. war.

Without data, the digital ad ecosystem doesn’t work. I saw this play out in real time. Here at Prof G Media, we collect data — specifically, whether or not you opened this email. It’s not powerful data, but it’s data. It helps us understand what resonates. However, several months ago our open rate fell off a cliff. Why? Apple’s privacy change: Every iPhone reader started showing up as a no-open. Overnight, our data had become useless.

This newsletter isn’t monetized, so the data blackbox isn’t a game changer. But for most online businesses, it’s dire. Small e-commerce companies across the country have seen customer acquisition costs skyrocket … by 10 times. Why? The ads are no longer shown to the right people at the right time. As a result, small businesses have had to shift spend. Since the iOS upgrade, almost half of e-commerce store owners have decreased their Facebook ad spending by 25% or more. This year, the average price of ads on Meta declined 20%. One year ago, before the privacy change, prices had risen 20%. Tim’s revenge turned Meta, overnight, from a spry, twentysomething growth stock into a Golden Girl, mature and complaining.

Elephant No. 2

In advertising, the pie stays the same. The industry has consistently accounted for roughly 1.3% of U.S. GDP. Which means a couple things: 1) There’s always demand, and 2) it’s a zero-sum game. As with foreign exchange, every increase is met with a commensurate decrease somewhere else.

So if the money isn’t going to Facebook, where is it going? The phantom menace here is TikTok. Last quarter (the same quarter Google, Meta, and Snap got crushed), TikTok was the highest-grossing app for the fourth consecutive quarter — meanwhile, the rest of the app market declined. It was also the most downloaded app on the App Store, and more than a quarter of Americans under 30 now get their news from it. TikTok’s global ad revenue will triple this year, to $12 billion, which would best the revenue of Snap and Twitter combined. That number doesn’t include Douyin, TikTok’s China-based counterpart. ByteDance, the parent company that houses these assets, was recently valued at $300 billion. That’s roughly equal to Meta, Snap, and Twitter (at Elon’s inflated price) combined.

TikTok’s growing influence is well documented. We’ve discussed it many times before. Less discussed is the extent to which Xi and Cook have formed an unspoken alliance to repel the advance of Meta. The company is in full-blown retreat. After Facebook and Instagram ads became less effective, ad buyers overwhelmingly turned to TikTok. Standard practice, according to one ad firm, was to move 10% to 15% of ad spend from Facebook to TikTok. The data is opaque (part and parcel of ByteDance being China-owned), but the trend is clear: TikTok is becoming the premier ad platform.

You’d think TikTok would be just as susceptible to Apple’s privacy change as Facebook. After all, TikTok’s ads are fueled by an algorithm, which is fed with your data. But research suggests TikTok is more insulated against Apple’s privacy change than others. According to cybersecurity experts, TikTok can circumvent Apple’s code audits and track activity without the user’s knowledge. Exactly how this works is (again) not so clear, and that’s the point — as one expert pointed out, “ByteDance has gone to monumental lengths to conceal the inner workings of the app.” What could go wrong?

Rangers

I’m on a plane as I write this, taking my sons to see the Glasgow Rangers play St. Johnstone in Perth, Scotland. We are football mad, and I want my sons to see my dad’s favorite team in a 10,000-seat stadium. I’m trying to re-create a memory my dad used to tell me about, when he and his father went to this same game — the Rangers were his team. He’d get emotional talking about that day, one of his few memories of doing something, alone, with his father.

About 20 years ago, I stopped dwelling on my dad’s shortcomings, put the bullshit aside, and decided to be the son I’d like to be … full stop. The catalyst for this was his sister telling me he’d been physically abused by his father. He had never mentioned this. The idea that the person you should trust most would beat you, and the damage that must do to a young soul, is unthinkable. When I told my dad about our trip, he didn’t remember who the Rangers were. He’s 92 and struggling. As his attention and memories are disappearing, I’m riddled with questions that will likely never be answered: What planes did he repair while serving in the Royal Navy? My mom, his second wife, told me his first wife tried to kill herself after he told her he was leaving her — is this true? Another difficult subject I never had the confidence to broach. All of a sudden, a ton of questions.

This weekend, I will take a bunch of videos of us rooting for the Rangers and send them to my father. I’ll also send them to my sons with a voiceover. I will tell them what I know of their grandfather’s affinity for the Rangers. I’ll also tell them that I have no interest in football, but love it because they love it, and it makes me feel closer to them. And that when they were born, for the first time, I knew I had purpose. That all “this” meant something.

Life is so rich,

P.S. I’ll go deeper on Big Tech and the strategies that do work for it in the Business Strategy Sprint, happening Dec 5-9. Join me. Sign up here.

The post Elephants in the Room appeared first on No Mercy / No Malice.

Elephants in the Room

In 2017 I wrote a book about Amazon, Apple, Facebook, and Google called The Four. After working my ass off for 25 years, I became an overnight success: speaking gigs, appearances on cable news and talk shows, book and podcast deals. I spent a bunch of time with elected officials, and powerful people wanted to have lunch with me. People were fascinated — shocked, even — by this simple observation: Big Tech is powerful, maybe too powerful.

Much of the concern was a function of the ad-driven nature of platforms — algorithms that tapped into good/bad aspects of human nature to addict us. Most people knew how Facebook and Google made money, but not how they actually worked, how the ad revenue was fueled by the collection of data and the harvesting of attention. In fact, the phrase “Big Tech” was barely known back then. (Check the Wikipedia entry for Big Tech and see which NYU professor is credited with defining the category.) I just read the last sentence and realized I still crave other people’s affirmation. #Pathetic.

Anyway, things are different today. We know we’re being tracked, and we understand how digital platforms make money. We also know they’re lucrative, as in, among the fastest growing, most profitable businesses in history. Since A Beautiful Mind won Best Picture in 2002, Google has grown its revenue 625-fold. Digital ads transformed the company from a garage project into a multinational corporation, and turned Meta from a college-campus website into the largest media business in the world. If you had to bet everything, it wouldn’t be a bad idea to go with whoever controls our attention. Meta or Google? Safe bets. Snap? Riskier, but the moppets love it. It’s fun to flirt with other sectors and firms, but these companies are the smart, safe bets.

Until now.

Sea Change

This is proving to be a historically bad year for tech. Few saw it coming. If you bought Facebook stock in 2015, you’ve lost money. If you purchased shares of General Motors, IBM, or Chevron, you’ve made more money than Meta shareholders. Seven years of gains, erased in 10 months. Meta’s meltdown is shocking, but not singular. Google is down 40% this year, Amazon 45%, and Snap 80%. These losses are unprecedented in the Big Tech era.

As with bankruptcy, the sell-off happened gradually, then suddenly. Last week was a turning point. Amazon, Google, Meta, and Snap all missed big on earnings. The common theme? Ads. Or lack thereof. We knew the Mad Men era had come to an end; we weren’t expecting the end of Ad Men. But let’s be honest, advertising sucks. Cable ads provide a glimpse into what it’s like to have restless leg syndrome, and digital ads, while more relevant, are carbon — the noxious byproduct of converting attention into shareholder value via algorithms that bring out the worst in the species. I’ll say it again, advertising sucks.

In a surprising turn of events, ads have become Big Tech’s Achilles’ heel. Google’s ad revenue grew just 3% this quarter, down from 43% growth a year ago. For the first time, YouTube ad revenue declined. Snap registered its slowest ad revenue growth ever. Meta’s ad sales, which make up more than 98% of the business, were a trainwreck. Meanwhile (and yes, this brings me joy) the company continues to incinerate $2 billion a month feeding Mark’s fever dream that he is a god of new worlds. BTW, it appears people are more likely to worship Tom: Myspace has more traffic than Meta’s Horizon Worlds.

Macro

What is/are the meteor(s) that have struck the Genghis & Khan of ads? Meta says the problem is “the uncertain and volatile macroeconomic landscape.” Google blames “the challenging macroclimate.” Snap, “macro headwinds.” Macro, as in, rising inflation, interest rates, and supply chain issues all conspiring to depress advertising demand. And it makes sense, because if people stop spending money on stuff, then the businesses that make that stuff have less money to spend on advertising.

But here’s where it gets scary for these companies’ shareholders: The “macro” culprit is a ghost, as people haven’t stopped spending. U.S. consumer spending beat expectations in September, rising 0.6% for the second month in a row. Meanwhile, the U.S. economy is doing, well, fine — U.S. GDP grew 2.6% last quarter. Of course, there’s still a lot of uncertainty. Growth has slowed, and we’re by no means in the clear. But the weakness we’re seeing in the macroeconomy is a drizzle compared to the Category 5 shitstorm we’re seeing in digital advertising.

The state of the economy is a distraction here. Something else is killing ads, and tech companies are reluctant to acknowledge it because, unlike the economy, it’s not cyclical but structural.

Elephant No. 1

The elephants in the room are Apple and TikTok. Apple is the larger of the two, figuratively and literally. Last week, the Cupertino giant cemented its position as the most enduring tech company in history: Facing the same macro headwinds as Google and Meta, Apple beat earnings expectations on both the top and bottom lines. At $2.4 trillion in market cap, the company is roughly 10 times more valuable than Meta. Three years ago, it was twice as valuable. It’s getting easier to understand why the Zuck wants out of this universe.

Executioner

Apple may be the last thing an ad-driven platform sees before everything goes black. A year ago, Apple’s iOS upgrade forced apps, including Facebook and Instagram, to ask users for permission to track their data. Meta relies on that data to serve personalized ads that garner greater clicks and sales. So if users opt out, the ads become less effective, and Meta, dramatically less valuable.

But few predicted the change would hurt Meta this much. Turns out when Apple’s privacy prompt pops up, only 16% of users agree to being tracked. And if data is the new oil, ad platforms are losing 84% of their Brent Crude. Apple has gone Putin on Meta’s Germany by cutting supply — though this decision was positioned more virtuously, in the name of privacy, vs. war.

Without data, the digital ad ecosystem doesn’t work. I saw this play out in real time. Here at Prof G Media, we collect data — specifically, whether or not you opened this email. It’s not powerful data, but it’s data. It helps us understand what resonates. However, several months ago our open rate fell off a cliff. Why? Apple’s privacy change: Every iPhone reader started showing up as a no-open. Overnight, our data had become useless.

This newsletter isn’t monetized, so the data blackbox isn’t a game changer. But for most online businesses, it’s dire. Small e-commerce companies across the country have seen customer acquisition costs skyrocket … by 10 times. Why? The ads are no longer shown to the right people at the right time. As a result, small businesses have had to shift spend. Since the iOS upgrade, almost half of e-commerce store owners have decreased their Facebook ad spending by 25% or more. This year, the average price of ads on Meta declined 20%. One year ago, before the privacy change, prices had risen 20%. Tim’s revenge turned Meta, overnight, from a spry, twentysomething growth stock into a Golden Girl, mature and complaining.

Elephant No. 2

In advertising, the pie stays the same. The industry has consistently accounted for roughly 1.3% of U.S. GDP. Which means a couple things: 1) There’s always demand, and 2) it’s a zero-sum game. As with foreign exchange, every increase is met with a commensurate decrease somewhere else.

So if the money isn’t going to Facebook, where is it going? The phantom menace here is likely TikTok. Last quarter (the same quarter Google, Meta, and Snap got crushed), TikTok was the highest-grossing app for the fourth consecutive quarter — meanwhile, the rest of the app market declined. It was also the most downloaded app on the App Store, and more than a quarter of Americans under 30 now get their news from it. TikTok’s global ad revenue will triple this year, to $12 billion, which would best the revenue of Snap and Twitter combined. That number doesn’t include Douyin, TikTok’s China-based counterpart. ByteDance, the parent company that houses these assets, was recently valued at $300 billion. That’s roughly equal to Meta, Snap, and Twitter (at Elon’s inflated price) combined.

TikTok’s growing influence is well documented. We’ve discussed it many times before. Less discussed is the extent to which Xi and Cook have formed an unspoken alliance to repel the advance of Meta. The company is in full-blown retreat. After Facebook and Instagram ads became less effective, ad buyers overwhelmingly turned to TikTok. Standard practice, according to one ad firm, was to move 10% to 15% of ad spend from Facebook to TikTok. The data is opaque (part and parcel of ByteDance being China-owned), but the trend is clear: TikTok is becoming the premier ad platform.

You’d think TikTok would be just as susceptible to Apple’s privacy change as Facebook. After all, TikTok’s ads are fueled by an algorithm, which is fed with your data. But research suggests TikTok is more insulated against Apple’s privacy change than others. According to cybersecurity experts, TikTok can circumvent Apple’s code audits and track activity without the user’s knowledge. Exactly how this works is (again) not so clear, and that’s the point — as one expert pointed out, “ByteDance has gone to monumental lengths to conceal the inner workings of the app.” What could go wrong?

Rangers

I’m on a plane as I write this, taking my sons to see the Glasgow Rangers play St. Johnstone in Perth, Scotland. We are football mad, and I want my sons to see my dad’s favorite team in a 10,000-seat stadium. I’m trying to re-create a memory my dad used to tell me about, when he and his father went to this same game — the Rangers were his team. He’d get emotional talking about that day, one of his few memories of doing something, alone, with his father.

About 20 years ago, I stopped dwelling on my dad’s shortcomings, put the bullshit aside, and decided to be the son I’d like to be … full stop. The catalyst for this was his sister telling me he’d been physically abused by his father. He had never mentioned this. The idea that the person you should trust most would beat you, and the damage that must do to a young soul, is unthinkable. When I told my dad about our trip, he didn’t remember who the Rangers were. He’s 92 and struggling. As his attention and memories are disappearing, I’m riddled with questions that will likely never be answered: What planes did he repair while serving in the Royal Navy? My mom, his second wife, told me his first wife tried to kill herself after he told her he was leaving her — is this true? A difficult subject I never had the confidence to broach. All of a sudden, a ton of questions.

This weekend, I will take a bunch of videos of us rooting for the Rangers and send them to my father. I’ll also send them to my sons with a voiceover. I will tell them what I know of their grandfather’s affinity for the Rangers. I’ll also tell them that I have no interest in football, but love it because they love it, and it makes me feel closer to them. And that when they were born, for the first time, I knew I had purpose. That all “this” meant something.

Life is so rich,

P.S. I’ll go deeper on Big Tech and the strategies that do work for it in the Business Strategy Sprint, happening Dec 5-9. Join me. Sign up here.

The post Elephants in the Room appeared first on No Mercy / No Malice.

The Line

There was controversy this month involving Kanye West. You can catch up here; I won’t reiterate it. I believe Kanye is ill, and I’ll return to ignoring him soon after this post. This post is about Adidas, Gap, CAA, and his other corporate partners. It is about the moral obligation we have to draw a line.

Familiar Target

Authoritarian power, fascism especially, often rests on the persecution of a group. Fascists ascribe the problems of society to the influence of a minority and argue that controlling or eliminating that group will solve a social ill. The most popular target for this form of social weaponization, for hundreds of years, has been the Jews.

Making up 2% of the U.S. population, and only 0.2% of the world’s population, Jews are, year after year, the target of more anti-religious hate crimes than any group. In the two-year period 2001-02 bookending 9/11 — when Islamic terrorists killed 3,000 people — the FBI identified 636 anti-Islam hate crimes in the U.S., up from just 61 in the two prior years. Over the same period the FBI identified 1,974 anti-Jewish hate crimes — three times as many as directed at Muslims, more than half the religious hate crimes committed during the period.

The anti-Islam number was the anomaly. Year after year, more hate crimes are committed against Jewish Americans than against any other group except Black Americans. (There are six times as many Black Americans, and in total they suffer twice as many hate crimes.) The situation is similar abroad and over time. Persecution of the Jews is so common, there’s a Yiddish word for being massacred: pogrom. QAnon is strange and vile, but likely ends up only a stain on this American era. Antisemitism is history’s most enduring and deadly conspiracy theory.

That’s why special attention should be paid to tropes like “the Jewish media.” The real demon, of course, is demonization, of any target. The history of discrimination and violence against “out” groups is extensive, from the Armenian genocide, to the mass killings of Christians by ISIS, to China’s detainment of Uyghurs, and much, much more. In fact, the Nazis did not limit their attacks to Jews alone. They targeted Romani people, Black people, homosexuals, and the handicapped. Whoever the target, identifying a group, blaming them for society’s problems, and encouraging persecution, including violence, against them is the fascist playbook. We cannot ignore these tactics in the rantings of billionaire celebrities, regardless of what we think of their music, their shoe designs, or their mental health.

A companion tactic is the assertion of victimhood by the fascists themselves. “Replacement theory” is the noxious combination of both, asserting that the persecuted minority will somehow supplant the majority. The rhetoric of fascism is like a battery, drawing energy from contradiction. A self-proclaimed billionaire, for example, wailing about how oppressed he is.

New Normal

We have incorrectly conflated the liberal tradition of “free speech” with neutrality,  with protecting the dark shoots of fascism in the name of tolerance. By the time speech has flowered into actions that cannot be ascribed to a “lone wolf” or the “mentally ill,” it has ripened into a movement. Movements are harder to stop, and the cost of resistance becomes so high that good people stop doing and saying the right thing as the understandable instinct for self-preservation kicks in. Later, we find eloquence and grace only in our regret.

I have the feeling that we let our consciences realize too late the need of standing up against something that we knew was wrong. We have therefore had to avenge it, but we did nothing to prevent it. I hope that in the future, we are going to remember that there can be no compromise at any point with the things that we know are wrong.

— Eleanor Roosevelt

Standing up against the rhetoric of hatred has nothing to do with censorship. There is no law forbidding people from employing the rhetoric of oppression, nor should there be. But no principle obligates us to accept them in media or business relationships.

A pillar of state-sponsored horror is the steady normalization of stereotyping and blaming. One person ranting about the Jews or anyone else is readily identified as an outlier and ignored. But as these claims multiply, as they have recently, they seem less outrageous. Political scientist Joseph Overton postulated that at any time there is a range of policies the population deems acceptable, but this “window of discourse” is not constant. It’s become a strategic objective of extremist groups to shift the “Overton window” over time toward their position by using rhetoric and advancing policies just outside the current scope of societal acceptance. And as the volume of hateful rhetoric rises, as research has shown, so too does hate crime.

Normalization Inc.

The rise of fascism — the normalization of hatred — is concomitant with the accommodations of powerful people who register political and financial gain by looking the other way. “Appeasement” is historically associated with Neville Chamberlain, the U.K. Prime Minister who caved to Hitler’s territorial demands rather than risk war with Germany — only to make the eventual war more costly. Chamberlain is unfairly singled out. Much of the British ruling class supported his position, and the U.S. Congress passed law after law barring aid to those threatened by the Nazis until Pearl Harbor made such a position untenable. Accommodation inside Germany began years earlier, with Hitler’s rise to power (via an election) in 1932.

Although Chamberlain is the poster child for appeasement, often the key enablers of fascism are not politicians, but corporations. Large companies benefit from stability, the expansion of their nation’s sphere of influence, and the centralization of power at the expense of the individual — many of the central themes of fascism. It’s no surprise that corporate power is often the handmaiden to authoritarian rule. I write that not as an indictment of corporations — corporations are essential. They are how we organize human effort to accomplish extraordinary things, from electric cars to vaccines. But as corporations become more powerful, their rejection or enablement of hate speech takes on additional importance.

Corporate accommodation of and support for the Nazis is well documented, from Adidas to Volkswagen to Krupp to IG Farben. Multinationals flooded into Pinochet’s Chile as he murdered his political opponents by the thousands. Vladmir Putin’s Russia has made “oligarch” (once simply a term for a member of a ruling clique) into a synonym for business leader. The risk is even greater today, considering the role corporations play in modulating our national discourse. The pure pursuit of profit can lead to dark places. There has to be a line, a moral consideration in place.

Drawing that line can be hard, because the leaders of large companies are culturally inclined toward, if not political neutrality, avoiding political adventurism. Corporations take political positions for business reasons, and 99% of the time, the best position is none. Donate to both sides, lobby for regulatory capture, and then stand on the sidelines.

But neutrality in the face of evil is not neutrality. Amorality is too easily hijacked by the immoral. Hannah Arrendt was fascinated by Adolf Eichmann, the architect of Hitler’s death camp system. He evidently had no ideology of his own, just a “manifest shallowness,” she wrote, “which made it impossible to trace the incontestable evil of his deeds to any deeper level of roots or motives.” If Meta were to change its name again … “Manifest Shallowness” strikes me as a decent fit.

If you are neutral in situations of injustice, you have chosen the side of the oppressor. 

— Desmond Tutu

Drawing the Line

Which brings us back to Kanye. And to the corporations that did business with him. Their decision to sever ties is important. Not because they need to “cancel” Kanye. It’s not about Kanye, but drawing a line, arresting the normalization of the demonization of a minority.

In the case of Adidas, the ink for this line will cost shareholders hundreds of millions, if not billions, in shareholder value. The shoe maker has been criticized for waiting 10 days to cut ties. Ten days is an eyeblink in history (and even if management made the decision in 10 minutes, the logistics and legalities of responsibly disentangling a multibillion dollar relationship take time). The company should be commended for its actions.

As expensive as it was, Kanye did Adidas, the corporate world, and maybe America, a favor. As John Oliver put it, “The answer to where you draw the line is literally always ‘somewhere.’” If you never draw one, you forget how. So when someone goes to “death con 3,” society’s writing hand rediscovers penmanship. It helps to practice our cursive so we know we can do it. Drawing a line is a chance to remind yourself, your employees, your shareholders, and your customers that you’d rather take a stand now, when the cost is only profits vs. something much worse.

The Line to Here

In writing and presentations, I often point out that much of my success is due to my circumstances — being born in America, getting a state-sponsored education, etc. But the real roots of my good fortune run even deeper. During the Blitz, my mom was a 4-year-old Jew, sleeping in the London tube. Had the British not drawn a line, and then the Americans and Russians, it’s likely that a 21-mile-wide strip of water would have been breached, and my mother’s life would have ended with a train ride. And someone else would be writing this newsletter.

It should be noted: The allies drew a line against fascism and potential invasion, not antisemitism. The costs would have been less dear had we drawn those lines earlier. The line on Kanye should have been drawn sooner. Every elected leader, citizen, and CEO must ask themselves, Where is my line? To answer the question: We must first decide there is one.

Life is so rich,

P.S. If you’re a marketing leader, I’m doing a free, exclusive Q&A for you on Nov. 10 from 1 to 2 p.m. ET. We’ll discuss marketing in the current environment, the challenges you’re facing, and anything else on your mind. You can apply to attend here.

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Churn

Youth leans toward the novel, and age toward the safe. Entrenchment is the preferred strategy of incumbents. “Change is good” … unless you’re already killing it. In Google’s first decade, the company seized the search engine market, launched Maps, Mail, and Chrome. The company’s track record of abandoned projects ever since is so extensive, there’s a website dedicated to it. Stagnation? Maybe. But over that time, playing defense has earned $1.4 trillion in profit for Google’s shareholders.

Meta has been playing defense since it dropped the “The,” and every failure has made the Zuck angrier. His accumulated rage has resulted in a $60 billion fit of “I’ll show you,” despite every signal that can hold light pointing to a cosmic failure. Like … a failure of the ages. A tech failure to end almost all failures. Bad. The … Metaverse.

Tech companies aren’t the only ones that attempt to build moats at the cost of innovation. Politics rewards durability. Incumbents remain incumbents via a system that tilts toward the status quo. The U.S. House reelection rate in 2020 was 95%. The mortality rate for Americans the (average) age of our representatives is approximately 2%. Meaning, with a two year term, it will soon be a coin flip whether they were voted out or left the rotunda feet first. The result: A daily occupation of our nation’s capital (and our capital) by a group that is a cross between The Golden Girls and The Walking Dead. Our leaders are too old.

There are real benefits to age, specifically experience and perspective. But that additional perspective and experience comes at a cost, as our representatives have a difficult time understanding new technologies and how society has changed. Folks who have ideas for change and the hunger to set them in motion are shut out, left with staff roles or positions in private enterprise.

In business, entrenchment is profitable for shareholders, though eventually an innovator will rise. In politics, the biggest winner is often the politician — and when governments are dysfunctional or allocate scarce resources poorly, we all suffer. We need more churn.

Moving Day

We should impose term limits on our elected officials and judges. The House and Senate have virtually become life-tenured positions, in which members accrue wealth via insider trading and devote their time in office to … their time in office. (Congresspeople trading stocks is blatant insider trading, full stop.)

America is similar to most countries in that our legislators keep getting re-elected indefinitely. A key difference: Our Supreme Court justices can remain until death. This is rare. Most developed nations either have judicial age limits — the U.K., for example — or term limits. In Germany, justices on the Federal Constitutional Court are appointed for a single 12-year term.

Term limits would improve the functioning of the Supreme Court and remove the toxic jockeying for seats we’ve seen in recent years. Give each of the nine justices a single 18-year term, staggered so an empty seat comes up in the first and third years of each presidential term. (Early departures would be filled through the end of the term to keep the schedule.) When life rarely exceeded 60, life tenure was a defense against politicization. With justices sitting for decades and into their 80s, life tenure makes it worse.

Term limits are also effective in business. Companies with more outside directors who have extended tenure produce significantly fewer patents and these patents receive fewer citations. These businesses also register lower R&D productivity (i.e., they’re less innovative). Yet only 6% of the companies in the S&P 500 have formal tenure limits on directors. Entrenchment begets entrenchment — not a single S&P 500 board has fired its CEO since 2020. On every public board I’ve served on there are directors who’ve served the company well — and should have stepped down a decade ago.

Hard Cap

Term limits would go a long way toward reducing the instinct to entrenchment that’s endemic to our government. But we should recognize the need for another limit, one that reflects biology. Mandatory retirement ages. (Cue the “like your work, but was disappointed” comments on this post.)

From AI and genomics to Auto-Tune and TikTok, the issues facing elected representatives are evolving … faster and faster. I try to stay up on everything happening in tech, and it’s getting harder as I get older. It’s true that age can bring wisdom. (It doesn’t always.) But wisdom can’t erase a biological truth we’re less comfortable with: Age makes us stupider.

By the time we hit 40, our brains begin to deteriorate. Literally. The prefrontal cortex thins, the cerebellum shrinks, neurons become physically shorter, and arterial walls harden, decreasing blood flow. The decline is slow at first — we lose roughly 0.2% in brain volume per year. By 60, that number reaches 0.5%. Soon the rate of brain atrophy looks like Moore’s Law. We used to know this, but then decided that engaging in a discussion on the topic renders you an ageist. And being accused of an “ist” means you risk sanctioning, or worse. Ageism is not politically correct. But neither is biology.

Ours is the oldest government in U.S. history. Almost a quarter of Congress is older than 70. If he’s re-elected — and lives out his term — President Biden will leave the West Lawn on Marine One for the last time at the age of 86. This is fucking ridiculous. BTW, an obese 82-year-old (Trump) wouldn’t be much better. The Senate Majority Leader is 71, the Senate Minority Leader is 80, and the Speaker of the House is 81. Two hundred years ago, the median age of a Congressperson was 44; today it’s 62. Put another way, the average representative is 24 years older than the average American (38). It’s true we live much longer today, but your modern brain doesn’t care that it’s less likely to die from sepsis or smallpox. When George Washington took office at 57, he was old for his time, but his brain was still just 57. Indeed, the founders had little need to include upper age limits in the Constitution — hardly anyone lived past 70.

The situation is, again, unique. Our government is older than that of any other nation. In China, the average member of the National People’s Congress is 53. In the U.K. Parliament, it’s 51; in Germany’s Bundestag, 47.

The notion of someone clinging to power for decades conjures a cartoon of a Third World dictator. However, it’s us. Specifically, the U.S. Congress. The news out of Iran this month is stirring, but the counterpoint to all these young people finding their voice is the 83-year-old Supreme Leader sending out thugs to beat them. Khamenei was 39, in his prime, during the Iranian Revolution in 1979. The women protesting in his streets today are much younger than that — many of their parents weren’t even born in 1979. Who has the more legitimate claim on the future of Iran? The young Iranians in the streets, or the octogenarian having them beaten? In the U.S., people under the age of 40 have seen their wealth, as evidenced by their share of GDP, cut in half. Why? Network effects? Globalization? No. Because their government does not represent them. The dysfunction of the governments in Iran and the U.S. has many factors, and one of them is that they simply won’t retire. We need to age-gate the most important elected offices.

I’m not alone in calling for age limits. Former President Jimmy Carter expressed concern over the age of the 2020 presidential candidates, stating: “I hope there’s an age limit … If I were just 80 years old, if I was 15 years younger, I don’t believe I could undertake the duties I experienced when I was president.” Who else agrees? Six in 10 Americans.

Yes, it’s ageist, and so is biology. Science doesn’t care about our feelings. And yes, a bright-line rule would exclude some good candidates. We have a 79-year-old president who is registering one of the most productive terms in U.S. history. Also, we’ve seen the footage of our Speaker’s steady hand at 80 years old on January 6. But what you didn’t see in that video was the brilliant 56-year-old who didn’t have the experience but did have the perspective of someone who hasn’t spent 43% of her life in Washington. What else wasn’t shown in that video: a government more concerned with governing and less with re-election that may have averted this mess.

It’s not just about cognitive decline. Ours is supposed to be a representative democracy, and the “representative” part matters. A politician of any creed, color, or gender can effectively represent a diverse community. But a government body, an assemblage of what should be our best and brightest, must represent our diverse experiences within a range, or it will not be regarded as credible, legitimate, or, most important, a body people want to join. Age is a component of this, an important one in our changing world. Fifty percent of the US population is under the age of 38. Among our elected representatives, that number is 5%.

Peace With Honor

One of the most difficult conversations I’ve had with my dad was telling him he should stop driving. Telling the man who taught you how to drive that his neurocognitive architecture isn’t fit for a basic life function — and will never be again … that’s something nobody is ever ready to hear. But someone needed to tell him, because in his view, he was fine.

Dynamic firms lose customers when they shed slow-growing products, fire employees who aren’t contributing, lose employees whose human capital could be more productive elsewhere, and change plans to evolve with the market. There is no growth without churn. Survival is the ultimate teacher, but its incorrect lesson, as we age, is: more of the same.

A more physically and mentally robust leadership. A representative democracy that’s better able to shape policies that stanch the record transfer of wealth from young to old. New people, new ideas. Churn.

Life is so rich,

P.S. For more thoughts on what we can do better, join my free lecture on Adrift next Tuesday from 12-1 p.m. ET. Sign up and I’ll see you there.

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Incarcerated

Regardless of skin color, sexuality, or politics, young men are falling. They are falling behind academically, failing to attach to mates, and trading potential for addiction. Their less-evolved prefrontal cortex is especially susceptible to opportunities for quick dopa hits that have been engineered by firms whose profit incentives are in direct contrast to their economic and emotional well-being. Men make up just 40% of college enrollment and one third of college graduates. They are twice as likely to overdose and 3.5 times more likely to commit suicide than women. Women also face challenges in society, especially in the labor force. However, when we discuss the challenges facing women, we ask society to change. When young men struggle, we ask men to change.

“Young men in America failing,” should be rephrased as “America is failing its young men.” We over discipline, over medicate, and overexpose them to drugs, pornography, and gambling, then blame them for their mistakes. The ways we are failing young men are legion, so let’s focus on one problem: We put too many in prison.

Locked Up

Two foundational truths re American imprisonment: One, we are the global leader in locking up our own citizens, by a wide margin. We rank ahead of El Salvador, which has the world’s highest homicide rate, and Cuba, an authoritarian regime that imprisons people for “pre-criminal dangerousness.” There are nearly twice as many prisoners in the U.S. as there are lawyers. There are more Americans behind bars than serving in the military or working as full-time cops and firefighters. We have fewer citizens protecting our shores and neighborhoods than neighbors we believe need to be behind bars.

Second, mass imprisonment does not work — it doesn’t reduce crime. Our unrivaled incarceration rate is neither the result of a high number of crimes nor the cause of a low one.

Our intuition tells us that incarceration reduces crime through incapacitation — taking criminals “off the street” prevents them from committing future crimes. However, the actual impact on crime rates is surprisingly small, and, at 2 million Americans in prisons and jails, we are deep into the diminishing returns. A 2014 assessment from the National Resource Council concluded that there was no reliable statistical evidence showing more than modest decreases in crime rate due to increased incapacitation. Simpler evidence? Despite imprisoning people at 10 times the rate of peer countries in Western Europe, we have a similar crime rate.

There’s a host of reasons for the limited impact of incapacitation: Many crimes are one-offs; violent crime in particular decreases rapidly with age; and a small minority of criminals commit most crimes. At bottom, though, incapacitation theory rests on a misconception that criminality is a personality flaw, that there are “bad apples” we can remove from the barrel. But most crime flows from circumstance, from failures of socialization, reductions of opportunity, and mental health issues. Poverty and discrimination are crime volcanoes, and you don’t stop the volcano by addressing the lava. Drug-related crimes are particularly resistant to reduction due to incapacitation — drug rings have no trouble finding more disaffected young men to stand on corners.

Identifying and imprisoning high-risk offenders reduces future crime, but warehousing hundreds of thousands of low-level offenders actually increases it. Dozens of studies have shown that imprisonment does not reduce an inmate’s propensity to commit crimes, and there is growing evidence that imprisonment actually encourages future crime — due to decreased legal employment options for those with a record and the exposure to violence and criminality in prison itself. Q: What’s a cause of crime? A: Prison.

We see this at scale. Once the incarceration rate exceeds 325 per 100,000 residents, crime gets worse, not better. Reductions in state prison populations during the early 2000s were associated with reductions in crime rates. Prisoner releases due to Covid were again associated with decreases in crime rates.

Longer prison sentences were sold to voters as a means of “deterrence” — scaring criminals straight. It doesn’t work. Even the Department of Justice (which runs the federal prison system) has emphatically concluded that while the threat of being caught is a deterrent, the length of the resulting prison sentence is not. In 1994, California enacted one of the toughest sentencing laws in the nation, the highly publicized “3 strikes” law, which mandated a 25-year sentence for a third felony conviction. It was sold as a deterrent, a visible, public threat to criminals. Three decades later, it costs Californians over $3 billion per year, but its impact on crime in California has been measured at “negligible” to “small” and “not nearly as large as early projections estimated.”

The War Is Over

If it is ineffective, even counterproductive, why have we locked up 2 million of our citizens? Central to the story is our 40-year “war on drugs” and the deployment of the heavy artillery of law enforcement against the nuanced, human-scale problems of addiction and teenage impulse control. From Nixon, who saw political advantage in criminalizing the minority communities who voted against him, through Clinton, whose own political calculations resulted in the most draconian crime bill in American history, locking up addicts is the definition of political opportunism.

The population of people imprisoned on drug offenses jumped from 40,900 in 1980 to 430,926 in 2019, and the criminalization of addiction has fueled global organized crime empires while hollowing out our own communities. Some more than others.

Although Black and white Americans use drugs at about the same rate, Black Americans are 10 times more likely to be imprisoned for drug offenses than white Americans. One out of every three Black boys born today can expect to go to prison in his lifetime, as can one of every six Latino boys—compared to one of every 17 white boys. And that’s just the domestic burden. Ask the people of Colombia, Bolivia, or Mexico how America’s war on drugs is going. But that’s another post.

Whatever you think about how we should address poverty and drugs, and who we should hold accountable for the crimes associated with them, there’s another population grievously harmed by mass incarceration that no ideology should be set against: the mentally ill. Sixty years ago, we dismantled our public mental health system. It wasn’t a great system, but our (disastrous) solution was to replace it … with prison. Determining how many inmates have serious mental illness (major affective disorders or schizophrenia) is difficult, but the National Research Council credited estimates of 10 to 25% (versus 1 in 20 among all adults). There are “more than three times the number of seriously mentally ill persons in prisons than in hospitals.”

Defendants with severe mental illness are much more likely to be sentenced to prison. Imprisonment exacerbates mental illness, and mentally ill prisoners are two to three times more likely to attempt suicide. The mentally ill remain incarcerated four to eight times longer than people without mental illnesses arrested for the same charge and cost taxpayers seven times as much. This may be exhibit No. 1 for why American politicians have no license to invoke Jesus Christ when discussing our country. The wealthiest nation in the world incarcerates its most severely ill, its most vulnerable.

Cui Bono

Every war has its profiteers, and the explosion of incarceration in the U.S. has created an $80 billion industry. $80 billion. We spend more “protecting” Americans from other Americans than most nations spend on defense — including Russia ($63 billion). That’s right, the army thrusting the world to potential armageddon spends less on its armed forces than we spend locking up our citizens.

Eight percent of prisoners aren’t in public institutions but held in private operations run under contract with the state. Many prisons, public and private, look too much like labor camps, where prisoners work not only to run the prison itself (food service, laundry, cleaning) but also for various other state needs (prisoners really do make license plates and also furniture, uniforms, and even law enforcement equipment) for which they are paid less than $4 per day. One company alone, Corizon Health, makes $1.4 billion per year providing prison health insurance (money it needs to fight hundreds of malpractice lawsuits). The prison commissary market is a $1.6 billion annual business, and bail bondsmen generate $2 billion per year. Permitting the market to provide these services provides jobs and increases efficiency, but it is creating an incentive structure at odds with a healthy society. When companies can make billions of dollars on a thing, they get very good at persuading us to create more of that thing. Prison industry companies spend millions of dollars on lobbying and have begun investing in a new growth market: immigration detention.

Left Behind

Mass incarceration has a direct and brutal impact on young men: 93% of prisoners are male, and 41% of adult prisoners are under the age of 35. How prison hampers a young man’s growth is self-evident and not worth dwelling on here. Because there’s a second population of young men we need to discuss.

Roughly half of U.S. prisoners are parents. As soon as a parent steps into prison, their children’s outcomes decline significantly. A child of an incarcerated parent is five times more likely to go to prison. Their cognitive development is stunted, leading to academic failure, and they are more likely to act aggressively in the future.

The impact of having a parent in prison is more pronounced for boys than girls. Studies show that, without a father, boys engage in more delinquent behavior; meanwhile, adolescent girls’ behavior is largely independent of the father’s presence. The increase in aggression due to paternal incarceration is also twice as high in boys than in girls. Boys simply have less emotional resilience than girls, and they’re more vulnerable to stressful situations than girls. Boys are physically stronger, and girls are stronger.

Freedom

To summarize: we have 10 times the number of people in prison than a nation our size and prosperity should. Spending an extra $72 billion a year and keeping an additional 1.8 million people in prison does not make us safer — it might actually increase crime. And it poisons the well for millions of boys who become more likely to end up in prison themselves.

Signs

There have been signs of progress. President Trump signed the bipartisan First Step Act in 2018, a small but significant set of reforms. There are many more opportunities to eliminate harsh sentencing laws, and we should invest in educational and job training programs and pass “clean-slate legislation” to help those leaving prison reenter society. President Biden announced that he’s starting the process to effectively legalize marijuana at the federal level and will simultaneously pardon everyone with a federal conviction for simple possession.

We need to send less people to prison, and start letting people in … out. Diversion programs for drug offenders and the mentally ill are incredibly successful and should be more widespread. Just one example: In Miami, a program to divert mentally ill defendants into treatment rather than jail has cut the county jail population in half, saved taxpayers $50 million per year, and cut recidivism among diverted defendants from 75% to 20%.

Breaking our national addiction to incarceration will require a decade-long, massive prison release program. Which in turn will require a serious investment in true rehabilitation: mental health care, addiction treatment, job training, and re-entry programs. We need fathers (and mothers) back in homes and to stop holding millions hostage for political and financial gain. If we are serious about helping young men, we need to return more men to the community. The incarceration of the populations of Miami, Atlanta, Cincinnati, and Memphis combined has left a void that creates a downward spiral of despair and more incarceration for the boys in that community.

There will no doubt be well-publicized examples of crimes committed by people recently released, and they will skew the perception of the program’s success as crimes not committed can never receive attribution and make for shitty headlines. The illusion of complexity fomented by corporations and incumbents insinuates these problems are multidimensional and intractable. They are half-right. There is a fix that will have an enormous positive impact. Simply put, boys need more men.

Life is so rich,

P.S. Our highest-rated sprint, The Product Positioning Sprint, is running in a few weeks. This one is great for B2B marketers and early-stage startup leaders who are trying to differentiate in a crowded market. Sign up here.

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Text-ure

Every medium has its own behavioral norms and nuances. Few are more casual, and authentic, than texting. There’s a feeling of intimacy and immediacy, as a smaller circle has access. Most people read all their texts, while few read all their email, and almost nobody opens all their physical mail. Many of us no longer even bother to listen to our voicemail messages, and you out yourself as old when you (gasp!) call your kids.

One of the reasons we relish the live interview and testimony under oath is that they inspire real moments, scarce in a world where communications departments preview, starch, and sanitize anything people of power say. So when (some of) Elon’s text messages became public during the discovery process in Twitter v. Musk, it offered us a glimpse into the bowels of tech power. Bowels is the correct metaphor.

Some observations re these texts, and what they illuminate about the texture of the tech community’s upper caste:

Checkers, Not Chess

The texts are between Elon and some of the wealthiest and most influential people in the world, including Larry Ellison, Joe Rogan, Sam Bankman-Fried, Satya Nadella, and Jack Dorsey. The logic, prose, and general discourse they reveal are astoundingly … unastounding. The wealthiest man in the world and his acolytes are, like the rest of us, unsophisticated, obtuse, and petty. Maybe more so. We thought billionaires were playing 3D chess while we played checkers. It turns out they’re playing the same game, but on a more expensive board.

They fumble with their computers.

They lean on others to get jobs for their kids (no surprise).

No matter how rich, they always could use more (money).

Where they differ: There’s clearly a pecking order, a social hierarchy. And, as far as I can tell, among this circle the currency of deference is … currency. Specifically, the more money you have the greater the degree of sycophantry. The Oculus and texts to Elon from his “friends” invite the same sensation: nausea.

And everyone struggles with autocorrect.

What I find most remarkable about these texts isn’t Elon — he comes off mostly OK in my view. It’s the people around him. It appears our idolatry of innovators has seeped into the minds of the uber-wealthy, sickening them with an uncontrollable tendency to fellate the cool kid for a chance to sit at his table in the cafeteria. “I would jump on a grenade for you.” If anyone ever tells you this, and they’re not literally in battle with you, it means they are a fan … not a friend.

The undoing of many powerful people is that they enter a hermetically sealed bubble of fake friends. Enablers, not people concerned with their well-being. When the Elon-Twitter debacle started this spring, I wrote a post about power. My thesis: Power, unchecked, is a psychological intoxicant. OK, this isn’t so much a thesis, as it’s scientifically proven. Research shows power causes us to downplay potential risk, magnify potential rewards, and act more precipitously on our instincts. In other words, you lose your ability to self-regulate; you need others to do it for you.

You’d hope the richest person in the world would assemble a circle of advisers who push back when appropriate (i.e., not yes men). But Elon’s history of reckless, childish behavior and these texts prove there is no group or individual who is a truth-teller. In the whole 151-page document, I found, no joke, just one instance of pushback. It came from Twitter CEO Parag Agrawal, who, in response to Elon’s unhelpful “Is Twitter dying?” tweet, let Elon know what he thought: It was unhelpful. Elon’s response? A childish, terse insult.

Scale

The texts are mostly unremarkable. There are some, however, that do remind us the (super-)rich are different. Specifically, the discussions of possible equity investments from crypto-billionaire Sam Bankman-Fried (“Does he have huge amounts of money?”) and this exchange with Larry Ellison:

It’s common knowledge that Ellison, who co-founded Oracle, a company worth more than $175 billion, is rich. Less clear is that he has enough money to offer a billion dollars over a text. I mean, who hasn’t had a friend offer them $1 billion in a text? Ellison offered 8,000 times the median net worth of an average American, enough to buy more than 3,000 Ferraris or the Chicago Blackhawks, as if he was picking up a latte. I believe it’s important to have incredibly successful people who are exponentially wealthier than the rest of us — it’s a bedrock principle of capitalism, creating an incentive structure that inspires productivity and prosperity. However, when people are offering billions over text to help out with another billionaire’s vanity project, in the same nation where 1 in 5 children live in food-insecure homes, then … isn’t America a bit fucked up?

Later on, Elon’s Morgan Stanley banker, Michael Grimes, tells him that Bankman-Fried, a major investor in Web3 ventures, can invest $5 billion in the deal: “could do $5bn if everything vision lock … Believes in your mission.” In response, Elon … dislikes the message. Five billion dollars is on the line, and in Elon’s world it doesn’t merit a worded response. For context, $5 billion is more than the GDP of many small nations, twice the budget of the SEC, and more than five times the budget of the nuclear regulatory commission.

If, after reading this, you’re increasingly concerned about income inequality, well … trust your instincts.

The Rich Are Different, Billionaires Are Not

As an entrepreneur, academic, and investor, I’ve had the opportunity to develop professional and personal relationships with people who make a modest living, rich people, and several billionaires. My observation is that the rich are different. On average, they’re more intelligent and harder working than your average citizen. There is a cartoon of rich people — e.g., Monty Burns from The Simpsons — and it’s just that … a cartoon. Wealthy people usually demonstrate character and know how to foster allies. Having people who want you to win is key to success.

But I have never registered a difference in talent or intellect between the wealthy, and the uber-wealthy. Yet this is the virus that infects the tech elite: conflating talent with luck. Going from millions to hundreds of millions or billions is less a function of incremental intelligence and more a function of timing. Proof? Elon’s text record. Any man who can inspire the electrification of the auto industry and land two rockets on barges concurrently deserves the label “genius.” But his mega-billions flow from a well regulated capital market, a web of enforceable contracts, the diligent labor of thousands of workers, and, not least, billions of dollars in government subsidies, including a timely $465 million DOE loan that enabled Tesla to produce the Model S. So, is Mr. Musk a genius or an impressive man whose skills were set against a unique moment and place in time? The answer is likely yes.

The Point

Something else we learned from Elon’s texts? He has no clue how to “fix” Twitter. For two weeks in April, he was all in on blockchain Twitter, brainstorming about Dogecoin payments for tweets with his brother — i.e. the opposite of free speech … paid speech — literally as he was telling Twitter’s board he was going to make a hostile tender offer. (Spoiler alert: Kimbal loved it.) By May, he was over crypto and not interested in a “laborious blockchain debate.” (Mood.)

At one point, Elon asked the Twitter CEO for “an update from the Twitter engineering team so that my suggestions are less dumb.” The record does not reflect whether he got that meeting. Neither does it reflect any actual plan for “fixing” Twitter. And this is the problem with the entire Elon misadventure. He’s a child grown old, given all the toys but no boundaries, nobody to tell him no. His army of yes men encourages his most facile thoughts, and the genius he and we have been blessed with is diminished by shitposts and errant behavior.

Post-Apocalyptic

I will give the titans of the universe credit for one thing: a sense of humor.

Psychosis

Psychosis sets in when people lose touch with reality. Elon’s atmosphere is so thick with people reinforcing that his every move is laudable or genius, he’s become a pathological liar who believes we believe him. The latest batch of lies? He canceled his deposition earlier this week, on 24 hours notice. His reason? Risk of Covid exposure. A guy who refused to close his Alameda plant as the pandemic was raging, under a closure order from the health department, couldn’t sit for a deposition because of his fear of the virus. His psychosis is fed by the media, which this week ran millions of versions of “Musk to close Twitter deal.” No, he said he intends to close the Twitter deal, which means nothing. In the same letter he asks for, in exchange, a suspension of the trial and that Twitter agrees to a financing contingency. In sum, he’s lying, engaging in further delay and obfuscation, and attempting to set a pretext to (again) walk away from the deal. One group that appears to “get” Elon? Wachtell Lipton, Twitter’s counsel. They’ve said no.

Every day, every one of us needs to ask ourselves an important question: Who keeps it real for me? Who will push back, who will tell me I’m wrong … who will save me from myself and the psychosis that’s led to so many successful people’s fall from grace. Elon Musk doesn’t need anybody to jump on a grenade for him, but to tell him to stop throwing grenades as it’s only a matter of time before one detonates in his hand.

Life is so rich,

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