Jam: Is Password-Sharing the Future of Marketing or the Last Gasp of Piracy?
Plus! The Apple Tax, outsourcing, housing elasticity, what General Magic was missing, Iger, typos
|Byrne Hobart||Feb 26, 2020||2|
Who Likes The Diff
As I may have mentioned once or twice, most of the content of The Diff is going behind a paywall starting next week. For $15/month or $150/year, you’ll get at least three pieces each week. Free subscribers will continue to get one a week.
How about some social proof?
OK, so that’s a reason to read it. But should you subscribe?
Byrne Hobart @ByrneHobartNew newsletter! PE and Software are eating the world Gnomic VCs AI companies as software-adjacent Solomonic financial engineering for sneakers the subtleties of fees, and more... https://t.co/8VtUxsH501
Jam: Is Password-Sharing the Future of Marketing or the Last Gasp of Piracy?
Ronald Coase and Ted Kaczynski arrived at the same insight and applied it in very different ways. Both of them figured out that changes in technology force a change in property rights. Coase wrote essays and taught grad students; Kaczynski wrote essays and… did other things.
Coase’s discovery was that factories a) produce a lot of value, but b) produce negative externalities in the form of pollution, noise, and traffic. Coase turned to economics and the English common law tradition to address this. Kaczynski noticed basically the same trend. For example:
A technological advance that appears not to threaten freedom often turns out to threaten it very seriously later on. For example, consider motorized transport. A walking man formerly could go where he pleased, go at his own pace without observing any traffic regulations, and was independent of technological support-systems. When motor vehicles were introduced they appeared to increase man’s freedom. They took no freedom away from the walking man, no one had to have an automobile if he didn’t want one, and anyone who did choose to buy an automobile could travel much faster and farther than a walking man. But the introduction of motorized transport soon changed society in such a way as to restrict greatly man’s freedom of locomotion. When automobiles became numerous, it became necessary to regulate their use extensively. In a car, especially in densely populated areas, one cannot just go where one likes at one’s own pace one’s movement is governed by the flow of traffic and by various traffic laws. One is tied down by various obligations: license requirements, driver test, renewing registration, insurance, maintenance required for safety, monthly payments on purchase price. Moreover, the use of motorized transport is no longer optional.
More recently, there’s been a great case study in technology’s ability to alter rights.
Computers that could burn CDs created a right to share music among friends.
Faster broadband and weak DRM created a right to share music with anyone.
Better traffic analysis by ISPs crimped this right, but what really destroyed it was Spotify’s superior UI.
Since Spotify was better-designed than most music piracy sites, and cheap enough that most people could tolerate it, it led to a social shift. There are high- and low-status ways to be cheap. Sharing music went from bohemian to broke; in 1999 it was like living in a poorly-insulated downtown loft, and today it’s more like living in a trailer park.
While Spotify was fixing music piracy, even higher bandwidth enabled another kind of file-sharing: TV and movies. As with music, there were streaming alternatives with a better user experience.
But in the case of streaming video, the total subscription cost can be a lot higher: instead of one dominant streaming platform, there are several options that each have a proprietary library. Netflix, Hulu, HBO, now Disney+… it adds up.
So people have invented a new kind of file-sharing, with a new set of problems. We share passwords.
Sharing passwords rather than files is easier; it requires less technical sophistication and lower bandwidth. But it introduces complications. An on-demand streaming service wants to provide you with recommendations, but if there’s more than one “you” those recommendations get mixed up. And once you’ve shared a password, the person who has it can share it, too; you’ve introduced a complicated ongoing social dynamic to a simple choice.
Everybody loves this system, until the series finale of Game of Thrones is about to start.
Time for some property rights. Enter Jam. Jam is basically a password-manager built for password-sharing. Instead of giving one person open access to your account, and de facto permission to share that access with anyone else who asks, Jam enables fine-grained control over who can use the password.
It’s not directly inspired by file-sharing; in my discussion with the founder, he pointed to a different precedent: BugMeNot. BugMeNot is not designed to get around paywalls; it’s designed to get around nagging. Newspaper sites in the early 2000s enforced login requirements not to charge a subscription but to collect more data; this made them a bit more annoying to use, and a lot more creepy. So, BugMeNot obviated the need to use one login by offering shared logins instead.
Today, identity issues are more fraught, for two reasons. One is, of course, privacy: it’s creepy to think that some data scientist, or several thousand data scientists, know where you live, what you buy, what you read, who you talk to, etc. But the other big issue in identity is introspection. Nobody is worried that the Owatonna People’s Press knows their email address, but a lot of people are freaked out when they learn what Netflix thinks they want to watch. To a first approximation, everyone signs up to Netflix to watch snooty dramas and fascinating documentaries, and everyone ends up watching cartoon horses and sitcoms with fart jokes.
Sharing accounts helps with both of these problems. It mixes up who watches what, making any one person’s profile stand out less. And it nudges you, just a little bit, towards behaving in private the way you act in public. If you pretend to have high-class tastes, and you share access to your HBO Go account, your friends will know if that’s true or not. Instead of meticulously adjusting your life to make it Instagram-worthy to strangers, you incrementally adjust your viewing habits to make them impressive to close friends.
Some companies have very little tolerance for shared accounts. Bloomberg costs $25k a year, and to log in remotely you need biometric identification. Netflix costs less than that, and you don’t. Back in the early aughts, I heard an urban legend that some stores tolerated shoplifiting because anyone cool enough to steal stuff was, in modern terms, a micro-influencer providing a valuable endorsement. (Years later, I realized the people telling me this were shoplifters.) But for some media companies, the lift in exposure might be worth the near-term cost. If Netflix wants to turn a new show into a major event on Twitter, Snapchat, and TikTok, they need a lot of teenagers to watch it, and those teenagers might not be able to afford it.
Account-sharing also enables a sort of price-discrimination: three people who would each pay $5/month for Netflix won’t buy it, but if the three of them can share a single account they might. It’s very convenient for Jam that the “sharing as marketing” campaign applies to growing products but not mature ones, while the “sharing as price-discrimination” argument works for mature ones.
It’s always interesting to see a business that ties several trends together. Jam doesn’t just benefit from the rise of password-sharing and increasing concerns about data-sharing. It also gets a boost from a longer-lasting trend: sexually-transmissible cultural preferences. There are some kinds of taste that seem to pass from boyfriend to girlfriend to boyfriend to girlfriend, one relationship at a time. Neil Gaiman’s Sandman, for example, is the default way for comics nerds to convince a partner that comics are cool, and for non-comic-nerds to convince a comic-nerd romantic prospect that they’re cool. “Netflix and chill” implies that somebody is at least nominally picking a show to watch. Jam makes this trend more lucrative for streaming media companies, because it’s easier to confine it to current couples.
What’s really exciting about Jam is that it takes a trend and gives it a protagonist. The Internet’s content explosion predated Google, but Google turned it into a business and privatized the gap between consumer intent and the Internet. People were moving their identities online before Facebook monopolized them. And now Jam has a chance to turn sharing from a broad trend into something a project with a name and a plan.
Will Oremus has a good writeup of the “Apple Tax,” Apple’s 30% cut of in-app transactions. Every two-sided platform has to deal with the risk that people will transact off the platform, and the risk is nonlinear: for small, low-friction purchases, nobody bothers; for $x00-$x,000 purchases, the platform is worth paying as a dispute arbitrator, and for transactions bigger than that, going off-platform makes sense because if anything goes wrong, it’s worth at least threatening to sue.
This calculus gets more complicated when you consider lifetime values and network effects. A small company might be willing to pay the Apple Tax just to get more users; better to have a loyal desktop+mobile user at a low price than no user at a good price. For retailers, repeat purchases also matter. But bigger companies have already built out their network effects—Amazon knows you know where to buy Kindle books.
One of the funny results of the growth of tech companies is that some supply chains are dominated by monopolies, but still provide cheap goods: you might use a computer running Windows (90%+ US market share) to Google (90%+ market share) something sold on Amazon (technically low market share, but… you know…) and made in Shenzhen (high market share in electronics assembly). If the product you buy is electronic, it probably includes components with just one or two suppliers, and many of the other suppliers buy similarly monopolistic capital goods. And yet, in the last decade, phones have experienced massive deflation. As it turns out, the best way to exercise monopoly power is to give consumers a free or absurdly cheap product, and then gouge advertisers or beat-down suppliers.
The bad user experience of buying electronic goods from brand-name companies via iOS is just an edge case where consumers experience a problem businesses run into every single day.
It’s received wisdom in startups that you can’t outsource the development of your original product. This argument was old news in 2007—though there was a counterpoint, Digg, which was built by a freelance developer who charged $12/hour. But it turns out there’s a large-cap counterexample, too: Slack! This is an exception that proves the rule in the old, pedantic sense: Slack’s parent company had engineers and designers, but they were busy building a more ambitious product,
Every successful company finds a way to break down one big constraint, and grows until it runs into a bigger constraint it’s not optimized to solve. Facebook was great at growing users, not great at convincing governments it hadn’t accidentally overthrown them; Microsoft was great at crushing competing office software companies, not great at phrasing things nicely in emails. One of the constraints every tech company runs into is that there aren’t enough houses in the Bay Area. And that problem is showing up everywhere: housing supply is increasingly unresponsive to changes in demand.
Florent Crivello has a great retrospective on General Magic. They were founded in 1990 and built, essentially, an iPhone-circa-the-early-90s. They sold 3,000 units and folded. This was too early in two senses: first, of course, the technology wasn’t there. But second—if Softbank’s Vision Fund had existed at the time, it might have worked. They had to build things that didn’t really exist at the time; a home-grown intranet since there wasn’t an Internet, for starters. With enough funding, this full-stack startup could have pulled it off, or at least built something really impressive for the time.
One of the benefits of a full-stack startup is figuring out which part of the business actually matters. If you try to solve every problem at once, you’ll figure out that 90% of them weren’t really problems and that the remaining 10% are a foundation for a viable company.
Bob Iger has resigned as Disney’s CEO, and the story is sad or explosive. I’m not sure which, because the 8-K is vague, but people have been speculating about his resignation for a decade, he just renewed a contract, and now he’s no longer CEO, “effective immediately.” My best guess is that he’s angling for an opportunity with similar executive responsibility; VP sounds like a demotion, but VPOTUS doesn’t.
Via Kevin Kwok, the original Peloton deck. Part of what’s interesting here is what didn’t matter. There are typos. “Peloton” was a placeholder name. But customers liked the product, and that’s what counts.