The following is a conversation between Will Page, the Author of Tarzan Economics: Eight Principles for Pivoting Through Disruption, and Denver Frederick, the Host of The Business of Giving.
Denver: Just about every challenge a nonprofit faces has been faced by someone else before, and that other someone has made all the usual mistakes, learned as it went along, and ultimately figured out what they needed to do. Arguably, the biggest challenge nonprofits face today is disruption – and on an unprecedented scale. And the other someone in this case is not another nonprofit, but the music industry.
My next guest says there’s a lot we can learn from the experiences of the modern music industry, and he has put it all down in a book. He is Will Page, the former chief economist at Spotify and author of Tarzan Economics: Eight Principles for Pivoting Through Disruption.
Welcome to the Business of Giving, Will!
Will: Thank you so much for having me. A real pleasure to be here.
Denver: You have said as a result of this pandemic, we’re all going to face our Napster moment. What is a Napster moment? And for those who may forget, or are too young, what in the world is Napster?
Will: Thank you for reminding us that there are people that are too young, and let me just build on that for a second.
There are people finishing university in America this year that were born after Napster, so that’s how old we’re getting here. But it’s a relevant point in time for understanding media disruption because in June 1999, the music industry, which by that point, had climbed incredible heights… Executives were taking helicopters and their private jets. They were selling CDs by the weight of a pallet because everything was selling anyway. And they woke up to Napster, which essentially meant that if you had a fast enough internet connection, you could enter the internet and get any song you wanted for free. And for a business that was built off copyright, let’s look at the language of copyright – the right to control copying. What our industry faced in June 1999 was what happens to copyright when you’ve lost the ability to control copying.
And what I look at in terms of the motivation for the book is this 20-year story, this first-to-suffer-first-to-recover story, where the music industry spent the first decade of dealing with piracy– holding on to the “old vine” – to use this analogy of Tarzan Economics – and believing that kids would go back to buying CDs and iTunes downloads, spending millions on fighting piracy and losing billions in revenue. And in the second decade, they reached out to the “new vine,” embraced a model called streaming–and we’ll get into this–but we’ve seen a recovery that is the envy of every other media sector and these not-for-profits as well. So, there’s a lot you can learn from this 20-year journey.
Denver: What was the tipping point in that middle decade? You go 10 years. You keep on making the same mistakes. Hard to let go of the old. It has been… you don’t want to bite the hand that’s fed you, but eventually they finally make the break. What was it that you think got them to finally see the light?
Will: So if I think back to first meeting Daniel Ek, the founder of Spotify, and the age of my Spotify years, I remember him when he had hair. That’s literally how long I go back with that company. And I remember sharing a common belief with him as a lonely economist in the music business. There were no other economists–thousands of lawyers, but no economists–rocking on this as I tell myself. The thinking that we share—
Don’t wait for your job description. Create your job description.
But in that journey, and especially representing the songwriters and publishers who are watching piracy rip away their business model, what I really realized was: If you build something that’s better than stealing, people will come. And that’s where I connected with Daniel and the vision of Spotify.
Denver: Let me just stop you there for a second. How did you get this job? When I first saw this chief economist at Spotify, I’m saying “Who knew that Spotify had a chief economist?” Did you apply for this job or did you create this job?
Will: Well, if I hop, skip, and jump to the final sentence of the book, I stress to everybody, especially your audience – Don’t wait for your job description. Create your job description.
And that’s what I did in 2006 when I left my home of Scotland, the town of Dunbar, the birthplace of John Muir, which needs no introduction to an American audience, and became the chief economist of the Performing Rights Society, which is like ASCAP or BMI in the US. And then, after six years there, I became the chief economist at Spotify and worked on the rights users side of that fence.
But in that journey, and especially representing the songwriters and publishers who are watching piracy rip away their business model, what I really realized was: If you build something that’s better than stealing, people will come. And that’s where I connected with Daniel and the vision of Spotify.
And then just to build on that, there’s ways that you can look at problems. And a lawyer looked at the problem of piracy during that first 10 years of clinging on to the old vine as black and white. Kids are stealing music. If we stop them from stealing with threats, with litigation, with lawsuits – they’ll go back to buying. Black and white.
The reality is there’s a lot of gray there. Consumption of music was not the problem; monetization was. And you can bring a horse to water, but sometimes you have to bring water to the horse. So can we build a business model around what the kids are doing anyway? Which 20 years on from Napster, we enter the internet and we consume any song we want. The only difference now is we pay for it. That’s the economic twist to this tale, which the lawyers were missing.
Denver: That’s really interesting. And it does say a lot about “embracing the gray,” which we don’t tend to do in society. It is, as you just said, Will, either black or white.
And I was speaking to Cass Sunstein the other day, and he said that one of the best ways to really find out what’s going on is to ask people the probability of something happening, not a yes or a no. But if you get into 70%, you begin to get into that nuance, and actually, that’s where the gold is. As you just said, it’s in that gray area that you are able to figure this out.
Well, let me ask you this. As a chief economist, let me ask you a couple of things that have always mystified me about the music industry, and you talk about them in the book. One is the incentive structure, the rules of the game. Speak about that some and particularly as it relates to certification.
Will: Oh, so you’re talking here about how record labels are certified platinum and gold. Now, I love learning from the veterans in the business. Those people have been in the industry for decades, so that’s where you really learn the lessons of the music industry and for the media as a whole. It’s a microcosm for so much more.
And I remember speaking to one veteran. I heard his expression, which goes, “Ship platinum, receive gold.” What on earth does that mean when we’re discussing like award-winning record labels there? Well, you ship platinum, that is a million copies of an album, and because the retailers who sell records at the time base their business model on sale or return, they would return what they couldn’t sell. So you would ship a million and receive half a million back at the factory gate. That’s a lot of breakage for a business model.
So I explored why this was happening. And the reason why record labels would ship platinum– a million CDs, receive gold, half a million back at the factory gate six months later– was that certification, awards, bonuses were based on shipments, not sales.
Denver: Oh, Wow!
Will: So I can quickly get a platinum record by guess what? Shipping a million records. And if half a million don’t sell, that’s the least of my worries because: a) I’ve got my award; b) most importantly, I’ve got my bonus; and c) I’ve probably been able to get a different job based on my incredible track record before the CFO realizes – damn, we’ve got to mail all these CDs and use them for filling….
My Aunt Laurie was the inspiration for this book. And she worked at Decca, believe it or not, in the 1950s, 1959. She left school at the age of 14, 15, and was called to get a job and went down to Decca Records and started working there. I think she was part of the team that turned down the Beatles at Decca, which is a great expression. “Decca turned down the Beatles.”
And she always had this expression for describing the music industry across those decades, which she said was “a little bent and straight.” That if given the rules of the game, everybody will bend those rules in a rational way. And if I employed you and said, “Your bonus is based on shipments, not sales,” what’s the rational thing for you to do? Ship as many as possible, cash in your bonus, get your awards, and don’t look at the cost of the return.
If you look at how directors and centers are designing contracts, sometimes you see that problem happening as well. You have short-term optimization, which ignores long-term costs to the whole firm. So I think that ship-platinum-receive-gold can apply to a lot of corporate environments that you’re looking to–
Denver: Well, you’re absolutely right there. And I think if we even look back to the financial crisis of 2008, 2009, it was all based on that. Guys were given their bonuses based on things, and then everything fell apart but they weren’t around for it. It was somebody else’s headache. Turned out it was the world’s headache.
Another thing you talk about, Will, is fair division, slicing up the pie. Speak about that.
Will: So fair division is one of those subjects that most students studying economics, they will probably dodge, I believe, because of the way it’s taught is dull as dishwater. It needs new life brought into it, and it’s such a crucial subject.
But if you go back to the very essence of it, we go back to Poland in the 1930s, in a town in Poland, which had a cafe called the Scottish Cafe, which for me is very ironic. Like “Why? Was there a big Scottish population in Poland at the time?” And we had three mathematicians there who were exploring what essentially we’re going to call a cake party.
Now, what is the easiest way to cut up a cake between three people? And I’ll suggest to your audience, there’s a wonderful peanut butter commercial on YouTube, which shows this beautifully. The mother says to her two sons, “OK. We’re going to have a peanut butter sandwich, and I’m going to split it between both of you. And I’m going to give Johnny the knife, so he’s going to cut the sandwich.” Johnny says, “Yeah, I got the knife. I get to choose.” And as he’s cutting the sandwich, I’ll give Tommy the choice. So, one person gets to cut, and the other person gets to choose. What a beautiful way of ensuring fair division in a splitting of a peanut butter sandwich in that TV commercial.
Denver: I think every sibling in the world has done that pretty much. I remember I used to do that with my brothers splitting ice cream.
Will: Right. So that’s the basics of cake cutting. Where the mathematicians really get started is: What if you introduce a third person? How do you allocate the crumbs? How do you solve for preference and envy? And I bring that into the book with a view to just thinking through about how collective solutions can work. How can we put our cards on the corporate table and collaborate as opposed to compete, the common good as opposed to fighting for our own self-interest?
I think one lesson I’ve learned from music is collectives have navigated their way through disruption far better than individuals. ASCAP, BMI – those two collecting societies in America have only reported record collections every year since Napster was launched. Record labels, fighting in their own self-interest, have seen their business halve, have now gradually got back to where they were.
But I just think there’s a value of thinking about collectives in an age of disruption that often gets lost. And if we’re going to discuss collectives, we’re going to have to understand the fair division to make sure that collectives stay together.
Denver: Absolutely. Third thing is that the songs of today seem to be getting shorter and shorter. Now, is that because of our shortened attention span, Will, or are there economics at play there as well?
Will: Well, there’s an expression called show business – without no show, there is no business; and with no business, there is no show. So I think there’s an American political expression, a great movie called Wag the Dog. I’m a US political junkie, just to be clear. My bias is towards understanding your very interesting political system. But there is a situation we’re seeing in music today where the tail is wagging the dog.
Let me just explain this, how it works. We know that attention spans are getting shorter, and songs are getting shorter. If I think about U2, a huge band in America. They had a hit called “Where the Streets Have No Name.” It takes 2 minutes and 8 seconds before you hear Bono’s voice. Now, pardon the sweeping generalization, but I do not think these millennials are going to wait 2 minutes 8 seconds to hear the vocals come in on a pop song.
Denver: I think you’re safe in that assessment.
Will: Lil Nas X. I think that song “Old Town Road” was fading out by 2 minutes 8 seconds, or maybe 2 minutes 16 on the clock.
So songs are getting shorter, and I think that’s reflective of attention spans, but then the second twist to this tale is that the choruses are being moved to the front. And that’s partly to do with the business model of streaming, which says that you only get paid when you’ve been played for more than 30 seconds, and you don’t get paid a penny more for being played a second more. So rational economic songwriters should write shorter songs because there’s no compensation for writing longer anthems. And to make sure that nobody skips those first 30 seconds, they make the rational sense to whack the chorus at the front. So we have the situation where the business model, “business,” is wagging the “dog,” the show.
Now, when you explain this to people, they look horrified and think – What’s happening to the culture? But I think the really important point to understand in this story is that at the heart of disruption is: We’ve been here before many, many times. Why did songs always have a verse-chorus-verse-chorus-guitar solo-chorus-fade structure? Why were their songs averaging three and a half minutes? Because of chart shows.
But if you go back to the jukebox in the late ’50s and ’60s, often run by the mafia, they demanded that songs last 2 minutes 30 seconds to maximize the revenue from the jukebox.
The broader lesson there is in disruption, you’ll find these parallels in history, which are really relevant to assure you that, yes, we are facing unprecedented change. But to a certain extent, we’ve been through this before, and we’ll be through this again.
Denver: Yes. Feed those quarters into the machine.
Will: If that was the jukebox model there, which, by the way, was paying for on-demand music, I ask you: How different is that from the streaming model today, which is, again, about paying for on-demand music?
So I think the broader lesson there is in disruption, you’ll find these parables in history, which are really relevant to assure you that, yes, we are facing unprecedented change. But to a certain extent, we’ve been through this before, and we’ll be through this again.
Denver: Well, that was a good economic lesson on the music industry. And before we get into some of the principles in your book, let me ask you about one other industry, and that’s journalism. I know that you’re interested in that as well. And they’re kind of going through their long, folding Napster moment on that maybe journey along the lines of music. How would you assess their progress, and where do you think they are on that journey right now?
Will: They’re at the crossroads, and it’s a very, very used crossroads.
How much from the outset of– let’s look at the word “newspapers.” Why do we even call them newspapers? When did you last touch paper to read news? When did you last smudge your thumb with ink? There are no pieces of glass, so the name has to change. If we stick with the physical model, at least here in the UK, the physical distribution model for newspapers is kind of broke because to get national distribution, you have to distribute everywhere.
So if you’re a left-leaning newspaper like The Guardian, you might say, “Distribute my physical copy to left-leaning liberal cities like Edinburgh, Bristol, and Manchester.” No, you have to distribute everywhere, and then you get the returns. And remember: – The way to measure the popularity of newspapers is not how many newspapers that have been sold, it’s to ask how many got returned.
Denver: Right. Just like the platinum gold.
Will: We shipped a million copies of The Guardian, but three-quarters of a million came back to the factory gate. We’ll just brush that statistic under the carpet. Thank you very much. I’ve got adverts to sell.
So they have problems there. They are holding onto the old vine, but what is that new vine that they should be looking out to? And I think the book does a pretty good job joining the dots with some of the principles here to come up with a solution.
One–and it’s to do with sports–is to look at the business model of The Athletic, which we know is an American company but is constantly advertising and discounting their intro offers here in the UK. As a customer, what is it I want to engage in? Is it a journalist – you want to read Denver’s latest work? Is it a theme? Is it to understand the economics of not-for-profits? Or is it a brand… I want to subscribe to whatever The Business of Giving has to say?
If we think about Spotify for a second, you don’t consume music based on which record label or publisher signed and developed those artists. You consume it based on the music. And in many ways, the algorithm is picking the music for you, so there are no judges anymore. There have been questions about what’s the purpose of the Grammys when algorithms are the new judges? So I think people are kind of agnostic to the source. They just want the convenience of the content.
And what The Athletic had said is: “Let’s form a collective of journalists.” Again, self-interest versus the common good. “Let’s have a collective. And we say we do sports journalism better than anyone else.” And then through self-selection, that consumer says, “I’ll have that.” And if they opt into that offer, which is ad-based, and no legacy systems, which is very important on the spending structure… We should really spend a minimum on the cost of legacy systems. They can move faster than traditional newspaper models.
If you opt into The Athletic, what do you leave behind? Do I need to read the Daily Telegraph or The Guardian when The Athletics got my sport and Google News gets me my overall coverage of headlines today? It raises questions. But I think The Athletic model is going to be a very interesting one at redefining what newspapers are. And then the big thing is they’re focused on convenience.
So yes, it’s just the irony. I know Americans don’t do irony the same way us Brits do, but just irony is kind of interesting here because these newspapers had been 10 years laughing at the music industry. “You’re dead., You’re dinosaurs. You’re suing the customer. You’re suing the websites. You want to regulate the internet.” And then the next 10 years, they kept on saying, “Could you come to our management office and explain how this works?” Because they started feeling that tide of digital disruption gathered around their ankles and realized they had to navigate the way out. So it’s just one of many companies or industries which are going into the same tunnel of disruption that music went through back in 1999.
Denver: Well, as you say, Will, it’s very difficult to give up that old vine and grab the new vine. And I think for a lot of these newspapers, it’s their shingle, it’s their brand, it’s their company. It’s got 150 years, and it gets to the point where their board of directors is going to have to redefine success because it can’t be in the same thing with our masthead and people buying our papers. They can buy our content, but it’s going to be in a completely different configuration. And it’s a hard time for people to get to that point. But as you point out, that’s where this is headed.
Will: And let me just quickly add – there’s a beautiful example of just how the newspaper industry has held on to that old vine, has acted like an ostrich here. And the Financial Times, which I love, and personally, I subscribe to it, and I hope you, too.
Denver: Great paper.
Will: And they used to charge a price for the physical newspaper subscription, which was X, a price for the physical and digital package, which was X plus Y, then a price for the digital-only package, Z And Z costs more than X and Y. It costs more to pay for just digital than it did for digital and physical. And the reason why was they were penalizing the customer for not consuming a physical product. They couldn’t sell you the adverts. And the market is built around selling convenience. This is not a convenient way of pricing your product.
Denver: Not at all.
Will: One startup I’ll just flag: there is a– they have just been acquired by Twitter, actually. And Twitter has been out shopping for startups in a big way. They’ve been buying banks. They’ve been buying music services. They also acquired a company called Scroll, which was: you pay a monthly subscription fee to have adverts removed from those newspaper websites. Now, that’s an interesting business model, but it tells you something about the state we’re in when I’m willing to pay to make that newspaper website more convenient to me. I don’t think that is a nice place to be when you’re at the crossroads of digital disruption.
Denver: I think you’re absolutely right.
Well, let’s talk about some of these eight principles. We won’t have time to get to all of them, but maybe we can get to half of them or so. And why don’t I start with paying attention. That’s the one that– or even the word “paying” attention is really what I found to be interesting, like you’re “paying” for attention. And I think a good frame of the outline in the book is marketing to a child’s attention. What kind of time do you have to do that to be able to capture a child’s attention and hold it before you make your pitch?
Will: You flagged “paying,” and I’ll thank my multi-lingual sister for helping me here. But you made the point to me, which was that the word paying has a currency term to it. Obviously, you pay for goods and services. But if you look at other languages, and I’ll pick three – Swedish, Spanish, and French – it’s offer, share, or give. You don’t say “pay;” you say “offer,” “share.” A school teacher wouldn’t say, “Pay attention, kids!” “Can you share me your attention, please?” So in English, we use a currency language of: I miss money and I want your time, please. So paying has an interesting kind of syntax to it, you could say.
But if we think about the attention spans of children, I think it’s big. We’ve discussed how songs are getting shorter, and for music that appeals to the younger democrats, a lot shorter. I think, closer to two minutes is the average song time, as opposed to just north of three. But I think TikTok tells us something as well, which is they’ve got the sub song, like the trailer to the song. Like somebody singing a Fleetwood Mac song whilst hanging off the back of the truck can cause a huge viral gale of activity, but it’s a 30-second loop clip. Now, if we’re going from the song getting shorter to the sub song era, it tells us something about kids’ attention and the speed to which you have to get them locked in. Like if you can’t get them within 30 seconds, you’ll never get them at all.
And I also think that we’ve picked up something that we often miss when we discuss attention, is it involves physical activity. You are brushing the screen. Now, when you binge-watch Netflix– and to be completely honest, I’m bingeing Breaking Bad here because Vince Gilligan apparently loves my book. And I’m going to get to meet Vince Gilligan, and I have to had watch Breaking Bad–
Denver: Well, there you go! I can’t think of a better reason to binge-watch that, then.
Will: You’re right. And the least I can do before this meeting is to watch all six seasons of Breaking Bad. So, when I’m binge-watching that, I don’t have to move for the next episode to queue up. Netflix does that for me. That’s a very important nuance, which is no activity, no engagement is required by myself to watch that next episode. Whereas TikTok, you do. And I think that lean-in bit of friction, that kind of “flow,” to quote the academic theory of a bit of friction and a bit of convenience combined is– the secret sauce of TikTok is the inclusion of a bit of friction.
Denver: Well, I think you’re right. You’re just completely passive and binge-watching. Here, you have to have… even at a low level… but a minimal level of engagement.
Will: Yes. They get the balancing point right. You are in the zone when you watch TikTok. You could be half-asleep on the sofa when you’re watching Netflix.
Denver: There are so many choices out there. You’ve just mentioned a couple between Twitter and TikTok and Netflix. There’s a real contest going on for our attention, vying for our attention. “ Contestability” as you call it. What are some of the techniques that are being used to prevail in this contest?
Will: Well, in the book, I give you a framework for navigating this. Now, I preach this framework. It’s little known. It’s the last place you’d go to understand the future of media… is your telecoms regulator like your FCC in America or Ofcom in the case of the UK. But a little-known PDF document that Ofcom published in 2010 has a framework for thinking about attention, which I have used in just about every meeting I’ve had at Spotify, and everybody leans in when they see this.
And I’m going to visualize it and ask the audience to imagine it while we’re on this call here, but just all it simply says is: You’ve got five forms of attention – watch, listen, communicate, games, read. Those are five ways to spend your attention time. And there’s two axes to this chart. What is arc? What was the relative importance of each of those activities? Are the other tasks– what was the relative attention given to those activities? So the trade-off, and we think about a two-by-two here, is importance and attention given.
And then you have circles on this chart plot. How many people in the British population were involved in these activities? As of 2010, streaming music is very small; text messaging is very large. So, the northeast of this chart… so imagine lots of attention given– and it’s considered very important– are forms of attention that involve human beings from the other side – calling, texting, messaging. And the bottom corner, those with least attention given and deemed the least important, was streaming music.
Now, I know lots more people are streaming music today than back then, but I wonder whether it’s moved. And we lost David Bowie just over five years ago. But 20 years ago, he said music is going to become like running water out of a tap – always on, always there in the background. I wonder how many of your listeners could tell me who’s number one on the chart this week. I’ll give a priced bottle of Scottish Speyside sherry cask whiskey to any listener who can message you right now and say, “I genuinely know the answer to that question.” Nobody knows, nobody cares. It’s just water coming out of a tap. Music has become more valuable but less relevant. That your content itself is– it’s just a background feature–
Denver: Yes. It’s background noise.
Will: –for instance, Instagram, which is interactive, or TikTok, which is integrative, which becomes more important to people and more attention given to it.
The way to think about contestability is to go back to a quote that Reed Hastings gave us, which was: Sleep is our biggest form of competition. So if I consume Instagram, I can do lots of other stuff at the same time. I can multitask. You can stack these attention properties. But if I’m consuming Netflix, I’m all in following the plot of Breaking Bad. And that means music loses. Games lose. Books lose. Communication loses. I’m not calling, reading, speaking, or listening to anything else. I’m watching Breaking Bad.
Now, the contestability point is just to remind us the attention is scarce. If Netflix wins, everyone else loses. That means everyone else has increasingly less time to compete for as a result. That’s contestability. So I did want people to appreciate that the first fork in the road you’ve got to attack was attention. Win that battle, and then you can proceed to Base two. But do not pass Go. You don’t collect 200 pounds until you’ve thought through attention economics.
Denver: And as you say, I guess Netflix… their biggest contest right now is, in many cases, sleep. They’re trying to keep me up a little bit longer, so you don’t sleep as much and you finish that Breaking Bad series.
Will: But I should really quickly add that my colleague at Netflix, when he put that story out, I wrote to him and said, “By the way, Spotify has got sleep music, too. So, you know, we’ve got one up on you.” And those Spotify sleep playlists are really popular. Seven hours of listening.
From the perspective of attention, being able to screen distractions out is going to be a killer feature, and VR and AR are well-placed to execute that feature.
Denver: So I guess when you’re saying in terms of vying for attention, we can have a dual focus. You can do two things at once. And then you can have one which takes 100%, like following Netflix. I guess the ultimate end of that would be virtual reality, correct?
Will: So I think this is the big one. If you look at just the sheer size of the bet that Facebook has placed on Oculus, I would estimate a quarter of their headcount right now is dedicated to making this Oculus bet pay off. And I think it’s interesting to think about Oculus and VR and AR in terms of attention economics. What price for your undivided attention? Is the value getting attention in – “Hey, I’ve got your time with this podcast.”? Or is the real value in being able to screen other distractions out? That counterfactual, which I’d love people to spend a bit more time contemplating: if VR and AR work, then you’re truly captivated by the experience that it’s offering you.
And when I look at where I’m seeing early smoke signals of where this is going to go, I think it’s fascinating to go back to VR in the world of… let’s take sport, for example. I’m a huge American football fan. My mother says to me that’s what made me an economist because I had sporting stats.
Denver: There you go. A little bit of gambling in there, too, I’m sure.
Will: Yes. And a huge fan of Randall Cunningham from the Eagles as well.
Denver: Oh, yes. Randall Cunningham, number 12.
Will: Yes. Absolutely. Scramble like Randall. And so, when you look at American football, a point was made to me when I was researching the book, which is they’ve got problems with American football: a) Parents didn’t want their kids to play anymore; and b) the rules are getting kind of boring… The extra point after a touchdown.
Now, to change those rules in reality would take months, if not years. But if you’ve got a VR version of Madden NFL, you could change it before we get on our summer holidays. Who moves fastest? I’m not saying VR overtakes a real sport, American football. I’m just kind of confused how quickly these VR and AR played your bets, your proposition to the customer can change given reality? And in film and production, we could be seeing VR versions of films hitting first and Hollywood second. And feedback being engaged with the art to make the end product in Hollywood even better.
So the jury’s out as to whether Oculus will pay off, but I have no doubt at all that from the perspective of attention, being able to screen distractions out is going to be a killer feature, and VR and AR are well-placed to execute that feature.
Denver: That’s really interesting. When you even look at football, we’re pretty resistant to change the rules of the game within the rules of the game. I don’t want those rules of the game to ever change. I’m used to it. I resist it. But if I see it on Madden in a simulation and I begin to say, “Hey, this isn’t all that bad.” You know what I mean? I become an advocate, so it doesn’t hit me as so foreign. I kind of embraced it. And it’s actually made the game a little faster, or a little bit more interesting, or a little bit more suspenseful. So I can see how it can be a precursor to actually making some of those things change.
So taking everything we said, Will, if you were the CEO of an NGO or a nonprofit, and you are trying to get people to pay some attention to your cause and what you’re doing to make the world a better place… and maybe even help support it– and you don’t have a large marketing budget– would you have a word of advice for them?
Will: I think with regards to NGOs, I would love an NGO to consider how it measures its achievements. I have this thing in the book, and it’s really, really bugging my head out just now, which is: Often, what matters most is being measured least.
Denver: For sure.
Will: So trying to measure what an NGO achieved is one thing, and that can be a murky or a fuzzy mess and cheated figures and guesstimations. I get that it’s hard to get, but did we ever spend time just considering what NGOs prevent? And it’s that counterfactual, which I think often gets lost. Like did you actually boost GDP with that NGO project, which got this much donor money from a country? Is that the question we should be asking, or should we be asking the counterfactual question of: What did that NGO help prevent? And it’s very hard to measure what you prevent.
One great example from the book is, I cite a classic, which is the big typhoon, a standard reading here in Britain. And there’s a story of a ship which had to sail into a typhoon, a problematic area of shipping. And the question was asked: Do we take the long way round and avoid the typhoon, or do we just go through it and see if we get to the other side?
And the captain, of course, is posed with this question. He said, “Well, I can’t take the long way round because I’ll be asked why I’m late.” “You’ll just tell your owner of your ship you were late because you had to avoid the typhoon.” But then you asked me, “It must have been really bad because you took the long way round.” He said, “I don’t know. I avoided that. I didn’t know.” So he goes through the typhoon. Without spoiling this beautiful book for your readers, it’s a very short book just like the songs are getting shorter. Like this is a two-day read, not a two-week read.
Denver: For sure.
Will: But just his point was: How would I measure what I prevented? And I think what matters most is often what’s measured least. And I think that the work that NGOs have been doing, when I did research about your community or your audience, is: who’s debating or who’s illustrating what we prevented as opposed to what we achieved? I think that’s a really important part of NGO culture going forward.
Denver: I think you’re right. Reminds me of that old thing about the guy that buys a $500 driver. And he’s been shooting a 90 and he buys a driver and he keeps on shooting in his 90. And his wife says, “Well, why did he spend $500 on that driver?” He said, “Well, if I didn’t get this new driver, do you imagine how high my score would have been otherwise?” So there’s a sense of just trying to do it.
But it is looking… it’s in the gaps. It’s the white space that people don’t always look at. It’s: we’re always looking at the data. And even talking about what you said before about what’s not being measured, I have always been… like GDP, gross domestic product – when did that become the end-all? It doesn’t have anything to do with health or lifespan or crime or art or happiness, but it seemed like it came out of the Depression. It became the standard measure. And now, we kind of rank countries based on GDP, which just seems crazy.
Will: It drives me insane. It came out with the Depression. And Simon Kuznets who originally devised GDP just before the war, and I think the original intention was to measure a country’s capability of going to war. That was the original great statistical tool tier. “How do I put that tool to work? Oh, I can measure countries by ability of going to war.” What a great measure for the NGO community to adhere to!
Denver: Very inspirational, isn’t it?
Will: And then you just– there’s so many ways you can tear it apart. My favorite one, by the way, is– it is a terribly sexist expression, so I apologize in advance– but if a man was to marry a mate, he foresees a recession. I always love that one. Just to remind yourself that a mate … providing goods and services, and should you marry the landlord of the house, then those are no longer measurable goods. And it gets you into, like… it opens the can of worms, does GDP. But it’s crazy to start thinking through just what is GDP missing? If I paraphrase the famous economist, Robert Solow, “The digital economy is everywhere except in economic statistics.”
And I’ll give your audience a really good example from the book of just where this really kicks in. And it’s, he’s now the former chief economist of the Bank of England who stepped down to become the head of the Royal Society of the Arts. That’s … Andy Haldane had said on record that he wanted to use Spotify data to predict the next recession. Everybody went ape S-H-I-T because it looked like Spotify is trading customer privacy data with the Central Bank, and it’s going to cost you a mortgage. This is not a good PR story. And we call stories like this at Spotify “toilets that won’t flush.” I know that’s not a very polite expression, but this one carried on for quite a while.
And the truth of the matter was nobody was trading data. We didn’t even know who the staff was. We didn’t even think about using our data for anything to do with monetary policy, but we’ve got Andy Haldane to visit our office and explain himself. We had bands like Coldplay play in our office. We never had a rockstar member of the Central Bank come. And he came in and, firstly, he apologized for the privacy fallout of what he said on record. Apology accepted. Then we sat down with Andy Haldane, and I said, “Why did you say what you said? It doesn’t make any sense. A Spotify playlist? Recession? Where are you going with this? Doesn’t– what is the purpose of our music to your job, your profession of setting interest rates for this country?”
And he proceeded to explain his point. He said, “I believe”– and remember, this is 2018. Brexit negotiations were going really bad. He said, “I believe there’s a lot of anxiety in this economy. Millions of people don’t know where we’re going to be with Europe in a few years’ time. And there’s millions of Europeans who, by the way, were not allowed to vote on Brexit.” Very important point. Europeans living in Britain were not allowed to vote on Brexit.
“And they don’t know if they’re going to stay here in a few years’ time. There’s anxiety. And all I have to base an interest rate decision on this country is manufacturing orders based on a survey, which is recall data, from someone like….. Manufacturing orders are up 2%. Oh, well, we might have inflationary pressure. That’s it. I believe, these are his words, “that sentiment matters more. How are people feeling? And if I can find any indicators of anxiety in the economy, I will take that over looking at manufacturing orders to understand what the ramifications of an interest rate movement would be.”
And the whole room was just bowing to him. Like if you know somebody of that stature in policymaking think like that… Andy Haldane for President. That is what you need in terms of pivotal thinking as it applies to policymakers. And perhaps you’ll find signals of anxiety in people’s music taste.
And on that note, just very, very quickly, your country went into lockdown then on the 13th of March last year. I know that because it’s my birthday and it’ll always be remembered with the day that Donald Trump locked down America. On that day, the number one trending song on streaming services was an R.E.M. Classic called “It’s the End of the World As We Know It. (And I Feel Fine).” Might tell you something.
Denver: It really does. The economy, people don’t appreciate, I think, is all psychological. It’s about how people feel. And we keep on looking at these metrics, which are antiquated to begin with, but nobody looks at psychology.
I’ve always looked at my economy in driving into New York City. And I’m an early morning guy, and I used to get to the Lincoln Tunnel, which is the tunnel that leads into New York City, at around quarter to six in the morning. And I could tell how the economy was going by how many cars were in front of me. And when it was really, really depressive, I was like–you just fly right through. But now, I said, “Oh my goodness. There’s three cars in front of me at a quarter to six. Now, there are eight cars in front.” And it was almost a sign that people are beginning to get back to work. Something that would never be measured otherwise.
But you’ve led us into a nice thing about pivotal thinking. And that really means looking beyond, over and around the obvious ways of thinking. And Will, you learned that lesson early on from your dad. Tell us about that story.
Will: Well, it’s a nice story to tell because last week I went back up to Scotland, the town of Dunbar, again, the birthplace of John Muir who needs no introduction for an American audience, and I got to hug my parents for the first time since July last year. I was there on Monday morning where you’re allowed to hug. I was in that bedroom at 6:00 AM with coffee and a hug from my parents.
Denver: There you go.
Will: So yes. My dad was an economics teacher at a school in Scotland. And on a summer holiday, I hear that he had told my older brother what economics was, and sibling rivalry kicks in, which is, “I want to know what that subject is, too.”
And I was begging my dad to teach me. “Dad. What’s economics, Dad?” “Shut up, son. I’m on my holidays.” “Dad, you’ve got to tell me. I can’t have Tom learning something that I can’t. And he’s two years older than me and about two feet taller than me, but still I got to compete with him.” You know, he’s like… he backed down and said, “OK. We’re here at this beach in Scotland, a beach called Pease Bay, which by the way, today, is a big surfing beach. I was just there in my bare skin and trunks back then, but now it’s all surfers and wetsuits, which either they are.
And we were at this beach and he said, “I’m going to give you a problem. And you’re going to be the Prime Minister to solve this problem.” “OK. What’s the problem, Dad?” And he said, “Son, last year, there was a huge spike in British kids drowning in British waters. Tragedy. British children are drowning in British beaches. And you’re going to be the Prime Minister at Number 10 Downing Street, walk out, stare at the parents who are grieving, the press who are angry, and the politicians who want to undermine you in the face and say, “Billy Page, the prime minister is going to do the following policy solution to this terrible situation of kids drowning.”
Now, I’ll ask you, Denver. If you were an 11-year-old kid, which you’re not, but what would be your knee-jerk reaction to make this problem better?
Denver: Well, I’m not big into doing compulsory things, but it’s a pretty simple solution if I’m 11-years-old. Make it compulsory that every kid in the country has to learn how to swim.
Will: And that’s exactly what I offered my father. And it’s exactly what, when I run this test past C-level executives around the world, the gut reaction is to make swimming compulsory.
Then my father said, “OK. That’s politics, that’s knee-jerk reaction, how to look good in a time of crisis, which is not an issue to discuss right now. And he said, “Let’s do some economics.” I said, “OK, Dad. Teach me.” He said, “What do we know about the kids who drowned?” “Well, they’re at the beach, Dad.” “Where were they at the beach?” They were in the water, Dad.” “Son, what does that tell you about their ability to swim or not?” “That meant they could swim, Dad.” “Why?” “Because kids who can’t swim don’t go into water.” Penny drops.
“So your policy is to make sure all kids can swim.” “Yes, Dad.” “Will we have more or less kids in the water as a result of your policy?” We’ll have more, Dad.” “And if 0.001% of them drowned fatally in accidents, will we have more or less deaths as a result of your actions?” And that was when economics kicked in. The best intentions would have made problems worse.
And since that day, I’m basically motivated by that one lesson of just – I understand what he was trying to do to solve that problem, but I’m not sure it’s going to solve it, if it could make problems worse. Is there a different way we could attack that? Applying that lesson that my father gave me when I was an 11-year-old kid in Scotland, freezing, by the way, because it’s the Scottish summer. So we’ve got two seasons. We have two seasons. Winter in June, and this wasn’t June. And you can apply it everywhere, which was just making swimming compulsory was a knee-jerk reaction. There were other solutions, such as information.
My dad pointed out: why don’t we have a simple flag system telling people on the beach. There’s green, there’s amber, there’s red. And if it’s red, don’t go in the water. Strong currents. So why don’t we have lifeguards? Why don’t we have information regulating who gets access to the beach on a bad day? And there’s other things you can do, but making swimming compulsory – great policy, but it’s not going to solve this problem. This problem requires a different way of approach.
And I don’t want us to sort of beat up the legal profession here, but when I first moved to–
Denver: Why not?
Will: OK. I will beat up the legal profession here. Thank you for the green flag on that one.
And so, when I first moved to London in 2006, I told that story to the general counsel of the music company I was working for. She asked the same question just like you asked; I gave her the same answer just like I gave you. And this is over lunch. And I explained how my best intentions would have made the problem worse. And she put down her knife and she put down her fork, and she said, “You know what, Will? I’d have just banned the kids from swimming.”
Denver: There you go.
Will: You’d ban the kids from swimming?! But that’s a lawyer’s approach to solving the problem.
Denver: Yes. Well, that sounds to me very similar to: ”We’ll just ban piracy.” So people–
Will: Good example there, actually. Yes. We’ll just ban the kids from going through the internet and getting all the music that they want. No. How about we monetize that…
There’s a different way aid and development can work in this NGO space which avoids that Catch-22. So, it’s not saying all aid and development should be stopped… It’s simply saying, “Look at the consequences of your actions.”
If countries that are receiving aid and development are able to reallocate budgets and increase military spend as a result of your actions, you’re also potentially making the problem worse. So that’s where you need to pause.
Denver: Well, the whole problem with what you’re talking about there in today’s world is that: a) you got to make swimming compulsory because I’m taking action as a prime minister, I’ve done something; and b) everybody’s in such a hurry because everything you suggested there is that that initial reaction is the right reaction, but then what we need to do is pause. And we never pause. We keep on going because we think that you have to do everything quickly, and you have to do it fast.
But it’s that pause that you just talked about, when you stop and think about it – Is there another framing of this? Is there another way to look at this? – where you begin to think slowly and more deliberately, and you come up with the answers. But we’re not oriented as a society that way. It’s boom! Let’s get it done.
Will: Let me give you an example in the world of aid and development, which will relate to a lot of your audience relative to NGO work. Two observations: one, there’s lots of aid pouring into many African countries; and two, there’s lots of wars between African countries. But you need to pause and say – “Are these observations linked?”
When I was a government economist, and this was a hot debate back then, which was if a country has a budget of, let’s say, $30 million in education, $30 million in health, $30 million in defense, and $10 million in administration. So a very crude, simple budget. And if donor countries come in with $ 50 million in aid and $50 million in health, I can reallocate my own budget to spend more on military and go take on my neighbors. And that is an inconvenient truth in the aid and development world, which lots of people would brush under the carpet and say, “I don’t want to discuss that. That’s not good for my image.”
But it’s like – but wait. How are these poor countries affording wars? There’s a different way aid and development can work in this NGO space which avoids that Catch-22. So it’s not saying all aid and development should be stopped. No. Nothing to do with that. It’s simply saying, “Look at the consequences of your actions.” Just like I wanted to stop the kids from drowning, I would have made the problem worse. If countries that are receiving aid and development are able to reallocate budgets and increase military spend as a result of your actions, you’re also potentially making the problem worse. So that’s where you need to pause.
Denver: There’s so many unintended consequences. You take a situation in a disaster, and NGOs come in and they bring water, which is great because people need water. But there comes a point where there are a lot of water merchants in that country that basically sell water and hire people to sell the water, and you essentially put them out of business. But nobody ever thinks about that. They just think – What do we need to do?
And it’s that longitudinal thinking about: Well, what would the consequences of this be, and that be, and that be? Not that hard to figure out, I think, in many cases. It’s hard to find the time and be deliberate to think it through. Nobody does that.
Will: And I can join two points here, which is: If you think about aid and development and GDP, if you look at a country like Indonesia recovering from the tsunami, there’s a huge explosion in gross domestic product there because people are building new roads. Roads add nothing to GDP because it’s different… static object. Building a new road does, and they’re also building bigger roads.
So you had this very interesting sort of little quirk, which is: tsunamis as devastating as they were, were fantastic for gross domestic product because you have to rebuild lots of stuff which didn’t add to GDP in the first place. So how do you measure aid and development with GDP there is where you really have to reach for either paracetamol, ibuprofen, or Speyside sherry cask whiskey as I mentioned earlier. Either of those three should solve your problem.
What you can do with big data is phenomenal, but there’s such a risk of big mistakes being made.
I think it’s a time now where we can’t risk drinking the Kool-Aid on big data. It tells us a lot about what we think we know, but it doesn’t tell us a lot about what we don’t know. And quantification bias, what I refer to in the book, the quantification bias is that we skewer interest in what we can measure, and we ignore what we can’t as irrelevant.
Denver: Let’s take one more, and that’s big data leads to big mistakes. And I have spoken to a lot of leaders, Will, during this crisis, and they have said that they have not had the ability to get the data that they normally get, the information they normally get to make decisions. Because these decisions were going to happen one way or the other, so they’ve had to do it with maybe 50% of the data they’re normally accustomed to and have to rely on other things. And I would think that you would say that probably is a blessing in disguise, correct? Tell us why.
Will: So I think there’s 9,000 books on Amazon with the title “Big Data” in it. So there’s no shortage in the supply of advocates of big data. That’s there. So my job in this chapter was to remind people that I will celebrate and applaud the achievements of big data and its predictive qualities, and its ability to scale tech companies, but you can risk making big mistakes.
So at the very start, I think I’m always reminded by somebody who pioneered the big data systems at Spotify, Chris Tynan who would always give you data… But when he handed it to you, he’d stare you in the eyes for a long period and say, “What are you going to do when I give it to you?” I’m going to plot a big spike and say, “Look what I’ve done today.” “Is that it? Could we move from base one, please? What are you going to actually do with data?”
So it’s just, again, you made a really good point about how do we pause in our excitement for big data, for coping with huge datasets, for transferring from service to Google BigQuery and adopting a table, put in a PowerPoint, and look at all parts of the Excel right now, an Error table for example. What you can do with big data is phenomenal, but there’s such a risk of big mistakes being made.
And there’s so many in that chapter, but one of my favorites, which still shows today is paid search advertising. And I guarantee your audience, whatever the NGO or charity foundation that’s listening, will be involved in some sort of paid search advertising to get their work noticed. The room is getting increasingly crowded. How do you speak to the people at the back? You go to paid search advertising. You work it on Google.
There’s a study by the former eBay chief economist, Steve Tadelis, who spotted something which was when he searched for a Les Paul guitar on eBay, the first link is a paid search advert for Les Paul guitar on eBay. The second link beneath that is an organic one. If I didn’t have to pay for that search, would I have actually lost that sale? It’s a great parenthetical factual question. Long story short, he did this huge complex economic study, lots of Greek symbols and formulas, but basically concluded you could wipe off your paid search advertising budget and not lose a penny in revenue, which his leader said, “But we like spending that money on paid search advertising.” We have both clubs to be part of.
But yes. It was just a very interesting story of: Why are we using big data to understand paid search advertising when the Google query would have thrown up that link in the first place? If I search Apple One, the Apple One- $30/month on North America – the first link Apple paid for. The second link would have been added to it for free.
So I could ask that question like to all these people with PhDs who deal with big data which is: Are you making a big mistake here? How do we swing the pendulum back from big data towards more of common sense? And I think there’s a need for that. The pendulum’s got to move back towards common sense. eBay, by the way, I was told they used to bid on the word “death” on Google…. which tells you a lot about their paid search advertising styles.
But it’s just, I think it’s a time now where we can’t risk drinking the Kool-Aid on big data. It tells us a lot about what we think we know, but it doesn’t tell us a lot about what we don’t know. And quantification bias, what I refer to in the book, the quantification bias is that we skewer interest in what we can measure, and we ignore what we can’t as irrelevant. And for an audience, maybe many NGOs here, a lot of what you do can’t be measured. Quantification bias is going to ignore that.
So, I think with that audience that you address, big data is always a really special challenge in that the people that kind of grab the attention of governments or philanthropists will have an upper hand if they have measurable metrics. If what you’re doing is tougher to measure, tougher to quantify, then you risk losing out, and that’s the chapter for you.
Denver: Well, you also say that people buy for different reasons than we think they’re buying. And data is giving us the reasons that we think they’re buying, and they’re not really the real reasons. I’ve always believed that the whole point of data was to cover somebody’s ass when they make decisions. You know what I mean? It’s essentially– where common sense… I could get in trouble with it.
Will: You may say that. I couldn’t possibly comment. There you go.
What is big data? I say if it’s big enough to cause big mistakes, I’m going to call it big. Other people would say if you can’t fit it on an Excel spreadsheet, therefore it must be big. I just say – if you can make mistakes with it, it’s a big data issue.
Denver: But it does! You just say, “Well, this is what the data said.” I even sometimes see it when companies get search firms in. Part of it, you could probably find a person, but if you have a search firm and it goes bad, “Hey, we got a search firm.” If you’re trying to save a little money and do it yourself, you could be out of a job. So there’s a big part of that I think that goes on with data.
Will: Absolutely. Data can be used to manipulate. And I think in that chapter, I think I tear into the net promoter score. The NPS is the classic simple big data point.
What is big data? I say, if it’s big enough to cause big mistakes, I’m going to call it big. Other people would say, if you can’t fit it on an Excel spreadsheet, therefore it must be big. I just say – if you can make mistakes with it, it’s a big data issue. But a net promoter score, I’m absolutely sure that was devised to cover your own ass, a really great way to manipulate scores. But company’s still to be using the dumb metric. It’s, quite frankly, worrying. Like why do you sit with it?
I will not chew your ear off in this one, but if I may make one point about the net promoter score, it’s just kind of: sow the seed and hopefully it will take root. If we all know how the scoring system works, then surely we game the system. Maybe I thought the score cut was a seven or a six. But hey, Denver wouldn’t get any credit for that, so I would have given him a seven or a six. Let me give him a nine because that way he’ll get his plus points. Because I know how the scoring works because it’s still universally adopted; nobody scores how they feel they should score, to quote the Keynesian beauty contest. “We score in the eyes of the judges instead.” And that renders a net promoter score bankrupt. And it should be considered a felony under US federal law to be applying it.
Denver: You know, the first time I ever took an Uber, my daughter told me to give the driver a five because she says if I give him four stars, he’s going to be in trouble and might lose his job. Now, I would have probably have given him a four, but she games the system to me and said “Oh, no. You’ve got to give them a five unless they do something really wrong.” And that’s exactly what net promoter scores are right now. You know how the game is played.
Will: Let me give you a very tricky example of getting the pendulum away from big data and towards common sense. And I’m going to stick with Uber for a second. I spent a lot of time in Spain, and in Madrid, I know this was one city in Europe where Uber couldn’t conquer. That was interesting. The number one car firm and we’re talking year two-, three years ago was Cabify. I wonder where they got that name from as a former Spotify chief economist. We may have trademark issues. But Cabify ruled Madrid. Uber was a very, very distant second. Now, Uber’s conquered Bellaterra. They’ve conquered Lima. They’ve conquered everywhere else in the world, but they couldn’t conquer Madrid. Why was this great startup Cabify win in Madrid and Uber lost?
Rather than look at data and dashboards, I had this revolutionary idea, Denver, which was to speak to consumers instead
Denver: Well, it was pretty radical.
Will: But people with policies – how do we put that on a dashboard? Can you make that a PowerPoint presentation? So I started asking around and the universal response was: When you onboard onto Cabify, they ask you a handful of two- or three questions. The first one is: Would you like the driver to open the door for you? And remember this is three years ago. People were happy to … But we’re going to go back three years here. Would you like the driver to open the door? “No. I’m six-feet tall and 14 stone and a strong lad who used to play rugby. I can open the door myself.”
But first thing I thought about was: You offered. That was nice. The second thing I thought about was elderly relations I have who would benefit from that. And the third thing I did was to tell other people. A simple gesture of manners, even if people said no, was enough to nudge an entire market to the direction of Cabify away from Uber. Big data, big mistakes. Thank you and good night.
Denver: I always wonder if philanthropy could learn something about that because, again, what we’re always doing – every business is doing this – is that we’re telling them about us. And this is all we do, and this is how we’re making a big change, and this is why you should give us some money or help support us or whatever. And very rarely does somebody ever start by asking something about you. And all of a sudden, there’s a level of engagement because now that you’ve asked about me, I want to know more about you. But when you’re not asking about me, I’m not that particularly interested.
Will: Here’s a very British example, so my apologies, as I know your audience is predominantly over there in the States. But we have the BBC license fee here, which is in the dark again, giving us a scandal regarding the late Princess Diana… But for 145 pounds, you pay for your BBC license; you get your public data forecast. America doesn’t have this model because you have a fascinating NPR radio model there, which is operated differently.
But we have this levy of 145 pounds. And they send you letters if you don’t pay it. They send you threatening letters to say “We have a van driving around your block, which knows you don’t have a license fee.” Like really? Really? It’s 2021, and you’re still doing this? Everyone knows there’s no vans, and even if it did, those vans don’t know. So it doesn’t work. Nowhere has the BBC ever said, “Here’s what you get for 145 pounds.”
Let’s extend that logic to what you’re saying, which is: How much would you pay to get all these features? In the chapter “Make or Buy,” and I think this would be a beautiful example for many of your listeners to latch on to, I talk about a paper by an American academic Francesca Cornelli who wrote: Who should set the price for a museum? Now, the ultimate intuition here is the museum should set the price, and to access this museum it’s $10 and $5 for kids. Hypothetically speaking. She says, “No. Let the buyer set the price. Philanthropists will give you more, and poor people can access. If you’re measuring the economic effects of that, that’s better than the seller setting a price to which some poor people won’t be able to pay, and the philanthropists leave money on the table.”
Beautiful example for your audience at The Business of Giving to think about in terms of: What about turning the equation on its head? Why is the museum leaving money on the table and stopping poor people from attending? It’s a public good for Christ’s sake.
Denver: Yes. The Metropolitan Museum used to have free entry, and it was voluntary, but they were running a deficit. So they started to charge people from out of state to pay a certain amount. And when they did that, everybody in-state, although they still had it for free, ended up paying the same amount because they just saw what everybody else was doing. So it really gets to the heart of your book in so many ways that we don’t quite understand how irrational we are in the way in which we behave.
Let me ask you a question about this because it really does impact the nonprofit NGO industry, but you may have some insights from the music industry. And that is this hybrid existence we’re about to go into. So many nonprofits now have gone to the virtual model and are now beginning to try to say: How are these things going to come together again as we’re beginning to get back from the pandemic? And boy, we have seen live streaming in terms of replacing live shows, and that is not going to go away. Have you given any thought in terms of how these two things might meld together going forward?
Will: I was very, very lucky to be able to tackle this problem for the Amazon company Twitch. Twitch tends to be seen as a sort of a gaming platform. It’s where you go to play games, and…. I don’t quite get this myself, but for the gaming community… watch other people play games. For me, that’s a little bit of a surreal concept, but for millions and millions of people, it’s a big deal.
Denver: That’s more than the Super Bowl in terms of watching the game in it. This is like billions of people watching these things… all trying to get better.
Will: Music has got this wonderful kind of response to– if I use the word suppression, I want to use this correctly, which is if you look at how jazz was developed in 1887 in New Orleans, Creoles were kind of … to the African American community overnight, and as they were playing with Creole people with ragtime and blues musicians, out of suppression came jazz. So it’s amazing to look at the history of music when it faces suppression, how it pivots and innovates.
And another example of suppression is on the 13th of March, my birthday, Donald Trump shut down America and basically said “No more live music.” The breadwinner for most artists’ income is touring, and we ain’t going to have touring anymore for an indefinite period. That, for me, is a suppression for artistic creativity. And so many artists went to live streaming, particularly the platform which developed their careers.
Now, the question that I pose in this world, it can be found on the book’s website tarzaneconomics.com/twitch is: live streaming is not going to go away when live music returns. So we got to work out how they’re going to coexist. Are we literally going to have 5 million people with Billie Eilish backstage before 50,000 people in a muddy field get to see her on stage? And it does raise questions about bargaining power as well, which is if I’m an artist who can perform to 80,000 people in a live stream and make this much money…. And see this much of this much money net take-home trickle-down money, then what’s a promoter going to have to pay me to give up my live streaming, to get up on stage… the horizon as well?
So it’s a fantastic report to learn about how, again, music is like the canary in a coal mine, as in: the first to suffer/ the first to recover, has adapted to disruption is to see what’s happened in live streaming and to understand how that’s going to apply to the new normal when live music returns.
Well, one very, very good example I think your audience will appreciate here is one of the case studies in that Twitch report. There’s a married couple from Austin, Texas, a city that I used to go to to see South by Southwest, but I think my doctor advised based on my liver condition that I should never go back. But there’s a band called A Couple Streams, Travis and Allie, married couple, Austin, Texas, live streaming crazy hours on Twitch, and they’re using every crowdsourcing platform you can imagine to monetize their work. So they have Twitch revenue. They have Streamlabs, where they do queuing songs. So you can request songs and pay for those songs to be heard. They have a Bandcamp. They have the IOA artist platform where you see 100% of your money and return 100% of your rights.
But they also use– this is fascinating. They also use Patreon, which will need no introduction, but to quickly recap, a recurring payment model, and Kickstarter, which is a one-shot model for funding creative goods. And it’s the same consumer contributing to both. It’s not either-or, it’s not black or white. But what they do–and this is still crazy–they use Patreon to finance the other versions of their music. So they did a cover of “Old Man” by Neil Young, supporters on Patreon, and they use Kickstarter for the creation of new original compositions. Isn’t that clever?
Denver: It really, really is. It’s so interesting what’s happening. And just in the larger sense, we always thought it was cannibalization. That if you offer it here, it will cannibalize it. And now, people are beginning to think it’s augmentation. It just adds on.
I remember, we talked about sports before, but I remember they would never put any baseball games on TV because they were afraid that if we put baseball on TV, nobody would come out to the park. But the fact of the matter is you saw the games on TV, and you said, “Hey Dad, can we go out to the park and watch the game?” And it always gets back to your pivotal thinking – what we think is going to happen very rarely does.
Let me close with this, Will. And we’ll get back to Tarzan here, but how do you know when to let go of the old vine and grab for the new vine? And when you do realize what time it is, how do you actually go about doing it? Where do you find the courage to just say: “ The time is now” and make that swing?
Will: Well, we said we were going to get back to Tarzan. And so let me quickly point out that the original author of Tarzan died 70 years ago. So any copyright issues, that’s in the public domain. I checked. So you can let go of that lawsuit please, estate family.
But secondly, I think the music story was a very interesting one. There’s an expression I coined around about 2008, 2009 that was being used repetitively by those advocating that we let go, which was this: The fear was, and in the industries you’ve cited in this interview, is the same fear that the money that I’m making from what I’m holding on to is worth too much to let go of. I cannot take that risk. And that person who buys the Financial Times physical newspaper and consumes those paid-for adverts, I can’t let go of that person.
What I said back then–we’ll go back over a decade here–was that the vast majority of the adult online population in any Western market, but in the case of America… it was around 60%, pays nothing for music. They consume it. They love it. They drink to it. They dance to it. You may even do things later at night to it as well. But they don’t pay for it. It always has been and always will be voluntary to pay for music. And if the majority of your adult online population pays zero, you cannot cannibalize zero. And that expression of “You cannot cannibalize zero” became a hoot.
In fact, I believe Netflix is making a drama about Spotify. Somebody is going to have to play me, a bit worrying, but I know that line is in the script for it as well, which is you cannot cannibalize zero. And that for me was a point where the music industry realized, after repetitively plunking my fist on the table, you can’t cannibalize zero. But what about $50 a month, man? It’s always a man, unfortunately. But you cannot cannibalize zero, and there’s not that many $50/month men left. That was the key point. We said, “You’ve got to let go because if you don’t, the old vine is going to let go of you.” You’re going to stop making the CDs. You’re going to stop — these things will cease to exist as well.
So I think some macro and microeconomics is required to understand when it is time to let go. And it’s not easy. It’s very easy to be an armchair economist/publisher who could say “Everybody, disrupt now.” That’s garbage. It’s scary as hell. We went into that tunnel, and we came out on the right side of it. Other people there will be casualties, for sure. But you need to understand that.
I think you can pick any profession you want, and you can see that rising tide of disruption gathering around their ankles. Lawyers need to be careful. Just for example, perhaps to close out on, which is I look at how the same forces of disruption are affecting the legal profession. Now, they’re looking at a Napster moment to the adoption of illegal solutions lure the lawyers are so big. And the only way you have to spot this is if you look at an org chart.
I know that your audience is fascinated by organizational structure. When you see the title “assistant to assistant” in the legal department, that is fat that tech will be trimming in a matter of months from now. How many tech startups in Silicon Valley that plan to scale without a legal department? This is it. This is coming, and it’s not going to go away. This tide does not stop rising. And that’s what we need to get in our heads. At some point, we all have to let go.
Denver: It’s amazing how much we all trust DocuSign now. It’s got to replace my trusted lawyer. But just to sum up, it seems that what you need to do is to let go of what you can see for something you can’t clearly see yet. But if you take the time, all the signs are there that it’s going to appear. And that’s always a bit of a leap of faith.
The title of the book is Tarzan Economics: Eight Principles for Pivoting Through Disruption. So go pick yourself up a copy, and apply these principles to your own industry or your own organization. You’ll be glad you did. Thanks so much for being here today, Will. It was really a lot of fun to talk to you and a delight to have you on the show.
Will: Thank you, Denver. It’s been an absolute joy. Really enjoyed this, and really grateful for your time.
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