Stealing Signs - Issue 38
Distribution, Banking, & The Innovator's Dilemma, What is Clubhouse?, Why Education Startups Don't Succeed, TikTok & Microsoft's Music Strategy, & RotoMaire
Worth Reading
Distribution, Banking, & The Innovator’s Dilemma
Donald Richard, Product @ Shopify
These new revenue streams will allow companies to fund sales operations that will expand their market opportunity and create a path to profitability. Embedded fintech should also be called embedded distribution. A generation of SMBs may soon be banking with the trusted service provider that helps them run their business, bypassing traditional banks all together.
Donald keys in on an accelerating trend of “embedded finance” — where service providers, typically software providers, add financial services to their broader offering and leverage their direct connection to customers, or distribution advantages, to scale the financial services quickly. As Donald notes, the other end of this spectrum is where banks have traditionally operated. Historically, banks connection to their customers was their brick-and-mortar branch location. He suggests the internet enabled technology companies the similar direct access to customers, but on a much, much larger scale. The scale advantage is significant and is what allows these technology companies to scale newly developed financial services so quickly — the services banks traditionally had a unique advantage in pre-internet. In other words, many banks do not own an operate their own distribution, or access to customers, while, thanks to the internet, many technology service providers do.
It’s clear the trend of embedded finance will continue to grow and likely accelerate in years to come, and I wonder if this trend will influence the digital (transformation?) strategy for non-tech companies and companies outside banking and financial service. For example, a large logistics company has access to all of their customers via their distribution network and fleet of trucks, but it’s a weak 1:1 relationship. Customers may work with the logistics firm directly, but do not have nearly as strong a relationship with customers as technology service providers. If said logistics firm has access to their customers performance and financial metrics, doesn’t it make sense to leverage this large data set to offer customers technology-driven financial services? Get closer to the customer? They’d have a unique advantage in risk pricing with access to customer data, and banking and insurance products would undoubtedly be a compelling offering to customers. Get closer to the customer with a compelling offer? Sounds ideal.
What is Clubhouse?
Paul Davidson & Rohan Seth, Founders of Clubhouse
You can talk on Clubhouse while you’re folding laundry, breastfeeding, commuting, working on your couch in the basement, or going for a run. Instead of typing something and hitting Send, you’re engaged in a back-and-forth dialogue with others. The intonation, inflection and emotion conveyed through voice allow you to pick up on nuance and form uniquely human connections with others. You can still challenge each other and have tough conversations—but with voice there is often an ability to build more empathy. This is what drew us to the medium.this is a horizontal approach, essentially
Clubhouse is the buzziest consumer company of 2020 and has received an equal share of praise and criticism from what feels like everyone in my Twitter feed. I haven’t had the chance to give it a whirl, but I’ve heard mostly great things. In essence, Clubhouse enables voice chat rooms where users can hang and chat about whatever they choose — a horizontal approach to voice chat rooms.
The last few months have brought on numerous Clubhouse imitators, but instead of rooms to chat about anything, these companies are taking a vertical approach, focusing chat rooms on specific topics or niche groups of users. Upstream is one example in the professional development niche. Much like LinkedIn’s initial strategy, Upstream aims to connect professionals in similar industries and with similar interests via conversations focused on professional development and network expansion. I have had the chance to try Upstream and am excited for it’s potential. Users can video chat with other users in addition to audio chat, and they’ve built an incredible slate of guest speakers to lead discussions.
LockerRoom is another Clubhouse-like product focused on the sports vertical, which is particularly compelling because of it’s contextual advantages — sports games are scheduled months in advance and each league and team often has numerous story lines as they progress through the season. Chat rooms in LockerRoom could be anchored to Cubs games or the NBA finals, and even include appearances from professional athletes, journalists, and on-air personalities. For example, I listened in to a convo with former Seahawks Defensive End Cliff Avril this week where he discussed the NBA bubble and how NFL players might deal with a similar situation. I stayed around for much longer than I anticipated and enjoyed listening to the varying viewpoints. While Clubhouse has all of they hype and funding, I think LockerRoom will make a serious dent in this space. Who knows, maybe we'll see Mike & Mike hop back on the air together in there.
Why Education Startups Do Not Succeed
Avichal Garg, Electric Capital
Don’t believe that building a better product will make you successful. Delivering something for cheaper will. Even if that cheaper thing is lower quality. This is usually repugnant to most well-educated entrepreneurs.
Education is a cost problem for the masses, not a quality problem. This is an excellent insight from Avichal and his post outlines why this is the case. He suggests many entrepreneurs tackle education from the quality perspective, but in reality, for the majority of potential customers, education is viewed as an expenditure, not an investment. I’ve thought about this point quite a bit since first reading.
Avichal’s post also got me thinking about the top edtech companies that have emerged in the 9 years since he posted. The first company that comes to mind is YouTube. My friend Sid Jha first introduced me to the idea that YouTube as the top education company in the world — endless hours of educational content at the fingertips of billions of people. Of course! From this perspective, YouTube is certainly the preeminent education company and it seems that's because it’s not an education company at all. It’s a entertainment company. Other non-obvious examples of education companies include Quora, Golden, Reddit, and Twitter, which all happen to be entertainment (either content or via community in a social network) companies, too.
I believe this phenomenon — social and entertainment companies leading the way in education — is likely to continue given the scale and distribution advantages inherent in these products. These advantages mean they’re able to drive costs down to near zero for consumers (and in some cases, to zero), which speaks to Avichal’s suggestion that education companies focused on driving costs down for consumers will be able to reach scale, not those focused on delivery higher quality. While of course the social and entertainment approach to education introduces significant friction in identifying the signals among the noise re: valuable education content, they have the potential to reach the masses quickly and efficiently, which appears to be the most important component in direct to consumer edtech.
Where TikTok Fits in Microsoft’s Music Strategy
Cherie Hu, Author & Journalist
For one, there’s the pure confusion on the consumer side that results from having so many different music services available under a single brand umbrella, especially given that Microsoft controlled operating systems but not the devices themselves. As media analyst Mark Mulligan writes in his book Awakening, this led to a situation where “a Windows 8 Lenovo laptop is shipped with both Xbox Music and also streaming music service Rara, while a Windows Phone 8 Nokia Lumia contains Xbox Music, the Nokia Music Store and Nokia Mix Radio, as well as often a carrier service.” This was in stark contrast to Apple, which in the time of iTunes and the iPod was vertically integrated in the truest sense, controlling the device, the O.S. and the music software. In Mulligan’s words, Apple was “a compact but highly cohesive nation state,” while Microsoft resembled “rambling federations of competing principalities and kingdoms.”
Cherie covers the history Microsoft’s innovation efforts in the music industry, examines the key reasons for multiple failures in this space like user experience and vertical integration challenges, and the current state of Microsoft’s music strategy focused B2B services and platform technologies rather than consumer-facing offerings.
It’s a perfect set up to examine a few reasons Microsoft may be interested in acquiring TikTok that are relevant to the music industry. The most strategic music-related incentive for Microsoft to acquire TikTok is the bolstering of their creator tools and platform technologies, which is the core of Microsoft’s music strategy today. TikTok is undoubtedly the leading consumer creator tool which, as Cherie notes, aligns with Microsoft’s services for empowering artists to create their best work. This synergy could prove to be the most impactful over time with the emergence of the creator and passion economies. I suspect we’ll soon see the trend of independent creators who own their audience and distribution bleed into the music space as more verticalized creator tools are developed, and TikTok could be the accelerant for Microsoft to emerge as the leader in this space. Chance the Rapper is the most prominent example of a successful independent artist and executed the same playbook used by individuals in the creator economy. Microsoft could power the rise of independent music artists like Chance in the future by combining their existing creator tools (sound-design technology and a spatial audio platform) with TikTok’s enormous and powerful distribution capabilities. In many ways it’s the perfect compliment.
<stuff> Weekly
LOL Weekly: Johnny Being Johnny
lollll Johnny Cueto is the GOAT
Funding Weekly: RotoMaire (launching soon!)
RotoMaire is the newest member of the Founder Equity fam! We lead their Seed Round with local Chicago firm, Motivate Venture Capital.
We’re thrilled to be on this journey with Jehan Luth, founder of RotoMaire, his team, and our co-investor. Below is a bit about Jehan and RotoMaire’s mission:
Jehan is set out to build the the critical infrastructure enabling frictionless financial transparency. Today, financial services and fintech co’s have no visibility into what their users are purchasing. Similarly, merchants lack the ability to engage with their customers and understand purchasing behavior. RotoMaire solves these problems by matching receipt and transaction data which allows merchants to personalize consumer engagement, digital wallet providers to deliver beautiful, useful dynamic receipts to consumers, and fintech and financial services companies to understand customer purchase behavior.
We’re excited for the big things Jehan and team have in store 🚀🚀🚀
Baseball Weekly: Happy 50th Birthday, SABR
John Thorn, Official Historian for Major League Baseball
First convened in Cooperstown in August 1971, by L. Robert Davids and fifteen other avid researchers and history buffs, SABR grew slowly but steadily before settling in a bit north of six thousand members in 1987 (I joined in 1981). “Baseball’s best-kept secret,” Ted Williams once declared. As some of its early members slipped away into the sunset, new nerds would have to be located. Fortunately, that has happened, and the analytics movement has been SABR’s fountain of youth. SABR has become a bridge between the game’s journalists and its front offices, on the one hand and, on the other, its fans, who consume and argue over SABR research without even knowing the source.
Art Weekly: No Land Like Show Land
Blair Thurman
In his sculptures and installations, Blair Thurman, a painter at heart, explores the history of painting and its place in our media-saturated contemporary culture. Using the traditional materials of painting, wooden stretchers, canvas, and paint, often in combination with neon tubing (so closely associated with advertising signage), he crafts representational and abstract forms that reference the histories of abstraction, Minimalism, and Pop Art, and the excesses of commercial consumer culture. Motifs from car culture—decals, racetracks, wheels, auto bodies, and seatbelts—permeate his work as design elements, appearing almost abstract.
