The trepidation — and inevitable outrage — with which much of the media has greeted Facebook’s latest change to the News Feed algorithm seems rather anticlimactic. Nearly three years ago I wrote in The Facebook Reckoning that any publisher that was not a “destination site” — that is, a site that had a direct connection with readers — had no choice but to go along with Facebook’s Instant Article initiative, even though Facebook could change their mind at any time. A few months later, in Popping the Publishing Bubble, I explained why advertising would coalesce with Google and Facebook; that is indeed what has happened, which is the real problem for publishers. Facebook’s algorithm change simply hastens the inevitable.

The story for media is for all intents and purposes unchanged: success depends on building a direct relationship with readers; monetizing that relationship (likely through subscriptions, but not necessarily); and leveraging Facebook as an acquisition channel for those long-term relationships, not short-term page views. If anything this change will help reader-focused publications: users will be more likely to see links shared by their friends, enhancing the word-of-mouth marketing that is the foundation of reader-centric publications.

What I find far more compelling is the question of Facebook’s motivation. Facebook CEO Mark Zuckerberg wrote on Facebook:

One of our big focus areas for 2018 is making sure the time we all spend on Facebook is time well spent. We built Facebook to help people stay connected and bring us...

You’ve heard the adage “It’s all 1s and 0s”, but that’s not a figure of speech: the transistor, the fundamental building block of computers, is simply a switch that is either on (“1”) or off (“0”). It turns out, though, as Chris Dixon chronicled in a wonderful essay entitled How Aristotle Created the Computer, that 1s and 0s, through the combination of mathematical logic and transistors, are all you need:

The history of computers is often told as a history of objects, from the abacus to the Babbage engine up through the code-breaking machines of World War II. In fact, it is better understood as a history of ideas, mainly ideas that emerged from mathematical logic, an obscure and cult-like discipline that first developed in the 19th century.

Dixon’s essay — which I’ve linked to previously — is well worth a read, but the relevant point for this article is perhaps a surprising one: computers are really stupid; what makes them useful is that they are stupid really quickly.

The Problem with Processor Vulnerabilities

Last week the technology world was shaken by the disclosure of two vulnerabilities in modern processors: Meltdown and Spectre. The announcement was a bit haphazard, thanks to the fact that the disclosure date was moved up by a week due to widespread speculation about the nature of the vulnerability (probably driven by updates to the Linux kernel), but also because Meltdown and Spectre are similar in some respects, but different in others.

Start with the...

Stratechery is taking a holiday and vacation break the weeks of December 25 and January 1. There will be no Weekly Article or Daily Updates. The Daily Update will resume on January 8.

All new subscriptions made since November 25, including during this break, will have two weeks added to their subscriptions. See you then!

The slogan for Stratechery’s sister podcast, Exponent, is “Tech and Society”; never has that felt more appropriate than 2017. This year I wrote 136 Daily Updates (including tomorrow) and 46 Weekly Articles, and, as per tradition, today I summarize the most popular and most important posts of the year: tech and society figure prominently.

You can find previous years here: 2016 | 2015 | 2014 | 2013

Here is the 2017 list.

The Five Most-Viewed Articles

Stratechery not only had record traffic in 2017, but year-over-year growth was also the highest ever; unsurprisingly, the first three articles were in Stratechery’s all-time top five in terms of traffic (Amazon’s New Customer was number one by a long-shot), and the other two in the top twelve.

  1. Amazon’s New Customer — The key to understanding Amazon’s purchase of Whole Foods is to understand that Amazon didn’t buy a retailer: the company bought a customer.
  2. Microsoft’s Monopoly Hangover — There are striking similarities between Microsoft today and IBM in the Lou Gerstner era, but today’s IBM should be a warning to Redmond.
  3. Alexa: Amazon’s Operating System — Money is made at chokepoints, and the most valuable chokepoints are operating systems; Amazon has built exactly that with Alexa.
  4. Facebook and the Cost of Monopoly — Facebook gave one of the worst keynotes in a long time: there was no vision, just...

It’s always a risk writing about a deal before it is official: CNBC reported a month ago that Disney was in talks to acquire many of 21st Century Fox’s assets, including its eponymous movie studio, TV production company, cable channels, and international assets (but not the Fox broadcast network, Fox News, FS1 — Fox’s sports channel — and Fox Business). All was quiet until last week, when CNBC again reported that the deal was on, and now included 21st Century Fox’s Regional Sports Networks.

As I write this it is now widely reported that the deal is imminent; most notably, Comcast has dropped out of the bidding, which means the only question is whether or not Disney can close the deal: they would be crazy not to.

The Logic of Acquisition

The standard reason given for most acquisitions is so-called “synergy”: the idea that the two firms together can generate more revenue with lower costs than they could independently; most managers point towards the second half of that equation, promising investors significant cuts through reducing the number of workers doing the same thing. Certainly that is an argument in Disney’s favor: nearly everything 21st Century Fox does Disney does as well.

Still, it’s not exactly a convincing argument; acquisitions also incur significant costs: the price of the acquired asset includes a premium that usually more than covers whatever cost savings might result, and there are significant additional costs that come from integrating two different companies. Absent additional justification, the...

There was an interesting aside about Apple’s bad week that I wrote about yesterday. It turns out that a user posted the macOS login-as-root bug to Apple’s support forums back on November 13:

On startup, click on “Other”

Enter username: root and leave the password empty. Press enter. (Try twice)
If you’re able to log in (hurray, you’re the admin now), then head over to System Preferences>Users & Groups and create a new Admin account.

Now restart and login to the new Admin Account (you may need a new Apple Id). Once you’re logged into this new Admin Id, you can again proceed to your System Preferences>Users & Groups. Open the Lock Icon with your new Admin ID/Password. Assign “Allow user to administer this computer” to your original Apple ID. Restart.

Most of the discussion about this tidbit has centered on the fact that this user later noted that they had found this solution on some other forum — they couldn’t remember which (this reply has now been hidden on the original thread, but Daring Fireball quoted it here); observers have largely given Apple a pass on having missed the posting on their own forums because those forums are mostly user-generated content (both questions and answers) and Apple explicitly asks posters to file bug reports with Apple directly. It’s understandable that the company missed this post two weeks ago.

For the record, I agree. Managing user-generated content is really hard.

The User-Generated Content...

Today’s Daily Update, which follows up on Pro-Neutrality, Anti-Title II, is free for everyone.

This update:

  • Discusses the two types of regulation (ex-ante and ex-parte) and why it’s worth trying ex-parte first
  • Explains what I meant by “light touch”, specifically the rollout of cable broadband and how it differed from DSL
  • Explores the tradeoffs necessary to encourage broadband investment, and why they are so critical to society
  • Ties together the need for stronger antitrust enforcement with the risk of letting ISPs be reclassified
  • Pleads for more consideration of trade-offs and less reduction of complex issues to good versus evil

You can read this Daily Update for free here.

Note: This post was previously titled “Why Ajit Pai is Right.” I have changed it to reflect my interest in a substantive debate, not flame-throwing. The article is unchanged (beyond normal edits).

Weirdly, this article about the American broadband market must start in Portugal.

Web has been disappointing lately, I'll admit, but look what it looks like without Net Neutrality (in Portugal) — Tim Wu (@superwuster) October 31, 2017

Last week Federal Communications Commission (FCC) Chairman Ajit Pai circulated a draft order that would undo the 2015 reclassification of Internet Service Providers (ISPs) from what are known as “Title I information services” to “Title II telecommunication providers”; Title II of the Telecommunications Act, originally developed to regulate the AT&T monopoly, gives the FCC broad ability to regulate “common carriers” as utilities. Title I, on the other hand, hands off regulatory oversight to the Federal Trade Commission (FTC).

The net effect of this reclassification would be the elimination of FCC rules restricting the ability of ISPs to block or throttle sites or apps or offer paid prioritization of any Internet content. That is certainly a worthy goal! Who could possibly be in favor of ISPs picking-and-choosing what sites you can visit based on what you are willing to pay? Do we really want to be like Portugal?

There’s just one problem with the tweet I embedded above: Portugal uses Euros, and the language is Portuguese; the tweet above has dollars and English....

The holiday season is approaching, and a Stratechery subscription can be given as a gift! You can specify the date of delivery (like, say, December 25, to pick a random example), and include a personalized message to be delivered by email.

To buy a gift visit this page (or send it to someone else to make a request!). Or buy a subscription for yourself here.

Thanks as always for your support.

There was an interesting line of commentary around the news that Stitch Fix, the personalized clothing e-commerce company, was going to IPO: these numbers are incredible! Take this article in TechCrunch as an example (emphasis mine):

Stitch Fix has filed to go public, finally revealing the financial guts of the startup which will be a test of modern e-commerce businesses that are looking to hit the market — and the numbers look pretty great!

Let’s start off really quick with profits: aside from the last two quarters, Stitch Fix posted a six-quarter streak of positive net income. We talk a lot about companies that are planning to go public that show pretty consistent (or even increasing) losses, but Stitch Fix looks like a company that has actually managed to build a healthy business. The company finally lost money in the last two quarters, but even then, its losses decreased quarter-over-quarter — with the company only losing around $4.5 million in the second quarter this year.

Compare this to the TechCrunch article written when Box, a company that ultimately IPO’d at a similar market-cap as Stitch Fix will (~$2 billion), first filed its IPO:

Box has long been rumored to have quickly growing revenues and large losses, which has proven to be the case. For the full-year period that ended January 2014, Box’s revenues grew to $124 million, up from $58.8 million the year prior. However, the company’s net loss also expanded in the period, with...

The history of Apple being doomed doesn’t necessarily repeat, but it does rhyme.

Take the latest installment, from Professor Mohanbir Sawhney at the Kellogg School of Management (one of my former professors, incidentally):

Have we reached peak phone? That is, does the new iPhone X represent a plateau for hardware innovation in the smartphone product category? I would argue that we are indeed standing on the summit of peak “phone as hardware”: While Apple’s newest iPhone offers some impressive hardware features, it does not represent the beginning of the next 10 years of the smartphone, as Apple claims…

As we have seen, when the vector of differentiation shifts, market leaders tend to fall by the wayside. In the brave new world of AI, Google and Amazon have the clear edge over Apple. Consider Google’s Pixel 2 phone: Driven by AI-based technology, it offers unprecedented photo-enhancement features and deeper hardware-software integration, such as real-time language translation when used with Google’s special headphones…The shifting vector of differentiation to AI and agents does not bode well for Apple…

Sheets of glass are simply no longer the most fertile ground for innovation. That means Apple urgently needs to shift its focus and investment to AI-driven technologies, as part of a broader effort to create the kind of ecosystem Amazon and Google are building quickly. However, Apple is falling behind in the AI race, as it remains a hardware company at its core and it has not embraced the open-source and...

There was a striking moment during the Senate hearing about Facebook, Twitter, and Google’s role in the 2016 U.S. election, that suggested the entire endeavor would be a bit of a farce, marked by out-of-tech Senators oblivious to how the Internet actually works. The three companies’ home-state Senator, Diane Feinstein, had just finished asking about the ability to target custom audiences (including a request that Sean Edgett, Twitter’s acting general counsel, explain what ‘impressions’ were), and handed the floor to Nebraska Senator Ben Sasse:

Did you catch Feinstein in the background asking “Did he say 330 million?” with surprise in her voice? What might she have thought had it been noted that Facebook has 2 billion users! At that moment it was hard to see this hearing amounting to anything; the next Senator, Dick Durbin of Illinois, asked why Facebook didn’t, and I quote, “hold the phone” when a Russian intelligence agency took out the ads. A few Senators later Richard Blumenthal demanded Twitter determine how many people declined to vote after seeing tweets suggesting voters could text their choice, and that Facebook reveal whom may have taught the Russian intelligence agency how to do targeting; both requests are, quite obviously, unknowable by the companies in question.

Meanwhile, the tech companies were declaring at every possible opportunity that they understood that the Russian problem was serious, and that they were committed to fixing it. “We do believe these tools are powerful, and yet we...

Fifteen years on, this paragraph from a Bill Gates’ memo is a bit cringe-inducing:

The events of last year — from September’s terrorist attacks to a number of malicious and highly publicized computer viruses — reminded every one of us how important it is to ensure the integrity and security of our critical infrastructure, whether it’s the airlines or computer systems.

Equivocating computer viruses with the worst terrorist attack in U.S. history may be a bit over-the-top, but for Microsoft, anyways, 2001 was a period of real crisis: the company’s software was hit by seven different worms,1 all following on the heels of the previous year’s massively damaging ILOVEYOU worm. More and more consumers were scared to even use their computers.

That was the context for perhaps the second-most famous Gates’ memo — Trustworthy Computing — from which the above excerpt was taken. This was the core takeaway:

There are many changes Microsoft needs to make as a company to ensure and keep our customers’ trust at every level – from the way we develop software, to our support efforts, to our operational and business practices. As software has become ever more complex, interdependent and interconnected, our reputation as a company has in turn become more vulnerable. Flaws in a single Microsoft product, service or policy not only affect the quality of our platform and services overall, but also...

(Note: this is not a typical Stratechery article; there is no over-arching narrative or reference to current news. Rather, the primary goal is to provide a future point of reference)

Aggregation Theory describes how platforms (i.e. aggregators) come to dominate the industries in which they compete in a systematic and predictable way. Aggregation Theory should serve as a guidebook for aspiring platform companies, a warning for industries predicated on controlling distribution, and a primer for regulators addressing the inevitable antitrust concerns that are the endgame of Aggregation Theory.

Aggregation Theory was first coined in this eponymously-titled 2015 article. That article followed on the heels of a series of posts about Airbnb, Netflix, and web publishing that, I realized, fit together into a broader framework that was applicable to a range of Internet-enabled companies. Over the ensuing two years I have significantly fleshed out the ideas in that original article, yet subsequent articles necessarily link to an article that marked the beginning of Aggregation Theory, not the current state.

That noted, the original article is very much worth reading, particularly its description of how value has shifted away from companies that control the distribution of scarce resources to those that control demand for abundant ones; the purpose of this article is to catalog exactly what the latter look like.

The Characteristics of Aggregators

Aggregators have all three of the following characteristics; the absence of any one of them can result in a very successful business (in the case of Apple,...

A book, at least a successful one, has a great business model: spend a lot of time and effort writing, editing, and revising it up front, and then make money selling as many identical copies as you can. The more you sell the more you profit, because the work has already been done. Of course if you are successful, the pressure is immense to write another; the payoff, though, is usually greater as well: it is much easier to sell to customers you have already sold to before than it is to find customers for the very first time.

There is, though, at least from my perspective, a downside to this model: a book, by necessity, is a finished object; that is why it can be printed and distributed at scale. The problem is that one’s thoughts may not be final; indeed, the more vital the subject, the more likely a book, with its many-month production process, is to be obsolete the moment it enters its final state of permanence.

When I started Stratechery four years ago, with my 384 Twitter followers and little else, the thought of writing a book never crossed my mind; not only did I not have a contract, I didn’t even have a topic beyond the business and strategy of technology, a niche I thought was both under-served and that I had the inklings of a point of view on.

Since then it has been an incredible journey, especially intellectually: instead of writing with a final...

In August 2011, just a day or two into my career at Microsoft, I sat in on a monthly review meeting for Hotmail (now known as; the product manager running the meeting was going through the various geographies and their relevant metrics — new users, churn, revenue, etc. — and it was, well, pretty boring. It was only later that I realized just how astounding “boring” was; a small group of people in a conference room going over numbers that represented hundreds of millions of people and dollars in revenue, and most of us cared far more about what was on the menu for lunch.

I’ve reflected on that meeting often over the years, particularly when it comes to Facebook and controversies like censoring too much, censoring too little, or “fake news”, and I was reminded of it again with this tweet:

And they paid in RUBLES. Seriously. — Mark Warner (@MarkWarner) September 14, 2017

Mark Warner, the senior Senator from Virginia, is referring to a Russian company, thought to be linked to the Kremlin’s propaganda efforts, having bought $100,000 worth of political ads on Facebook, some number of which directly mentioned 2016 presidential candidates Donald Trump and Hillary Clinton. Facebook has released limited details about the ads, likely due to its 2012 consent decree with the FTC, which bars the company from unilaterally making private information public, as well as the problematic...

It’s tempting — and easy — to be cynical about the richest company in the world beginning its annual unveiling of new products with what effectively amounted to a promotional video for a building custom-built at enormous expense for said unveiling, set to the soundtrack of John Lennon singing “All You Need is Love”.1

There’s nothing you can do that can’t be done Nothing you can sing that can’t be sung Nothing you can say but you can learn how to play the game It’s easy Nothing you can make that can’t be made No one you can save that can’t be saved Nothing you can do but you can learn how to be you in time It’s easy

In fact, the song was perfect; the temptation to be cynical is right there in the first verse, with the observation that by virtue of doing or singing or making you are operating in the bounds of what is merely possible, no more. And yet, the second verse holds forth salvation: find yourself, and find fulfillment. After all, you are the only one that can accomplish that precise task.

Late last month WPP, the largest advertising group in the world, announced results and forecasts that were sharply down. Those results, though, were not what I found striking about CEO Martin Sorrell’s remarks on the group’s earnings call; after all, I argued last summer that such a decline was inevitable.

Rather, it was striking just how feeble Sorrell’s proposed response was:

So what’s our response to all this? Well, further focus on our 4 strategic priorities. Horizontality, which we moved up from, I think it was #4 a year or so ago to #1, is our first critical priority. And it really means ensuring that our people work seamlessly. They’re accustomed to working vertically and by agency brand, but they work seamlessly horizontally across the group together through client teams, I’ll come on to those, and country managers and subregional managers to provide an integrated benefit for clients. And clients are pressurizing us for more effectiveness and more efficiency, this is the way, probably the most significant way that we can respond.

Make no mistake, I’m a student of organizational structure and the importance of aligning an organization to the challenge at hand. Moreover, WPP’s conglomerate nature make any sort of cross-agency collaboration challenging; that, though gets at the real problem. If WPP must change the way it works internally, that by definition means the environment in which it is operating is fundamentally different than the one that existed while WPP grew into the...

In the last seven months, Uber has endured:

  • The #DeleteUber campaign
  • The fallout from Susan Fowler Rigetti’s blog post, including the Holder investigation and report
  • A lawsuit from Waymo alleging the theft of intellectual property
  • Multiple revelations of past misconduct, including Greyball, which has prompted an investigation from the Department of Justice
  • The forced resignation of founder and CEO Travis Kalanick, and then, earlier this month, an explosive lawsuit against Kalanick from the company’s biggest investor

And, at the end of all that drama — and this is only a partial list (as of the time of this writing Techmeme has had 280 posts about Uber in 2017) — Dara Khosrowshahi, the very successful, very stable, and very well-compensated CEO of Expedia, jumped at the opportunity to take the helm, beating out GE CEO Jeffrey Immelt and and Hewlett Packard Enterprise CEO Meg Whitman for the honor…it’s an honor, right?

In fact, I think Khosrowshahi is a great choice for CEO, and understanding why goes a long ways towards explaining why the Uber job remains an attractive one, even after the worst seven-month stretch in startup history.


Most news stories are making the obvious point that Khosrowshahi is qualified because he is a CEO for a tech company in the travel industry. What is even more relevant, though, is that Khosrowshahi is the CEO of an aggregator. Expedia and other online travel agents (and their associated stables of sites) have built businesses by focusing on discovery: instead of having to find hotels...

There was one line in TechCrunch’s report about Facebook’s purchase of social app tbh [sic] that made me raise my eyebrows (emphasis mine):

Facebook announced it’s acquiring positivity-focused polling startup tbh and will allow it to operate somewhat independently with its own brand.

tbh had scored 5 million downloads and 2.5 million daily active users in the past nine weeks with its app that lets people anonymously answer kind-hearted multiple-choice questions about friends who then receive the poll results as compliments. You see questions like “Best to bring to a party?,” “Their perseverance is admirable?” and “Could see becoming a poet?” with your uploaded contacts on the app as answer choices.

tbh has racked up more than 1 billion poll answers since officially launching in limited states in August, mostly from teens and high school students, and spent weeks topping the free app charts. When we profiled tbh last month in the company’s first big interview, co-creator Nikita Bier told us, “If we’re improving the mental health of millions of teens, that’s a success to us.”

Financial terms of the deal weren’t disclosed, but TechCrunch has heard the price paid was less than $100 million and won’t require any regulatory approval. As part of the deal, tbh’s four co-creators — Bier, Erik Hazzard, Kyle Zaragoza and Nicolas Ducdodon — will join Facebook’s Menlo Park headquarters while continuing to grow their app with Facebook’s cash, engineering, anti-spam, moderation and localization resources.

This isn’t quite right....