Why crypto

Welcome to this week’s edition of The Rebooting. You always hear you have to get out of your comfort zone, so this week I’m plunging ahead into why the principles of crypto are worth learning for those in the media business, even if they have no interest in speculating on a coin with a dog mascot or buying a gorilla jpeg. Needless to say, I’m still early on my crypto/web3 journey, and I heard yesterday on this podcast that going down the crypto rabbit hole can be a decade-long commitment. Yikes.

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Back in the summer of 2000, I began my first job in journalism at a Silicon Alley Reporter’s ramshackle office in New York’s Union Square, during the waning days of the dot-com boom. The magazine focused on New York City dot-com startups, companies like Kozmo, Pseudo, Razorfish, even something called AngryMan.com. For a reporter making $40,000 a year, this was a great time because there were parties with free food and drink nearly every night. The oddity of this exuberance was the dot-com party was over -- the Nasdaq had crashed in April -- only people were too drunk to understand the bar was closed. By 9/11, the party was well and truly over. I lost my job a few months later.

I recall at the time a lot of told-you-so’s as doubters of the internet, eager to return to the “real” world of solid businesses. The dot-com era was filled with companies making foolish decisions, such as the so-called Dot-Com Bowl in 2000, when 17 young internet companies, including the infamous Pets.com and something called OurBeginning.com, spent $4 million to run commercials. Of course, in crypto everything is more extreme, hence the $700 million deal for Crytpo.com to slap its name on what was formerly the Staples Center in Los Angeles. The mistake people made was to point to the Nasdaq number’s fall as evidence the Web was a fad instead of the creeping penetration of broadband into people’s homes.

I’m reminded of the need to get beyond the froth when the discussion turns to web3. This week in Miami, during Art Basel, the crypto crowd will be swarming parties and exhibits. One of Miami’s most well-known club owners is throwing NFT BZL. Ubers are going to be impossible to find and South Beach will be even more of a disaster than normal. Many sane people will see this chaos and hype as still more evidence of a giant Ponzi scheme.

That would be a mistake. Crypto matters. There are simply too many very smart people working on projects for this to evaporate. Getting caught up in the gyrating prices of Bitcoin or the latest shitcoin is just as much of a mistake as dismissing the internet because Henry Blodget put a $400 price target on Amazon. (He was right, by the way, at least in the long run if you held the shares.) Most revolutions end up disappointments, I’m well aware of that. The crypto maximalists have a role to play in pushing a vision for a world remade, but the likely end result is messy but profound changes to the digital economy, even if many of the utopian visions never come to pass.

The promise of web3 is a do-over. Naming “eras” like they’re geologic ages is, of course, inexact and a bit daft, yet simplification helps us make sense of complex environments. The dot-com era was a financial disappointment for many investors, but it gave us the read-write internet, allowing publishing on the web and the emergence of advertising business models. Google, Amazon and eBay allowed for the basic building blocks of the free flow of information and commerce. AOL and Yahoo pointed the way to a new type of media companies. But ultimately, the promise of Web 1.0 fell short. It’s funny to hear the complaints about “platforms” when the exact same thing happened in the early internet publishing days, as the market concentrated around AOL and Yahoo.

The rise of Web 2.0 was heralded as an advancement by not just allowing people to read and write content and do transactions but to connect with each other in new ways. That gave rise, eventually, to Facebook and other social networks, along with a raft of “sharing economy” companies that peddled a fantasy of building community at the heart of business models that sure seemed like they just wanted to run unregulated hotels and taxi services. The end result: the digital economy became even more centralized around a few big players.

It makes intuitive sense that the next evolution of technology would move in a decentralized direction, or as Axios put it, “a battle for the soul of the web.” It also makes intuitive sense that we’d have digital money that’s programmable. We'‘re programming everything now; mRNA is basically running a program on the cellular level. Many of the current problems in the digital economy -- lack of trust, misaligned incentives, controlling gatekeepers, treating audiences as a resource to be exploited -- arise from its intense centralization around massive tech platforms that seemingly only get more massive as they lock in their network effects and store of data. Crypto’s initial focus on finance is just the start. What web3 will ultimately mean in practice is still unknown; the current state is one of possibilities. This is why, I presume, backers often tweet in riddles. But I believe we’re seeing some hints of what it could become. I’m going to skip the technical details mostly because I’d get them wrong. Instead, I want to talk about the principles and why I view this as an area anyone focused on sustainable media businesses should dig into, even if it’s wonky and bizarre.

The shift from institutions to individuals. Bitcoin was born back in October 2008, a month after Lehman Brothers collapsed, when Satoshi Nakamoto published a white paper about “a peer-to-peer electronic cash system.” It’s no surprise that crypto took off in the wake of the financial crisis, yet another dent to the trust in institutions. What we’re seeing in the unbundling of publishing, including the rise of Substack newsletters, is people inherently trust other people more than faceless institutions. This is as true in publishing as it is in finance. Facebook has become a symbol of all that is wrong with the current state of digital media. The heart of crypto is establishing trust without an intermediary.

Moving from audiences to communities. Memberships and subscriptions hold the promise of closing the gap between media brands and their audiences. When your audience is your customer, you tend to provide better services. The advent of tokens and decentralized autonomous organizations would seem to represent the next step. It is logical for a community to not just pay money for access but also have ownerships rights as a member of the community. ConstitutionDAO raising $47 million in such a short period of time is a sign of how collective ownership can provide financing by a group of like-minded individuals for a common project. That’s profound.

More equitable organizations. I remain convinced the roiling labor tensions in the media business, and throughout the economy, are a symptom of a larger problem: inequality. Companies are very unequal places where there is often misalignment between those creating value and their upside. One of the great promises of the blockchain is acting as a distributed, transparent and unchanged ledger. You can imagine a future media organization using web3 technologies in order to ensure that those creating the value are properly rewarded instead of the current state of affairs where too often a favored few reap the lion’s share of the benefits instead of a favored few that are mostly good at sucking up to the right people. Troy Young has hinted at this future for media brands as collectives like Every and Defector gain steam: “In the end, the people that give a fuck are surely the people that create, grow and shape the brand through participation.”

The return of scarcity. One of the defining features of digital media has been limitless supply. Media has long been premised on scarcity -- look at the Upfronts -- in order to drive higher pricing. Take the Bored Ape Yacht Club. Yes, it’s strange to see adults spend tons of money on cartoon primates. But what BAYC points to with its NFTs is that it is marrying ownership of a piece of digital media with access and benefits. Minting a set number of NFTs could become a key way to recreate scarcity that media long enjoyed in analog times. Projects like this, along with Friends With Benefits and others, point to a new model as these digital assets become membership cards. Crypto could very well give rise to new forms of digital identifiers.

For those getting started in understanding crypto, I recommend regularly reading Decrypt and Forkast. (I advise the latter.) The Web3 Breakdowns podcast series has great primers. Packy McCormick is a crypto oracle. This incredibly long podcast with Balaji Srinivasan is a good intro to the “maximalist” mindset of crypto. Andreessen Horowitz has many essential podcasts and essays on the topic. Andreessen partner Chris Dixon makes the great point that many consequential things often start looking like silly toys. And if all else fails, there’s always microdosing and scifi. Good luck.

Silverblade Partners was begun in 2019 by Bernard Urban, an advertising and media veteran who knows firsthand the unique cashflow challenges faced by media companies. While a typical bank would blanch at a 60-day payment window for accounts receivable, those terms are well-established as the norm for media, with some blue-chip clients pushing payment terms to 150 days or beyond. For accounts receivable, Silverblade will arrange to finance up to 90% of the amount upfront and the remaining 10% disbursed upon payment. For many reasons, this is a better arrangement than a revolving bank loan. Working with an experienced partner who understands these challenges not only avoids and corrects these mistakes, but delivers a new level of benefits beyond covering outstanding accounts payable. For example, strategic financing can lower costs — Silverblade Partners can secure preferential terms for data by paying upfront for six months rather in increments. Learn more about how Silverblade Partners can work with you to create a strategic advantage with trade finance.

Vice is giving up on its SPAC dreams (for now). CEO Nancy Dubuc promises profitability in 2022, as revenue this year is on pace to jump 15-20%. In a separate interview, Vice co-founder Shane Smith gave his first interview since leaving the CEO job at the company in 2018. The interviews were clearly a way to message that a publicly traded Vice Media isn’t happening in the near term. Smith colorfully noted “the SPAC market has shit the bed.” This is striking since, after a pronounced downturn starting in the spring, SPAC IPOs have started to rebound as investors look to capitalize on too much money chasing too few opportunities.

There is no silver bullet in the media business, including in commerce. The Information dug into the slower-than-expected growth of BuzzFeed’s commerce business, noting that while BuzzFeed is likely to make its numbers promised in its IPO prospectus, a mini-boom in advertising has made up for slower commerce revenue expansion. Supply chains have become the catchall excuse for all manner of shortcomings. But for most big consumer publishers, commerce is likely to remain an incremental revenue stream, complementing the boom-and-bust ad business. You gotta dance with the one you brung. And scaled media is an ad business at the end of the day.

Habit breeds loyalty, which is the key to retention. A recent study by the Medill’s Local News Initiative confirms the importance of getting subscribers engaged early and often to mitigate churn. Many publishers rely on “sleeper” subscribers and try to not wake them up. This is why few publishers follow the lead of Instacart in warning subscribers when their subscriptions come up for renewal. The problem is more acute as publishers become addicted to $1 intro offers that act like mini-balloon mortgages.

The pendulum is swinging against founder fetishization. Most corporate trends the past two decades have emerged, or oozed, from Silicon Valley. A key part of the Valley catechism is founder worship, a reaction against the typical trend of bringing in professional managers (aka “adults) once a company gets to scale. Think Eric Schmidt arriving to run Google.Instead, VCs like Andreesen Horowitz pointed to Apple’s resurrection under Steve Jobs vs its decline under John Sculley. Of course, this approach gave a leg up to A16Z since their “founder-friendly” approach meant founders could strike sweetheart deals that run completely counter to the notion of shareholder rights with dual-shares structures. High-profile founder-led flameouts like WeWork and Theranos again point to the possibility that Steve Jobs was the exception, not the norm. All trends eventually go out of style. With Jack Dorsey leaving Twitter -- and taking a shot at the founder myth -- many of the top tech firms are run by non-founders, including Amazon, Google, Microsoft and Apple.

New technology shifts always breed cynicism. There was the prediction that the market for personal computers was five. The advent of the internet was met with broad skepticism that this was the next CB-radio, a new avenue for hobbyists. See Bryant Gumbel and Katie Couric’s skepticism on the Today show and this clip of David Letterman asking Bill Gates why anyone would want to listen to a baseball game through the internet instead of just turning on the radio. (I think Gates flubbed this by emphasizing you can listen anytime you want instead of wherever you are.) It’s a good reminder to not dismiss web3 and crypto without making an attempt to truly understand the profound tech shift it could cause.

Thanks for reading. Get in touch with any feedback you have, or what I’m missing. My email is bmorrissey@gmail.com. Also, please share The Rebooting with colleagues. It remains the top way people find new newsletters.