Every company has a story. Learn the playbooks that built the world’s greatest companies — and how you can apply them as a founder, operator, or investor.

Platforms and Power (with Hamilton Helmer and Chenyi Shi)

Platforms and Power (with Hamilton Helmer and Chenyi Shi)

Wed, 06 Apr 2022 05:46

We sit down once again with one of the world’s very best strategy thinkers, 7 Powers author Hamilton Helmer — this time joined by his impressive Strategy Capital colleague Chenyi Shi — to discuss platform businesses, and how the Power framework applies to them. If you’re building, investing in, or just curious about the dynamics of platforms, this episode is a must-listen. We owe a huge thanks to Hamilton and Chenyi for sharing their work-in-progress insights on this very special category of companies. Tune in!

This episode has video! You can watch it on Spotify (right in the main podcast interface) or on YouTube.

May 4th, at 5 PM in Seattle! You can RSVP at Hope to see you there!


  • Thanks to the Solana Foundation for being our presenting sponsor for this special episode. Solana is the world’s most performant blockchain, the BEST place for developers to build Web3 applications, and of course very near & dear to the Acquired community’s heart. You get in touch with them here, and learn more about Stake Pools here , and just tell them them at Ben and David sent you!
  • Thank you as well to Modern Treasury and to Mystery.

‍Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.

Listen to Episode

Copyright © Copyright 2022 ACQ, LLC

Read Episode Transcript

Hey acquired listeners, we have some fun news for you following hot on the news that we are doing a freaking arena show. Arena show. I client Plegerina in Seattle. We are here tonight to announce the very first guest that will be joining us for that show. Ben, who is it? It is fresh off his full page profile in the New York Times this weekend. Jim Weber, the CEO of Brooks running. We wanted to have a really fun local Seattle success story, but I think most people have no idea the magnitude of the success story here or Jim's personal stories is fascinating. We want everything we do for this event to like literally check all the acquired boxes. This checks all the acquired boxes. Berkshire Hathaway. Berkshire Hathaway, a people who don't know Brooks running is a very successful now standalone division of Berkshire Hathaway. The Seattle story, amazing, amazing journey. What they went from under Jim, they went from like, a small number of millions of revenue to over a billion in revenue a year competing with Nike and Adidas. They were like accidentally bought by Berkshire as part of a fruit of the loom roll up and they were sort of this bland nothing brand and by unbelievable maniacal focus on making fantastic running products. That is how they became the billion dollar business that they are today. Not to mention Jim battled cancer along the way. It's so great. And when you say billion, by the way, we should say billion in revenue. This is a profitable over a billion dollar revenue growing company. This isn't a billion dollar valuation. That's a billion in cash every year. Not cash well, but revenue. Yes. So we're very excited to have a conversation with Jim at the event. You should totally come join us. It's May 4th. It was open at five with plenty of time for drinks and mingling throughout the event. You can go to slash arena show or click the link in the show notes to RSVP. We've got a few more details in the previous little mini episode that we released to announce the arena show. All proceeds will go to climate pledge arenas philanthropy, the one roof foundation, $20 to attend. And we hope to see you there. slash arena show or click the link in the show notes. We're going to have some more announcements coming over the next couple of weeks. It's amazing. People are debing us saying they're flying in from all over. If you live in Seattle, definitely come. If you don't live in Seattle, Alaska Air has great flights to CTAC. This is going to be a huge party. We're so excited. Awesome. Listeners, slash arena show. We'll see you there. Welcome to this special episode of acquired. The podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert and I'm the co-founder and managing director of Seattle based Pioneer Square Labs and our venture fund, PSL Ventures. And I'm David Rosenthal and I'm an angel investor based in San Francisco. And we are your hosts. Well today back by extremely popular demand, we have Hamilton Helmer. We email Hamilton like once a quarter or so, David and ask, hey, have you found an eighth power yet? And he always says no. But he did finally say, hey, my colleague Cheny and I have been developing a new framework for how executives can apply seven powers for platform businesses which are way more complicated. So obviously we jumped at the chance to get to dig into this with Hamilton since we later found out that by platform, he means this very broadly like any business that serves as an intermediary to make transactions. So it probably applies to the technology business that you're working on right now. Or investing in. I find it particularly interesting reflecting after the interview because it's a framework still in progress. So you can start to see some of the like really important principles crystallize for Hamilton and Cheny as they sort of talk through it. We get to read about these things in business books 20 years after they're finalized and gone through tremendous rigor and it's just really cool to see it in the infant stage. So fun to have 10 years on to. She is an incredible rising star. For sure. These special episodes are sponsored by the Solana Foundation. As you know, Solana is a global state machine and the world's most performant blockchain. It means developers can build applications with super low transaction fees, low latency. They don't have to compromise composability. It's all on a single chain with one global state. Today we've got a little fun interview with Dan Albert who is the executive director of the Solana Foundation. So here we go. Well, Dan, you guys are up to something really interesting in the Solana ecosystem with stake pools or liquid staking. Can you share with us what that is and how it has some advantages over some of the issues with just regular staking like the lack of liquidity? Hey, thanks for having me. The goal of the Solana Foundation is to foster the growth of the Solana network and the Solana community as a whole. The goal really is to have one billion people with self-custody of their keys and the ability to understand what that means and sign transactions and do useful things. So in order to get a good chunk of the world's population doing this, we need a whole robust suite of apps and services that are useful to people as humans. To that end is one of the reasons why I'm really excited about stake pools because it provides a great vehicle for ordinary people who want to participate in the crypto ecosystem, the ability to participate while also fostering the growth of the network and supporting the growth of a larger set of validators. And so what this is really is a way for people who are interested in crypto and interested in supporting and securing the blockchain networks that they care about through staking, that providing people a liquid means to do so. So what does that mean? So an individual user or users can deposit their soul into one of these programs and get back a derivative token. And what happens under the hood is the stake pool automatically distributes the underlying tokens to one or many different node operators or validators on the Solana network. So traditionally on Solana and on other proof of stake networks, when you stake an asset, it's subject to some lock up period or sometimes called the unbonding period where basically the asset is not liquid. You can't move it or sell it or do anything with it on short notice. And stake pools provides really a liquid exposure to the same underlying asset while giving the user the ability to earn any potential staking rewards that are earned by the validators who are members of that pool. It really takes a lot of the kind of technical and research overhead away from the user which can be really intimidating. The Solana network currently has over 1500 validators operating on main net beta. And I get this question very often from members of the community that say, hey, I'd love to stake. How do I pick a validator? I click the drop down list and there's a thousand names. And so by vying to be included in one or multiple stake pools, these validators can earn stake delegations based on performance and based on merit rather than based on name recognition. So we've got some community facing resources on the Solana Foundation website around stake pools. So that's Solana dot foundation slash stake dash pools. There's some information there about existing pools that have been launched and are being successfully managed by different teams in the Solana community. There's also some information if people are interested in potentially launching their own stake pool to support a group of validators or perhaps to implement their own unique staking strategy. Our thanks to Dan and Solana. If you are considering developing on Solana head on over to Solana dot com slash developers or click the link in the show notes. All right. With that, David, let's dive in to our interview with Hamilton and Cheny discussing platforms and power. Seven powers was an attempt to take an understanding of strategy and make it generally available as sort of pattern recognition. Cheny, I think, uses that term which I like a lot for founders and people that are interested in trying to create great strategies and make their company successful. And the reason it needed to be decentralized is that there are really two major step changes in the value of a company. The first is product market fit and the second is getting power. And they're quite distinct and involve different things and Peter Deel gets at it and his book with his X and Y axis, you create X value, but you only get to keep Y percentage of it and X and Y are independent variables. And the thing is that each of these involves an invention. And so it means there's a creative activity involved. And when you look at something that involves invention and creativity, it means guess what? It's the inventors that do it, right? And so the idea behind seven powers and strategy 3.0 is to put into the hands of those who are capable of inventing that a way of looking at the world that gives them a little bit more acuity about what will work and what won't. And specifically what will work and what won't on developing power, not finding product market fit, but the second piece. Not on product market fit. That's right, it's very much focused on the second thing. And it should be in those people's hands. And so you have to empower the people that actually can do the invention. So what we've found is that platforms, they often involve different types of power. They're very complicated and reducing credit, they're complex. You can look at one and it's hard to tell whether they have power or not and figuring that out as hard, so pulling that apart is a useful exercise. Can you tell us maybe two things. One, from your perspective for this work that you all have done and are in still the process of doing, how do you define platforms? And then also why is this group particularly interesting to you all? Yeah, I'll address the second question first, which is why platforms are so interesting. I guess it's pretty obvious to us all that platforms are creating tremendous value. There's stats out there that says majority of the most valuable companies today would all prey on some form of platform in this model. So for us, it's both important and it's just intellectually so intriguing to go into them. And I guess the way we define platform, we think of it very broadly and high level. We think of it as an intermediary for transactions. And that's it. So sometimes we see people sort of think of platforms as being bounded to digital technologies. People equate the term platform as digital platforms for us that's actually limiting the scope of the topic because platforms really is more than that. It's a model with very ancient roots. You know, there's a book that Hamilton and I both really enjoyed reading and learned a lot from is called the matchmakers from Evanson Schmollancy. So both are economists who've thought really deeply about platforms and they took their title from or in reference to the Chinese ancient village matchmakers who would keep a knowledge base of single men and women in the village and paired them up for dates. I love that example because these are people who existed three thousand years ago. They have no access to art and technology, but they all put as platforms. So this is sort of the scope of going after if we come up with a framework to understand platforms, they should work as well for new Uber or Airbnb of today as they should work for the matchmakers three thousand years ago. And so in that example is the sort of keeper of all of the men and women to matchmake is that the sort of intermediary of transactions that you're thinking of. So the whoever keeps that database is indeed a platform. Yes. And if you think in their mind, you know, three thousand years ago, they'll be thinking how do I out compete, you know, this other matchmaker in my village and you'll be thinking about, okay, do you have a bigger database and do you have no better knowledge about this people on my platform? So it's actually not that dissimilar. Yeah. What are the dimensions that are going to make my platform more successful than another? Exactly. There's been a revolution in knowledge about this kind of business model. And a lot of that is around the first step, which is product market fit. You make better matches, right? If you've got mobile phones, all of a sudden, it's possible to do a lot of stuff that you couldn't do back in the day. But that question is different than the question of, okay, you've created all this value. How do you get to keep some of it for yourself, which is what power is about? What you're essentially teeing up here is just to make sure I understand platforms under this definition of an intermediary of transactions encompasses a lot of business models that we would otherwise refer to more narrowly as like marketplaces or platforms like what Windows offered for application developers to build on top of in the 90s that gave it so much power could encompass aggregators of sorts because they're all in a way an intermediary of transactions. And I think what you're saying is there's a whole lot of work that you've done and there is to do out in the world of applying the seven powers framework specifically to platform businesses because they're different than businesses that aren't platforms. Do I have that right? Yes, that's well put. David should be interviewing you. Jenny, can you walk us through your work on how to assess platform power? I guess even before that, we're not trying to understate. I think we just said, you know, platform is not tied to a particular form technology. But there's an important thing to notice that technology is really important and there's a particular form that gets reflected in the platform, which is technology lowers transaction costs and it lowers it so radically that what you see is entirely new markets get created that was not existing before. So our way of framing the relationship between platform technology is that platform is not bounded to a form technology, but technology is the driver for new platforms to emerge. And that's something I guess all the entrepreneurs and inventors out there would have a very clear sense of what is the technology trend they're writing and creating new markets with their platforms. Fascinating. It's like definitionally true, be it by reducing distribution costs or by reducing the friction to make a transaction every step change in technology dramatically reduces transaction costs. Shoot, I mean, TikTok using AI, that getting cheap enough and good enough to have that drive the algorithm. So many examples. Yeah, exactly. The friction or transaction costs come in very different tastes, right? It could be the reduced of search cost, the reduced cost to input information, reduced cost to deliver things to your customers. And it's only up to the imagination of Dongepreneurs to create new ways to make them happen. It's a great point. Even thinking about the database of the notebook to go back to the matchmaking example, because I think it's wonderfully concrete. Somebody has in their head the five single people they know that they can recall that might be good to match make someone with, you know, the yenta of the village back in the day. But if you have a big notebook and you can write down everyone, suddenly your cost of storage went down dramatically and your recall got much less expensive and much more scalable. And then of course, when you fast forward to today and you have Tinder and hinge in these sorts of apps, it's all infinitely cheap, not only to store, but to input, to distribute, to incentivize people to load their own information to the database. There's just all these dimensions of cost that sort of collapse to make everything have less friction. Technology is what opens up whole new potential vistas on product market fit and just exactly the way you described them. But if so, you think of two step changes in value, that's the first step change. The second step change is, okay, how much of it do I get to keep? That's the power step change. It makes that in some ways harder. That's the paradox because all these things that reduce friction are easily available to lots of people. And so your variability to spin up quickly and make something happen and it seems very powerful may in fact be the very thing that makes it easy for a competitor to catch you. So that's one of the paradoxes that you have to be really thoughtful about when you look at power in platforms. I love it. Okay, so can you walk us through how you've developed a framework for analyzing power of a platform? It's a very complex problem. And the reason for that is each platform we've tried to do a case study on, the industry economics different. There are so many interesting credit characteristics that impact the equilibrium state. So for us, instead of trying to give you a very abstract high level framework, that's not going to relate to the actual situation, it's probably easier to raise a few questions that we think every operator when they think through will find some value in it. So throughout the three questions, we can go through them one by one. So number one, how is economic value created on your platform and how does that value change as a platform becomes larger or has more participants attending it? The second question is, how does each group of your customer perceive their economic value from your platform and how does that change as your platform gets larger? And the third question is, what is preventing your competitors from getting to equivalence in that value proposition? So that to us is sort of a comprehensive list of questions that you have to think very carefully about. And then after that, you may be able to get some good insights about whether your platform may have power or not. So the first question is, what's going on here economically? Who's gaining? Where's the money, right? And so I'll give you an example in Uber. So what's going on is you have two sides, drivers and passengers, and they're trying to match and they're highly heterogeneous because each driver passenger is time and location stamped. And by having more drivers and more passengers, it makes it possible for Uber to develop more efficient route structures. And what more efficient route structures do essentially is to minimize driver downtime. It doesn't change how long it takes to do the drive. That's baked in to who it is and where they want to get to. But it does change how much time you have to wait before you get the next ride. And then you look at both sides of this and say, okay, why does greater density create an opportunity for value here? And the answer is that it's a better fit. You can pick a driver that's nearer a passenger. And this fit notion is something that's the nature of platforms. So you're looking at both sides must be highly heterogeneous and you're trying to get a better fit. And that's the nature of the economic value. And then the question is, okay, how does that value that you deliver very as the participants grow? Because that's the characteristic of platforms is that's often how they're differentiated by different levels of participation on both sides. And what happens there is that as you are more dense in a specific region, so this is a very geographically bounded economic proposition in the Bay Area, for example. Because that density increases, you can decrease the amount of wait time for drivers. However, I'd argue that people at Uber and Lyft know this much better than we do, I'd argue that's not a linear function, right? Right, it has diminishing marginal utility. Right, so it's a negative second derivative. And so what that means is that the curve flattens. And so now if you ask the question, how does one provider compare to the other, which is the power question, which is the third thing Genu was getting at? And just to set that up for one moment, so the first two questions are more about understanding the lay of the land. And then the third question of what prevents competitors from getting to equivalents, that's the power question. Is that fair? So it's about both how much value you can create and then how much you can capture from it. So the second question is not worth asking if you're not creating much value in the first place. So you actually have to go through all of them pretty carefully. Just for my benefit, and I think maybe listeners, because we went through the questions kind of quickly, can you just remind us of the questions again, so we know what we're referring to in the first, second and third? Yes, question number one is how is economic value being created on your platform? And how does that value change as your platform starts to get more participants? Number two is how does each group of the customers perceive their economic value from your platform? How does that change as your platform scales? And lastly, how do you prevent your competitors from getting to equivalents? I see. So the first one's really about quantifying value creation and obviously understanding how that changes over time. The second one is about perception of that value creation by different participants. And then the third one's really about value capture and defending the castle over time. And so, Jin Yi said that sort of the power question involved more than just the last one. And so if you remember the power involves two things, a benefit and a barrier, right? So the first question is the benefit and the third question is a barrier. Yeah, well, actually, maybe first can we finish Uber and talk about that third question for Uber, because that sort of feels like for Uber at least and Lyft, that's where the rubber hits the road on how valuable are they? Yeah, I think a very challenging characteristic of platforms overall is you don't own your customers. Your customer choose to patronize your platform and they can choose to do the same with another platform. So this is a scenario that we call multi-homing. And essentially what we're saying is a lot of the differential value platform can generate is a result of differential scale they have with their participants. And multi-homing is what arbitrage out all of that differential value of those platform don't make profits out of their operations. The result of that is you're creating so much value, but all of those gets arbitraged and your customer's get it, but not the owner of the platform itself. So in the case of, you know, right sharing business, particularly, the things you really want to ask yourself is what is preventing my customers from also accessing the other platform that's competing with me and your customers referring to both your riders and your drivers. So it doesn't matter if my platform is right now larger if technically both groups of my customers can fictionally multi-home on the other platform. So if you always open two apps and look for whichever one that happens to have that right as close as to you and you always have open two apps to see which everyone gives me the closest rider that I can get matched with, then relative scale does not matter because you're contributing to the same pool of density in your local area. Makes total sense. Deep lung listeners have acquired, well no, this, it's very close to Ben's heart with your, what are your early startup weekend projects, right? That's true. At one point I started to start up that actually got killed by Uber not willing to play ball with us and cutting off our API, but it's effectively a meta search for ride sharing to be able to find the fastest closest ride to you independent of who's actually providing the ride. Wow. Yeah, it's an undifferentiated experience to hop in one or the other. Yeah, and it's interesting. The whole meta search idea is a friction reducer. So if you can get an overlay that compares to then it's not hard to see what that does in terms of disintermediating power, right? Disintermediate search has a category enables your customers to arbitrage away your power with less friction. That's right. Think of snowflake or something, right? Okay. So ride sharing is an example platform where you get to the end of the questions and maybe there's still kind of a question mark about the industry and the companies within it. Could we walk through an example of a company or an industry where you get to the end and you conclude, oh well, this company, this platform has a lot of power. So David, before we leave, right, share, think of the moving parts here. One of the moving parts is what does that ride efficiency curve look like? So as you scale, how quickly does it start to slow down? Because that's going to be critical. If it's a straight line and you're two times relative market share, you're home free. If it tails off pretty quickly at an early stage with two times relative market share, you could be an attractive relative cost position. Once the business is scaled, it's no longer true because you're into the flat part of the curve, right? So it's the shape of that curve. It's your size relative to somebody else. Let's say you have that advantage. What's to keep it from not being arbitrised out so you want to turn to people like Ben and say, don't offer that app. Right. What they did. Right. What they did. Yeah. They really understand their motivation. You're the enemy, right? So I think what you're saying is take this example of a market where there is diminishing returns to density. If the diminishing return curve is steep, then it's very unlikely that any individual company can develop power. But if it's gradual or linear, then yes, you still can develop power even within a market with diminishing returns to scale. There's this concept that we call heterogeneity of preferences that matters. So what it means is returns to scale is always diminishing. But how quickly it diminishes depends on the space you operate in. So the case of Uber and Lyft, we are Ben, as you said, the drive is indifferentiated. All I care about is how far away my driver is on my rider is. So what they're doing is literally putting dots on the 2D geographical map and the minute you get to enough density, you're good enough. So we can think about maybe something with high levels of heterogeneity. Think about YouTube. The content you watch has so many dimensions that you care about. The language, the theme, the music, the production quality. And that is a space where in order to get to a scale where I'm good enough that this additional piece of content is not going to appeal to my users anymore. That's a much higher level of requirement of critical mass or of scale of content. So this is something we think all British should also think through. What is the level of heterogeneity that your transactions have? And that determines how important scale is to you. Right. That makes so much sense that basically YouTube will continue to compound the economic value of their lead. Because even though there's, I'm going to make up some numbers that seem big, but 100 billion hours on YouTube and only 10 billion hours on competing platforms, the thing I want to watch is so unique to me as a person. How I feel at that moment, if the personality of the creator is interesting to me, that the fact that there's always going to be slightly better content market fit for me on YouTube, then that other platform just means that that curve diminishes very, very slowly. Exactly. And there's a favorable byproduct of that, which is for something like YouTube's content, it's actually really hard to describe what I'm looking for. Right. How can I in text search for the exact content I want? So YouTube accumulates this unique set of knowledge about both what you like and watch time of others that attest to the quality of the video. So that makes the search so much easier on YouTube compared to a competitive platform, even if it's a complete copycat to YouTube. So YouTube is a good example where the value they provide to me is high. I perceive that value to be high. And when you think about other constituents also, I mean, the creators perceive the value to be high, advertisers perceive the value to be high. And then when you get all the way to that third question of how are they better than competitors, there's lots of ways that they're better than competitors. I'm curious as you think about YouTube as a platform, what are the ways that they have power versus other video platforms? Because of what Jenny was talking about in terms of heterogeneity, if edge cases matter, there's a pretty good chance there's an opportunity for power. And because when you say edge cases matter, what you're really saying is that curve doesn't flatten out very quickly, right? And so it says that even that differences in one of the sides scale remain material in terms of the other sides appreciation of the value being provided. When you go on YouTube, your tastes are extremely idiosyncratic. I'm looking for the latest climbing send or something on general relativity or the weird stuff, right? Or the latest performance car or something? Yeah, definitely. So there's a lot of work in economics that stays there, could be an equilibrium pricing schema where you charge one side and you pay the other side. And that still contributes to a very powerful platform in the long run. So it's an interesting state about YouTube. It's very complicated, but extremely intriguing, which is they have accumulated so much heterogeneous content that they are able to charge enough mind share from their users. And they monetize that mind share with advertising dollars, which they then pay their creators. So it's a position of power that creates enough firepower to keep maintaining and enlarging that lead in this particular user generated video content market. So that's why you keep seeing YouTube gets larger and larger. And that's because there's one source that provides them with that benefit that they can maintain in the long run. Yeah, it's interesting that there's no real scale that seems to have been reached with YouTube where anything starts getting compressed, any margin starts getting compressed. There doesn't seem to be any place where a meaningful number of creators are going direct and like publishing to their own video platform that's not YouTube that doesn't seem like YouTube is having to pay out a smaller and smaller percent of its profits to creators. It doesn't seem like advertisers are trying to get more bang for their buck. They're happy with the bang for the buck. The margins are not getting compressed there. It's kind of remarkable that as that business continues to grow and grow and grow, there is not margin compression in any corner of the business. Yeah, and the cost of multi-homing on the creator side is actually not huge. You take your catalog, you upload it to the platform. It shouldn't be theoretical impossible. We will multi-home this episode on both Spotify and YouTube. Exactly. So the real question really is your focus on is what's binding all the viewers, why are people coming back to YouTube and a good thought experiment to go through this? Let's say there is a copycat version of YouTube stood up tomorrow, which carried over every single video YouTube has today. Would you move? Would viewers only start to go to the other platform? This sort of goes back to my earlier point about this is such a heterogeneous space that the cost of search is not in material. For me to over time accumulate the set of influencers I follow and tell YouTube which ones are the content I love to watch. Then YouTube knows the watch time, which is a very important input into their algorithm of what are the high quality content as proved by all my other users. So those information dramatically reduces my search cost that the other platform, even if they have the whole suite of content, cannot really match. So there are frictions right there on the VR end that I think is protecting YouTube's business. I argue about this. Do you have a different opinion? For me, the reason I go back to YouTube is an expectation that exactly the content that I want is there and it's not the efficacy of the search. And so that's the dispute. There seems to be some sort of buried thing in my brain that is aware of their network economy power where at first I thought it was brand, but it's more like I have the assumption that the latest SNL skit is going to be there because everyone uploads their stuff there. Because I'm with you, Hamilton. I have the same, I'm going to go to YouTube every time because I have the absolute most confidence that the thing that I'm looking for is there because of their network economy power. Oh, I'm so excited here. And when you say network economy is what you're referring to is that a network effect is when somebody uploads something, it makes the whole site more valuable to. Everybody else for all these reasons that makes matching more efficient and more likely to result in a good thing happening in terms of value. So yeah. Okay. I totally disagree. I'm with Genie on this one. That's perfect. Two for two, right? David's a real YouTube user. You spend hours a day. I've become a real YouTube user. I think there's a baked in assumption Hamilton and Ben in the way you think about YouTube. And you represent a large class of people. But I think there's also another class of people that I'm guessing Genie and I may be part of we won't get into age demographics. The assumption is you both think you are going to YouTube with intent to look for something. I don't go to YouTube with intent to look for something. I go to YouTube with intent for YouTube to surface for me without me doing anything. Things that I will enjoy. Interesting. Different use case. Yeah. I hate to say it, but probably, you know, history is on the side of the younger demographic. Although I guess Ben, I hate to prove that you're with me. That's a dangerous. No, no. I use YouTube the way that one might speculate older generations use YouTube. And David is a little Gen Z in their respect. There you go. David, now we've classified people amazingly. Oh, I'm so happy. I can retire now. No. That's a good point for like all pretty interesting through because without being YouTube, you won't know exactly how customers split between people who search and people who just look for enjoyment on your platform and every platform should have a clear sense of how their customers are split into those groups. Yeah. Both of those segments exist for YouTube. This is what I loved about how specific you were, Chiny, and your second question of how do different customer segments perceive value? Because in analyzing the value created by YouTube to me, but also the power that YouTube as a business has for me as a specific customer is totally dependent on my use case of it. Yeah, exactly. And I would like to give some example that's kind of a more stark contrast between different modes of how customers might perceive the value. So I think we all from here like more buyers will attract more sellers and more sellers going on attract more buyers. This is oftentimes true, but it's so general that it's oftentimes missing the actual granularity that matters to you. So the example I give is think about an Amazon seller and how does he optimize his economic value from a platform? So these sellers typically have a built-out supply chain. They more or less sell around the market price. So what they're trying to do is I want to sell more units at that single price. And whether or not I'm going to go to a different platform, the question he's going to ask is how many more units am I going to sell? And is that going to cover my cost of going on to the other platform? Now this rationale, if you take it onto an eBay seller who's trying to auction his antique watch, it's going to be very different. Right, he has only one watch to sell, but the equation going in his mind is how can I sell this watch for the highest price possible? And again, this is depends on the better matching thing that we talked about before because the more participants you have on this platform, you're going to have better matching. It's more likely for it to have a buyer who values this watch much more than others. So the question he's going to ask when thinking about this alternative platform is what is the likelihood that a buyer with more willingness to pay is going to appear on the other platform and buy how much? And how do I compare that with the cost I have to manage this other platform that I may want to help on? So you have to understand what's the equation going on in your customers mind very carefully because sometimes they could be really different. And that determines the equilibrium of the competition. Yeah, the Amazon seller doesn't care about finding people who will pay a higher price for their product. They want to find as many people as possible who will pay the market price for their product. Right. Exactly. Assuming their margin is roughly comparable and also putting aside the question of is it strategically a good idea for my business to sell through Amazon versus selling direct or I think intentionally not diving into that because it's a whole bag of worms. Right. Right. Okay, so one question I want to ask you all, maybe YouTube is the right one to go back to. I think we can all agree that YouTube has a large power opportunity. When and how is the right time for a company that finds themselves with a large power opportunity as a platform to start capturing that value? Famously, everybody thought that Google was nuts with YouTube because it lost billions of dollars for more than a decade. And in retrospect now, perhaps that was a brilliant strategic decision by Google. How do you all think an operator should think about that? For me, the key thing here is to remember that the product market fit and power questions are different questions. And one doesn't necessarily answer the other. In fact, often doesn't and that it may be that when you have a business model that gets you to product market fit, there may be a power opportunity embedded in that and there may not be. And so those are two very different problems. One is the problem of capitalizing on an inherent potential for power. And the other is trying to figure out what are you going to do that will get you power and something that currently doesn't have it and that second is a very hard problem. It's a second invent that's every bit as hard as the product market fit invent. So think of Steve Jobs trying to figure out where to take Apple when the PC business turned out to not have any power. Here's the most brilliant innovator of our generation. And yet he couldn't solve the problem and he ended up losing his job. It's actually worth truly getting on that Steve Jobs coming for a minute. Of course, you like tempt me with Apple history catnip. I have to jump on it. It's interesting that he tried the power computing. I don't know if the macOS running on other hardware devices was an initiative that started well. Steve was still there, but it's interesting how obsessed Steve was with we control the whole stack. You know, we're the software and the hardware and our software only runs in our hardware and our hardware can only run our software and with power computing and all these sort of Mac clones that Apple authorized and said we're going to enable our OS to run on these other PCs. I actually owned one and it was a cheaper Mac and it did not save the company because they had no ability to take the profit dollars that they earned from that and build something defensible with it. And it's fascinating that Hamilton exactly to your point, they did try things and also there was no power opportunity that they or anyone really found to be a very profitable PC manufacturer. Yeah, I mean, I think if they hadn't completely flubbed the Mac 3, I think they might have ended up in a very attractive power position because they did own the stack and they did it on the operating system and they didn't yet own the processor, but they could eventually. And if you think of the PC business, the two notes of power were the OS and the CPU, but you needed to have superior scale and get everybody signed up to have that work. And the Mac 3 was such a complete flub that it made it possible for the IBM PC to just take over the world basically. Right. Well, of course, the IBM PC didn't have power either. And so that ended up being a long term, not that attractive of a business. It was funny because the Mac just the desktop line has a lot of power today. It is remarkable. Yes. A amount that people will pay in dollars, they wouldn't pay to a different manufacturer with a different operating system for an Apple computer. And now they bundle in proprietary chips that are the best on the market. So they have dramatically lower cost structure. So it's just margins everywhere. Right. As you might guess, I'm a huge fan of Steve Jobs. And I think his impulse to control the stack was not based on sort of power, but aesthetics almost. He wanted to control the experience and had this sense of the aesthetics of the experience. He was a genius at that kind of stuff, right? And it could have aligned with power had their execution been better, but it was available opportunity. Unfortunately, this will really date me. I remember when IBM entered the PC business, Apple took out a full page ad and what was it, the Wall Street Journal or something. Welcome. Welcome. Welcome, me, them to the business. And that's sort of a common trap that you sometimes see, which is people that are just amazing at innovation, which I have a huge admiration for. That is to say, getting product market fit, think that they can just out invent the competition forever. And that story usually doesn't end well. I don't think when the things you're in, you have to solve the power equation or all it's you end up competing in a commodity way on your base business. So obviously the answer is different for every company, but what are some ways to think about when you can feel comfortable enough in your power position to start dialing up your profitability, which I guess would equate to dialing back your subsidies on the platform. In the early stage of platform with product market fit, what that means is there are a lot of people want this stuff, right? And so you scale like crazy. And you're rewarded for that. You're B round and you're C round all of a sudden the numbers start to look pretty darn good. But then later on you face the power question, which is, is that a profitable proposition or is you just acquire a lot of customers? So I think it's an idiosyncratic tactical question that as a business progresses, you have to make a decision about when you start increasing prices and it's not that you would eliminate this subsidy. And I think like all decisions like that, you have to look at sort of the media effects and the long term effects. But I have to say that in general, and you see this in my book, there's this difference in businesses between the takeoff phase and the later phase takeoff phase when there's enormously rapid growth. And in that phase, the acquisition price of a customer, it's not price properly. And so it's a good time to get customers. And later on, you sort of can tighten the screws a little bit. Well, like the YouTube example is interesting, right? Like in their case, dialing down the subsidy and dialing up profitability means increasing ad loads to users and for years and years and years, ad loads were very low. It was comical. Users were getting so much value for very little ads on YouTube. And then in recent years, they've been dialing it up quite a bit and they don't seem to be pleading customers and doing so. I'm going to supplement Hamilton with his own book. So Hamilton don't feel awkward. So I think there are two parts to this. Number one is if there are readers of seven powers and you are patient enough to flip to the appendix after each chapter, there is this concept that we call surplus leader margin, which is the maximum price you can charge more than your competitor while still maintaining your competitive position. So this is essentially what we're talking about here is how much can I charge while maintaining the leadership I have today? And that number is not dynamic. And number is dependent on the differential scale you have against the other platform. So that's one of the high level. It was the over all thing you want to achieve. But at the same time, we recognize the difficulty and power is both market share and differential margin. Hamilton always says, no, it's an active trade off between both entrepreneurs do it because when you see such a so large screen field, you can penetrate. You should grab that and sacrifice short term margin for larger market share. And that's still power because you can realize those profits in the future. So it's hard to tell people the one size fit all this is exact point, but understanding what is a surplus leader margin, how much is the maximum you can charge given the best alternative out there and dial up the tune when it's the right time. All right. For our second sponsor of the episode, we have our quiet favorites modern treasury. Modern treasury is by far the best way, by far the best way to manage your company's payment operations. Their platform allows you to move money right in your product using code, not manual finance operations. It's amazing. You can move money in any software product with them. It is literally a software layer on top of your and your users bank accounts. They have direct integrations with almost all the major commercial banks and allow you to move money using APIs and web apps versus managing the vast, vast complexity of the banking rails yourself. When you build money movement apps with modern treasury, your product engineering and finance teams can focus on your core product, what makes your proverbial beer taste better rather than figuring out all of those nuances. How do I personal know for a better me? It has been incredible to watch the success of this company. When we started getting to know Dimitri and the team two years ago, they were doing about 10 million, I think, in payments reconciled per month. That grew to 100 million in less than a year. Now they are doing over $2 billion in payments reconciled every month. Just incredible. Crazy. The team is so freaking talented. It was fun hanging out with the team when I was down in San Francisco a few weeks ago now and just a real All Star group they've built there. Such all stars. They are now trusted by customers across basically every sector like Gusto, Marquetta, Revolut, Pipe, Trip, Actions, ClassPass, BlockFi, Ledger X, TradFi, Crypto, Regular Software products, all of these folks use modern treasury for a variety of money movement use cases like automatic payouts, direct debits, incoming payment reconciliation, digital wallets. So whether you're looking to build a Fintech app specifically or just add payments to your regular old software product, modern treasury's APIs make it super simple to do so. Go check them out and learn more at modern slash acquired and tell them that Ben and David sent you. Thanks, modern treasury. There's something that I've been thinking about that I want to ask you. So we had months ago after our TSMC episode a couple of the investors from NZS Capital on and one of the points that they made is we actually don't like to hold Apple in our portfolio right now because our view is that they're being overly extractive to their customers or over the whole ecosystem. You know, it's the 30% stuff with the app store. They are realizing their market leadership and they are squeezing as much as they possibly can and you contrast that against a TSMC which does not charge the very most they possibly can to the customers to manufacture their chips and it's a very intentional strategy and they believe that that's sort of a long term view that they have in order to do that. I'm curious as investors how you think about from the perspective of maximizing enterprise value for a firm, what should a company do? Should they be maximally extractive to their ecosystem or should they leave some surplus on the table? Yeah, it's a great question. Before commenting specifically on TSMC, one of their primary competitive interfaces obviously in terms of fab technology and getting ahead in that is Intel and I just a caveat about both those businesses are amazing and well managed and successful and the fact that TSMC seems to be gaining ground is also a reminder to everybody that power is not forever. Because I use Intel in my book and that's the way life is. Technology is changing, competition changes and for me, one of the longest term power things I've ever observed is that of elite universities and being able to maintain and which is ironic that it's not even in the private sector. So I think on a pricing question like that, pricing may well be tied to a strategic goal but it's tactically available to anyone. So it's justification has to be tied to underlying fundamentals and essentially what you're doing is in this case of TSMC, what you've cited is they're sort of giving up current profits for something in the future, right? And presumably it's sort of future revenues. So they either get retention through customer loyalty or acquiring new customers. So that leads you to ask more customers, more revenue in the future, give you more differential returns and that gets you down to ask about scale economies. Do they have it? And I would argue yes but it's pretty unusual type of scale economy. So there's some very strange industry characteristics here. So really large lumpy capital. I don't know what's a new fab now. Is it 10 billion or something? Oh, I think it's 10 billion plus. Yeah, if I remember right from our episode. Yeah, a huge, huge number. There are kind of quote unquote predictable material performance advances, i.e. Moore's Law, so that life isn't usually like that. You don't think that well, I've got a fairly high assurance that if I make the right technology choices that all of a 10x improvement in 18 months or something, you know, that life isn't usually like that. And so this is very unusual and it's driven by the correct technology choices. And the other thing is that the tech advantages are driven by upstream suppliers. Right. Asml and others in this case. And that's a hard choice actually. I don't know if you if you go back away, there is a long discussion in semiconductor companies of whether to go through x-ray lithography. And it turned out there's a lot of money invested in thinking about that. It was very contrarian in the early 2000s, even Intel, I think funded asml's development, a big industry consortium, including Intel of the EUV. And then thought the technology was going to die. And so I think three or four years in divested, whereas obviously now that's the dominant way that we have these three and five nanometer processes and TSMCs to benefit. Right. And so under those sort of really odd industry conditions, it means that if you're quite comfortable with forward guarantees of customers, you can make a capital commitment, this huge capital commitment. It wouldn't matter much if there weren't those big material performance advances. And it wouldn't matter much if it was not all that lumpy. You could do it in small increments. And it wouldn't matter if it was relatively small amounts. And it wouldn't matter if it was all vertically integrated. So that allows a scale company to get to the newer technology first. And that has profound implications for sort of continuing that cycle. But it means that they're lower cost per transistor. And they also can do higher performance products, which probably are higher margin. For TSMC, the companies that crossed that threshold of enough comfort with forward guarantees were the companies that sold the products. So back in the day when you guys are too young to remember this, but there is a time when IBM controlled the computer industry. There's nothing like that today. People talk about tech dominance, but IBM just was a force that was just so far and above everybody else. And they backward integrated into FAPs, right. And they were the FAP leader because they could do this stuff. And then Intel. So we've moved from a vertical to a horizontal organization of this. So I may be too reductive about this, but to me, their pricing makes perfect sense. Even from a purely Machiavellian, shareholder value kind of perspective is that that allows them to get a customer lock in as too strong a word, but a comfort with future customer comfort that Nvidia is going to stay with them for generations to come and be paying them billions of dollars to allow them to. Right. And remember for the really tricky upstream suppliers, what's the, is it the Dutch company that does you guys know? Yeah, ASMR. Yeah, ASMR. You have to make a long forward commitment. It's not just the amount. And so it allows them to do that. And then of course, if they had that advantage and didn't make the right choices about technology, and I don't know if that's luck or skill, then it also doesn't work. But they've made the right technology choices and they have enough guarantee of future business that they can now be the leader in technology. And this is a business where that performance frontier is moving in sort of a kind of predictable way. And so being a leader in technology means that you are a cost and performance leader in the business. And so it makes a lot of sense to me to kind of give up current profits to guarantee that ability. Does that make sense to you guys? Yeah, I had not previously thought of the notion that, you know, of course I thought, well, maybe it's not actually benevolent that they're not maximally extractive, but I couldn't quite put my finger on why. More receives like a nice guy, but you know, yeah. And the why is so interesting that well, to the extent that they can massively increase the probability that their customers stick around for a while, they can spend this 10 to 50 billion dollars of CapEx to build these new fabs. They can be one of the very few customers in the world that's guaranteed to over the next three to five years get these machines from ASML and other suppliers like Trump, the laser company, etc. And so because those are scarce resources to be the customers of those companies and because it's so expensive to build these leading edge fabs, to the extent you make the right technology choices, there is this sort of self fulfilling prophecy of guaranteeing all of those future profits. If you have that magic ingredient of being certain that your customers are going to stick around. Yeah, it's going to be very interesting. TSMC is just such an amazing story so they've been able to take what in all prior generations had been a vertically organized business and made it horizontal. And the thing that makes horizontal organizational work is typically a scale economy so that you pick up more scale. The strange industry characteristics means that predictability of future customers is profoundly important in terms of creating company value. So when we contrast that convective bends original question with Apple's situation today, I guess it is quite different every day. I think a lot of people feel that Apple's 30% rate that they charge developers to be in the app stores is maximally extractive. It's maximally extractive. Yes, that's a good way to put it. But they're not in a situation like that. They're vertically integrated company, they control the whole stack and they're able to fund their also quite large capital expenditures, but they fund that through hardware sales for a very different manner than TSMC. Yeah, it's not clear to me that sort of giving that money back to customers or suppliers would benefit them a lot. I have an iPhone and I really like it. I realize that every time I turn around it's trying to get me to buy the iCloud or something and they're of course trying to take advantage of me, but I really love the product. There are of course very eye switching costs. I was on a plane and unfortunately ruined my iPhone and landed in a Y and had to get another one. It was a very easy choice to get another iPhone as opposed to another product. I don't think people are terribly dissatisfied with the situation and so they're not risking a lot. It doesn't seem insensible to me. They're regulatory issues. They're going to face and they'll be constrained in certain ways and all that, but it makes sense to me. Maybe I'm too cynical in my old age. No, it makes sense. They haven't changed the policy. They continue to succeed enormously. Well Apple just keeps looking at the batten of each of the parties related to them. They keep looking at developers and they keep saying, okay, are these developers going to stop making iPhone apps like that's where all of the most affluent customers in the world do their computing, like spend their time so that they're probably not. And like are the consumers going to switch? Well, people kind of only switch in the direction from Android to iPhone. They tend not to switch in the opposite direction based on the last 10 years of data. And consumers don't feel that pain as much as the developers like those consumers don't know or care about apples. Right. They're sitting there going, why would we change what we're doing? Yeah, I mean, I have to confess a bias here. As you well know, economics roots were in the Scottish Enlightenment. So if you think of Adam Smith's ideas and David Human, so on, it's the idea of self-interest. So behavioral takes a little bit of a detour from this, but it basically says, if you look at people's self-interest, you can understand a lot. And so I see both of these as being quite self-interested. To phrase this in a much more tongue and cheekway, it's almost like, almost as if these companies that have us over a barrel as consumers are saying, well, look, I mean, we're married at this point. And as long as you're not going to divorce me, I will become a worse and worse partner to you over time. That feels like the concern to me with companies gaining more and more power over consumers in the long run. If you lead a company that has very high switching costs and I'd argue for most technical people, non-technical people, you know, an iPhone has very high switching costs, you have to realize there's a conflict there between how much lock-in you have and how you treat your customer and manage it very, very carefully. I often encounter companies where they have a wonderful product market fit, but they don't yet have power. And one of the things is, could you develop switching costs? And my advice always is, don't think, how am I going to lock in my customers, but actually think of it a different way? But is it that I can do for my customers that create value for them? And then if that proposition has with it a way that they're tied to me, then so be it. But think about the value creation part first, or else you tend to go down these paths of win-lose propositions which don't end up very well, typically. What the right-sharing companies did with their membership programs, would that be a bad example maybe, that was trying to create switching costs, but didn't really help anybody? Yeah. The one I always think of here is potentially adding insurance to a transaction. So like Airbnb's million dollar insurance policy, I won't just wire someone money directly. I will pay Airbnb's ridiculous fees because it's kind of nice to have that insurance policy and them as a trusted facilitator of the transaction. Then I think you're touching on a good point, which is platforms are naturally also competing with your own customers. Because what if your customers go direct to each other? Buyers and sellers just transact off you. So as a platform, you have to first prove that you provide enough value that they should pay you a cut and stay on the platform. Now that's one front that every platform has to think about, and we call it table stakes. And then the second issue that the platformers think about is what do you offer is that differential. So the insurance program of Airbnb could a competitor also offer a similar insurance program and achieve similar value add to your customers. So there's two layers of question that competitively we also have to think about. Right. Great observation that the insurance example makes it better than wiring money into a void, but it doesn't directly to the person that's hosting the Airbnb, but not necessarily better than VRBO or someone that could very easily go negotiate a very similar insurance policy. Why should you be interested in power? That may sound like an odd question for you, but I was doing a class recently with some earlier stage founders talking about power. And I mentioned some companies that I thought probably might well not have it. And yet some of them were public and had really high market caps and some of the people in the audience response was throw me in that briar patch. So what I just want to say is that it is important. We talked about the earlier example of Steve Jobs and what he found when PC started to go south was it was not fun, right? A lot of the best and brightest would leave the company. And if you get into the stage where you don't have power, this isn't going to be a fun company to manage and it won't become iconic. And I think that most of the founders I talked to, they're not in it just for the money. There's this sense of this is kind of me and it matters to me the durability of this thing and its success. And so if you want your company to be durable, attractive, a great place to work, a great example for people, something you're proud of, you need to answer that second step change question is where is it power? So I know you guys know that, but I should mention that because I think people wonder why should I bother if I've solved the first problem. Yeah, I've just climbed this great mountain of achieving product market fit. Isn't that enough? Right, which is an amazing accomplishment, right? When you think about it and really hard and isn't that enough? And so I totally get where people are coming from. You both, but especially you over your career Hamilton worked with so many founders, managers. Do you have any advice for founders at that point psychologically when they get there? I've been a lot of people just exhausted, right? Like they've just climbed this mountain. Isn't that enough? I don't think there's anything really easy that solves things for them. I think as founders, they are used to hard challenges and approaching those positively. And I think that's the best that you can do is just say that you've got another hill of a climb. I love that. That's such great framing. We teased earlier that we were going to talk about the difference between network effects and network economies. And this is something that Dave and I have flubbed on a few episodes where I think I've conflated them in our power section. And I'm curious, what are some telltale signs of a company that has network effects but did not develop network economies power? So I think network effects and the types of things that we've been talking about in this episode are common. Because when a driver joins Uber, he makes the platform more valuable to passengers because more efficient root structures are now enabled, right? And that's a network effect. So the things that happen there are somebody joins the network. That's the network part. That's a new driver joining. And something happens to somebody else in it that has a value implication. That's the effect. That's a network effect. So the question is what would you like to call network economies? That sounds like an odd thing to say, but that's really the question. And you could say anything that their network affects and there's power, you could call that might be one choice. And Chenyunaya are currently debating this. And so there's another choice, which is the one I'm currently going down, which is that it's when there's power from direct network effects. And a direct network effect is where your joining has an immediate value impact on somebody that's sort of on the same side. So I joined Facebook because I'm your friend. And those effects are strong because they're additive. So another friend joined, it doesn't substitute for the one that just joins, it adds to it. So and it's those kind of effects that do more lead to winner take all kinds of situations. So my naming choice right now is if there's power as a result of direct network effects and that's a network economy and those aren't very common, I'd say indirect network effects like the one in over are much more common is just a value impact. That's the benefit side, right? But as you too well know, is it arbitraiserable? You need both the benefit and a barrier side. So is it arbitraiserable? So then you have to get to the much rarer set of cases where there's a benefit, it's material right? And also it's barried and then that's a much, much narrower set of things. So do you want to add something? I'm hesitant to drag David and Fed and tar hold it vape. Please. I think the short version of things here is network effects describes only the value creation and it's a statement without consideration about competition. Which the latter is all power is about. So regardless of how we end up defining our economies, it is the type of platform that we believe has power and that's differentiating from network effects on its own. Gio, I wish I said that you can edit out my comments and put you in. For our final sponsor of this episode, this is just one of the most fun sponsor reads to do mystery. You all know about this company by now as they really have grown up in the acquired community. They have a new offer to really sweeten the deal for acquired listeners today too, which I'm excited to tell you about. Leave it to the mystery guys to be coming up with new stuff. Of course mid season. You might remember the mystery founders. They came on the LP show back in April 2020 to talk about pivoting from facilitating these magical nights out for consumers pre-COVID to magical virtual experiences in the home well, we were all in lockdown. While there was another twist yet to come, it turns out a bunch of consumers who did these virtual in-home experiences in April 2020, worked at places like Amazon and Microsoft and Apple and McKinsey and Uber and Twitter and Autodesk and a bunch of other great now customers, including Modern Treasury. Very true. While their virtual experiences with their friends was great, they really needed to upgrade that virtual experience with their team because after you log into Zoom 17 times in that single day and you're trying to have fun with each other and make it feel different, hard to make it feel super different without- The meetings will continue until more Al improves. Yes. Yes. Thanks for quoting me from last episode. Well, so enter mystery. They take over all those terrible team happy hours from scheduling and planning and executing. They even do all that and track engagement and employee retention and impact afterwards so you know where that budget is going. And it makes those just really fun, great experiences. So Flash Forward to today, they've executed tens of thousands of events. I love startup pace. How crazy is it that in April 2020, they had done zero of these and now they've done tens of thousands, not just for those huge companies, but also startups of all sizes. David's like you mentioned, Modern Treasury, Convoy, lots of other startups. They just raised a giant series A from Greylock to really blow this out of the water. It's been so fun following their journey. So here's how they're up in the ante. We were like, you know what, should we change this around? We really appreciate the great tidbits we've been able to share so far, but like what else can we do together? And they were like, oh, for acquired listeners, we'll do three events for the price of one, which I think that makes it the best offer any sponsor has ever had on the show, which of course they are doing this. So they want to plan a series of three experiences for your team and find out your preferences, what the team likes to do, what they don't like to do and sort of make each event get better than the last. So they want to do this three event thing so that you can kind of experience what the sort of ongoing, changing craftsmanship of the journey is. So if your company could use someone to take all the headache and event planning off your plate and turn them into something that people really love, go over to try And then you can just slash acquired or click the link in the show notes and go get that crazy deal to get three mystery events for the price of one. Thank you, mystery. So when we were emailing before this, Hamilton, you wrote something that I know is going to be provocative. You wrote when you see a flywheel run for the right. Right, right, right. I did say that. The number of decks that I see that have flywheels these days is about 100%. So this is going to be a new way of thinking for folks. What is the concern about flywheels? So flywheels are a sign of product market fit and tell you absolutely nothing about power. And it's not easy to get a flywheel. And that is how these platforms do find life. And so you get into issues of critical mass and ignition and all that stuff. But that's product market fit and it doesn't say that if one company has benefited from this, that another, as I mentioned before, often the very technology that enables that happening quickly, enables multi-homing as well. And so the benefits are usually from a differential size on one or both sides of the platform. And so you have to somehow prevent that. And, importantly, there's one exercise we did, which was really simple, but surprisingly interesting. We took a flywheel of a company. It's really popular. I won't name which one. But we swapped that logo with their competitor's logo in the middle of that flywheel. And it still works. So that's exactly what we were looking for. That is a brilliant thought exercise. Assuming that they have more scale than their nearest competitor, is there some way that you could draw the X, Y axis where they're growing in a way that's encubed and their competitor is either further down the N-cube because it's a time series axis or perhaps they're only growing in a way that's N squared. So there's no way that they could ever catch up. That seems to be the thing that you're trying to tease out. Yeah. I mean, so typically these things do depend on differential scale on one or more both of the sides. Right. And the way you've asked that question, Ben, you've just sort of assumed the critical thing, which is you've said, it can scale three times as fast. So then the question is why? Because it's a flywheel. You know, it's a lot of stuff feeding into each other because I read the everything story. Right. Exactly. And so then you get into the multi-homing question. So if somebody's looking at that and like most things in power, the barrier question is usually the hard question. And so that's the one you'd have to tease apart is to say, okay, why do you really think they can scale faster? And once the market is kind of saturated, why can they keep that difference? So there's a dynamic and a static question involved in that. So the character of multi-homing is critical and all of this stuff. I do have one sort of summarizing question on this whole concept of power as it pertains to platforms. Is it right to think about it like if I was operating a general store in 1850, I could apply the seven powers framework. But today, if I'm operating a platform business as many, many tech businesses are, especially the most valuable ones as you pointed out, I kind of have to perform a seven powers analysis on each of the trans actors on my platform, whether they're the supply side or the demand side, I need to understand what gives my business power given that specific segment. Is that right? I actually echo with Ben's observation. Interestingly, we've been trying to mathmatize all we talked about today for a long time. And every two weeks, we come across one of those edge cases, be like, out, that one is not included in this framework. And the exact reason of that is Ben, what you said, the participants in this transaction is going to have a different economic structure. They have a different industry structure that alternates how they behave and what they optimize for. So this is exactly what makes platforms so complex, but so interesting. It is you have to look very clear for yet those and every platform is going to come out a little bit different. It's working progress for us. We hope one day have a very abstract and generalize framework that can describe all of those the very operator you have to just to focus on the one that you own and how that's different from others. I thought it might be useful for me to do a quick take of kind of a summary of some of the points that we've talked about in platforms is such an important topic. There's sort of like markets that are way of exchanging and that's what business is about in a certain way. And so there's a lot of value there. And the tech frontier that's been advancing has made many, many more platform plays viable. If you think of processors and displays and a mobile distribution and all that, basically we all have this little computer that we carry around with us that makes a lot of stuff possible that just wasn't possible before. And we see that in that many of the largest market kind of companies, the world or platform plays. So the first reason is lots of value there. The second reason it's an important topic is really complicated. And so it kind of strays into multi-sided market territory, which economists have spent a couple of decades trying to sort out. And I find it personally to understand really what's going on is very intellectually challenging. So lots of value, it's very complicated. And then the third reason is that we talked earlier in this podcast about there are two step changes in value in a company product market fit and then power. And in the case of platforms, one of the things that's really odd but very important is that those signals go in opposite directions often. That you can have tremendous product market fit traction. You can scale really fast and be a big market. But the very thing that allows it to scale also allows a lower barriers allows easy competition multi-homing. And so you might see something where there's huge value created. But if you ask the question of is there power a completely different issue and maybe at odds with the very thing that's driving all the value. So those are the three reasons. So then getting into the nature of the platform, value facilitates an exchange between heterogeneous buyers and heterogeneous sellers. And so it's exchange is what creates value matching typically. And to your point on the first component here, technology is really such a huge lever because technology lowers friction. And so it makes possible much, much, much more efficient making of these transactions and making of these matches. And so that's why it seems to play such a huge role. Yeah, utterly. Think of matching. There has to be discovery and then there has to be the mechanics of the transaction itself. And think of discovery without mobile. Right. Let's say I wanted a ride in the San Francisco area. What I just call a lot of people to see do you have a car and time to give me a ride somewhere? I mean, that's really what we're talking about here, right? Having a computer that sits with you all the time that you pay a lot of attention to is a tremendous advance in availability. And then on the transaction side, all of a sudden you can push a button and you don't have to negotiate price or payment information is already in there. I mean, we all take this stuff for granted, but this just enables all kinds of essentially markets that didn't exist before. So the value comes from matching a buyer and a seller. But power in these things is really different. It comes from one platform doing this materially better than another platform and that the thing that drives that difference in performance is sustainable. Typically that the difference in performance is driven by differences in the size of at least one side of the platform. So the New York Stock Exchange is more attractive than the London Stock Exchange because the liquidity is better. More buyers and sellers and you get lower bid-ass spreads, right? But if all the parties involved had easy multi-homing, that would go away. But in fact, it's maintained by contractual arrangements and it's really a pain to switch from one to the other. Yeah, the easy, obvious example of this that has been discussed much in the past decade is Airbnb versus Uber. Like Airbnb has so much unique supply that you're not going to find on or home or any other platform. Whereas Uber, it's like, yeah, I can get a car on Uber or Lyft or D.D. or whatever. So the question often is first, so you have to meet two conditions. The value that one platform delivers has to be materially better than the other. And remember, this is a matching situation. I won't get into the technical aspects of it, but basically it's equivalent to sort of a distance formulation, even in multi-dimensional spaces, a square root function, which means the second derivative isn't a go, which means that it flattens out after a point. And when it flattens out and whether there are two competitors that are both in the flat region is a critical element there. And then even if that is true, that it isn't flat enough between the two of them and there is a real material difference in deliverables, then the thing that maintains that difference, which is different scale on at least one side has to be maintained. And so the degree to which multi-homingness frictionless is critical. And we just see that play out so frequently in the startup and technology and venture investing space. I have on my mind, because we're researching right now at Nvidia. And they were the first computer graphics chip company, the first in Silicon Valley. They thought that was going to be so great. They had such a great team and so much funding from Sequoia and Sutter Hill and it was going to be great. Sutter Hill, wow, that's going back away. Yeah. And then they wake up six, 12 months later and there's 90 other companies that have all been funded doing the same thing. There's no power there. And Nvidia, of course, had to develop power in other ways. There's segue of their business from one thing to the other is that'll be a wonderful thing for you to explore. You got to see what really does drive value and is there a real difference between competitors and is there some lock-in of some sort of one side volume or count so that you maintain that superiority on it. So anyway, this has really been enjoyable. As always, thank you both. Thank you so much, Hamilton. Yeah. Thank you both. This is a real treat and a treat to have both of you. Welcome to Nye. To acquire it on the first time. I'm sure not the last time. And yeah, we can't wait to do this again. All right, listeners. Thank you for joining us on this journey with Hamilton and Chen Yee. I learned some stuff. David, I know you learned some stuff. We want to hang out with you. So come join us in the Slack. We've got over 11,000 members. We'll be discussing news of the day, this episode, dropping some hints for next episode. We've got a limited partner show that you should go check out. We've got three, I think, David recorded that we've released only for LPs or will release soon. So if you're a paid limited partner at slash LP, you'll get access to those. Otherwise, after two weeks, all the episodes become public and you can search acquired LP show in the podcast player of your choice to get access to those public episodes like discussing what's next in FinTech with a partner from Bane Capital, Christina, Mela, Cureyazi, or what else have we released recently? Probably the composer episode will become public here soon. Not Boeing portfolio company number one. That's right. With Ben Rollert. Oh, the other thing on the LP show now with it being public. Literally, the number one most requested thing that we got for anything ever acquired was, can I get the LP show in Spotify? And now thanks to doing this, you can. We've got a job board. These are jobs that David and I and had a special projects that acquired Sanny, research, and curate personally. So if you're looking for that next great career move, head to slash jobs and show this episode with a friend. We love social media, of course, but we love that strong one-to-one communication even more. So thank you so much for listening. We'll see you next time and our thanks to Solana Foundation, Modern Treasury, and Mystery. Later, listeners. We'll see you next time.