After two years of the unexpected, Ben Thompson says 2022 will actually be fairly consistent and unsurprising.
“In many respects, in 2022 there is going to be a lot more of the same,” the Stratechery founder said in a December interview. “Even as there is this undercurrent and bubbling of [regulation] coming along, but I’m not sure it’s going to arrive next year.”
In a wide-ranging conversation, Thompson said the biggest impact from the tech sector in 2022 will come from the end of Apple’s tracking technology, ID for Advertisers (IDFA), but mostly for smaller advertisers that rely on this tool to target consumers.
Watch the full conversation or scroll down for the transcript:
Hello, and welcome to another Signal Conversation. I’ve been looking forward to this one. At year’s end, we look forward to where technology is taking us. And I’m very pleased to have with us Ben Thompson, the founder and author behind Stratechery, which, if you are in the technology business, or businesses impacted by technology, which let’s be honest, is just about every business, you should be reading his newsletter. He writes one article a week for the public and then he writes several for his paid newsletter subscribers. And I am a big advocate for that work, it is well worth the time and money spent. So Ben, welcome to Signal.
Thank you. I’m happy to be here. And thank you for the gracious introduction.
So we’re going to kick off this new year by doing a little bit of prognostication. Let’s get to it. You know, we’ve had quite a year. And we’ve had quite a year before that. Given the pandemic, and any number of other things that have happened, what do you think tech CEOs, and particularly those who are running larger tech companies, are worried about as we go into this next year, 2022?
Well, it’s interesting to sort of differentiate by size, because I think that probably does matter in sort of, like, what people are worried about. The big players, I think, are doing very well, particularly through the pandemic, they’re very successful. They have locked-in business models, I mean, I think Meta-slash-Facebook is a little shaky, we can get to them in a little bit, but they’re in good shape. And if you’re in good shape, and making a lot of money and super locked in, then the obvious worry, I think, is regulation, where that’s sort of the course of these things. And I think that’s going to continue to be a big topic. And I think something that’s worth noting is, it’s both the right and the left. The left has always been a bit suspicious of these companies, whereas the right, particularly when it comes to things like information and claims of censorship, is also becoming more suspicious. And so there’s a little bit — it’s not sure if there’s a clear constituency anymore. That’s going to be a challenge.
The smaller you get, it’s probably things like, if easy money starts to go away, is there going to be as much valuation attached to super long-term growth. And so there might be a little bit of multiple compression, that’s already happening a little bit. That’s going to be a challenge for companies that will filter down to the startup market, because their comps are to these companies in the public markets. And so, it’s been a great time to be a startup for the last year. Tons and tons of money has been falling into the ecosystem. That can go away very quickly. I mean, you and I are both old enough to have lived through the last time that happened. And so I think people are gonna have an eye out for that.
The other big thing is talent. That’s always been the scarcest resource in tech — just having good people. And you have crypto sort of coming along, that’s pulling a lot of people out of the general tech ecosystem, and sort of chasing that market. Making sure you have the right employees, and enough of them, is going to be top of mind, I think for everyone.
Yeah, that’s interesting. I mean, I think, you know, in the first quarter, or to the pandemic, that was the story, right? It was, oh my God, we all love the tech industry. But as we get towards potentially seeing, you know, maybe the fading of the pandemic, that is not the story with the tech industry anymore. As a matter of fact, it seems to have reverted to where it was prior.
Yeah, I’d say in some respects, worse. Particularly, I think the left has always been a bit suspicious of tech, particularly given its size. But now I think you have a lot of consternation on the right as well, particularly around questions of censorship or control of information that is sort of weaving tech without any real sort of natural allies. And I think that makes the questions around regulation and government much more pressing than they would be in normal circumstances.
Well, speaking of that, and you name-checked the crypto sector earlier, is crypto one of the growth sectors of the technology industry to watch in 2022 and what might be some others?
It’s certainly something to watch. I think, particularly for folks with our sort of jobs, I don’t expect it to have any real world impact as far as the CPG companies or most of the companies in the world are concerned. What makes crypto interesting is the way the internet is interesting. First and foremost is its abundance, like you can copy things endlessly. Information becomes free. And crypto sort of lets you take those properties of sharing and spreading anything, but make it scarce. So you can only have one of something. That’s an obvious application for things that are money-related. And I think that’s why you see a lot of the sort of innovation and work happening on finance-related things. I think how that transfers to products and use cases that regular people sort of impact their daily lives. I think that’s quite a bit further out in the future. And frankly, we probably have a few more sort of bubble and crash bits to go through before that happens. But that’s normal. That’s I mean, we all remember the dot-com era. This sort of thing is sort of happens with new technologies. So I don’t think it’s going to have a big impact in the near term. But if you look out a decade, then I think it’s much more meaningful.
Right? Are there parts of the technology economy that you think are going to fade or be less important over the next year?
That’s an interesting question. Because I feel like we’re in this phase right now. Particularly people in the tech industry are always looking at what’s the next big thing and you always feel like it’s around the corner. But if you think about something like crypto, for example. And I just painted a picture where its actual, real world applications for most people outside of finance are probably quite a ways down the road.
I think a similar thing is for things like the metaverse, right? I mean, in some respects, COVID has pushed us into the metaverse. It’s just been a very sort of pathetic, 2D version of metaverse. But if you think about how much more often you do things like video calling. If you’re like me, you’re in all these group chats, where you feel like even though you’re not in the same physical space as people, you feel in many respects closer to some of those people than you ever did before. Because you’re talking all the time. And I think that actually is the metaverse. We’re already sort of there. And then you take that and you progress it to being more of a 3D experience. More of an immersive, where you get this sense of presence. And you step back and think about it — and Marc Andreessen has this phrase about sort of reality privilege, where those of us who are very wealthy say, well, I’d much rather see my friends in person. But for a lot of people, that’s not just going to be a possibility for lots of things. And to have this experience that’s available to anyone is going to be very powerful. But, again, there’s technology that has to progress, hardware has to come along, services have to come along, stuff has to be built. I actually think that the real killer use case for crypto actually is the metaverse. When everything is virtual and online, then virtual currencies and virtual, like ownership really makes a lot of sense. It’s almost like there’s going to be a bifurcation between the physical world and the virtual world. And so it’s very fun to talk about that and think about that. But I suspect the applications in 2022 are going to be pretty minimal, like there’s really a lot of work to do on those fronts to get there. And so it feels kind of boring. But in many respects, I think 2022 is going to be a lot more of the same. There’s gonna be a lot more SaaS companies, they’re gonna keep coming along. You’re gonna see ecommerce continue to grow, you’re going to see sort of the big consumer tech companies — obviously, TikTok is a huge addition to this space. But you’re going to see sort of continued development on these trajectories, even as there’s sort of this undercurrent and bubbling of something is coming along, but I’m not sure it’s going to arrive next year.
That makes sense to me. I want to get back to TikTok, actually. Let me ask you about that, and then I want to get to Facebook. You know, one of the interesting characteristics of your work is that you’re based in Asia. And you have unique insights into the impact of Asian companies and Asian policy on the tech industry. TikTok is a really interesting company. And it certainly has, in the past year, made a dramatic impact on the United States culture, but it is owned by a Chinese company. What’s your view of TikTok? Is there risk in that platform for companies who are looking to work closely with it?
Well, it is interesting, because TikTok is very Chinese in a way, in that, unlike all the other sort of social networks — even if you use them to get news, or entertainment, or videos, or whatever it might be — they were still based on your network and the core sort of vector for information was what your friends shared. And that is sort of anathema in China, particularly when it comes to questions of news and politics and things along those lines. You have to employ an army of sensors, you have to be on top of things. You know, they’re listening to what people say. Again, this is just sort of a factual denotement of what’s going on, not a case of whether that’s right or wrong. As an American, I have an obvious point of view on that, but there’s just the reality of sort of how it is. And so what happened was TikTok actually came out of a company called Bytedance, whose first product was Toutiao, which was a news app. And how do you have a broadly-used news app in China? Well, you have one that is sort of centrally controlled. And how do you do it centrally, it’s all algorithmic based. It’s all what you click on, you’re more interested in these sorts of things. And it very quickly has been tuned. And algorithms, they’re not magic. But the real magic in other realms is the degree to which they can learn. How can they sort of accommodate themselves to your tastes. And so they’ve been developing these algorithms for years. It’s like, we don’t care about your network. You can open up TikTok, you can find interesting things, we’ll start tuning it to you immediately without knowing who you’re connected to, who your relationships are. And it’s sort of like the power of this was Facebook was sort of limited and what they could show you based on what was in your network. Whereas TikTok could draw on the entire TikTok universe, to not only bring you stuff from anywhere, but also push your stuff, if you had something compelling, to the whole world, and really drive a lot of virality and engagement very, very quickly. And so this idea of drawing from everything was something that Facebook had never really done, and was a really unique advantage. It sprang from them being Chinese in many respects.
From a broader US perspective and national security perspective, I actually think the data stuff is overstated. The worry about them collecting data on users. What I’m much more concerned about is the way that TikTok works by pushing content to you and you’re just sort of passively consuming it. I’ll tell you what, John, here’s one of my more sort of contrarian counterintuitive takes. One of my takeaways from COVID, actually is, I’ve actually become a little bit less worried about TikTok because there’s a degree to which Americans are going to do what they want, and they’re not gonna — I just feel like the attempt to sort of brainwash your independent, “get off my lawn” sort of American, is going to be a little tougher than it might seem. But I do think that is where the risk factor is. But I do think it’s a huge opportunity for companies like P&G.
Great, well, let’s talk about Facebook, or I guess now we should try to get used to calling the company Meta. What kind of a year do you think they’re going to have? And do you think this energy, which seems to be building inside the current administration to break the company up, is going to gather or dissipate?
I think it’s going to dissipate, largely because the FTC has already filed a case. And I think it’s an incredibly weak case. The core argument of any sort of antitrust case is market definition. And it’s just very difficult to come up with any sort of market definition that Facebook has a monopoly in. I mean, we just talked before about the explosion of ways to interact with people online. And yes, Facebook controls some of that. But there’s, you know, I think it’s a challenge to the internet, generally. I mean, Larry Page famously said, and regulators hate this line, which is that the competition is only a click away. And I think the reason they hate it so much is because it’s true. There’s nothing on the internet that sort of locks you in to anything. You could say, Oh, my friends or family are there. Well, that’s lots of individuals making the choice to be there. There’s nothing technologically keeping them there, why they couldn’t go somewhere else. I mean, I’m in a country where the dominant social network is Line, I mean, these are artifacts of sort of history and habits, not technological sort of lock-in. So I don’t think that will get much traction. And I think there’s an angle, honestly, where I think there was a case to be made, that allowing Facebook to acquire Instagram was problematic. And I think you saw for five or six years, there was kind of a dearth of innovation in this space. And there was sort of a lot of advertising really centralized on Google and Facebook. But you’re seeing that change a bit. Now. I mean, advertising is growing on other platforms a fair bit. And an underappreciated part of this all being under one company, is it is a phenomenal app, like, I’m a big believer and very passionate about is sort of the internet being a platform for individuals and for small companies. And this is sort of the opposite of a P&G. But, you know, I’m a small company, I’m a small business, I certainly appreciate that. And what Facebook provides — you have companies like Stripe that provide payment processing, or there’s hosting or whatever might be, but what Facebook provides is an advertising platform where basically all the small players can compete on the same footing as the big players. I mean, I know P&G has sort of had a winding road with Facebook in particular, but there’s an angle where if you’re small, you get access to the same tools in the same platform, the same customers that a P&G does, and from my perspective, that’s something that is valuable, and is underappreciated about what sort of Meta brings to the world. And I’m a little hesitant to see that go away.
I want to very quickly get to a couple other names your hot takes, if you will: Apple. Apple made a lot of news last year about policy changes, they were indicating this was all for the privacy of their iPhone users. What do you see is happening going forward in Apple?
Well, I think this is the real challenge for Facebook is Apple. The key that tied all those little advertisers together via Facebook was the IDFA, the identification number for advertising that everybody had on their iPhone. And Apple sort of basically took that away by presenting this prompt that — who’s going to say yes to it and turning it off. And Facebook is going to have to work through that and how they’re going to figure out how to do attribution, whether that be for E commerce, whether it be for app install, and that’s going to be a real drag on them and their earnings. And it’s going to be sort of a challenge for the industry broadly. I do think this is an area where it actually is, at least relatively speaking to the benefit of a company like P&G. Because I think it falls much more heavily on smaller companies with smaller customer bases where it’s more difficult to do cohort analysis, whereas if you’re a P&G, you have a large customer base, and broadly popular products, you can construct ad campaigns in a way where you can get signal in a way smaller players cannot. Now, that’s going to be difficult, it’s going to take a lot of work and a lot of working with Facebook and building up new tools and new capabilities. And I think that’s going to be a big project for 2022. But in the long run, I think this is actually a boon to larger advertisers. And is actually a relatively optimistic take, particularly when it comes to competing with these sort of niche startups from an e-commerce perspective for a big company.
Last question — you mentioned e-commerce, so we have to ask about Amazon. Amazon’s a very complicated company, has a large advertising business. But broadly speaking, you know, what’s your view on the future of Amazon? And how is Amazon gonna make it through the regulatory and other scrutiny for the next year?
Well, I mean, I think Amazon is the biggest winner from Apple’s changes, to be honest, because they have a kind of a fully self contained ecosystem, their advertising, and their conversion is all on the same platform, it all happens within the Amazon app. And so that’s gonna be great from their perspective, and you’re gonna get a lot of sellers that were on Shopify, that are just going to realize, look, Amazon will just take care of everything. They’ll also take a whole bunch of our margin, but they will take care of everything from advertising to conversion to delivering the package. And with the supply chain issues, Amazon’s a better place to navigate that than smaller players. And so I think they’re their e-commerce business, even though I think they’re gonna, they might not make much money this quarter, because they’re spending so much to overcome all the supply chain challenges. But I think from a competitive perspective, they’re going to emerge in a pretty strong position. And so they have a lot of forces in their favor.
As far as regulation, I think the real challenge that any government action is going to have with Amazon is that Amazon’s tremendously popular. The reality is it’s one of the most beloved and most used companies in America. And at the end of the day, that matters. It matters that people like it, and they use it. And I think that’s going to shield them — there’s gonna be a lot of noise, but it’s going to shield them probably from anything too serious.
Absolutely. Well, Ben Thompson, we’re out of time. But thank you so much for giving us your valuable time. Ben Thompson, founder of Stratechery, thanks very much.
Thanks, John. Happy to be here.