SCOTT GALLOWAY: WeWork may be in a unique position to rise from the post-pandemic real estate fallout

Clive Wilkinson Architects
Over a year of having to adapt to remote services has changed to way people think about work.

  • Scott Galloway is a bestselling author and professor of marketing at NYU Stern.
  • The following is a recent blog post, republished with permission, that originally ran on his blog, “No Mercy / No Malice.
  • In it, Galloway says commercial vacancy rates will continue to rise long after the pandemic ends.
  • See more stories on Insider’s business page.

Real estate is an awesome gig.

For starters, the supply of fertile land (urban centers) is finite, but the source of demand keeps growing (more people/capital moving to cities). On top of that, we’ve granted real estate development such favorable tax treatment that it is nearly immune from taxation. Even Donald Trump, arguably the worst business person in US history, made money in real estate development, despite the serial failure of the underlying business. As one tax law expert put it, the real estate industry “thinks of the tax code as a basket of goodies to feast on rather than a financial obligation of doing business.” Imagine buying stock and being able to depreciate it as it increased in value.

Thanks to ever-growing demand and favorable tax treatment, real estate once minted more billionaires than tech. In 2019, 223 people on the Forbes billionaire list owed their wealth to real estate, compared to 214 from tech.

Then … COVID.

The third great conveyance of the modern economy (the first two being globalization and digitization) is in full swing: Dispersion, the process of value leapfrogging traditional points of distribution. Three sectors stand to register the greatest reallocation of stakeholder value (i.e., shit-kicking): healthcare, commercial real estate, and education as consumers leapfrog hospitals, HQ, and campuses.

Dispersion is enabled by both globalization and digitization. High-bandwidth communications link billions of people, and robust mobile devices render that network continuous. Now, blockchain technology is enabling the network to store value (bitcoin) and act on it (etherium). This will bring further disruption to industries low on IQ and heavy on EQ, such as insurance/asset management/central banking (wrapping my head around this is my biggest challenge for 2021).

The point is, the pandemic has accelerated all of these trends. A year-plus of forced acceptance of remote services in every sector has carved permanent change into our behavior. And, few sectors have seen a more radical transformation than office work.

Valuation

Any discussion of valuation must be set against the backdrop of a firm’s valuation. Gannett Co., Inc. faces structural challenges, but at a $2.5 billion enterprise value (0.7x revenue), Gannett is undervalued. Tesla is a great product and company, but at $637 billion (20x revenue), it is overvalued (send in the clowns/trolls). Disclosure: I am a shareholder in Gannett and consistently wrong re: Tesla.

Anyway, the office real estate in the US alone is a $2.5 trillion asset class, and it is going to leak the GDP of Switzerland to residential over the next decade. However, it’s not as easy as going short all office firms and long all residential. The fire that will rage within the office sector will raise seeds of dormancy – and create unexpected winners. One pyrophile plant that emerges from the fire may be WeWork. I’m especially proud of that last sentence.

Why We (might) Work

The wholesale abandonment of office space has been among the most striking fallouts of the pandemic, and it will have profound effects on the way we live and work, long after the virus has been tamed. In New York, new office space is coming on the market 59% leased, down from 74% pre-COVID. San Francisco went from its lowest-ever office vacancy rate to its highest in the same year, and office rents are set to decline by 15%. The worst may be yet to come. Analysts predict that commercial vacancy rates will rise from 17.1% in 2020 to 19.4% in 2021, besting the previous high of 17.6% in 2010. And, as $430 billion in commercial and multifamily real estate debt matures in 2021, lenders will be forced to reconcile the effect of the pandemic on their investments.

Scott Galloway.
Scott Galloway

These changes will endure. Twitter, Facebook, and Slack have all announced the move to a predominantly remote workforce. Pinterest recently paid $90 million to terminate its HQ lease in San Francisco. REI sold its new headquarters before even moving in, and CVS plans to cut 30% of its office space. At my New York-based education startup, Section4, we asked employees if they wanted to come back to work after the pandemic; overwhelmingly, they wanted to stay home. We paid $1 million to terminate our SoHo office lease. After decades of promise, the telecommuting revolution is here.

Scott Galloway

Back in 2017, I predicted WeWork, then worth $16 billion, would lose 75% of its value and become the “poster child of unicorn mania.” Two and a half years later, that prediction was wrong, very wrong – WeWork was preparing to go public on the heels of a $1 billion investment from Softbank that valued the company at $47 billion.

But it just didn’t pencil out. After deploying my unique domain expertise (math) I concluded: “Any equity analyst who endorses this stock above a $10 billion valuation is lying, stupid, or both.”

The ensuing meltdown was cinematic – literally. Tonight, WeWork gets its closeup, in a documentary on Hulu, “The Making and Breaking of a $47 Billion Unicorn.” I’m in it. I have not seen it, but it is awesome.

(BTW, the production company wanted me to come to a studio in New Jersey for filming. I told them I had a two hour window and that they needed to come to my place in SoHo or find another angry professor to make terse comments. They shuttled a dozen people to my place and set up a studio in my kids room, next to the climbing wall. At that moment, I realized that people tolerating you being an asshole doesn’t make you … any less of an asshole.)

Anyway, that wasn’t the end of the story of WeWork. Despite losing $60 million per week of Softbank’s money in 2020, WeWork didn’t go out of business. Instead, to the board’s credit, the company fired the Jesus of reclaimed wood and smoked glass, Adam Neumann, and brought in an experienced manager. Sandeep Mathrani shed 100 of the company’s worst performing properties along with the self-dealing arrangements foisted on the company by Neumann, and laid off 8,000 employees. A crisis is a terrible thing to waste, and if WeWork turns the corner to profitability in Q4 of this year, as it has promised investors, it will be the case study in fire intensity and germination.

Sandeep Mathrani
Sandeep Mathrani of WeWork.

The new WeWork is a stronger company than the 2017 model. It’s still not worth $50 billion, but it might be worth $9B (or more). The new WeWork will benefit from the massive investments in space and brand equity (i.e., global awareness); additionally, people underestimate the difficulty of scaling “vibe,” where WeWork has a proven talent.

Most companies aren’t going 100% remote. But when we return to the office, we will want less space that is more flexible, and more appealing to the premier asset of any firm: its ability to attract skilled, young human capital. Pre-corona, Section4 had a long term lease on 8,000 feet at $70 per square foot. Post-corona, it will probably be closer to 2,000 at $100, and on a year-to-year lease. Further out, I could see us opening offices in Miami or Austin, where great talent is migrating.

Imagine: a commercial real estate play, with properties around the world, configured as flexible office space, rentable by the hour, the day, or the month, with great community spaces, aspirational design, and strong tech. In sum, We might Work.

Pass the pipe (here we go … again)

However, Softbank has not run out of real estate opium quite yet. Now it is trying to pass the pipe to Compass investors, hoping the markets enter into consensual hallucination that a rollup of residential real estate brokerages is (wait for it) a tech company. Yesterday, Compass went public at a valuation of approximately 3x revenue. Realogy, the closest competitor, trades at 0.29x revenue. From the Compass site:

“Compass is building the first modern real estate platform, pairing the industry’s top talent with technology to make the search and sell experience intelligent and seamless.”

The firm even describes itself as “a tech company reinventing the space,” despite the fact that it spent 78% of expenses on commissions to brokers, instead of technology or algorithms. This makes sense as Compass is … a real estate brokerage.

Scott Galloway

Just before the IPO, the underwriters cut the pricing range and halved the number of shares offered. Despite a massive haircut in supply, the first day pop was an anemic 12%. I’ve worked at an investment bank taking companies public, founded companies that have gone public, and been on boards of companies going public. Dramatically reduced supply (shares) at a lower price, coupled with Goldman’s unparalleled institutional base of buyers, and Compass barely got out. In sum, the corners of this trade are beginning to collapse and could lead to a broken IPO within days. WeWork may be rising from the ashes as Compass begins to smolder.

Life is so rich,

Scott

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SCOTT GALLOWAY: Now’s the best time to start a business in over a decade. Here are the 4 industries I predict will soon explode.

Nazaré, Portugal by Getty
A surfer riding a wave in Nazaré, Portugal.

  • Scott Galloway is a bestselling author and professor of marketing at NYU Stern.
  • The following is a recent blog post, republished with permission, that originally ran on his blog, “No Mercy / No Malice.”
  • In it, Galloway explains how the post-pandemic economy will birth a new generation of leaders.
  • See more stories on Insider’s business page.

Post-crisis periods are among history’s most productive eras. London rebuilt after the Great Fire with grand new architecture, and Europe after the worst of its plagues underwent a commercial revolution. The Marshall Plan turned enemies into allies, fomenting peace and prosperity for over half a century. Leaders also emerge from crises. Ulysses S. Grant was a washed-up soldier without prospects until war broke out, but that war created the opportunity for Grant to save the Union and advance the cause of freedom. This is all to say: In the next 36 months, I believe our economy will birth a new generation of web 3.0 firms and leaders. Why?

I’ve started nine businesses. The best predictive signal for their success has turned out to be the phase of the economic cycle in which they were started. Put simply, the best time to start a business is on the heels of a recession. And while pandemic economics haven’t resulted in a garden-variety recession – in either its duration (short) or its recovery (K-shaped) – there are factors that make this the best time to start a business in over a decade. Specifically:

  • Unprecedented stimulus and savings resulting in a Nazaré-like wave of consumer spending.
  • A gestalt among consumers and enterprises to question the status quo, and be open to new products and services.
  • The emergence of new fields and the capital to disrupt traditional industries as immunities kick in and monopoles are broken up.

Nazaré

The massive waves of Portugal are a function of the Nazaré Canyon, a submarine valley 5,000 meters deep and 2,300 kilometers long that functions as a ripple polarizer. Ocean swells build up over thousands of miles and flow through this geological fault with a minimal dissipation of energy. I just read the last sentence and am wondering about the medium-term effects of edibles. Anyway, the greatest surfer in the world is just a freakishly strong swimmer with a fiberglass board – until the right wave comes along. The Nazaré Canyon generates the biggest waves, and therefore, the most potential for greatness.

Monster waves birth in the open ocean, but tectonic business waves begin with consumer spending. The combination of historic savings, government stimulus, and record asset appreciation is shaping a wave of consumer spending unlike anything we’ve seen since baby boomers decided consumerism was a virtue.

Scott Galloway

Similar to ocean swells barreling towards the Portuguese coast, the commercial opportunities powered by consumer spending will be shaped by business dynamics. And, as with Nazaré, there is a deep canyon that will convert this energy into the waves of change. That canyon is Dispersion, a fancy way of saying the supply chain, or route through which a product or service travels, is changing. Today, there are three big waves forming in the Dispersion Canyon.

HQ

Remote work will fuel massive opportunities. Over the next decade, we are going to see the most radical transformation of the American landscape since the freeway created the suburbs. This set will have two waves.

First, we will see a significant investment in residential real estate and communities. Commercial real estate is a $16 trillion asset class. If gross demand for office space declines by a third, we could see the GDP of Japan ($5.1 trillion) reallocated from office to residential real estate. Sonos, Sub-Zero, Restoration Hardware, and Slack – along with everything else that enables or enhances work from home – should benefit.

In addition, we will see a great repurposing of office real estate. Many offices will remain, but no company will need the square footage they previously did, and companies will look for increased flexibility. In New York City, the amount of vacant office space available for sublet has doubled since 2019 and, as of December, the commercial vacancy rate in the city was the highest it’s been since the Great Recession. In 2020, San Francisco went from the lowest office vacancy rate in the city’s history to the highest.

Some office towers will be remade as residential, while others will be flexed for multiple tenants (coming soon: Airbnb Office). Cities aren’t going away – young people and inherently collaborative activities will still want/need to congregate in person. But cities will be cheaper, younger, and more diverse, all of which are inputs for startups. At $47 billion, WeWork was overvalued; going public via SPAC at $9 billion, it might be a buy. Prediction: Look for WeWork to rise from the ashes of COVID.

Higher education

The world’s most powerful lubricant of upward mobility (US higher ed) has morphed into a corrupt enforcer of the caste system. It has enjoyed 30 years of tuition increases matched only by the arrogance and self-aggrandizement of its leadership. COVID is the fist of stone coming for this chin. The pandemic moved 1.6 billion people into online education, and many will stay there. India’s largest edtech firm, Byju, is reportedly closing a $600 million investment, valuing the company at $15 billion, and Coursera is expected to go public at a $5 billion valuation.

Healthtech

The largest consumer industry in history is US healthcare. It’s also the most ripe for disruption. Imagine: Walking into a Best Buy to ask for help buying a flatscreen TV, only for the salesperson to hand you paperwork, for the 11th time, and ask you to wait 20 minutes before someone will help you. Only, you don’t have to imagine it, just think about the last time you went to a doctor’s office. At the doctor, you have to put up with this BS, because your health literally depends on it. Similar to higher ed, the healthcare industries have been sticking out their chin for years, raising prices while delivering worse outcomes. Healthtech startups raised $15.3 billion in 2020, up from $10.6 billion in 2019, according to Silicon Valley Bank.

Crypto

This is a $1.7 trillion asset class that could be $130 trillion (the size of the bond market), disperse trust (eliminate the need for inefficient intermediaries), and reduce human bias in the financial supply chain. Every generation gets its gold rush (social media followed the web, which followed the personal computer). Young people have the edge when it comes to transformational opportunities, as their brains still have the plasticity needed to comprehend new models. In my fifties, it feels like the part of my brain that I need to understand this sector is dying – along with the part that can mimic my father’s Glaswegian accent. Strange, right? But that’s another post. For now, I’m taking fish oils and speaking to experts. This week on the pod, we spoke with crypto investor Raoul Pal, and a few months ago, Michael Saylor lobbied me to buy bitcoin despite its recent rise to $19,000. Note: I didn’t buy.

How can I help?

A year ago, it would have been harder to be optimistic about entrepreneurs addressing these opportunities, as Big Tech was likely to move in and dominate every open space. But at the tail end of the last administration, we registered serious movement on antitrust enforcement. And now, the Biden administration has signalled that it will double down, bringing two of the most compelling voices for enforcement, Tim Wu and Lina Kahn, into the administration. The breakup of Big Tech – and the limits on its offensive efforts – will birth new lanes the size of the 405 (yes, I’m in LA today). Thursday’s Congressional hearings confirmed what many of us have been saying for years: Big Tech is bad for society, these firms lied to us, and they need to be broken up.

Big Tech isn’t the only segment of society that has benefitted from the pandemic. If you’re in the top 10%, much less the top 1%, the dirty secret of COVID is that many of us have been living our best lives. The deadliest crisis in American history has meant more time with family and Netflix, coupled with an explosion in wealth. The top decile of Americans works with zeroes and ones, and this work has only been levered by remote technologies. Furthermore, the representatives of the shareholder class in government (435 in the House, and 100 in the Senate) have used the cloud cover of the pandemic to funnel trillions of dollars into the market, juicing asset prices.

One thing the shareholder class can do is to invest in early-stage (i.e., seed) startups. I don’t enjoy seed investing. Almost every business idea I hear, I think, “This makes no sense, and will never work” – I also find early-stage CEOs and firms, similar to infants, needy and impossible to predict. Regardless, I have made (in the last week) two seed stage investments: Measured, a platform for weight loss, and ScholarSite, a Substack for academics.

Scott Galloway

Capital

Despite the broader economic slowdown, we are awash in capital, at every level. Wealthy individuals have by and large done incredibly well over the past year, thanks to the stock market run-up, and are looking for opportunities to invest. Tech-focused investors have done particularly well, and crypto has generated new bitcoin billionaires. Tech companies are important venture investors, and have more capital than they can use for core operations. The result? A record 225 US companies became unicorns in 2020. January 2021 saw the greatest total in venture investments in history, with $40 billion invested, and since the beginning of the year, over 60 additional private companies have achieved “unicorn” status. Meanwhile, the public markets are desperate for quality companies to sate the voracious appetite of SPACs.

Scott Galloway

Los Angeles & dispersion

I’m currently in Los Angeles and I’m channeling Michael Jordan. Hear me out: Just as MJ loved baseball, but wasn’t great at it; there is nowhere I enjoy more, and am less successful, than Los Angeles. I meet with agents, producers, and box office superstars who show me their sneaker collection and, over lunch at their house(s), tell me, “You are a genius, we must work together.” And then … nothing. I know this trip to the City of Angels will yield the same business (non)results. But that’s not why I’m here.

My closest friend’s mom, who cooked several hundred meals for me as a child, pre-teen, and teen, is struggling with dementia. I had lunch with her and her husband, who I have written about, today. During lunch, I’d grab her hand, and she’d look at me with surprise and then just smile. I’m not sure if in these moments she knew who I was, but I am confident she knew I loved her, and that was enough. I’ve let so much bullshit get in the way of expressing how I feel for people – some fucked up sense of masculinity or insecurity that to this day diminishes my ability to express true emotions.

There is a meaningful opportunity in the dispersion of HQ, education, and healthcare. There is a profound opportunity to register the finite nature of life and rebel against anything that gets in the way of letting people know that you love them, and how much they’ve impacted your life. I am a professional failure in my hometown of Los Angeles. However, there are people here who were generous with me, and whom I love. I need to get to LA more.

Life is so rich,

Scott

P.S. Section4, my EdTech startup, aims to to make elite business education more accessible with 2-3 week intensive “Sprints.” Our upcoming Sprint, Product Strategy, is taught by my NYU Stern colleague Adam Alter.

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Gen Z is paying double what boomers paid for college – and the gap will only widen in the future

college students
Gen Z is staring down a pricey college experience.

  • College costs are more than double what they were in the 1970s, according to a GoBankingRates report.
  • Boomers paid $39,780 in today’s dollars for a four-year public university. Gen Z is paying $90,875.
  • It’s a bad sign for Gen Z, as college costs are expected to continue to climb.
  • See more stories on Insider’s business page.

While US politicians continue to debate student-loan forgiveness, college tuition continues to soar.

Overall college costs are twice what they were in the 1970s, according to a recent GoBankingRates report that assessed generational differences among college expenses. It signals a rough road ahead for Gen Z, the first of whom just began to graduate college in 2019.

The report looked at the College Board’s estimates for average annual costs of tuition, fees, and room and board. It assumed that students attended a four-year institution between ages 18 and 22 for baby boomers, Gen X, millennials, and Gen Z, adjusting estimates for inflation.

The chart below shows just how much college costs have climbed.

From fall 1973 to spring 1977, boomers paid around $39,780 in today’s dollars for four years of public college. That’s a little more than half the cost for millennials attending public college from fall 2006 to spring 2010: $70,000. And what Gen Z is paying today is more than double that: $90,875.

The numbers are even starker for private tuition, which cost around $80,000 in inflation-adjusted dollars for boomers, compared to $165,000 for millennials and a whopping $210,000 for Gen Z.

Gen X experienced the beginning of this uphill battle, as tuition costs rose at a compounded annual growth rate of more than 7% a year from fall 1973 through the fall 1990 in real dollars. From fall 1990 to spring 1994, they would have paid $43,857 at a four-year public university and $115,000 for a private college, adjusted for inflation.

College has become so expensive, some question its value

College is expensive for many reasons, including an increase in financial aid, a lack of state funding, a need for more faculty members and money to pay them, and ballooning student services.

A surge in demand is also driving the price hike, Richard Vedder, an author and distinguished professor emeritus of economics at Ohio University, previously told Insider: “The rewards for college have expanded and grown from 1985 to a little after 2000 and sort of leveled off in the past decade.”

The “advantage of a degree today is less than it was 10 years ago, because of the rising cost,” he added. “The return on investment has fallen.”

Just ask the 49% of indebted millennials still paying off their student loans who said in an Insider and Morning Consult survey that college wasn’t worth the cost.

The pandemic scrambled this equation somewhat, with remote learning leading some to question the value proposition. Insider’s Bradley Saacks and Shana Lebowitz reported in summer 2020 that at least some colleges faced the prospect of students not returning for the upcoming school year, with potentially huge hits to revenue.

Harvard projected last spring that it would lose out on hundreds of millions of dollars during the current school year due to fewer students and no room-and-board revenue. NYU professor Scott Galloway said at a December Insider event that academia is ripe for disruption and likened Harvard to a “$50,000 streaming platform.” But even Galloway said tuition costs haven’t started coming down yet, and don’t seem likely to.

The overall increase in students attending college now compared with previous years indicates that the advantages college offers still outweigh its increasing costs for many, which will fuel costs further. And getting a degree has become increasingly important, according to Joel Anderson, author of the report.

As he wrote of Gen Z, “Not only will they need more money – comparably – than any previous generation, but the shift toward a service economy also means that a career without that pricey education is harder than ever.”

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SCOTT GALLOWAY: Losing my beloved pet, Zoe, during the pandemic reminded me that time marches on. Here’s what else it’s teaching me.

Scott Galloway
Many of Scott’s blog posts have been written with Zoe’s head resting on his stomach.

  • Scott Galloway is a bestselling author and professor of marketing at NYU Stern.
  • The following is a recent blog post, republished with permission, that originally ran on his blog, “No Mercy / No Malice.”
  • In it, Galloway talks about how the grief of losing a loved one reminds us that time marches on with or without us.
  • Visit the Business section of Insider for more stories.

We put down our dog, Zoe, on Tuesday. We’re grieving. Three months ago our vet told us Zoe had growths on her liver, to take her home and enjoy our remaining time with her. Tuesday morning I woke to distressed calls – “Dad … DAD!” – coming from downstairs. Zoe had collapsed a few feet from her bed, had lost control of her bowels, and her breathing was labored.  

We shuffled her onto a beach towel and carried her to the back of our car. At the vet, we learned her organs were failing and that she was bleeding internally. The clinic had an outdoor annex, where we laid Zoe down on a wicker table and gathered around to say goodbye. Like every urbanized landmass in Florida, there was a gas station and a strip mall abutting the clinic. A car alarm was ringing. We had a remote control to notify the clinic when we were ready for them to administer pentobarbital, a seizure medication that would stop Zoe’s heart.   

Zoe’s death has rocked our household. The other dog won’t come out of his crate, the nanny won’t stop crying, my oldest doesn’t want to come out of his room, and (most disturbingly) his 10-year-old brother is doing what we ask him to. We’ve been a bit self-conscious about our grief as we recognize that 500,000+ US households haven’t lost a pet, but a dad, aunt, or other loved one in the last 12 months. But our grief persists.

Scott Galloway

At first, I was fine playing the role of the stoic dad: “She lived a great life,” “This is what’s best for her,” etc. Then yesterday, on a livestream with Verizon and 60 of its communications agency partners, I started sobbing while describing the harm Facebook is doing to society. Despite all the macho and strength I aspire to project, there I was, 56 years old and a chocolate mess on a Zoom call with dozens of people who want confirmation that they should serve ads on Yahoo.  

It’s not the worst thing for someone in my line of work to have Verizon’s agency partners believe I am emotionally invested in holding social media platforms accountable. However, I’ve been crying every six hours since. I cried watching WandaVision last night, when eating oatmeal this morning, and again doing pull-ups.  

Failed birth control

Two decades ago, I moved to New York, where I applied tremendous skill and resources to building a life of arrested adolescence. The SoHo loft, a wintertime apartment in South Beach, a summer home in Watermill (complete with sand volleyball court, despite the fact that I … do not play volleyball), and a metallic blue Maserati. Jesus, what a douche. 

I embarked on a series of obsessive relationships – with people, business ventures, and material goods (the more scarce, the better). Inevitably, the rapture would fade, and my heart would sink. A weak heart breaks more easily. I wasn’t grieving over the lost person or the failed deal so much as I was grieving the lost possibility to escape to a better life – a life of meaning, vs. the IMAX version of The Narcissist’s Playbook. 

Then I met someone nicer, more impressive, and much more attractive than me – who was also kind. However, she wanted children. I told her I was not interested in getting married again. She called my bluff with a José Aldo roundhouse: “We don’t need to get married to have a kid.”  

Looking for an alternative means of birth control, I drove to Pennsylvania to pick up an 11 week-old Vizsla. The breeders were some of the most down to earth, normal dog breeders I had ever encountered … and they were exceptionally strange. But that’s another post. We named our puppy Zoe and talk of a baby subsided. However, similar to most extemporaneous methods of male birth control, my tactic was not effective, and 38 weeks later my oldest son came rotating out of my girlfriend.  

Zoe soon became my oldest son’s dog. He had a connection with her only matched by the contempt he has for his younger brother. Zoe forged the connection by sitting in front of his crib each morning; they stared at each other through the wood slats while my son spoke a language deployed across species. They would be transfixed like this for 20 to 30 minutes (no joke). It was as if they were planning a jailbreak.

Scott Galloway

And why I think I’ve been crying.

I will miss Zoe, as she was a meaningful part of our family’s life. But the truth is, once we had boys, most of that emotion transferred to the kids. Plus, I’m not one of those guys who finds peace away from the family in the company of dogs. So yes, I am grieving Zoe, but as with happiness, real grief is internal.

Zoe’s death has rocked me because it is a marker. A reminder that time is the most relentless force in the universe: that no matter what we do, its thievery marches on. For the rest of my life, I’ll have sons. But I no longer have the baby who sat on a blanket with us in the backyard, the toddler who had an alliance with his dog to disappear his vegetables, or the 8-year-old who rang out a particular laugh only the dog could inspire. Zoe’s death is a loss on several levels.

Scott Galloway

Love persevering

Dogs are not allowed on the couch in our household. Ever. The thing is, both dogs and humans are mammals, and are happiest when surrounded by (read: when touching) others. So, Zoe and I had an agreement: After everyone was asleep, she could come on the couch, rest her head on me, and dream. It was a pact of secrecy, and not once in her 14 years did she betray this trust – Vizslas are rugged hunting dogs, and also discrete. She would lie on me, dream and, according to her paws, run for miles. Many of these posts have been written with Zoe’s head resting on my stomach as she dreamt of running through a Hungarian forest.

All Zoe wanted was affection – which is to say, love. Lying on a wicker table, next to a gas station, death came for Zoe. When her heart stopped, our other dog was licking Zoe’s ears, and our entire family had hands on her. Our wonderful dog left this earth with everything she had ever wanted. And we are grieving because our love perseveres.

Life is so rich,

Scott

 

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SCOTT GALLOWAY: I predict the New York Times will outlive both Facebook and Google – here’s why

Nighttime view of the New York Times Building
When The New York Times renewed its emphasis on subscriptions, it became one of the most durable brands in media.

“The task is … not so much to see what no one has yet seen; but to think what nobody has yet thought, about that which everybody sees.” ― Erwin Schrödinger

Just as life is not about what happens to you, but about how you respond to what happens to you, insight is not a function of data, but of how you perceive the data. Plotting data in different ways is illuminating, even fun, and it can lead one to discover stories. And while “stories” often connotes fiction, stories can also be true, and can even create truth. 

The best way to predict the future is to make it. And, just as history is the stories we (i.e., the victors) tell ourselves, stories can shape the future by giving people a path, an inspiration, or a goal. One inspiration for those stories is data … and different ways of looking at the data.

Just read the last paragraph and it’s clear I’m insecure re: my intellect, or have an edible hangover. The answer is yes.

Anyway, I love 2×2 matrices, and how their quadrants inspire stories. Identifying two factors that define four groups can provide insight into industry dynamics and illuminate pressures and opportunities. Often, the points on a matrix are a function of quantitative analysis; however, the real value is in the sorting, not the calibration. 

In that spirit, I’ve been thinking a lot about how tech is battling for our attention. Screens have infested our lives and we’ve become re-attached to an Orwellian umbilical cord. From fitness to dating to news to travel to investing to cooking, every slice of our day is a battleground among tech players for our monetize-able attention. Two factors drive strategy in this battle: the value of the attention that firms command, and the means to monetize that attention. Hence, our A2 matrix.

Scott Galloway

So what are the stories we see when we organize the data along these axes? And can these stories pull the future forward? Let’s start with the upper right “luxury” quadrant.  

Scott Galloway

This category includes brands that target consumers willing to pay a premium for products, and for the privacy and status-signalling that comes with premium pricing – primarily user-derived revenue. 

This is a great space, but it takes relentless innovation to maintain premium positioning. The strategic imperative for these companies is first to maintain, and then to grow by expanding the attention they capture. Apple, the valedictorian of this space, has been steadily working out from its base in computers to mobile, television, voice, and wearables. The story coming into focus on the page is a move into fitness, and to acquire Peloton. 

Scott Galloway

Is Peloton worth $36 billion? As an independent company, in my view, it’s hard to justify. But is an additional two to four hours of attention per week from the most influential people on the planet worth $36 billion to Apple? Yes, in a heartbeat.

Scott Galloway

Companies in the Mass Market quadrant also depend primarily on user-derived revenue, but serve a broader consumer base. This is a tough category, because these companies typically lack the insulation provided by an aspirational brand, and therefore face the threat of price competition. This competition can come from another mass market company with greater economies of scale or more efficient technology, or from the quadrant to the left, the Menaces, who don’t need to charge users much (or anything) because they have an alternate revenue stream. 

The strategic imperatives, then, are to build scale, increase switching costs, and improve the value proposition. Fortunately, there’s one strategy that addresses all three: the rundle. A recurring revenue bundle should be the backbone of all these companies.

Most of these businesses already offer subscriptions, and are buttressing their offerings as they hear the footsteps of the Menaces whose attention may supersede the regulatory hurdles or infrastructure the mass has put in place. Think of WhatsApp challenging Vodafone. Spotify is moving aggressively beyond music into podcasts, and probably beyond. Verizon is incorporating content into its wireless plans, offering Disney+ as an option.

Scott Galloway

Companies in the Menaces quadrant give away their service for free in order to accumulate massive scale and monetize the attention of their users. Typically, these companies scale with breakthrough product innovation, but once they secure market power, they direct their innovative energy into protecting their turf and exploiting users for the benefit of their true customers: the advertisers or brokers who pay for order flow.

Once scale is achieved, these businesses are incredibly profitable and can make the jump to lightspeed, where network effects stave off competitive pressure. Their only real threat: government regulation. So, the strategic imperative becomes to overwhelm Washington with lobbyists and public relations professionals that in turn overwhelm DC and the media. There are several-fold more people working in PR at Facebook, smearing lipstick on cancer, than there are journalists (globally) covering tech.

Scott Galloway
Scott Galloway

This is a business of scale, and of sociopathy. Regulators would be wise to hire economists, antitrust experts, and behavioral scientists to understand this quadrant better. Similar to climate change, it’s an emergent problem of long-ignored externalities, and those who benefit from our blindness have politicized expressions of concern and positioned them as hysterical, socialist, and (worse) European.

Scott Galloway

The last quadrant contains the Underachievers. These firms are doing something right – they capture a great deal of time from affluent users – but leave surplus value on the table. In sum, they are not commanding the space they occupy. It’s hard to maintain a premium position when you are exploiting your users. It’s like jumping Double Dutch while studying English. CNN offers a great product and enjoys affluent/influential viewers … but so did the “Tiffany” network (CBS), until HBO and Netflix came along and offered viewers the chance to pay with money rather than time spent discovering that they likely had opioid-induced constipation. (Sidenote: Rush Limbaugh 1951-2021.) The challenge for these companies is to rally the leadership and capital needed to traverse quadrants into the Luxury space.

It can be done, and The New York Times is proof. As an ad-driven business, clinging to the wrong stakeholder (advertisers) in a declining industry, the share price plunged from $50 to $3 in five years. When it moved into the Luxury quadrant, via a renewed emphasis on subscriptions, it became one of the most durable brands in media. Prediction: The gray lady will outlive Facebook and Google. The firm’s stock price has increased 8x since 2012.

Scott Galloway

Clubhouse is attempting to traverse quadrants with a move to a subscription model, which is smart. I have never been on the Clubhouse app. However, if we introduced a “Douchebag” axis to our model, the voice-conversation app would occupy its own quadrant.

The hard thing

It can be illuminating to take a step back and consider an industry along a few key dimensions. We leverage data to construct a lens that informs our decision making. However, this is just the first step. Implementing change is harder … and why the potential returns are so great. Management teams that use these insights and embrace the difficult – and dangerous – work of traversing the crevasses between quadrants require a CEO who does not give into the temptation to just ride it out, collect his/her $30-50 million, and move to West Palm Beach. The future belongs to the bold: the storytellers who can act on their stories and pull the future forward.

Speaking of stories, I’ve been telling one about Twitter for some time now. The company needs to move into the Luxury quadrant with a (partial) subscription model, premium features, and proprietary content. Over the past few months, Twitter has publicly adopted this strategy, and registered a 100% increase in share price. But now comes the hard part: moving from lip-synching this blog to product development … we’ll see. 

Here’s another story we see: Goldman Sachs is the most undervalued brand in business and will attract an activist investor who will push for a rundle and verticalization. I begin to tell that story on today’s episode of Pivot, stay tuned, my brothers and sisters: Like a mastiff, I’m hungry for a lion. I’m not sure what the last sentence means, but it makes me feel 40 again. And that’s enough.  

Life is so rich,

Scott

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SCOTT GALLOWAY: The pandemic has caused a ‘Great Dispersion’ that is eroding American empathy and threatens our ability to call ourselves a nation

anti mask man cutout protest
A man wears a cut-out mask at a ‘Hazardous Liberty! Defend the Constitution!’ rally to protest the stay-at-home order in Olympia, Washington.

  • Scott Galloway is a bestselling author and professor of marketing at NYU Stern.
  • The following is his recent blog post, republished with permission. It originally ran on his blog, “No Mercy / No Malice.”
  • In it, Galloway questions if America can still call itself a nation, given the increasing evidence of weakened community support and degraded empathy that has been exacerbated during the pandemic.
  • As companies like Amazon and Walmart enjoy massive government stimulus aid, a fourth of Americans can’t pay their rent, and many are working low-wage, at-risk jobs to try to keep food on the table.

The pandemic’s most enduring feature will be as an accelerant of existing trends. The trend that encapsulates the greatest reshuffling of stakeholder value in recent history is… the Great Dispersion. Similar to prior macro trends like globalization and digitization, it offers enormous opportunity, but also real threats.

In 1997, I was asked to address the board of Levi Strauss & Co. on the future of brands and retail. The title of my presentation was “The Death of Distance.” My basic rap was that all brands needed to establish a direct relationship with the consumer (e-commerce). We are entering the post-distance era, as tech has dispersed ever larger segments of the economy without regard for existing distribution channels.

Amazon dispersed retail to desktop, to mobile, to voice. Netflix dispersed DVDs to our mailbox, then to every screen. The pandemic is causing dispersion in even larger industries – the greatest opportunity for wealth creation in decades. Work from home, telemedicine, and remote learning represent an impending disruption of over 25% of the US economy. The largest sectors are about to leapfrog HQ, doctor’s offices, hospitals, and campuses. 

Not all dispersion is about “x from home” or from cities to smaller towns. Social media is a form of dispersion, enabling connections, competition, and debate despite physical distance, print, and paywalls – the dispersal of community. It has also removed healthy friction (truth, science, editors) resulting in an afterburner for misinformation and conspiracy. 

Scott Galloway https://www.profgalloway.com/

Dispersion offers the same potential for wealth creation as globalization and digitization. This time around, however, we must be more conscious of downsides. Previous paradigm shifts catalyzed massive prosperity but little progress. We’ve embraced a winner-take-all economy crowding the spoils to fewer firms and people.   

In 2018, the top 1% of US households controlled 32% of total household wealth, up from 23% in 1989. The result of increasing inequality has been a rise in anger, nationalism, and a drift away from the cooperative international framework. 

Read more: COVID-19 threatens to create a ‘lockdown generation’ in Europe: Here’s why young people could be the ones paying for yet another crisis

Erosion of empathy

The Great Dispersion will create many winners, on several levels. Commuting and business travel are two of the modern world’s most wasteful activities. Commuters waste an average of 54 hours a year stalled in traffic, and the average passenger vehicle emits 5 metric tons of carbon dioxide a year. That waste is saved when the commute is to the home office or a local shared workspace, or when the kick-off meeting is held in a virtual conference center. 

Scott Galloway https://www.profgalloway.com/

While this dispersion has tangible benefits, it also has the power to erode our weakening ties of community and cooperation. The office is more than a place of work, it’s an equalizer, as Esther Perel said. Meeting people from different backgrounds, running into someone by the water cooler, having a spontaneous lunch with someone you barely know – chance connections are aspects of the office many of us miss. 

Dispersal is cousin to segregation, and segregation reduces empathy. One study found that in integrated communities, white residents had warmer feelings towards other ethnic groups when the percent of those groups increased – but in segregated communities, feelings towards other groups grew colder as the population of those groups increased. 

Scott Galloway https://www.profgalloway.com/

Integration and contact improve intergroup relations. Negativity arises when like-minded individuals are isolated from diversity. Contact is most effective at increasing understanding when it’s non-confrontational. 

The pandemic has given us a preview of our dispersed future. Today we have social distancing – tomorrow the distancing will be structural. In a dispersed world we’ll have fewer encounters involving diversity of skin color, economic status, and gender/sexual/political orientation. When we do have these encounters, they are in the wrong context. Arguing with a stranger over a mask isn’t likely to produce tolerance as much as it will reinforce existing stereotypes.  

Are we still a nation?

The structural distancing of the Great Dispersion presents an enormous threat to our commonwealth, a further erosion in empathy. We no longer go to movies, the subway, malls, public school, the grocery store or our polling station. We don’t experience the mentally ill vet panhandling at the freeway off-ramp, the single mom bringing us our food, the immigrant drying our car. Poor kids won’t see that rich kids are no different then they, and vice versa. 

Nation is defined as “a large body of people united by common descent, history, culture, or language, inhabiting a particular country or territory.” Are we still a nation? This is a serious question… The evidence of our weakening community, our degraded empathy, is all around us. The pandemic has been a preview of that, too. While it kills Americans at three times the rate of WWII, haven’t we outsourced the costs to poor people of color and frontline workers?

Pandemic profiteers

The two largest asset classes in America are residential real estate and stocks. 10% of the population controls 70% of the value of these assets. Both are trading at all-time highs as we bury 2,800 Americans a day, Tesla is up 590% YTD, and one in four households have experienced food insecurity this year. Jeff Bezos is worth more than every citizen in Vermont, Alaska, and Wyoming combined, while a fourth of Americans can’t pay their rent.

Read more: 6 cargo airlines and freight operators poised to win big as Pfizer and Moderna scramble to get coronavirus vaccine delivery logistics in place

Compare this with the nation we were before we started dispersing into our bubbles. Within weeks of the outbreak of WWll, Chrysler built a factory in the Detroit suburbs that manufactured more tanks than the entire Third Reich. Today, Amazon and Walmart enjoy record sales and stock gains from stimulus. When young men refused the draft in WWII, we imprisoned five thousand of them. Today, we tolerate people who refuse to wear a mask to Walmart and give audience and platforms to cries of “tyranny.” 

When a member of the armed services dies on active duty, their family immediately receives $100,000 to ease their grief and burden. When an immigrant head of a food-insecure family takes his diabetes medication, piles Diet Cokes into an cooler, turns on his Uber driver app, contracts COVID-19, and dies, his family is denied death benefits, as Proposition 22 – supported by $205 million from sharing economy firms (Uber, Lyft, DoorDash) – has made it legal to deny his family death benefits.

Wonder Woman 

The Amazonian woman, and all 2021 WarnerMedia films, are coming directly to our screens. Another dispersion, from movie theaters to living rooms. This represents a larger trend, the Great Dispersion, and enormous economic opportunities. It also represents a greater threat – the loss of empathy and what it means to be a nation, to sit in a movie theater with people who don’t look like you. Diana Prince comes to American living rooms with strength and integrity, in the pursuit of peace and justice. She’ll find America, but not a nation. 

Life is so rich,

Scott

P.S. My new book, Post Corona, became a NYT bestseller. Thx to everyone who bought one. If you haven’t yet, please buy one for yourself, your parents, your child, and your dog.

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