Audio’s next frontier: personalization and location-based advertising
On this week’s earnings call, Daniel Ek shared some details on how Spotify is ramping up its global advertising efforts. One new bit of information is how the company is thinking about the future of location-based VR/AR advertising campaigns. In practice: say you are walking down the street—or driving—and listening to music or a podcast. Using your specific interests, local businesses can bid on audio advertisement placements as you approach their location—much like Google or Instagram ad capabilities—except this is totally a screen-less experience. “The TAM should far outstretch what the current ad ecosystem looks like,” Ek said—which is a key point. All disruptive growth companies expand existing markets—which is precisely what creates compelling opportunities for investors. Following the earnings call, Daniel Ek and Spotify Chief Content Officer Dawn Ostroff sat down for an in-depth conversation about Spotify’s advertising ambitions—and how Spotify is now competing with companies like Snap and Twitter for high-margin advertising dollars.
“We have the data, we have the research, and we have a lot of knowledge about this medium. We also see the decline of many of the traditional and linear mediums and the money that has been in those markets has been very significant, but those demographics are aging up and we have a very young demo—and our user base is growing significantly. And so when you combine the timing of all [of] this and you see the opportunity that we have to really be able to evolve and compete with players like Snap and Twitter, and deliver on the expectations that the advertisers have—not only for the big advertisers but also for the small business advertisers—I think we are in the right place at the right time.”
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Electrify everything—it’s more efficient!
I suspect future generations will look back at gas-powered machinery the way we think of horse-and-buggies. We talk a lot about the end combustion engine cars, but leaf blowers are another good instance of everyday technology destined for the junkyard. This week, the New York Timespublished an opinion column on how leaf blowers are not only annoyingly loud and terrible for the environment, but they are also shockingly inefficient and a wasteful way of moving around your backyard flora… “As much as a third of the fuel is spewed into the air as unburned aerosol,” the piece notes. What I find fascinating (and exciting) is the sheer enormity of industrial upheaval that will rise out of the disruption of gas-powered anything… from trucks to tractors to tanks to ambulances to planes… and yes, leaf blowers.
“But the gasoline-powered leaf blower exists in a category of environmental hell all its own, spewing pollutants — carbon monoxide, smog-forming nitrous oxides, carcinogenic hydrocarbons — into the atmosphere at a literally breathtaking rate. This particular environmental catastrophe is not news. A 2011 study by Edmunds found that a two-stroke gasoline-powered leaf blower spewed out more pollution than a 6,200-pound Ford F-150 SVT Raptor pickup truck. Jason Kavanagh, the engineering editor at Edmunds at the time, noted that ‘hydrocarbon emissions from a half-hour of yard work with the two-stroke leaf blower are about the same as a 3,900-mile drive from Texas to Alaska in a Raptor.’”
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Bill Miller lets others do the worrying for him
I loved this line from Bill Miller’s latest quarterly investor letter: “When I am asked what I worry about in the market, the answer usually is ‘nothing’, because everyone else in the market seems to spend an inordinate amount of time worrying, and so all of the relevant worries seem to be covered. My worries won’t have any impact except to detract from something much more useful, which is trying to make good long-term investment decisions.” Investing is lots of things—a game of strategy, probabilities, deep research, math, etc—but a great deal of edge comes down to behavioral psychology. In essence, Miller’s point is simple but not easy: if you can eliminate excessive short-term worrying as a needless distraction, you can optimize your process to improve long-term outcomes.
“Over the past decade or so my letters have been focused mostly on saying the same thing: we are in a bull market that began in March of 2009 and continues, accompanied by the typical and inevitable pullbacks and corrections. Its end will come either when stocks get too expensive relative to bonds or when earnings decline, neither of which is the case now. There have been a few other themes: since no one has privileged access to the future, forecasting the market is a waste of time. It is more useful to try and understand what is happening now and give up trying to predict what is going to happen. In the post-war period the US stock market has gone up in around 70% of the years because the US economy grows most of the time.”
“Numerical formats, in this case, they matter. They have a big impact on the performance of the hardware that you can build around them. And it’s actually kind of surprising that we’ve gotten this far into the neural network—waiting for a couple of years—for somebody to come up with an 8-bit floating point format. Because it’s so obviously the thing that somebody should do and nobody did. Why?… If you’re NVIDIA, and NVIDIA makes chips that sell into systems—they have to operate with lots of other people’s chips and they have lots and lots of customers that have all the software. So when NVIDIA comes out with a new format it’s a lot of adaptation by a lot of other parties that they interact with. In a sense it’s easier for Tesla with DOJO to go their own route.”
“The chemist wakes up in the morning and says, ‘Let’s try the following seven compounds.’ They try the seven compounds, none of them work. And at five o’clock, they go home to have dinner and think, watch television, and the next morning they think of another seven. Well, the computer can do a hundred million in a day. That’s a huge accelerant in what they’re doing.”
“I mean, this is where the best venture firms, they’ll have concentrated bets, but you’re never going to put a hundred percent of your fund, I would argue, into one highly, highly speculative thing. It probably won’t work. That’s an out of the money call option. You’re probably hoping to say, ‘I’m going to invest in 10 things or 15 things or 20 things, or maybe 30 things that all have this chance of being completely revolutionary, world changing.’ I like hanging out sometimes with other VCs because they tend to be very optimistic, in many cases overly so, around what can be world changing… Most of the time we’re wrong, like any other human, but if you get it right, that’s where, again, [that’s] the out of the money call option… the upside is so big.”
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Reflection doesn’t come naturally to me, but writing—especially for others—makes it non-negotiable. These aren’t just lessons. They’re pieces of a year that shaped me.
