Dollars & Sense

Pass the Apps 🍡

Threads, a new Twitter-like service from Meta, the owner of Instagram, launched this month and almost immediately attracted 40m active daily users. The service’s growth has since stalled and now has just over 10m daily users, but that is still commendable. The Wall Street Journal shared that this impressive launch was largely possible because Meta used its built-in network of one billion Instagram users. This user base helped it overcome the “cold start” problem of acquiring users. 

Our company recently read Andrew Chen’s book ‘The Cold Start Problem’ which highlights how daunting—and expensive—the cold start problem can be.  PayPal paid people $20 and their friends $20 to sign up, thereby burning through tens of millions of dollars over months to do what Meta did with Threads in weeks. Meta could save tens of millions of dollars and months (likely even years) thanks to tapping its Instagram machine. 

Adam Smith, Holla Back
When people give away software for free, that’s awesome for them, but not good for software developers like us. We have to pay wages, pay health insurance, pay rent, pay marketing, pay referrals, and more.  Imagine if a small company had a Twitter-like social network company, and they, gasp, charged for the service.  Meta just pulled the rug out from under them.

In Adam Smith's view of a free market, a business charges for products and services--they don't give them away. But today when one is a digital company, such as a tech platform like Meta, the traditional Adam Smith rules of business are perverted and upended. A digital company spends millions of dollars to build and market a digital platform, and then: lets members use it for free. Want to know how anti-free market the situation is? Meta is not even selling ads on Threads.  It's not even trying to make money.  I wonder what Adam Smith would have to say about this.

Tech Dumping 
In the 1980s, Japan was accused of “steel dumping.” Dumping is when one sells a product at a cost lower than the production cost. Companies that bought the steel loved it, but the domestic people that made steel hated it (and rightfully so). Our government got involved because it was perceived as a national security threat. I think that Meta (and other tech companies) perform ‘tech dumping.’ They create $100m worth of software and give it away (yes, that is below the product cost). I think that tech dumping, like steel dumping, should be monitored by our lawmakers because it’s unfair to the people that work at these affected businesses. Without laws, what recourse does a business have when another much larger business gives away what the smaller business sells? 

“Hey Ref, Are You Blind?”
The historical threshold for defining a monopoly and stopping it is that the company must hurt the consumer. The current laws don’t take people at small businesses into account. Steel dumping didn’t hurt the consumer and we still stopped it, and I hope we can do the same with tech platforms.  I don’t believe the free market means a free-for-all market and I don’t believe it supports unfair or illegal practices. The free market doesn’t allow us to pollute rivers and sell poisonous products.  I hope we find a way to update our free market so it doesn’t allow actions like selling goods below cost for extended amounts of time.  Note: Not even Walmart, America’s largest retailer, sells goods below cost. When it runs a sale, it still sells the product at 20% or 30% above its cost.  If Walmart operated like Meta, they could let you walk out of the store with a cart full of groceries and not pay.  Sam Walton would never allow that. We can see that the digital realm is providing a new way for businesses to beat up on smaller companies that the analog realm never had. 

Let’s imagine you have a store and sell cups and plates. A large company sets up shop across the street and simply gives away what you sell. That would be good for consumers, but it would kill your business. What recourse do you have with current laws?  When this happens online, what laws exist to help the smaller business?

Thankfully, our government referees may finally be waking up and noticing. Just this week, the FTC launched a new site with guidelines about when companies, such as tech companies, can buy other companies. Yet they are just about 20 years late to the arena. Amazon, Microsoft, Meta, and Google have been building digital juggernauts for two decades and have an extensive lobbying network in place to safeguard their monopolies and shareholders. 

Growth: Threads Should Thank Apple 
The ability for a large tech player to launch a new service is even easier by leveraging an existing app. If a company has an app, say Instagram, the app can show an alert on a user’s mobile phone that the new service, such as Threads, is ready to try. In this way, the app is a key lever for launching and growing services and avoiding a cold start problem. Most people that use Instagram use it via their mobile phone, and they very likely joined Threads via their mobile phone. 

Imagine trying to get 40m daily users without a mobile app. It would be a mission even Tom Cruise considered impossible. Imagine if one was invited to Threads via: email. One would first have to hunt through their spam folder. Plus, imagine if we didn’t live in a world where everyone has email on their mobile phone. Without a mobile phone and a gateway app, Threads’s growth would’ve been much slower. Large tech companies can grow the quickest they’ve ever been able to grow today.  

There’s a statistic that 85% of text messages are read within 15 minutes of being received. Email may be the opposite: only 15% are read within 85 minutes. Then, they are likely never read. That’s why Meta can’t rely on email.  

I don’t know what percent of app messages are read, but I imagine it could be 50% within 50 minutes (aka: better than email but not as high as a text message).  If this is the case, then app notifications are 3x better than email, which leads to 3x more growth, and that growth snowballs: 3x join, then 3x more join, then 3x more join. It’s 3 to the 3rd power.  Customer acquisition is much faster via an app.   

Let’s Put Our Network to Work
I do find parts of the Threads launch inspiring for our company. While we don’t have 1b global users, we can similarly launch new services using our network of 1,200 stores. If we launch a POS or a marketplace, we can instantly tap into our network of 1,200 stores and 110 Syncing brands to give it flight. We’ll not be starting from zero and facing the same cold start problem that I did 15 years ago when I started Bridge’s platform. (The first 10 years of Bridge was a slog because we didn’t have an existing customer base to tap into.)

App Local
Our next launch project should be a mobile app because it’s the launching pad for whatever other service we want to launch. The viral growth of services like Threads supports this theory.

Instagram doesn’t launch new services via email alerts, and we don’t want to either. We want an app because our messages will be read and we’ll be heard. We want to launch a marketplace? We’ll tell people via an app. We want to launch a POS? You’ll see our app notification on your mobile.  

Maybe one day the FTC will come after us for abusing our size and scale, but considering their lethargy I doubt it. We got time. Let’s party. Pass the apps. 

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Read about the FTC’s new merger rules: https://www.nytimes.com/2023/07/19/technology/guidelines-tech-mergers-antitrust.html
 

Tags:
threads meta steal dumping tech dumping monopolies twitter Andrew Chen the cold start problem adam smith amazon ftc

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