Ecosystems & platforms – a deep dive into tech

Discussing platforms and ecosystems might be a nerdy conversation to have, but when you start to think about which type of companies are platforms, which are ecosystems and which are single-threaded companies, it gets fascinating. In this episode I had a chance to sit down with David Rosenthal, an angel investor and founder of Kindergarten Ventures. David is also the host of the Acquired podcast. David is one of the most thoughtful, strategic business thinkers in startups and he has a distinct the lens through which he looks at different companies and analyzes them. We talked about:

• Complex and adaptive systems
• The value of optionality in marketplaces
• Why you don’t want to be 23andMe
• The evolution of eBay as an ecosystem
• How emergent behavior drives platform direction

Why you can’t model the stock market

Complex systems like the stock market are adaptive to the environment and can’t be modeled as potential future variables are unknown.

Complex systems specifically complex adaptive systems are dynamic. It’s like evolution. You can’t just model out the stock market, and be like, “These are the rules and this is how it works. It evolves and it adapts, and it’s complex.” A couple of the big takeaways out of this concept are, one, you can’t predict the future. You just can’t. You can’t see coronavirus coming, right? Thus, this idea of rather than being right, you want to be resilient. And so if you study nature and biology like, “Ant colonies are this way, or bees, or river ecosystems and stuff like that,” that’s one. Then another big takeaway is the idea of power loss, which is that as behaviors of actors within a complex ecosystem evolve, a lot of emergent behaviors are not going to work, but a small number of emergent behaviors are really going to work…And if you just accept that you have no idea what is going to happen, you can still invest very intelligently by reading lots of experiments, and then let them surprise you.

Why you don’t want to be 23andMe

Successful companies can often be much smaller than they might have been if they successfully leveraged network effects and built an ecosystem.

Bring it back to the original question, if you think about 23andMe, not to dunk on them, they’ve accomplished something great. They’ve actually directly impacted my and Jenny’s life, my wife Jenny’s life. It’s wonderful what they’ve done. But as a business and a company, for most of their life, they make a test kit that you take at home and then they give you flat data from that, and there’s nothing else to it.It’s not ongoing, and there’s no ecosystem, et cetera, et cetera. That’s not very resilient. There’s not a lot of… The other piece that NCS talks about out, “This is like resiliency and then optionality.” Oftentimes, part of being resilient is having strong optionality about the future. Amazon is a wonderful example of that, whereas the 23andMe example, less so.

The importance of optionality in marketplaces

Marketplaces can create outsized value by increasing optionality for buyers.

Especially with marketplaces, you see optionality is being the number one value prop for people. The idea with… It doesn’t matter whether you are wide like Amazon or whether you’re vertical like Stock X. The idea is not only are they solving a different problem where it is no longer efficient to get sneakers off of eBay. It’s that you actually can’t get all the sneakers that you want if you’re a true sneakerhead, and so you need to aggregate really deep supply for anybody that’s interested in Pokemon cards sneakers. Name any vertical marketplace, right?

…optionality is synonymous with density in a marketplace supply side density, that’s where things get really interesting because… This is a big juxtaposition. People want optionality, but behavioral economics tells us to minimize options. Then the next layer of it is what we actually want is the way we structure choices. It’s the number of choices that we make. We want to minimize those for people, but we want to offer the maximum number of options once you start to drill down the taxonomy of choices gets very academic, but it’s a really interesting way of looking at things where it’s like these two completely different ideas or heuristics about how to be successful minimize choices, but maximize optionality. How do you get to the two? It’s basically choice architecture or taxonomy.

The evolution of eBay as an ecosystem

Some of the biggest companies have made important tradeoffs between becoming a “platform” vs following a single threaded path.

The interesting thing with eBay is that eBay was… Let’s look at eBay in isolation, granted Amazon has a lot of history as well. eBay is one of the first true platform companies from a marketplace perspective where people took the marketplace, and they started building on top of it. They built on top of it from an ecosystem standpoint where PayPal could not have existed. I mean, it just wouldn’t have… Objectively, it would not have made it. Everyone says it who worked with PayPal in the early days.

They would not have made it if it weren’t for eBay, and so they had what seemed like a bolt-on product, but it ended up being part of this giant ecosystem. Then it became a great FinTech product and totally different conversation, but that was one element of an ecosystem. Another element was Bob and Jane could have a standalone retail store where they collected items that you could go trade in at some value just below what they thought they could get for retail, or they sell it on consignment.

You saw this happening a lot in the late ’90s, early 2000s when people would have these stores, or they would do retail. Arbitrage was the next we’ll call it 2006 onwards where people really took this retail arbitrage approach to build upon this entire ecosystem that was eBay. It wasn’t just even unbundling of the marketplace. It was how are people starting new businesses on top of this other one? Really interesting to think about.

The dangers of platform risk

Building on a single platform gives the platform outsized leverage making participants potentially less valuable and at risk of platform changes crippling their business.

if you are billing only on one platform, if you have existential risk on one platform, that can be a hard place to be, Amazon could change the rules on them. Maybe they won’t because they’re worried about antitrust and all that, but that’s a key strategic point of dependency. I think also, PayPal is instructive here.

While PayPal needed eBay to grow, ultimately, eBay was the Damocles hanging over them, and they had to sell to eBay for way, way, way less money than the potential of PayPal. It was a billion and a half dollar acquisition. Now that eBay spun out PayPal, and its fully Optimus Prime transformer eyes business not dependent at all on eBay, it’s, what, a $300, $400 billion market cap company.

Can you start out building a platform

Setting out to build a platform from day one carries a lot of risk as you can’t predict emergent behavior.

You’re an early stage company, and you’re like, “We are going to be a platform.” I would argue, and I’m interested to hear what you think. I’d argue that you can’t. The reason you can’t is back to the original point you made right at the beginning, which is you can’t predict events. Two years ago, when Levels was starting, it would be really hard to predict. You could have a vision, but it’d be hard to predict that there’d be this thing called the wearable challenge built on top of our platform, which is what’s happening right now.

To go enterprise or focus on community

Deciding where to focus a go to market strategy can be incredibly difficult but being intentional pays dividends. ****Ben Grynol:

People often ask us, “Hey, are you going enterprise?” That comes with the tradeoff in itself not just because sales cycles are longer. There’s a lot of value capture because you can start to go… You could pick a vertical within enterprise. Let’s say you picked professional sports or corporate wellness, or name a vertical. There are so many avenues that you can take, but that approach becomes a tradeoff as far as opportunity costs of time. You’re just spending less time on the consumer aspect of things.

David Rosenthal:

Right. Now, you’re building a professional services organization to go sign up Procter and Gamble or a bunch of large companies to get their employees to use Level, right? That’s not your question.

Ben Grynol:

I mean, look at competitors to Apple. When Apple… Rewind a bunch of years, so Apple went through this phase where it was consumer, B2B, John Foley’s in as CEO. Then Jobs comes back, and it’s consumer again. They were very, very different companies when Jobs left, went to go build NeXT, and did everything else that Jobs did. But the idea that Homebrew Computer Club started as this underground consumer movement, it was built around a community.

Letting emergent behavior drive platform direction

Platforms can drive their roadmap by being attentive to their community and the behaviors they may not have expected

the great thing about YouTube and TikTok as being platforms is they let the emergent behavior on the platforms drive where they go. They don’t have to… Neither of them has to say like, “This is our vision of what the future of video looks like.” It was like, “No, we provide the platform, and creators create on it, and audiences tune in to what they find compelling,” whereas Netflix has to constantly make all these decisions about like, “This is what we think is going to do well,” and that’s driven by data and all that, right? But no matter how good you are at that, you’re never going to be perfect.

David Rosenthal:

This is another just a great example of adaptability and how important that is. It’s like, that wasn’t the strategy at the beginning. Jobs didn’t want third party developers to use the iPhone and to access the iPhone. It was a year or two after the iPhone launched when there was so much demand for it. It was clear that the potential was so big for this as a platform that then he and Apple changed their minds, and released the SDK and created the app store, but that was not the original plan.

David Rosenthal:

That’s what I was saying in the beginning about platform strategy. It’s like, platforms tend to be much… I think a much better strategy is an emergent strategy versus a top-down like, “We are going to architect this platform, and drop it unto the world.” You got to pay attention to what’s going on, and adapt.

Ben Grynol:

I’m Ben Grynol, part of the early startup team here at Levels. We’re building tech that helps people to understand their metabolic health, and this is your front row seat to everything we do. This is A Whole New Level.

Ben Grynol:

Platforms and ecosystems, it’s a bit of an academic, maybe a nerdy conversation to have. But when you start to think about which type of companies are platforms, which are ecosystems and which are single-threaded companies, something we get into in this episode, it’s really interesting to think about which companies do go so deep where they’ve got depth and breadth in everything they do. Amazon’s a great example of a company that is very wide and very deep. Then there are other companies like Netflix, where they’re a little bit more of a single-threaded company, one that focuses on one core competency and executes.

Ben Grynol:

Right now with Levels, the way that we are executing, the way that we’re building our company as we’re in beta is we’re very much a single-threaded company, one where we’re focused on CGMs, continuous glucose monitors, and giving people insight about their metabolic health through biometric data, the feedback they get from their own glucose levels. You have to take the steps. You have to take the right steps at the right time to build and build and build. But as you build, there is an evolution of what ends up happening, and you decide whether or not you pursue other opportunities like Amazon did with AWS.

Ben Grynol:

For anybody who’s not in tech, AWS is Amazon’s infrastructure. That’s aside from the ecommerce side of the business, which most people are familiar with or the content side, which is Amazon Prime. When you look at companies like Netflix, they’re very much focused on creating content and really good video content. It’s cool to have these conversations and to think about things as far as a long vision. Where could we go? What could we be and how will we have to execute depending on the way that we build the company and the way that we adapt over time?

Ben Grynol:

Evolution, it’s natural evolution, but you have to make these decisions, and you have to try lots of things along the way to actually explore these paths. I had a chance to sit down with David Rosenthal, an angel investor, founder of Kindergarten Ventures, a fund based out of San Francisco. Most importantly, David is host of Acquired Podcast. Acquired is David Rosenthal and Ben Gilbert. They’re very good friends of Levels, and personal friends as well. David is one of the most thoughtful, strategic business thinkers probably in startups in technology, I mean, his thoroughness in the lens in which he looks at the world, the way that he looks at all these different companies and analyzes them.

Ben Grynol:

That’s what they do on Acquired. It’s one of the top tech and startup podcasts in the world. They tell these stories of interesting companies. So if you haven’t had a chance to check out Acquired, make sure you check out at least one episode. If you like social, if you like platforms, the TikTok episode from a couple years ago is a really good one, where they go into the depths of the backstory, how TikTok was founded and even ways in which the algorithm works, which is pretty cool. If you enjoy tech and startups, you’ll probably enjoy the conversation. Here’s where we kick things off.

Ben Grynol:

I think there’s a main starting point. It’s something that you and Ben have rift on quite a bit. You and I have rift on it loosely. It’s something that we’ve been thinking more about as a team with Levels, which is an ecosystem versus a single-threaded company. This is somewhat like Amazon and Apple, very much an ecosystem, versus a company like 23andMe. I think back… I guess it must have been the winter. You and I were jamming on this a little bit where it might have been right when you first tried Levels.

David Rosenthal:

Right.

Ben Grynol:

The thought was 23andMe is doing great things in the world. Not to dunk on 23andMe, but don’t become 23andMe was the takeaway.

David Rosenthal:

I remember writing that little note in my notion of all my thoughts as I was going through doing Levels for the first time. That was the big one. I was like, “Yes, don’t become 23andMe.”

Ben Grynol:

This conversation around ecosystems like Amazon and how it didn’t start out as AWS, and now, that is such a significant portion of its revenue streams. How do you think about when you’re not just vetting portfolio companies? I know early stage is much different, but when you start to think about some of the diligence that you’re doing and you see these great companies and you think, “Man, that is a giant platform or a giant ecosystem that is so hard to disrupt.”

David Rosenthal:

Well, let’s see. Good question. Where should we start? I mean, let’s start with the early stage because that’s the easy part. No freaking clue.

Ben Grynol:

Not quite roulette. Not quite roulette. We’ll call it blackjack, but it’s still gambling.

David Rosenthal:

Perfect timing for this because I’m actually in the middle of doing research and prep work for our next special episode that we’re going to record in a couple days with the guys from NZS Capital, which stands for Non-Zero Sum Capital, which is a public market fund based in Denver. These guys are great. I just love their philosophy. We met them at Capital Camp a couple weeks ago. Other people have done this, but I think they’ve done it… really embraced this more than anyone, this idea of applying complexity theory to investing.

David Rosenthal:

Complexity theory for folks who aren’t familiar with it is pioneered or are really championed now by this place called the Santa Fe Institute in Santa Fe, New Mexico. Are you familiar with it?

Ben Grynol:

No, I haven’t heard of either.

David Rosenthal:

Oh, it’s so cool. Basically, the Santa Fe Institute is this nonprofit educational institution dedicated to bringing together leading academics and theorists from a wide disparate array of fields, and bringing them together to collaborate and specifically to collaborate around this idea of complexity theory, which is the idea that the universe, the world and lots of systems within it are complex. Let’s see if I can get this definition right?

David Rosenthal:

Complex systems specifically complex adaptive systems are dynamic. It’s like evolution. You can’t just model out the stock market, and be like, “These are the rules and this is how it works. It evolves and it adapts, and it’s complex.” A couple of the big takeaways out of this concept are, one, you can’t predict the future. You just can’t. You can’t see coronavirus coming, right? Thus, this idea of rather than being right, you want to be resilient. And so if you study nature and biology like, “Ant colonies are this way, or bees, or river ecosystems and stuff like that,” that’s one.

David Rosenthal:

Then another big takeaway is the idea of power loss, which is that as behaviors of actors within a complex ecosystem evolve, a lot of emergent behaviors are not going to work, but a small number of emergent behaviors are really going to work. There’s lots and lots of takeaways about this, but one of the clearest, most pure things of this is venture capital and startups, right? Let a thousand flowers bloom. You have no idea. And if you just accept that you have no idea what is going to happen, you can still invest very intelligently by redding lots of experiments, and then let them surprise you.

Ben Grynol:

That is really, really neat in the way to think about it, because it gets to… Let’s just use the market, for example. It becomes that discussion or the debate between two sides. The market is perfectly efficient or perfectly inefficient, depending on the way you position it, right? Is it perfectly efficient when people underreact to actual news and overreact to silly things? It’s like, maybe you could call that efficient because then you’re extrapolating it to the average investor in public markets doesn’t read a ton of information before making these emotional decisions.

Ben Grynol:

You’re like, “Well, that’s perfectly efficient from a behavior perspective.” Then you’re like, “Well, it’s actually perfectly inefficient because they’re doing exactly what you shouldn’t do, which is make uneducated decisions, right?” Everything is complex and-

David Rosenthal:

Let’s get really tangible about it. The NCS guys would say this is related to this idea of conviction that people talk about. We did this episode on TSMC, and I was like, “Wow, this is a great company. I now have conviction about TSMC.” I went and I bought a bunch of TSMC stock after we did the episode. You can oftentimes boil… What really you mean when you say, “I have conviction. I want to go buy this stock,” what you’re really saying is like, “I have a view that it’s going to do well in the future, and I believe that that view is correct.”

David Rosenthal:

If instead you look at things and you’re like, “Well, I have no idea if this is going to do well in the future or not,” instead, you might want to invest in companies and things and portfolios that are resilient that in a wide variety of outcomes in the future of things that might happen, that you can’t predict that X set of companies or X portfolio is going to be more resilient to a broader tale of those outcomes versus like, “I think TSMC is going to do well.”

Ben Grynol:

Yeah, and it gets into the conversation not just about diversifying a portfolio for an individual, but also diversifying revenue streams and offerings for a company.

David Rosenthal:

Exactly.

Ben Grynol:

That’s where Amazon gets really interesting because… Let’s just use ecommerce, and let’s assume ecommerce… Let’s use three of their pillars, because there are so many channels we could go down, but we’ll say the marketplace side of things, which is just the ecommerce. Let’s leave out third party sellers. Then we’ve got AWS, and we’ll use Prime, so content, infrastructure, commerce, retail. Assume there’s a situation. Let’s use COVID. Assume there’s a situation where COVID makes everything go up as far as transactions on the marketplace.

Ben Grynol:

Prime goes up because everybody’s at home consuming content, but for whatever reason, the infrastructure isn’t required. Let’s just make this up. The infrastructure on AWS is no longer required, and that used to be the cash cow for Amazon. Now, everything’s changed with their business model. It’s like, they’re so resilient because they’re sort of like COVID proof, we’ll call it that. Let’s pretend the company’s not called Amazon, because we don’t want people to anchor on this being a real example.

Ben Grynol:

But the idea is that when one element of a pillar is no longer the cash cow, or that’s back to power loss where most of the returns are coming from that one pillar or a small subset of whatever we’re looking at, the other ones start to take off, and so that gets into the importance of creating this ecosystem or this platform for a company over time.

David Rosenthal:

Bring it back to the original question, if you think about 23andMe, not to dunk on them, they’ve accomplished something great. They’ve actually directly impacted my and Jenny’s life, my wife Jenny’s life. It’s wonderful what they’ve done. But as a business and a company, for most of their life, they make a test kit that you take at home and then they give you flat data from that, and there’s nothing else to it.

David Rosenthal:

It’s not ongoing, and there’s no ecosystem, et cetera, et cetera. That’s not very resilient. There’s not a lot of… The other piece that NCS talks about out, “This is like resiliency and then optionality.” Oftentimes, part of being resilient is having strong optionality about the future. Amazon is a wonderful example of that, whereas the 23andMe example, less so.

Ben Grynol:

That’s exactly it is you see… Especially with marketplaces, you see optionality is being the number one value prop for people. The idea with… It doesn’t matter whether you are wide like Amazon or whether you’re vertical like stock X. The idea is not only are they solving a different problem where it is no longer efficient to get sneakers off of eBay. It’s that you actually can’t get all the sneakers that you want if you’re a true sneakerhead, and so you need to aggregate really deep supply for anybody that’s interested in Pokemon cards sneakers. Name any vertical marketplace, right?

Ben Grynol:

But that’s where as soon as you get optionality, and you get optionality, we’ll call optionality is synonymous with density in a marketplace supply side density, that’s where things get really interesting because… This is a big juxtaposition. People want optionality, but behavioral economics tells us to minimize options. Then the next layer of it is what we actually want is the way we structure choices. It’s not actually the…

Ben Grynol:

It’s the number of choices that we make. We want to minimize those for people, but we want to offer the maximum number of options once you start to drill down the taxonomy of choices gets very academic, but it’s a really interesting way of looking at things where it’s like these two completely different ideas or heuristics about how to be successful minimize choices, but maximize optionality. How do you get to the two? It’s basically choice architecture or taxonomy.

David Rosenthal:

Well, I love the… The stock X example is so cool because it’s an unbundling of eBay, which is on the one hand, eBay is maximum optionality. I can have whatever. I can go buy whatever I want around the whole world there, but the paradox of choice is also real. Also, because they’re so wide, sneakerheads can be served better by stock X. I love that example.

Ben Grynol:

The interesting thing with eBay is that eBay was… Let’s look at eBay in isolation, granted Amazon has a lot of history as well. eBay is one of the first true platform companies from a marketplace perspective where people took the marketplace, and they started building on top of it. They built on top of it from an ecosystem standpoint where PayPal could not have existed. I mean, it just wouldn’t have… Objectively, it would not have made it. Everyone says it who worked with PayPal in the early days.

Ben Grynol:

They would not have made it if it weren’t for eBay, and so they had what seemed like a bolt-on product, but it ended up being part of this giant ecosystem. Then it became a great FinTech product and totally different conversation, but that was one element of an ecosystem. Another element was Bob and Jane could have a standalone retail store where they collected items that you could go trade in at some value just below what they thought they could get for retail, or they sell it on consignment.

Ben Grynol:

You saw this happening a lot in the late ’90s, early 2000s when people would have these stores, or they would do retail. Arbitrage was the next we’ll call it 2006 onwards where people really took this retail arbitrage approach to build upon this entire ecosystem that was eBay. It wasn’t just even unbundling of the marketplace. It was how are people starting new businesses on top of this other one? Really interesting to think about.

Ben Grynol:

That’s something that we think about more and more as we’re thinking, “How do we maintain a product-centric, member-centric focus, but know that there’s this long lens of building a giant ecosystem around it, community and an ecosystem?”

David Rosenthal:

Right. Well, that’s what’s so… There’s one feature of Levels where the main and only or main thing that levels does is I open up the app once or a couple times a day, and I get my metabolic score for the day. That’s cool. I like that. It’s really unique and novel and useful, valuable data that I can’t get any other way right now, but a more interesting future for Levels is you guys are the platform, hardware, software sense, everything that goes into that for getting data and insights about what’s happening inside your body.

David Rosenthal:

You guys can build stuff on that, and everybody… Lots of other people can build stuff on that. Thanks to that. You let the thousand flowers bloom. You have all this optionality about what’s interesting and useful to people, either everybody, broad populations or niche, narrow populations that other developers can use the Levels platform to access data and give people insight about their bodies and health. To me, that sounds cooler. I don’t know about you guys, but…

Ben Grynol:

That’s something that Sam and Josh have been talking about lots lately, which is bio observability, right? Josh is a big car nut for the record, loves cars.

David Rosenthal:

I actually did not know that. That’s awesome.

Ben Grynol:

I mean, loves machinery. Put it that way.

David Rosenthal:

Of course, makes sense.

Ben Grynol:

The idea that you can get more data from your car right now, so the check engine light goes on. You know that if you don’t address the check engine light within N number of days, let’s say you leave it for two years. The probability of there being other engine failure is a lot higher than if that light wasn’t on. If you would’ve just addressed the light being on within a reasonable amount of time, your car’s going to have decent maintenance.

Ben Grynol:

Well, the idea that we don’t have a check engine for our bodies is insane, right? It really is.

David Rosenthal:

Totally insane.

Ben Grynol:

To your point about observability, what can you do when you start being able to analyze and create or generate data around many different molecules in your body? How cool is it when other people can start doing really, really long tail things? When I say that, I don’t mean academia can come out of the woodwork and say, “Cool, we’ve got funding to do other things.” Where it gets interesting is some 11-year-old hacker playing around with a dataset that is accessible, an anonymized data set that is accessible, and all of a sudden uncovers some new arm of research that everyone’s like, “I had no idea.”

Ben Grynol:

That is where building on top gets insanely cool, because-

David Rosenthal:

So cool.

Ben Grynol:

… the discoverability for the world and how much better off we can be from a health perspective gets really neat. We start to talk about being able to truly expand people’s life, have a longer lifespan and healthspan.

David Rosenthal:

It’s like Apple and the iPhone and the app store, right? Both in terms of the opportunity and potential for you all at Levels, but also, I think… I think maybe this was some of the motivation of this whole discussion and topic in general of, you guys, when you started, couldn’t have come out and be like, “Yep, we are this thing. We are the iPhone and the app store for your body.” Cool. People might have gotten excited, but that’s not how you build platforms, right?

David Rosenthal:

You got to start with the product itself and a narrow use case just like the iPhone, right? There was no app store when the iPhone launched. They launched the app store once they had millions of millions of people who owned iPhones. Similarly, I don’t think you can, or it’s incredibly hard to just launch right into platform status. It takes years to get there.

Ben Grynol:

Yeah. I mean, relevant example that has been going on for… Gosh, when did you drop the Sweeney episode, Tim Sweeney from epic? That was February?

David Rosenthal:

That was last year.

Ben Grynol:

I lost track of time already, but great, great episode, very relevant, where Sweeney… To recap it for anyone who hasn’t listened, you have to check out. Is it called Epic or is it… I think it’s called Epic, right?

David Rosenthal:

I think, yeah. We just called it Epic Games. Yep.

Ben Grynol:

Epic Games on Acquired. Basically, Tim Sweeney is fighting for everybody else, because Epic is one of the biggest contributors to Apple’s success because of the entire ecosystem that has been built around that. So without Apple, Epic couldn’t exist. But without Epic, Apple needs Epic more than Epic needs Apple. That’s the summary of that episode where Tim Sweeney’s like, “I don’t really care. We don’t need you,” but the exposure that Epic got through Apple is quite significant.

Ben Grynol:

That’s back to that symbiotic relationship as these platforms or as these ecosystems develop where everyone gets locked into them in some way, shape or form with the more scale they get individually.

David Rosenthal:

Yep. Well then, I mean, shoot, Epic… Maybe this is a roadmap in some ways for you guys too. Epic’s an interesting one because they started as a game. Well, shoot, because it’s been a year and a half since the episode. I forget the early history of epic. If I remember right, they actually were making… Tim was making word processors and stuff like text editors. It wasn’t originally that he wanted to get into gaming, but then they started making games, Unreal Tournament being the most successful one.

David Rosenthal:

Then they made Years of War for Xbox. They were just a game developer, and then participating on other people’s platforms, whether that was PCs or Xbox or the like. Then they realized, “Oh, we can become a platform business ourselves too, and open up the engine, and let other game developers use that,” so you get these nested platforms. That’s good. That’s as it should be. That’s the standing on the shoulders of giants thing.

Ben Grynol:

I mean, back to Amazon, that is what… Forgive me, I’m going to forget the name. What’s the company? Thrasio? The one that’s-

David Rosenthal:

Thrasio, yeah.

Ben Grynol:

Yes. I mean, gosh, they must be a couple billion in valuation right now. I can’t remember what their last-

David Rosenthal:

They’re rolling up Amazon third party sellers that they’re buying and putting together into one organization.

Ben Grynol:

It’s almost like the granular level of retail arbitrage is you and I go to the store. We find a bunch of barbie dolls on sale for $9. We think we can sell them on eBay for $14. There’s our margin right there. Thrasio is saying, “Cool, we’re going to arbitrage third party sellers, where we think that we can get economies of scale and scope by aggregating all these third party sellers under one umbrella.” If you said that idea 10 years ago, people would think it was nuts.

Ben Grynol:

There would be no room for that. Now, I mean, they’re not the only company that’s doing this. Not only are they not the only company, but they’ve got a decent enough valuation. I can’t remember what it is after the last round of funding, but I want to say it’s somewhere around two or three at least.

David Rosenthal:

Certainly. It’s large. I think it’s that or higher. I don’t know exactly but…

Ben Grynol:

Let’s look at that right now.

David Rosenthal:

Now, it’s interesting. I don’t know enough about them to know if they and their constituent brands are only selling on Amazon, or if they’re selling elsewhere too, or how they’re thinking about that.

Ben Grynol:

I don’t know that either. I’m just looking at a crunch piece from April. 100 million series C, and it doesn’t say exactly what the valuation is, but it’s potentially between three to four. We’ll call it one at four, but still aggregation of third party sellers.

David Rosenthal:

Totally. Well, the reason I bring it up in this whole platform discussion is canonically, and every rule is made to be broken. But if you are billing only on one platform, if you have existential risk on one platform, that can be a hard place to be, Amazon could change the rules on them. Maybe they won’t because they’re worried about antitrust and all that, but that’s a key strategic point of dependency. I think also, PayPal is instructive here.

David Rosenthal:

While PayPal needed eBay to grow, ultimately, eBay was the Damocles hanging over them, and they had to sell to eBay for way, way, way less money than the potential of PayPal. It was a billion and a half dollar acquisition. Now that eBay spun out PayPal, and its fully Optimus Prime transformer eyes business not dependent at all on eBay, it’s, what, a 300, $400 billion market cap company.

Ben Grynol:

In those cases, there’s so much leverage asymmetry. The asymmetry is so far in favor of the platform that you are on. Extrapolate this to content creators. This is probably a little bit Gary V., but where anyone who talks about it goes deep and says, “Do not go all in on Instagram or one platform. Make sure that you are diversified in your presence if you have it as…” We’ll call it you’re a content creator. Instagram is your sole source of income. That’s actually not great because then you hear of people who are…

Ben Grynol:

I mean, I’ve got a friend who is a YouTuber and he’s approaching just under a million. He’s okay as far as diversification goes, but he realized it was important when he was like, “Oh, I’m handcuffed by the algorithm here.” When it changes-

David Rosenthal:

Right, [crosstalk 00:27:36] the algorithm.

Ben Grynol:

When it changes, it’s not just my AdSense revenue coming in. It’s that I don’t get as many brand deals because they only care about your last few videos and their performance. There are all these trickle down effects where you’re like, “Oh, you have to make sure that you have the distribution channels. You have to have a lot of breadth in what you do,” and then deep enough roots in all these different platforms that it’s like, “Okay, cool. You’re relatively covered. You can weather the storm no matter what.” You’re never really relying on one point of exposure or failure.

David Rosenthal:

What great illustration and example of the resiliency concept. If you’re… Look at the people that do it like Marques and MKBHD. Plenty of others are their primary or only channel is YouTube, but wow, that is a big strategic point of dependency.

Ben Grynol:

Maybe there’s a point of critical mass too though, right?

David Rosenthal:

Yep.

Ben Grynol:

Epic… Tim Sweeney is a good example where he’s not overly reliant on Apple. He’s not overly worried about them.

David Rosenthal:

He’s got Steam. He’s got Android. He’s got the consoles. There’s plenty of places where all of Epic’s businesses, both their own games and people who develop on the Unreal Engine where they exist on lots of platforms.

Ben Grynol:

Let’s make up this example because why not throw in a hypothetical? But without knowing Tim Sweeney personally, let’s make us some assumptions. Tim Sweeney, we know that he is a bachelor. We know he is in his 50s. We know that he basically just codes and works and enjoys that, right? He-

David Rosenthal:

He walks in the woods in North Carolina.

Ben Grynol:

Exactly. That’s what he enjoys doing, and so he’s probably fighting a lot less for Epic and his own wealth creation or adding to his wealth than he is for every other developer, everybody who feels this sense of tension between what happens with Apple and what happens when you’re building products, especially at this point in his career, right? He’s got so much diversification that he’s basically fighting for the little guy if you want to put it in air quotes.

Ben Grynol:

There’s something to be said about that, because that is where he’s got enough leverage in everything else he’s done because of diversification back to this whole ecosystem platform conversation. It’s like when you get that wide, when you get that deep in all these different streams, that’s where you can start to actually take big bets because you’re never so reliant on one stream that you become risk-adverse, and then you hit the top of the maturity curve, and you can’t figure out why things are just going down.

David Rosenthal:

It’s like the original name and concept of Acquired, tech acquisitions. A lot of times, I think acquisitions happen because you’ve lost your strategic leverage to be independent. PayPal being a great example of that, right? PayPal was on fire in a good way. Even post-tech bubble, the business was doing incredibly well. The growth was credible, but eBay had all the leverage. There you go. Look at what happened. But in a case like Tim and Epic, nobody has leveraged over him.

David Rosenthal:

Part of that is strategic business way, but also, it’s like you were saying, he controls the company. He could go sell Epic today to Apple or anybody else for 20, 30, 40, $50 billion. He doesn’t care about that. Why would he do that? He values independence and being able to use Epic as a platform for what he thinks is right and the direction he wants the world to go.

Ben Grynol:

It changes the dynamic a lot. That’s what… I mean, jumping into the innovator’s dilemma, it’s funny because it’s something that we’ll call it disruptive innovation/ the innovator’s dilemma hat tip. The late Clay Christensen, it’s super funny because it’s probably one of those core concepts that is taught in every business school at this point, I would assume. But so many people get the idea or the concept of disruptive innovation wrong, and the innovator’s dilemma. If you talk with someone, and they say, “Oh, that’s so disruptive. That’s disruptive innovation. It’s better, faster, cheaper.”

Ben Grynol:

It’s actually like, “That is the opposite of what the innovator’s dilemma is. It’s that you’re…” It’s more expensive. It’s worse. Where did this came up? Hat tip Tom. Tom’s part of our team. We were just talking about AirPods, and he said, “I don’t understand why everybody uses them if they complain about them, and they say how much worse they are than wired.” He’s still on wired headphones. I know Sam uses wired as well because exactly of this reason. I said, “It has nothing to do with wired are objectively better. They’re more reliant. The sound quality is better,” but the reason AirPods are disruptive is because they’re unlocking a completely new value prop for people that wired headphones can’t solve for, which is…

Ben Grynol:

There are actually out of value props, depends on the person. For some people, it’s hands free. For other people, it’s not having to carry their phone in their back pocket while they’re cooking dinner. Hands free being, “Hey, you can use Siri,” which again, digressing for a second, a great piece of tech built on top of this other product, which is depth in itself for getting stickiness or locking. But that’s where it’s really funny because yes, AirPods are absolutely disruptive, and you see all of these me-too products come out on the market as soon as you see the success of Bluetooth headphones, but they’re more expensive.

Ben Grynol:

They’re worse. The battery doesn’t last for that long. There are all these frustration points, but people put up with it because it is completely different than wired. That is to the innovator’s dilemma point and to your point about these large companies that fizzle off and they end up not having a lot of leverage in some of the exits that take place. They’re at a point where they’re like, “Well, I can’t really focus on something else. Instead of my cash cow, I have to keep focusing on my cash cow.”

Ben Grynol:

How could we ever invest in these things called AirPods, because wired are just selling so well? Then you don’t really want to go for it. Large companies don’t have the appetite for risk, and then you get to the point where it’s all downhill and really hard to recover, and no one wants to, in the funding environment, provide you with funding.

David Rosenthal:

Totally. Well, and Apple is one of the just greatest of all time at understanding this dynamic, or at least old Apple. I guess the jury’s a little out on new Apple, but on understanding this dynamic that like, “The Mac is our cash cow. And if we put OS10 into a mobile device, and sell it as a smartphone, it might cannibalize a lot of Mac sales, but you know what, it’s going to be worth it to do that.” Absolutely it was.

Ben Grynol:

Apple’s really funny because I think you and Ben have talked about this a lot, where Apple could have kept their network closed, like their dev network, so that only Apple can build Apple apps on top of their platform. But that would’ve been a terrible strategy, because there would’ve been less, and not to use the cliche word innovation, but less like products created from scratch. There probably wouldn’t be an Instagram because they wouldn’t have any need to create anything better than the photo app. Photo sharing would be Instagram.

David Rosenthal:

This is another just a great example of adaptability and how important that is. That wasn’t the strategy at the beginning. Jobs didn’t want third party developers to use the iPhone and to access the iPhone. It was a year or two after the iPhone launched when there was so much demand for it. It was clear that the potential was so big for this as a platform that then he and Apple changed their minds, and released the SDK and created the app store, but that was not the original plan.

David Rosenthal:

That’s what I was saying in the beginning about platform strategy, It’s like, platforms tend to be much… I think a much better strategy is an emergent strategy versus a top-down like, “We are going to architect this platform, and drop it unto the world.” You got to pay attention to what’s going on, and adapt.

Ben Grynol:

Here, the question is do you think companies can actually build a platform with… Maybe reframe it. Do you think companies-

David Rosenthal:

Intentionally?

Ben Grynol:

Yeah. Do you set out… You’re an early stage company, and you’re like, “We are going to be a platform.” I would argue, and I’m interested to hear what you think. I’d argue that you can’t. The reason you can’t is back to the original point you made right at the beginning, which is you can’t predict events. Two years ago, when Levels was starting, it would be really hard to predict. You could have a vision, but it’d be hard to predict that there’d be this thing called the wearable challenge built on top of our platform, which is what’s happening right now.

Ben Grynol:

It’s a small team. Aaron Hanson based out of Austin leads it, but it’s this challenge where people can pay money to enter in a 30-day weight-loss challenge. Every day that they hit their target, their glucose target, they get paid back $25, the money that they put in to participate in this thing.

David Rosenthal:

That’s awesome.

Ben Grynol:

There’s all these incentives, and, I mean, much deeper conversation, but the point is this is independent of Levels. Somebody said, “Not only can we do something interesting from an intrinsic perspective in helping people, but there is an economic incentive to be able to do this. There’s an economic reason for wanting to do this, and if you can scale it, so be it.” That is a small, small example. Well, in beta where somebody has independently started building on top, we couldn’t have done that because we don’t have the time or the capacity as our team.

David Rosenthal:

That’s so cool.

Ben Grynol:

Now, assume that we did. This is where things from a platform perspective-

David Rosenthal:

Are you guys embracing that and supporting them and helping them and encouraging more of this?

Ben Grynol:

100% yeah.

David Rosenthal:

Oh, great. Great. Great. Great.

Ben Grynol:

We’re on might be wearable 11 by now. I mean, pretty cool to watch all the cohorts go through it, and the community engage with each other. But assume our team had bandwidths for this, where… This is back to the Apple idea of opening up the entire ecosystem. You can’t imagine what you can’t imagine. It’s a little bit Walt Disney, Bob Iger, but you have to have this creative lens of, “Well, what does it look like when other people start to imagine these really long tail things?”

Ben Grynol:

That’s how true ecosystems unfold is when all of these people come together, and they start to say, “Well, what if it was this on top of that?” You’re like, “Would’ve never thought of that.” Ask the question again after that long rant. Do you think you can actually go out and say, “Hey, we’re building a platform,” or is it a byproduct of once you get traction?

David Rosenthal:

It’s funny. I was thinking about this as, well, from the beginning of this conversation. But as you were talking of this in the question there, I would’ve said no. I think I said no in the beginning of the conversation, but I actually think there is at least one area, maybe more, where you can do this and where it actually makes sense to have goals to be a platform from the beginning, and that is developer tools like Stripe or protocols in the crypto world, like Ethereum or Solana. In those cases, I think it makes sense.

David Rosenthal:

The whole point… Let’s take Solana. The whole point of Solana is as a protocol to have people, developers build various applications on them. The whole point of Stripe is for internet-based applications to accept payments on it. Yes, in that case, yes. But in consumery stuff that ends up becoming platforms, I still think it’s a lot harder. I think it’s much better to have it be an emergent thing based on a product.

Ben Grynol:

Let’s go into 23andMe again, because that’s something that after we had that conversation in, call it, January or February of ’21… We’re at September 14th, ’21 right now. That was eight or nine months ago.

David Rosenthal:

That’s right.

Ben Grynol:

I started thinking more about how could 23andMe still, or how could they have become deeper in their network effects? There are all these ways that they actually could have done it around connecting people. Assume like data is anonymized, but there’s still ways that you can create network effects. That’s an example of a consumer company where maybe they had the opportunity to become a platform, and they didn’t, and now, they’re in this single-threaded product stream where… I don’t know how… I just don’t have the answer for how they ever get past this.

Ben Grynol:

Again, not that valuation is everything, but if we look at things through a capitalistic lens, because they’ve got the responsibility by putting up their hand and saying, “Hey, we’re taking venture money. We’re taking venture money. We have to provide returns to our shareholders.” That’s just the reality of the game they decided to play. That’s great, but I don’t know how they get past this point of being… Gosh, I want to say they’re at four billion in valuations. So even if they’re doing amazing things for the world, it will be a lot harder for them to get exponential growth past this point as a single-threaded company.

David Rosenthal:

Well, and I think… Let’s see. I just like to… They went public via SPAC earlier this year, which is also why I was thinking of them-

Ben Grynol:

They did.

David Rosenthal:

… $3.3 billion market cap right now. They tried… I don’t know how well it’s gone, but I think they would say that their platform that they wanted to build, or they would say they did want to this, and maybe they are doing this, but around drug researchers and drug discovery, not consumers, and that the consumer tests that they sell is really just that’s the data collection mechanism for them, but what they really are is a genomics data platform for drug discovery researchers to use.

David Rosenthal:

I don’t think that’s gone super incredibly well, but I’m not sure exactly why. I don’t know if it’s execution or if it’s just these things are so separate from one another. The nice thing about… Let’s take the app store and iOS and the iPhone. It’s so tied together who the various players are in that platform ecosystem. You’ve got the consumers that buy the phones and want to use apps. You’ve got developers that make software experiences for the consumers. Well, the consumers use them directly. That’s awesome.

David Rosenthal:

Whereas with 23andMe, it’s like, “Oh great, I’m interested, and I want to learn more about my genetics.” I take this test, and then I get a flat set of results, and I’m like, “Okay, cool.” Then the drug developers get to use my data, but there’s not a one-to-one connection there. Maybe someday, 10, 15 years in the future, some drug might be developed using 23andMe data that that drug then becomes relevant to my life, but that feedback loop is really weak and long.

Ben Grynol:

Maybe what it comes down to is they’re divergent paths. So if you decide that you’re building a consumer company, it’s inherent that you’re going to focus on brand. I can’t think of an example where there’s a consumer company that doesn’t focus on brand. TSMC is a great example where it’s like, there is-

David Rosenthal:

Not a consumer company though.

Ben Grynol:

… zero brand. No, that’s my point. They’re just like, “We don’t.” I mean, they could do everything they want to create a brand, and it wouldn’t make a difference at all. If you are… Assume 23andMe goes down this drug discovery path, went down, not where they are today, because they only ever launched as a consumer brand. If they went down that path, they might have a TSMC brand where it’s, “Hey, we don’t really… What’s the point? Who cares? We’re not trying to put out content, and create market awareness. We’re just going down this drug discovery path, trying to do what is best for research of progressing health in the world.”

Ben Grynol:

Because they didn’t launch that way, this is into the innovator’s dilemma on execution. It’s like, “If we choose to do that, we’re going to spend less time building our brand. If we don’t build our brand, then no one’s going to know us, and we’re a consumer brand.”

David Rosenthal:

[inaudible 00:45:10].

Ben Grynol:

Exactly, and-

David Rosenthal:

They’re serving these two masters at the same time, which is like-

Ben Grynol:

Exactly.

David Rosenthal:

“Oh, we’re trying to create this great product for consumers and this brand that people want to use.” But if they really… If the mission was accelerate drug discovery, you would architect a very different type of company, right? If the mission was create this genetic consumer product for consumers, that’s different, but trying to do both, because they really are very unrelated to one another

Ben Grynol:

Very much so, very much so. I mean, I’d be hard pressed to find anyone even within our friend group that could name one of the top drug discovery companies, non-pharma, a startup. It’s just… We wouldn’t, right? You wouldn’t have a clue.

David Rosenthal:

Well, not until Moderna, right?

Ben Grynol:

Yes. Yes, but it’s just not something that comes up in-

David Rosenthal:

That’s the example that proves the rule or the exception that proves the rule.

Ben Grynol:

Exactly. Exactly. But you just wouldn’t know on average that this exists. By being a consumer brand, you have these tradeoffs in choice. As soon as you go down that path, you have to stay down that path, and then everything that you do becomes a touchpoint. It’s down to user experience. It’s down to all these things. If you are that deep in drug discovery, you actually don’t even care what your your logo looks like for the most part, because you just slap it on top of an investor update. It’s just such a no [crosstalk 00:46:40].

David Rosenthal:

Right. Have you seen the DSMC logo?

Ben Grynol:

Yeah. It’s amazing.

David Rosenthal:

It’s hilarious.

Ben Grynol:

It’s amazing. It’s like Encyclopedia Britannica clip art from ’97. It’s just awesome.

David Rosenthal:

It’s so great.

Ben Grynol:

People often ask us, “Hey, are you going enterprise?” That comes with the tradeoff in itself not just because sales cycles are longer. There’s a lot of value capture because you can start to go… You could pick a vertical within enterprise. Let’s say you picked professional sports or corporate wellness, or name a vertical. There are so many avenues that you can take, but that approach becomes a tradeoff as far as opportunity costs of time. You’re just spending less time on the consumer aspect of things.

David Rosenthal:

Right. Now, you’re building a professional services organization to go sign up Procter and Gamble or a bunch of large companies to get their employees to use Level, right? That’s not your question.

Ben Grynol:

Exactly. Exactly. I mean, look at competitors to Apple. When Apple… Rewind a bunch of years, so Apple went through this phase where it was consumer, B2B, John Foley’s in as CEO. Then Jobs comes back, and it’s consumer again. They were very, very different companies when Jobs left, went to go build NeXT, and did everything else that Jobs did. But the idea that Homebrew Computer Club started as this underground consumer movement, it was built around a community, and then-

David Rosenthal:

I remember, Sculley, Sculley was the CEO he replaced. I was like, “John Foley. John Foley is the CEO of Peloton.”

Ben Grynol:

Oh, John Foley. John Foley. I didn’t even…

David Rosenthal:

That would be interesting if he were a CEO of Apple.

Ben Grynol:

That’s hilarious. That’s a good catch. In my head, I was picturing John Sculley’s face, and I said John Foley. That’s hilarious.

David Rosenthal:

That’s so great.

Ben Grynol:

Then they go to… Apple went to this B2B route. They’re trying to sell into education, and that’s when PCs were the predominant computer from a consumer standpoint. You try to play different games and you’re going to get different outcomes. There is a world. I’m glad it doesn’t exist, but there’s a world where Apple actually was the B2B player, and Dell was the predominant consumer-facing hardware, or Lenovo came a lot later on, but those are realistic outcomes.

Ben Grynol:

That’s where it becomes you have to be really careful about which path you’re going to take and what your intent is as far as how you want to build a company, and what kind of impact you want to have.

David Rosenthal:

Peloton’s an interesting case too. Do you guys look at them or think about them?

Ben Grynol:

Been thinking about them a lot more lately. There are a couple companies that really tie into this ecosystem thought process. Peloton is one, but I’m trying to decipher in my head they’re all different aspects of what companies are doing. Let’s dissect these four examples for a sec. When you start to think about these companies that are getting deep, one of them just came up actually from Ferris, an episode that Ferris did the other day, where he was talking to James Dyson, very interesting company, which you guys got to do an episode on.

Ben Grynol:

Peloton builds hardware, creates content. They’ve got a community. Apple, hardware, software, not really community. It’s still a cult brand, but it’s not like community is this core part.

David Rosenthal:

Apple does not have a community.

Ben Grynol:

No. I mean, maybe you could call it like some underground dev community, but we’ll just-

David Rosenthal:

Maybe. I mean, at some point, maybe the developer community, but-

Ben Grynol:

Not-

David Rosenthal:

… not with how they’re behaving in the Epic trial. No. They do not have a community.

Ben Grynol:

No, exactly. Exactly. But they’re hardware, software and they actually manufacture things at the base level now. It’s not just… Peloton does assembly manufacturing. Apple does invention manufacturing, very different, with some of the parts and processes, so that’s interesting. Then you look at Tesla. Well, Tesla’s core competency from the outside might look like they make cars, but they’re actually Elon would say at first and foremost, “Hey, we’re not even a software company. We’re an artificial intelligence company. We develop algorithms. That is what we do, right?”

Ben Grynol:

But hardware, software, manufacturing, part invention and processes invention, so it’s a very deep company. The TSMC episode as aside is actually what got me thinking a lot more about this, where I think Ben had said TSMC is the alchemist, where they are designing the machines that design the semiconductors. We’re talking about things that are just so deep down the chain. Of course, it becomes hard to disrupt them.

David Rosenthal:

Well, they do that in partnership with ASML is the Dutch company that makes the machines. [crosstalk 00:51:49].

Ben Grynol:

That are hundreds of millions of dollars.

David Rosenthal:

Very, very deep partnership. We’re talking about the episode. It’s not like you can just go… A, you can’t buy a machine from ASML because TSMC and Samsung are buying them all. But even if you could, and you could get one delivered to your house, it’s not like you could use it. There’s so much complexity involved in operating this that only within a TSMC or a Samsung fab could you drop one of these things in and have it work.

Ben Grynol:

Well, exactly. You look at companies that are getting to that level. Apple, we talked Tesla. The last was Dyson. Dyson is… I didn’t even realize, but there’s the James Dyson Institute of Engineering. It’s called something like that. The whole point is that people can go, and they can become many different types of engineers, whether it’s mechanical, software, civil, name some practice of engineering, which is very cool, but they’re designing products. They’re designing products.

Ben Grynol:

They’re inventing parts, inventing new processes, and then they’re selling this commoditized good at retail in a highly competitive environment, selling at a high price, still trying to maintain high volume. It’s a very interesting business model. These are all interesting companies. But back to your original question of Peloton, do we think about them? Yes in some senses because they’ve created this movement or this really cool community around what they’re doing. But if you think about what they’re doing from a hardware perspective, they’re actually just assembling off the shelf parts with industrial design.

Ben Grynol:

They’re not really design… Sorry, they’re not really inventing anything. Their core competency is content creation and community engagement, and that’s what’s giving them network effects. They’re probably like… Let’s assume they didn’t have hardware for a sec. They’re an analog almost to a Netflix, where it’s like Netflix is in the business of creating content. That’s what they do, and they’re sticking with it.

David Rosenthal:

I like that.

Ben Grynol:

That’s Peloton. Peloton is not a hardware company. They just sell this thing to try to create enough lock-in that the community never wants to leave. It’s a hard game to play.

David Rosenthal:

Now, it’ll be interesting to see how they evolve though, because they have announced they are building their own from the ground-up manufacturing in Ohio that it’ll be interesting to see what they do with that. Is that just to get better economics on producing essentially the same thing, or is there going to be true R&D involved in that, that they’re going to start really innovating on their own hardware TBD? The jury is out, but thus far, totally agree. They’re using off-the-shelf stuff.

David Rosenthal:

I assume the bikes are running Android. They’re really nice, but they’re bikes. I actually… I love Peloton. I’ve only recently gotten turned onto it, but I just have a cheap bike on Amazon. I use the digital subscription, which is way cheaper, and it’s just as good.

Ben Grynol:

When they start to think about how they’re going to evolve their company, I mean, they’ve never had to think about it until they went public, right? Because you can get away with things now. They’re like, “Oh, we have to grow every year, and it gets harder and harder. There’s only so much of the market that you can capture where you hit part of the maturity curve, and then there is a slow evolution of getting growth in market share, so you have to open up new revenue streams. So is going deep…

Ben Grynol:

Assume you’re John Sculley. We’ll call it John Foley. John Sculley now. Assume you’re John Foley and the leadership team, and you’re making a decision right now. You can go deep into manufacturing, and create these products. Maybe you get economies of scale. You get better margins. You’re further down the value chain. Cool, one avenue. Another avenue is we’re going head to head with SoulCycle, so everything that we’ve preached for the past 10 plus years, I guess we’ll call it 10 years, is at-home studio convenience, so you don’t need to go brick and mortar.

Ben Grynol:

We’d realize that our… We pay attention to the community, and you’ve told us that you want studios, and what you actually want is multi-use studios, so you want to be able to run and do yoga and go biking on a Peloton. You do that. That’s a different route you take, or you go… This is to the innovator’s dilemma. You’re like, “We have to figure out something so different than we’re already doing. Where do we even start? We can’t just go farming tomatoes. That’s really far outside of our core competency, but we need diversification that is similar.”

David Rosenthal:

Peloton tomatoes. I don’t know. It’s such a good brand. They probably could sell Peloton tomatoes.

Ben Grynol:

Right, but that’s where it’s getting into diversification. You’re going to have to do something really different if you’re going deep into manufacturing when you make commoditized hardware like that. Unless they’re able to invent something that us being outsiders, we can’t think of what the next thing is. Maybe it’s at-home football studios, and people are able to pass with Tom Brady or something like that.

David Rosenthal:

Well, I think there’s-

Ben Grynol:

I’m just making it up, but-

David Rosenthal:

That would be awesome. Well, that’s the theme of this whole platform discussion. I mean, a, I think two things. One, you don’t have to be a platform. It’s-

Ben Grynol:

Dyson right there.

David Rosenthal:

Yeah, Dyson or Netflix like you said. It’s probably a stretch to call Netflix a platform. Still a great company and still very value. You can still address huge markets without being a platform, so it’s not necessary. I don’t think it’s necessary that Peloton has to go become a platform, but it’d be interesting if they did. What would that look like? Ben and I have been contemplating doing a Peloton episode, so they’re also saw on my mind for that. I’m just thinking, I was like, “Oh man, how cool would it be if we did a Peloton episode?”

David Rosenthal:

Dan Primack at Axios did, I think still does every year, Axios’ Peloton rides together with his readers for charity around Thanksgiving, and super cool. We could do that, but that would just be like all of us taking a class together. That would be cool, but what if we were leading the class? It was an Acquired episode on a bike or… I don’t know. That sounds crazy, but that would be a platform, right? If Peloton opened it up, and they’re like, “Anybody can use the network,” that would be pretty cool.

David Rosenthal:

Now, there are probably a million reasons why they wouldn’t want to do that, but that would be moving in a platform direction.

Ben Grynol:

What’s funny is… Let’s look at Dyson for a sec. Dyson last reported… I think it was 2019. It was 7.3 billion in annual revenue privately held, not a platform, commoditized product. I mean, that’s just wild to think about. You think of other companies. Netflix was referenced, where it’s like, “Okay, let’s say Netflix is not a platform. It’s just a great company, large market cap.” What are they at now? Five maybe. Where do you think they’re at?

David Rosenthal:

Netflix, I guess they’re probably at 100 or 200 billion market cap. Let’s see.

Ben Grynol:

255.44 B, so not a platform company, significant valuation. There’s a point where the difference is when you are a platform company… Let’s say Shopify. I think Shopify’s at 260 something right now, but there is a world where Shopify hits a trillion. That’s not out of question. It’s going to take some time, but it’s not out of question. I think it would be very hard for a non-platform company to ever get to that Amazon, Facebook, Apple, any of these companies that are trading at trillion plus market cap.

Ben Grynol:

Then again, now, let’s just say… Who else is at the trillion mark? TSMC, right? Making semiconductors also used in everything in the world, but it’s really funny.

David Rosenthal:

TSMC is totally a platform. Its just… It’s a B2B platform.

Ben Grynol:

I guess so. Sure. Sure.

David Rosenthal:

I mean, anybody can design… Anybody can become a customer of TSMC and design whatever chips they want, and use the-

Ben Grynol:

True.

David Rosenthal:

I mean, I don’t know. I think there’s… I think you’re right. If becoming a… Especially in technology, platforms can get very, very, very large, and many of the best businesses tend to become them, but they’re also… This is what I was saying about Netflix like, “You don’t have to be…” It’s just a question of how big of a market opportunity are you addressing and how good is your product? How much of that market will you capture? Look at the oil companies. They used to be the biggest companies in the world.

David Rosenthal:

They’re not platform companies. They’re just producing oil.

Ben Grynol:

No. Commoditized product.

David Rosenthal:

Totally. Netflix is, again, I don’t know. Maybe people would argue with us here and say they are a platform in some sense. I think that’s a stretch, but they’re making video content. Well, the global market for watching video is very large, very large. YouTube is a platform, and it’s addressing it. O well, Netflix by our definition here is not, but it’s just so big. There are a lot of billions of people that watch a lot of trillions of hours of video every year. I don’t think they have to become a platform, and can prob…

David Rosenthal:

Well, I don’t know. I don’t have a view on Netflix of whether they can get larger or not. I don’t know how much of the world they address right now. I mean, I think the reason that they’ve become so valuable relative to some other video rather than film or movie or TV companies, studios is the globalization. They really, early on in streaming, made a big push. They’re like, “No, we’re going to be… We’re going to enter lots of countries.” That’s been a huge story for them.

Ben Grynol:

Yeah, and it’s… When you talk about best companies, the best company to build, maybe best is defined by resilient, because best can become subjective in that sense. Is 23andMe the best because of what they’re doing from an intrinsic standpoint? It’s more a matter of the best being what companies are the most resilient? When you look at Netflix and what they’re doing from a global perspective, maybe there’s a counterpoint to what you’re saying about the total addressable market of video. Then maybe it’s not actually large.

Ben Grynol:

We know it’s large because a lot of people watch video, but maybe it’s actually… Maybe there’s some stat on this, but maybe it’s actually shrinking for the type of content that Netflix’s index is on, which is-

David Rosenthal:

It could be.

Ben Grynol:

… highly-produced content, because objectively, what we know is that recently, TikTok surpassed YouTube in the most consumed video platform by hours of consumption in the world.

David Rosenthal:

Wow. Dang, I missed that. That’s crazy.

Ben Grynol:

Not just low time length, limited time length, lowest possible production value. Let’s say there are three tiers of video. There is Netflix, highly produced. There’s a barrier to entry to even get on the platform. YouTube, moderate production value, because moderate is what’s going to get you more views. If you don’t have great production value, you’ll probably not get as many views unless the content was inherently interesting or different in some way. Then there’s TikTok, where it’s just like production value actually makes it worse.

Ben Grynol:

You’ll get lower views the better the production is, because it doesn’t feel like some genuine off the cuff 15-second video. That is an example in itself where it’s like back to Netflix, how do they grow? Maybe they’re okay being what they are. A full caveat, I love what Netflix does from a long-tail documentary, highly produced content perspective, but it’s a lot harder to consume than it is some of these shorter videos, and where gen Z is going, especially is short, fast bites. That’s it.

Ben Grynol:

They might have to think about, “What do we need to do so that we don’t get fully disrupted where there might be a day that generation alpha…” I think that’s what our kids will be classified as or generation…

David Rosenthal:

Oh wow.

Ben Grynol:

I think that’s what it is, generation alpha. I think that’s what it’s called. Maybe there’s a world where they’re just like-

David Rosenthal:

I [inaudible 01:04:38].

Ben Grynol:

You guys are nerds. You used to watch two hours of video.

David Rosenthal:

Yeah, produced stuff like…

Ben Grynol:

That was… People would actually take lighting, and they would go with these cameras that are hundreds of thousands of dollars, and you would have a movie set, and there’d be 60 to 100 people there and craft services. What world did you guys live in? Maybe that’s actually something that could happen in the future. It’s possible.

David Rosenthal:

Totally. Totally.

Ben Grynol:

How does Netflix like index against that?

David Rosenthal:

Well, the great thing about YouTube and TikTok as being platforms is they let the emergent behavior on the platforms drive where they go. They don’t have to… Neither of them has to say like, “This is our vision of what the future of video looks like.” It was like, “No, we provide the platform, and creators create on it, and audiences tune in to what they find compelling,” whereas Netflix has to constantly make all these decisions about like, “This is what we think is going to do well,” and that’s driven by data and all that, right?

David Rosenthal:

But no matter how good you are at that, you’re never going to be perfect.

Ben Grynol:

Netflix, let’s do the thought exercise. Right now, it is 2,000. What year did the iPhone drop? ’06 was it?

David Rosenthal:

’07.

Ben Grynol:

It’s ’07. Your jobs, you’ve got this biased lens that Apple has to control every single touchpoint, including which apps are released, and so you keep it closed for two years until you can actually open up the ecosystem. That was the curation lens. So thought exercise being, “What would happen in Netflix if they removed the curation lens?” There was still an approval process to get onto Netflix, but it was as easy as getting an app into the app store.

David Rosenthal:

You’re shipping an app.

Ben Grynol:

Then basically, the public can decide whether or not they want the thing that you made. It’s not so highly curated that it’s Netflix original. I mean, that can still live on there because there’s going to be lots of great Apple core apps that still get a ton of use, Apple maps, right? People use that.

David Rosenthal:

I think YouTube does this, right? YouTube produces some content itself, right?

Ben Grynol:

They do. They do. But what would happen to net Netflix if… See, because they’re different platforms, so the talk is just always for the most part, going to be short, crappy UGC until they change their business model. YouTube is this weird mix of crappy stuff, vlogger stuff, highly-produced stuff. But when you go to Netflix, your heuristic is, “I know I’m going here for commitment. I’m sitting down and I’m watching something basically through.”

David Rosenthal:

Yep.

Ben Grynol:

There’s not a place for-

David Rosenthal:

To your point is an increasingly rare behavior even for me.

Ben Grynol:

There’s not as much of a place on YouTube, because YouTube is basically search and discovery. That’s what it’s good at. Netflix is there’s, I guess, a lot more intent when you sit down with Netflix. You make a decision to watch something. It’s not just random discovery rabbit hole, doomscrolling. What would happen if Netflix opened up to all the content creators that want to create highly produced content, because they love of it, and they want to do these hour-and-a-half docs?

Ben Grynol:

It doesn’t really get traction on Vimeo or YouTube. Would Netflix be a stronger platform? Maybe, right?

David Rosenthal:

It might be. That actually would be cool. They should do that.

Ben Grynol:

Maybe they’d be double market cap. They’d get to 500 bil because they would have so much stickiness and lock-in that people stopped uploading. This is such a rabbit hole of a thought exercise. People who make that type of content have never had an outlet, so they start making it more and more. That’s a possibility. There are more jobs created from it, all of these things. Cool. Get brand deals from creating these docs. Cool. Maybe these people, and granted there is probably a small portion of YouTube, they stop uploading this longer form content to YouTube that they were trying to find an outlet for.

Ben Grynol:

They’re just like, “Oh, I’m all in on Netflix,” and they become a notable creator for the Netflix platform and the way that somebody’s an IG creator. Entirely possible world.

David Rosenthal:

Totally.

Ben Grynol:

Back to platform, platform conversation.

David Rosenthal:

Totally. Totally.

Ben Grynol:

Maybe that’s this takeaway is have an open ecosystem. Have a place where people can build, and you’d be surprised what-

David Rosenthal:

It creates optionality for you, I think, if you’re able to do that.

Ben Grynol:

It’s better for the consumer. You create a-

David Rosenthal:

Better for the consumer, and it’s better for you. You don’t have to be right all the time.

Ben Grynol:

Exactly, and reliant, you are not… Netflix has a huge team of people that their day-to-day job is to curate content for certain categories. As soon as you get rid of that, that becomes a lot smaller portion of people’s jobs, because you’re like, “Oh, the world’s going to decide.” To give a hat tip to Seth Godin, people like us do things like this. You don’t actually know what documentaries or what nerdy videos are going to get produced because the ecosystem is wide and open.

David Rosenthal:

Well, sounds like the podcasting ecosystem, which is-

Ben Grynol:

Very much.

David Rosenthal:

… which is great.

Ben Grynol:

Well, I think that is a good place to wrap, so where can people find you?

David Rosenthal:

People can find me and my partner in crime with Acquired… Hopefully not crime. That would be bad. Well, although we tell stories. We’re working on a… You can find us at Acquired, the Acquired Podcast, podcast player of your choice, or acquired.fm is our website. You can listen to episodes there, but we’re in the middle of… We just recorded part one of our standard oil series, which is, oh my God, it was so fun. Talk about crimes. I didn’t think they were committing crime.

David Rosenthal:

Other people felt differently, but we don’t usually talk about crime. We are not a true crime podcast. That’s where folks can find me. I’m also on Twitter at D-J-R-O-S-E-N-T on Twitter, or probably if you just search David Rosenthal Acquired or whatever, they’ll find me there. Question though, back to you, for folks listening-

Ben Grynol:

One more thing. One more thing. The other Ben G. isn’t here so…

David Rosenthal:

Yes, the other Ben. G. Yes.

Ben Grynol:

Ben Gilbert, this is normally where Ben G. steps in and says, “And if you’d like to join the Acquired LP community-

David Rosenthal:

That’s right.

Ben Grynol:

… you can do so at acquired.fm, or join our Slack where there are 9,000 other smart people just like you to enter into the conversation about everything going on with Acquired.

David Rosenthal:

Oh man, I’m glad we’re recording this. We can just splice you into our episodes.

Ben Grynol:

It’s something along those lines.

David Rosenthal:

That’s pretty close. You can find… What is Ben’s Twitter handle? I think he’s at Gilbert.

Ben Grynol:

I think Gibert.

David Rosenthal:

Yes, he is at Gilbert. I didn’t get at Rosenthal. That would’ve been… That’s a little more… Well, I don’t know. Gilbert’s a pretty common name. Good for him.

Ben Grynol:

Strong flex there.

David Rosenthal:

Strong flex. Back at you, Ben Grynol, not Ben Gilbert, where can people find more of these discussions for folks who are listening on the Acquired LP feed?

Ben Grynol:

We have a podcast. We actually have three of them with Levels. One of them is called A Whole ‘Nother Level.

David Rosenthal:

You guys have three podcasts now. That’s awesome.

Ben Grynol:

Yeah, we’ve got… We launched all three at the exact same time too. Three different ones. Metabolic Insights is aggregation of all the audio recordings of exactly the articles on our blog, so it’s deep scientific education about metabolic health, a good way of keeping up with audio on the blog.

David Rosenthal:

Nice.

Ben Grynol:

Then we’ve got one called Levels Live Session, so it’s any book club, clubhouse, anything where there is even a conference where Casey or Josh or any of the founding team would participate in those sessions. We put those out through a different feed just-

David Rosenthal:

Oh, that’s awesome. I didn’t realize you guys recorded all those and put them out there. I love that.

Ben Grynol:

Yeah, because the production’s a bit different and then the nature of the content, and it just made more sense. Then we’ve got our core podcast is called A Whole New Level. We have conversations with early team members about everything around being remote and async about how we build culture. We have on different guests like David Rosenthal, or we actually had one about culture a couple episodes ago with Mark Randolph, co-founder of Netflix. It’s a pretty interesting podcast.

David Rosenthal:

Thanks. [inaudible 01:13:17] with me on this episode.

Ben Grynol:

Not at all. Pretty-

David Rosenthal:

It’s awesome. You guys get great guests.

Ben Grynol:

It’s fun. It’s a lot of fun, so it’s an interesting place where the idea is to not just talk about Levels and Metabolic Health, but to have these open-ended conversations where they go and they’re completely unedited. If you want to check it out, A Whole New Level. You can find it on Apple, Spotify, or your favorite podcast player. On Twitter, I’m at BGrynol, also in the Acquired Slack.

David Rosenthal:

Dude, this was awesome. Thanks for suggesting it. It’s a blast to do it together.

Ben Grynol:

This is actually funny, because this is all the BTS stuff. That is us figuring out what we’re going to do with this audio, but depending on the use case, it’ll dictate a whole bunch of things. Let me know what you were thinking first, and then I’ll go through a bunch of stuff.

David Rosenthal:

Oh, no particular thoughts. Totally happy to throw it on the LP feed. I mean, we’re not precious about production quality or anything on the LP feed. So as long as there’s a final MP3, whatever it is, then I can just add a little bumper on it in the beginning, explaining the show, what we’re doing and directing folks to the Whole New Level podcast, and just pop it in.

Ben Grynol:

Sweet. Sweet.