Post Corona, From Crisis to Opportunity by Scott Galloway — Notes

1. What we experience is change, not time.
2. First, the pandemic’s most enduring impact will be as an accelerant.
3. “Nothing can happen for decades, and then decades can happen in weeks.”- Lenin
4. Ecommerce began taking root in 2000. Since then, ecommerce’s share of retail has grown approximately 1% every year. At the beginning of 2020, approximately 16% of retail was transacted via digital channels. Eight weeks after the pandemic reached the U.S. (March to mid-April), that number leapt to 27% . . . and it’s not going back. We registered a decade of ecommerce growth in eight weeks.
5. It took Apple 42 years to reach $1 trillion in value, and 20 weeks to accelerate from $1 trillion to $2 trillion (March to August 2020).

In Crisis There Is Opportunity

1. Three of the largest, and most important, consumer categories in the U.S. (healthcare, education, and grocery) are in a state of unprecedented disruption and, possibly, progress.
2. Opportunities are not guarantees.
3. It took last 10 years to create 20 million jobs and 10 weeks to destroy 40 million.
4. America’s involvement in World War II lasted 3 years and 8 months, and 407,000 Americans perished.
5. Patriotism used to be sacrifice, now it’s stimulus.

Chapter 1 : COVID & THE CULLING

The Culling of the Herd: The Strong Get (Much) Stronger

1. “BEACH” stocks (booking, entertainment, airlines, cruises and casinos, hotels and resorts) are down 50–70% on average.
2. A firm’s valuation is a function of its numbers and narrative.
3. Firms deemed innovators are receiving a valuation that reflects estimates of cash flows 10 years from now, and discounted back at an incredibly low rate.
4. Tesla’s value now exceeds that of Toyota, Volkswagen, Daimler, and Honda combined. That’s despite the fact that in 2020 Tesla will produce approximately 400,000 vehicles, while the other four companies will build a combined 26,000,000.
5. At the end of July, Tesla was up 242% on the year, while GM was down 31%. Amazon was up 67%, and JCPenney was bankrupt.
6. Today’s winners are judged tomorrow’s bigger winners, and today’s losers appear doomed.
7. By deciding that Amazon, Tesla, and other promising companies are winners, the markets lower those companies’ cost of capital, increase the value of their compensation (via stock options), and enhance their ability to acquire what they cannot build themselves.
8. There is a non-economic arbiter to who perishes, survives, or thrives: government support.

Surviving the Culling: Cash Is King

Companies with cash, low debt or cheap debt, high-value assets, and low fixed costs will likely survive.

Crisis Management 101

The right moves for the biggest elephant in the herd are not the smart play for a “sickly gazelle” (how Jeff Bezos once described small book publishers).

Overcorrect

1. “If you need to be right before you move, you will never win. Perfection is the enemy of the good when it comes to emergency management. Speed trumps perfection. And the problem we have in society is that everyone is afraid of making a mistake.” — Mike Ryan, WHO
2. There’s an old adage in retail: your first markdown is your best markdown. Better to sell something at 80% of your budgeted price than to wait another month and have to dump it at 60%. Waiting to take action only makes the problem worse.

GOING ON OFFENSE

1. It takes only a sliver of equity to make a generous stock offer, and cash deals can add more market value by virtue of the multiples new product lines can earn.
2. Rethink the benefits you offer your employees — a pet stipend may be more welcome than a gym membership.

The Covid Gangster Move: Variable Cost Structures

1. Uber rents space in other people’s cars, driven by non-employees (in the eyes of the law, anyway). The second an Uber car stops making the company a profit, it effectively disappears and costs the company nearly nothing. Revenue can go to zero in a crisis, and Uber can take its cost down 60–80%.
2. Boeing has $10 billion in cash, but if its revenue goes down 80%, they can take costs down maybe 10%, maybe 20%.
3. Tesla can furlough its workforce, but it still owes hundreds of millions of dollars on leased properties (factories, retail stores, charging stations), billions of dollars in purchase commitments to feed those factories, health insurance payments for its workforce, and has to provide warranty service on nearly a million Teslas on the road today.

The Great Dispersion

Habits that should have taken a decade to acquire are a new normal.

SECOND-ORDER EFFECTS OF THE DISPERSION OF WORK

Sixty percent of jobs that pay over $100,000 can be done from home, compared to only 10% of those that pay under $40,000.

The Brand Age Gives Way to the Product Age

1. From the end of WWII until the introduction of Google, the gangster algorithm for shareholder value was simple — create an average, mass-produced product and infuse it with intangible associations. You then reinforce those associations through cheap broadcast media, which occupied the average American for five hours a day.
2. The services industry is prostitution, minus the dignity.
3. Google, Facebook, and technology that liberated the affluent from ads.
4. Advertising became a tax that only the poor and technologically illiterate had to pay.
5. Google vs. classified ads, Kayak vs. travel agents, Spotify vs. CDs

WELCOME TO THE PRODUCT AGE

The Google-Facebook duopoly’s share of the digital ad market is predicted at 61% in 2021.

Red and Blue

1. We used to trade time for value. Now we trade our privacy for value.
2. Android versus iOS offers you a choice between a decent product for low or no upfront cost, but the sacrifice of your data and privacy, versus a higher quality, better-branded product, for much more cash up front, but much less exploitation on the back end.
3. Netflix, operates a blue/iOS model. You pay, and you get content. You are the customer, and the content is excellent. YouTube, on the other hand, is worse in quality but free.

RED AND BLUE SOCIAL MEDIA

1. Twitter Subscription model: Subscription fees should be based on the number of followers. If @kyliejenner can earn $430,000 per promoted tweet, she’ll pay $10,000 a month to maintain her revenue stream, and @karaswisher (1.3 million followers), would pay $250 a month. Verified accounts with <2,000 followers would remain free to maintain critical mass.
2. People are less awful when their name and reputation are attached.
3. Microsoft should launch their own microblogging platform as a sub-brand of LinkedIn.
4. Media is nicotine (addictive) but advertising is what gives us cancer (tobacco).
5. Facebook and Google run on rage as an engagement model; Netflix and LinkedIn are powered on a subscription model (note: approximately 20% of LinkedIn revenues come from advertising).

RED AND BLUE SEARCH AND BEYOND

1. The most innovative firm of the last decade seized on Amazon’s abuse of their customers (third-party retailers). Shopify’s value proposition is simple, and powerful: we are your partner. You control the data, the branding, and custody of the consumer. Brand building is the science of building goodwill that can be monetized. A lot of innovation is monetizing ill will.
2. Low-cost players from airlines to fast food will seek to take advantage of customer data and pass the savings on to their advertising resource units . . . oops, I mean customers. Premium players will wrap themselves in the blue flag of privacy and collect a nice margin for the courtesy of not exploiting their customers’ data.

Chapter 2: THE FOUR

1. March through July of 2020 saw more than half a million deaths from Covid-19, including more than 150,000 in the United States. Dozens of household-name companies filed for bankruptcy. The unemployment rate tripled, hitting an all-time high in April. Over the same five-month period, nine major tech companies increased in market value by $1.9 trillion. And they weren’t any five months, but the worst five-month stretch the world has experienced in nearly a century.
2. These five companies (Amazon, Apple, Facebook, Google, Microsoft) make up 21% of the value of all publicly traded U.S. companies.

The Power of Bigness / The Monopoly Algorithm / Featurization

Defending a market is far easier than creating a new one.

THE FOUR EXPAND EVERYWHERE

1. Amazon has decided it wants to own the delivery business. So, it’s going to turn what used to be an industry (delivery), into a feature (Prime).
2. Netscape, the fastest-growing software firm in history, went from antimatter to feature when Microsoft began bundling Internet Explorer with Office.
3. Apple is now getting nearly half its revenues from something other than the iPhone.
4. Apple’s wearables business (Apple Watch, AirPods, and Beats) alone generated over $20 billion in revenue in 2019, making it bigger than McDonald’s. If spun, which it should be (if we had an FTC or DOJ), the business would likely be one of the 20 most valuable firms in the world.

THE FOUR COME TO HOLLYWOOD

1. Large entertainment media firms (Comcast, AT&T, Verizon, Fox, Sony) will cede value to Amazon and Apple — two tech giants for whom media is not a core business, but just a part of the flywheel, a feature.
2. In the 13-month period between January 2019 and February 2020, Apple and Amazon added Disney, AT&T/Time Warner, Fox, Netflix, Comcast, Viacom, MGM, Discovery, and Lionsgate to their market capitalization.

1. Netflix is perhaps the only other company to have accomplished what Amazon has pulled off by convincing the markets to essentially give them a blank check for customer acquisition and infrastructure investment on the strength of a vision. And the company has benefited from the pandemic: stock is up 50% since January, and subscriber growth is up 110% in the first half of 2020, double the growth of the same period last year.
2. HBO wins an Emmy for every $75 million it spends on content, versus Amazon at $400 million.
3. Apple’s The Morning Show costs $15 million per episode 8 — more than HBO spent per episode of Game of Thrones

1. Luxury is about artisanship and scarcity.
2. Apple TV+ isn’t about what’s on Apple TV+, but what isn’t. Specifically, nothing that isn’t produced by Apple.

Bigger Tech, Bigger Problems

1. In the ’90s, Bill Gates could keep a rival spreadsheet program from gaining traction. Today, Mark Zuckerberg can affect the outcome of a presidential election.
2. When companies become “too big to fail,” they realize taking outsized risk is the right strategy, as the upside is privatized and the downside socialized — they get bailed out.

STANDING UP AGAINST THE FOUR

1. Laws written by the light of coal power don’t work against digitized monopolies.
2. Traditional antitrust principles focus on consumer harm through the prism of prices. Low prices are good, high prices are bad. It’s not a framework well suited to companies that don’t charge consumers, like Google or Facebook, or that relentlessly lower prices, like Amazon (and Apple with Apple TV+), but that nonetheless limit competition and cause consumer harm in other ways besides high prices.
3. Freedom of speech isn’t freedom of reach.
4. Highly sophisticated Custom Audience algorithms can do a lot of damage to the democratic process when false or misleading ads can be targeted only to specific susceptible voters, rather than a large audience able to evaluate and critique them publicly. Coming down the pike are deep-fakes (realistic but fake videos that can make it appear someone did or said something) and other tools of fake news that will further tear at our national fabric.

The Curse of Big Numbers

1. Every big tech firm must implicitly, or explicitly, assure investors there is a reasonable chance their stock will double in the next five years.
2. Google and Facebook could seize the remaining revenues of the radio and print industries, they’d still wake up hungry for more revenues within 24–36 months, based on investors’ expectations.
3. The Four need to add nearly a trillion dollars to their revenue over the next five years.

Amazon

1. Amazon’s core competence is vision and storytelling.
2. The pandemic in a business nutshell: Stuck at home; Netflix; Hate my spouse; Starting to hate my children; Jeff Bezos gets his divorce paid for in 30 days
3. Mr. Bezos increased his wealth by approximately $35 billion in 30 days.
4. Now over 20% of Amazon’s revenue comes from Marketplace.
5. Amazon generated $89 billion in revenue in Q2 2020, greater than the annual budget of the Department of Education ($68 billion).
6. In less than two years, Amazon captured nearly one-fifth of the market for ecommerce deliveries in the U.S.
7. Bezos outlined a vision for at-home Covid tests, plasma donors, PPE equipment, distancing, additional compensation, and protocols to adapt to a new world. Amazon is developing the earth’s first “vaccinated” supply chain.

Apple

1. By achieving a business paradox — a low-cost product that sells for a premium price — Apple became the most profitable company in history in 2014.
2. Leaping from the tech sector (low margins, zero sex appeal) to the luxury sector (the volumes of Toyota with the irrational margins of Ferrari), Apple owns the most profitable product ever made, the iPhone, and sells it through the highest per-square-foot
3. In Q4 2019, Apple’s services revenue was up 25% year over year to 23% of revenue. As a result, Apple has been recast as a software firm, and despite a negligible increase in earnings, it doubled its valuation and P/E multiple in just 12 months.
4. Apple’s services business would stand as the 258th company on the Fortune 500, just beating out Bed Bath & Beyond.

Think Rundle

1. The only thing better than recurring revenue is a recurring revenue bundle that could form a flywheel.
2. Just as The League introduces Ivy League socialites to each other, JDate connects Jewish singles, and Raya connects models and the social elite, Peloton could begin connecting fitness-minded singles who become more engaged, riding and swiping.
3. For every $1 that you spend a month on Apple TV+, the company spends $1 billion on content a year (about the same as Netflix).
4. Prime-like rundle for Apple: Just send me the latest iWhatever with unlimited media (television, games, apps) activated on the good phone at $50 a month, $100 for the better phone plus watch, and $150 for online classes on design and UX/UI and an iPeloton. Amazon is still going to beat Apple to being the first $3 trillion company, but if Apple goes full rundle, they won’t be far behind.

Mad Men 2.0: Google and Facebook

1. Covid-19 has a mortality rate of around 0.5–1% among people, but the pandemic is going to have a fatality rate of 10–20% in traditional media.
2. At 8 million advertisers, Facebook has the most elastic, self-healing customer base in business history.
3. Facebook has over 7 million customers, and the top 100 account for only 16% of its revenue.

Chapter 3: OTHER DISRUPTORS

The Disruptability Index

1. The opportunity for disruption in an industry can be correlated to a handful of factors — a disruptability index. The key signal is dramatic increase in price with no accompanying increase in value or innovation. This is also known as unearned margin. ( Example: Higher Education, Healthcare)
2. Another factor of disruptability is a reliance on brand equity divorced from the quality of the product, its distribution, or support.
3. Many firms and industries have fostered an adversarial relationship with consumers. Insurance, Healthcare

The Burning of the Unicorn Barn

1. Bill Gates was the first to prove the same person could found a company and take it to $100 billion in value. Gates grew Microsoft to $600 billion over 14 years.
2. In 2005, we weren’t making that many more true geniuses, but available capital began to increase exponentially.
3. VCs jockeying to fund successful founders devised term sheets that included secondary sales, two-class shareholder structures, and other founder-friendly terms.

1. The NASDAQ quadrupled in ten years.
2. The sheer amount of capital meant that companies could pursue capital-driven growth strategies. That is, they could buy market share by selling at a loss, while raising subsequent rounds of capital, at increasing valuations, due to growth that was fueled by cheap capital.
3. The number of U.S. IPOs has declined 88% from 1996 to 2016. It also takes much longer for companies to get public. The average age of a company up for IPO increased from three to eight years over the last 20 years.

ENTER THE UNICORN

1. Aileen Lee found 39 unicorn companies and reported that new ones came along at a rate of about 4 per year. Estimates put the number today at around 400, with 42 born in 2019 alone.
2. Value is a function of growth and margins. As they did in the ’90s, many of today’s unicorns have deployed massive capital to achieve the former while not demonstrating the value proposition to achieve the latter.

SOFTBANK’S $100 BILLION UNICORN BUFFET

1. The pitch from SoftBank to entrepreneurs was simple and compelling. “You aren’t thinking big enough. We want to invest three times your planned raise, and if you don’t do a deal with us, we’ll inject these liters of growth hormone capital into your biggest competitor.”
2. Capital is in fact a weapon in private equity, where only a few firms can bid for the truly great, proven assets with enormous cash flows.
3. However, in venture, and growth, the secret sauce is dislocation, a market ripe for disruption, and crazy genius founders who are too stupid to know they will fail. When your ability to deploy billions into a concept becomes the priority, as it does when you have $100 billion to deploy, your returns go down.
4. Business and trade are, despite rumors of the death of distance, a function of geography. A retail store’s profitability is correlated with proximity to HQ.

1. The availability of capital is not correlated with the availability of good places to invest the capital.
2. Good investments — disruptive start-ups with the potential to grow into sustainable multibillion-dollar enterprises — will always be scarce.

YOGABABBLE

1. Too much capital and not enough talent is the cue for the rise of the charismatic founder.
2. According to LinkedIn, there are more corporate comms personnel working for Bezos at Amazon (969) than journalists working for Bezos at The Washington Post (798).

THOROUGHBRED VS. UNICORN

1. On a per-mattress basis, Casper captures $1,362 in revenue. But it spends $761 on the mattress, $480 on sales and marketing, and an impressive $470 on administrative overhead. That’s a loss of $349 per mattress.
2. Casper tried to wrap an undifferentiated product with aspirational associations.

When the Smoke Clears

1. Private investors — traditional venture capitalists, but also institutional investors whose appetite for risk has increased with their assets under management — are signing up for more and larger financing rounds, and using the public markets as an exit, instead of as a financing event.
2. Abundant capital permits a heft of financing rounds previously only available in the public markets, and a robust secondary market provides liquidity to shareholders. A major reason we are seeing so many unicorns is companies stay private longer. This has the benefit of reduced overhead and regulatory compliance costs, as well as less scrutiny. The company captures more of the upside for its private-market backers.
3. Another change has been the increased potential for another form of high-return exit — acquisition by one of the mega tech companies like the Four.
4. Apple has cash worth 200 unicorns ($200 billion) on its balance sheet. Google has $120 billion.
5. The 12 unicorns that exited in the first half of 2020 did so at a 91% premium to their last private valuation.
6. The pandemic may birth the best-performing IPO class in several years, as the market’s valuations are based on a firm’s perceived performance 10 years ahead. The same is true of the downside: as firms that are struggling are issued a do-not-resuscitate order from the markets and are valued at their (remaining) cash flows. The cheap capital economy that offers disruptors the opportunity to pull the future forward sucks oxygen from the incumbents, who are forced to retrench (layoff, cuts in CapEx) as the new kids on the block can lean into new investments and hiring.
7. The eight elements of the T Algorithm (rillion-dollar valuation) are as follows: Appealing to human instinct; Accelerant; Balancing growth and margins; Rundle; Vertical integration; Benjamin Button products; Visionary storytelling; Likability

Appealing to human instinct:

1. The brain instinct : We are constantly looking for answers to help explain our experiences and the world around us (Google). Bargains (Walmart) and rational claims (Dell, Microsoft) appeal to the brain. Margins tend to be small in brain-appealing businesses — there is one lowest price or fastest processor.
2. The heart : We have an innate desire to connect with the people around us. Caring for those around you makes you more willing to spend.
3. The Gut
4. The Genitals: We are motivated to buy products and services that make us feel more successful and good-looking, so we can attract better mates. We pay irrational margins for products that improve our sex appeal. Contrast rational companies Walmart and Amazon (the brain and the gut) to Ferrari and Louboutin (the genitals).

Accelerant:

A firm that serves as an incredible springboard for a person’s career. Other than intellectual property or defensible IP, a firm’s ability to attract talented employees is one of the most important contributors to success.

Balancing growth and margins:

Typically, margins are in conflict with growth. There are some companies that take very low margins, like Walmart, and as a result are able to grow faster because they don’t charge much additional margin for their value-add. In contrast, if a firm has high margins, it usually has lower growth and lower potential for scaling. Only some exceptional firms, like the Four, are able to combine high growth with high margins.

Rundle:

A bundle of goods and/or services that justifies recurring revenue. This strategy exploits one of our key weaknesses as human beings: we are terrible at estimating the value of time. Firms that convince consumers to enter into a monogamous relationship with them are positioned to accumulate more value over time than firms that interact with consumers transactionally. Example: Apple currently offers music and streaming video subscriptions, but it could bundle both of those products, plus news, plus annual iPhone upgrades, into a bigger recurring revenue bundle. Disney could bundle Disney+, parks, cruises, and other perks into several tiers of packages based on recurring revenue, or a multiple-product subscription.

Vertical integration:

A firm’s ability to control the end-to-end customer experience by controlling as much of the value chain as possible. Companies that control distribution reap huge benefits.

Benjamin Button products:

Products or services that age in reverse (get more, rather than less, valuable to users over time) due to network effects. Example: Spotify

Visionary storytelling

Telling a compelling story unites employees and attracts top talent and cheap capital.

THE SHINIEST UNICORNS IN THE HERD

1. AirBnB: Unlike Uber, Airbnb is monetizing a fallow asset vs. drivers’ need for flexibility and their willingness to accept low wages and no benefits.
2. Brooklinen: Sourcing cotton in Egypt, milling it in Israel, and then landing a set of sheet sets, duvets, and pillows in Brooklyn for $79, eventually selling for $129.
3. Carnival: What’s powering that is a combination of demographics (more old people) and a classic value proposition: edited selection. Rookie marketers think people want choice. Consumers don’t want more choice, but more confidence in the choices presented. Choice is a tax on time and attention. Customers want someone else to do the research and curate the options for them. The demand destruction in cruises is cyclical, vs. airline travel or restaurant patronage, which is likely structural, as we’ll be home more for a long time.
4. Lemonade: Digitizing the supply chain sheds expensive distribution costs (like insurance salespeople), and the firm is using artificial intelligence to achieve better loss ratios (i.e., better risk assessment). Lemonade appeals to the brain — you can get insurance quotes in minutes. It meets our desire for answers and for efficiency of information, similar to Google. It also, stay with me here, foots to our instinct to procreate.
5. Netflix: It’s relatively easy to get super-low-cost capital when you’re growing like a weed. The challenge is when the growth peaks and capital markets begin looking at the bottom of the income statement. For every dollar per month, the consumer receives a billion dollars’ worth of content. A $10 movie ticket to a $100-million movie gets you a mere $10 million per dollar, and you can only access it for two hours. Netflix gives you a 100 times the value with on-demand access in a theater that has captured more capital investment and innovation than any chain of multiplexes: your living room. Netflix has proven that the world wants American scale and cheap capital with regionalized talent.
6. One Medical
7. Peloton: Competitors are SoulCycle and Equinox
8. Investing Apps: Public and Robinhood: The company embodies big tech’s evolution from innovation (better products) to exploitation (depressed teens, gamification, addicting young people to variable rewards). Gamification is an exploitation algorithm, as is the enragement algorithm that controls the Facebook newsfeed.
9. Shopify: Shopify disrupts Amazon by offering customers the service and value of Amazon without the data and branding exploitation.
10. Spotify: Spotify boasts global reach, product differentiation, and likability. It lacks vertical integration and is perpetually punished for that by Apple, which skims 30% in App Store commission. Spotify still has all the makings of a potential trillion-dollar firm. The gangster move? Netflix and Spotify merge and acquire Sonos for vertical integration.
11. Tesla: Buying a Tesla is the ultimate status symbol. Most products indicate one of two things: “I’m rich” or “I have a conscience.” But Tesla does what only philanthropy offers . . . both. “People who buy Tesla aren’t irrational, it’s just not a rationality I buy into. Tesla is an implausible story but not an impossible story.” — Aswath Damodaran
12. Twitter: Tt would be a $100-billion-dollar company (vs. $30 billion). The only firms with the reach and influence of Twitter (Tencent, Facebook, and Google) register 17, 24, and 39 times the market capitalization, respectively. Twitter needs to go iOS — charge for value vs. exploit for data.
13. Uber: Flywheel is Uber Eats. It has benjamin button effect.
14. Warby Parker: Warby is the least bad start-up in specialty retail, a sector that has been a wonderful place to shop and a terrible place to invest or work.
15. WeWork: They need to think like the real estate business they are. For example, hotels are usually separate LLCs so one hotel can declare bankruptcy without taking down the whole company.
16. TikTok: Similar to the poorly executed trade war, China will not blink first, as they blink less often — they think in 50-year time horizons.

Chapter 4: HIGHER EDUCATION

Abundance:

Student loan debt now totals $1.6 trillion, far more than credit-card debt or auto loans.

IVY-COVERED CASTE SYSTEM:

1. Wealthy kids today are over twice as likely to go to college as poor kids, and over five times as likely to attend an elite school.
2. At 38 of the top 100 colleges in America, including 5 of the Ivies, there are more students from the top 1% of income than there are from the bottom 60%.
3. The Ivy League undergraduate programs are not colleges, but hedge funds that educate the children of their investors.

DISRUPTIVE FORCES

1. MasterClass has brought the power of celebrity and Hollywood production to online education.
2. Over the next ten to fifteen years, he wrote, 25% of colleges and universities would go out of business. 12 By 2018, he’d upped his prediction to 50%. — Clayton Christensen

The Crisis Is Upon Us

In exchange for time and tuition, college offers three components of value: a credential , an education , and an experience.

C = Credential (the lane you are put in post-graduation based on the brand/school you attended); E = Education (learning and stuff); Ex = Experience (fall leaves, football games, falling in love)

FISCAL SHOCK

1. schools that offer an exceptional credential will be fine. Schools that offer a solid education at a great price are also well positioned.
2. The schools facing an existential threat are colleges that rely largely on the experience aspect of the value proposition.
3. Colleges that have invested in nice ships/buildings and depend on kids rejected from better brands are in trouble. Schools that offer an elite-like experience, with elite pricing, but without the credential, are about to experience a reckoning.

DESPERATE

1. Tenure and union contracts render the largest cost (faculty and administrator salaries) near-immovable objects.
2. The bulk of the teaching is done by adjuncts and assistants, who receive anemic compensation (and grad students, who work for nearly nothing), while the aristocracy of higher ed, the full professors, have their high salaries protected by tenure.
3. Two thirds of international students finance their education with money sourced abroad. In aggregate, international students contribute nearly $40 billion annually to the U.S. economy.

DOOMED

Just as retail closures are accelerating from 9,500 stores in 2019 to 25,000+ in 2020, we’re going to see hundreds of universities begin a death march.

The Road Ahead

Going forward, look for companies like Blackboard and Canvas to massively innovate or be replaced.

Scale

1. Scale will allow individual institutions — and individual professors — to exponentially expand their reach. This provides the potential to correct one of the great inequities of the last half century — the artificial scarcity of elite education.
2. Lifetime learning, a recurring revenue model, presents an enormous opportunity for universities to take a page from the private sector (Amazon Prime, Netflix) and evolve to a superior business model.
3. Tech creates scale, and scale increases both access (social good) and revenue (necessary fuel).

BAIT

1. What SARS was to ecommerce in Asia (Alibaba broke into the consumer space), Covid-19 could be to higher ed in the United States.
2. MasterClass sucks because Young people don’t gain value learning from celebrities, but from teachers, who can give them the skills to become celebrities.
3. At each university, there are 6 to 12 “ringers,” great teachers who are worth it.
4. Ringers, unbounded by the geographic constraints of their campus and parent brand, will see their compensation rise 3 to 10 times over the next decade.
5. Administrators at the top 10 universities who have the skills to become product managers will see their comp increase.
6. MIT and Google could jointly craft two-year degrees in STEM.
7. MIT/Google could enroll a hundred thousand students at $25,000 per year in tuition (a bargain), yielding $5 billion for a two-year program that would have margins rivaling . . . MIT and Google. Bocconi/Apple, Carnegie Mellon/Amazon, UCLA/Netflix, University of Washington/Microsoft
8. If you don’t own the mine (MIT), you want to sell the picks or staple tent denim to create durable pants for miners.

TWENTY-FIRST-CENTURY HIGHER ED

1. Around 20% of college students live with their parents, and over half don’t live in college housing.
2. Twenty-seven percent of full-time students work at least 20 hours per week.

Recommendations

1. Only a third of the U.S. population has college degrees, and less than 10% have graduate degrees.
2. Endowments over $1 billion should be taxed if the university doesn’t grow freshman seats at 1.5 times the rate of population growth.
3. Harvard, MIT, and Yale have combined endowments (approximately $85 billion) greater than the GDP of many Latin American nations.
4. If an organization is growing cash at a faster rate than the value they are providing, they aren’t a non-profit, but a private enterprise.
5. Apple — arts; Google — computer science; Amazon — Operations
6. Gap years should be the norm, not the exception.
7. Our declining life expectancy is mostly due to deaths of despair (drugs, alcohol, suicide).
8. One thing we should not do? Free college. Only 32% of Americans go to college, and cost is not what keeps the most exceptional kids of any income level from getting to college.
9. Improve K–12 education, strengthen two-year programs, expand the seats at the best universities, and college becomes an engine of upward mobility.
10. College needs to be more affordable, but we don’t need to subsidize the wealthiest households in America, who send 88% of their children to college.

Chapter 5: THE COMMONWEALTH

Capitalism, Our Comorbidities, and the Coronavirus

1. At many of our elite schools — passports to a better life — more students come from the top 1% of income families than from the bottom 60%.
2. It’s through government that we ensure the winners don’t rig the system in their favor. We regulate monopolies, or break them up, so that competition can flourish. We tax the winners to invest in the common good (education, transportation, pure research) and to defend against common threats (police and fire, military, natural disasters, disease).
3. The libertarian argument, which is popular in tech today, is that this form of regulation and redistribution is inefficient, that left to its own devices the market will regulate itself. If people value clean rivers, the argument goes, they won’t buy cars from companies that pollute.
4. Nobody wants to die in a hotel fire, but after a long day of meetings, we aren’t going to inspect the sprinkler system before checking in.
5. As a species, we are not very good at attribution — connecting our individual actions with the broader world or thinking long term.

Comorbidities

Disease kills far more people than war — we spend over $3 trillion treating people with chronic disease every year. Yet in 2019, the Centers for Disease Control and Prevention’s budget was just over $7 billion. That’s less than we spend on the military in four days.

Capitalism on the Way Up, Socialism on the Way Down = Cronyism

1. Socialism is rooted in altruism and humanism; it seeks to build up community rather than the atomized individual.
2. From 2017 to 2019 the CEOs of Delta, American, United, and Carnival Cruises earned over $150 million in total compensation
3. Since 2000, U.S. airlines have declared bankruptcy 66 times.

THE VIRTUES OF FAILURE

The high growth recoveries that follow economic shocks are periods of real wage growth, whereas slow and steady growth tends to favor the wealthy. — Thomas Piketty

CRONIES GONNA CRONY

The relief package included a $90 billion tax cut that benefited almost exclusively people making over $1 million per year. At the beginning of August, U.S. billionaires had increased their wealth a total of $637 billion.

Cronyism and Inequality

1. The top 0.1% now own more of the nation’s wealth than the bottom 80%.
2. The three richest Americans hold more wealth than the bottom 50%.
3. For purposes of self-preservation, you’d think the rich would be concerned with this level of income inequality. At some point, the bottom half of the globe by income realizes they can double their wealth by taking the wealth of the richest 8 families, who have more money than 3.6 billion people.
4. Uber-wealthy paid a tax rate of 70% in the fifties, 47% in the eighties, and 23% at present — a lower tax rate than the middle class.
5. We’ve exploded the debt so rich people pay less tax. Money is the transfer of work and time, and we’ve decided our kids will need to work more in the future, and spend less time with their families, so wealthy people can pay lower taxes today.
6. Once people make the jump to light speed, advantages like tax-breaks let them pull away. Access to more resources, investment opportunities, lower taxes, tax specialists, political contacts, friends who can help your kid get into school, and the wheel spins.
7. It’s never been easier to become a billionaire, or harder to become a millionaire.

ECONOMIC ANXIETY

1. Wealth cushions the small blows — lost jacket, an overlooked electric bill, a flat tire — while insecurity magnifies them.
2. Economic anxiety is similar to high blood pressure. Always there, waiting to turn a minor ailment into a life-threatening disease.

The New Caste System

The biggest determinant of an individual’s economic success is not talent, it’s not hard work, and it’s not even luck. It’s how much money their parents have.

CARTOON

1. Most very successful people have a few things in common: grit, luck, talent, and a tolerance for risk.
2. Conflating luck and talent is dangerous. The Pareto principle posits that even if competence is evenly distributed, 80% of effects stem from 20% of the causes.
3. White men hold 65% of elected offices despite being 31% of the population.
4. Altruistic behavior decreases in times of greater income inequality. The rich are more generous in times of lesser inequality and less generous when inequality grows more extreme.

CORPORATIONS ARE (RICH) PEOPLE TOO

The Exploitation Economy

1. In the past decade, we have transitioned from an innovation economy to an exploitation economy.
2. Most disease and hardship for our species has been a function of scarcity — too little salt, sugar, fat, approval, safety, opportunities to mate. As a result, when we find these things, our brain produces the ultimate reward, the pleasure hormone dopamine. And it makes sense: Nature rewards behaviors that ensure the survival and propagation of the species.

SUPERABUNDANCE

1. The assembly line, processing power, and Amazon Prime have not only met the minimum thresholds for survival but created a new threat to our species: superabundance. Diabetes, income inequality, and fake news — all are a function of our belief that more is better.
2. Survival, propagation, and consumption should result in a next generation that’s smarter, faster, and stronger. Where things have come off the rails is a function of our innovation economy moving faster than our instincts.
3. Netflix has become an endless show; TikTok, an endless video.
4. Unlike our parents and grandparents, for us dopamine release no longer depends on sacrifice, engagement, or grit, but on sitting still.
5. Lowering your dopamine threshold allows a smaller amount of pleasure to be satisfying.

Take Government Seriously

In 2020, the U.S. will spend a third more than it collects ($4.8 trillion vs. $3.7 trillion).

ON THE KINDNESS OF BILLIONAIRES

business teaches us to always look for the advantage, not to give anything away without getting more in return. That’s the antithesis of government (and government service), whose purpose is to contribute to the commonwealth without recompense.

VOTE

You want to know why we have a system that’s designed to transfer wealth from the young to the old? Because old people vote. Those over 65 are twice as likely to vote as people under 30.

Tragedy of the Commons

1. Happiness is not only a function of what you have, but what you don’t have. Specifically, an absence of fear.
2. When you give money to poor and working-class people, you see an immediate multiplier effect in the economy — because they spend it. They buy food, they pay rent, they buy new shoes and fix their broken refrigerator. And consumers are the best arbiters of which companies should survive the crisis, not the government.
3. If you believe in the power of markets, we should be putting money into the hands of consumers, not companies.
4. Start with the people and work up. Don’t start with shareholders and work down. Shareholders are supposed to lose, that’s how capitalism works. The priorities are these: Protect people, not jobs. Protect jobs, not corporations. Protect corporations, not shareholders. End of list.

MALEFACTORS OF GREAT WEALTH

1. We think of antitrust (breaking companies up) as a punishment. It isn’t, it’s oxygenation.
2. Competition creates options.

What We Must Do

1. A step backward, after making a wrong turn, is a step in the right direction. — Kurt Vonnegut