Episode 31, my 30s were mostly about death loss, the only person I knew loved me, my mother divorce got divorced and then hair loss. I am still not over these things. I'll tell you, you know, it is profoundly tragic losing your hair.

Go, go, go. Welcome to the thirty first episode of the Property Show and today's episode, we speak with Sanandaj Raul, a professor of management, marketing and data science at MIT, to hear about his new book, The Hype Machine How Social Media Disrupts Our Elections, Our Economy and Our Health, and How We Must Adapt while that rolls right off the tongue, doesn't it? OK, smart guy, not a great marketer, actually. Sanan is a colleague from NYU and then he bolted for my dad dad trader.

Oh my gosh. Anyways, smart guy, good conversation. OK, what is happening? What's on everyone's mind?

The big event from Apple Yippy Apple announced a slew of updated products and most notably the company's new phones will be built for 5G, hoping to inspire a super cycle of new phone purchases. iPhone sales peaked in 2015, and the company has doubled its stock price in the last 18 months on the back of subscription or removed a subscription revenue. But at the end of the day, the company, an iPhone and the Seven Dwarfs most profitable product in the history of mankind.

And what do we have here with what is so exceptional about the iPhone? It's not only the market leader by market share, it's also the most profitable. So Samsung may have one phone that's more expensive, but in terms of gross margin dollars, nothing comes close to an item that garners eleven hundred dollars in the marketplace, will sell a quarter of a billion of those of those bad boys and costs about 500 bucks in glass chipsets and sensors. This is nothing like this.

An analogy in the automobile industry would be all right. Typically, the best selling car are low margin cars right there. Great value. They appeal to the mass market, the Toyota Camry, the Honda Accord, and then you have your high margin profitable cars, Range Rover, Ferrari, that produce substantially fewer cars.

The marketplace is just much, much smaller.

So what is Apple? What is the iPhone? The iPhone is really anomalous and singular. And that is what if you had the margins of Ferrari with the production volumes of Toyota, what you do and it's called the Apple iPhone. So 5G, a lot of snarky people saying, OK, we really can't take advantage of it. It's up to AT&T and Verizon in terms of your ability to actually access these blistering fast speeds. But it's important and the perception will be this is a tangible reason to upgrade your phone versus the incremental reasons that Apple has presented, whether it's a better camera or it's better looking or it has new cool technology, but nothing really comes down to one thing.

And that is as an economy, we have been much more creative, much more adept at building the technologies on top of bandwidth and throughput than we have been providing bandwidth and throughput.

The economists did a survey or a study about a decade ago and found that bandwidth has directly correlated to GDP growth. So what can you do to inspire, catalyze growth in an economy, simply put in place the infrastructure investments and they're substantial to increase throughput and bandwidth. So this is a big deal.

The thing I noticed, I think that the dog sense that Douglas sniffing the ground.

I was listening to the opening remarks of Tim Cook.

We also designed them to be secure and to protect your privacy because you should be the one in control of how your personal data is used.

He led the event with privacy. Now, if you were to walk around the Apple spaceship, bad timing to invest trillions of dollars in an HQ in my viewpoint. But anyways, I think these things are just giant phallic symbols. Let's build a testament to my manhood and have it plunder had plunge into Mother Earth anyways.

What we are missing here are what is really exciting about this or different, I should say, is that if you were to walk around the spaceship and say to people at Apple, what are you most proud of? What should we talk about in our marketing? What should we lead with?

I don't think any of them would say privacy. Let's talk about our privacy. They talk about design or creativity or new apps or new features, whatever it is, the ecosystem. However, however, this is the genius of Apple, and this is probably the most genius marketing move. I say that a lot, but one of them is that they are leading and have led with privacy. Why, why, why?

It comes down to a basic concept we teach in brand strategy called laddering, and that is when you make a marketing statement, when you promote a feature of your product or service, you are not only highlighting a strength, you are immediately raising that dimension for public scrutiny and thereby ideally positioning your competition. So when you're the Democrats and you're talking about health care, you're not only talking about why Democrats would be better for health care, but you're basically trying to highlight the fact that the novel coronavirus has killed more people faster than almost any crisis in history.

And you're trying to bring up the fact that the Trump administration has not been able to put forward their own health care plan, your positioning the competition. And that's exactly what Tim Cook has done. Notice with the new smart speaker they're putting in your home that he led with privacy because of what he's trying to do is an. Still a sense of fear that Amazon, like Facebook and Google, is molesting your data, do you really want a listening device in your home?

Well, if you value privacy, but you want that awesome smart speaker, go with Apple. Voice is one of the few places that Apple has really stumbled.

Who was the original gangster here? Siri in Syria has been taken out behind the gym and had the shit kicked out of her or him and basically given away to Alexa. And this is a rare this is probably if there is a big misstep, if there is a giant stepto in the history of Apple in the last decade, it's a fact that they basically acquiesced or lost voice after having first mover advantage anyways.

Anyways, anyways, in other news and other news, cutting the cord continues. The Walt Disney Company announced a reorganization of its business operations and is focusing on streaming video services. The company said its content will be separated into three groups studios, general entertainment and sports. Disney is also creating a distribution department that will be responsible for all monetization of content across various platforms and will oversee the company's streaming services. Here's what Disney was recently appointed CEO had to say.

Managing content creation, distinct from distribution, will allow us to be more effective and nimble and making the content consumers want most delivered in the way they prefer to consume it.

So there's a few things going on here that is really interesting. First off, they're doubling down on what is probably the most exciting part of the business, and that is streaming and Disney plus has come out of the gates. I think Disney is arguably the most undervalued big company or big aspirational company in the world. I don't think any company has these assets and trades at the reasonable multiples. It is Disney. And I think it's a big opportunity because I think a lot of the pain they're enduring is cyclical, not structural.

I think once we move back post vaccine to some sense of normalcy, business travel has had structural demand destruction. We're just not going to be commuting as much to work. We're not going to be traveling as much on business.

But I do think leisure and resort destination based travel will likely supersede prickley levels. Why?

We're going to more time and the people who go to Disney and the wealthiest kind of upper median of households are going to have more time. They're probably gonna have more money and they're going to say, all right, let's spend more time on if we're not traveling as much for business, we have more time. Let's go to galaxies that I know. Kind of the first thing I'm doing post vaccination is taking my 10 and 13 year old boys to galaxies at Disney.

Orlando, what else is going on here? Dan Loeb, an activist, basically announced that he had taken a large stake in Disney and said, which is this is unusual Disney unusual part. He said that he thought Disney should cancel the dividend such that it could have the additional cash flow to reinvest and double down on content for the streaming video platform.

Now, what's the test here? Disney still isn't comfortable crossing the chasm, and that is it is difficult for them to pull the content, take the content out of the original path where they monetize to the tune of hundreds of millions or billions of dollars.

And as you go into the seven day exclusive TV theater release, then you go to the other streaming video guys, whoever is willing to pay the most, and then you put it on your own streaming video platform to bypass all of that and not get that sugar high of hundreds of millions in revenue and then put it on, as we call it, a value pulse.

You just if you go straight, Black Widow, the superhero movie starring Scarlett Johansson, which I can't wait to not see. I am so sick of entertainment being basically being dominated by men in tights and the occasional high woman who are supposed to believe as a superhero. I just I just don't get it anyway.

Anyway, that's neither here nor there. It's more there than here, but it's neither of those things anyway. Disney has got to, like, stop, stop fucking around. If Disney really wants to make cross the chasm and move to a multiple of revenues instead of a multiple view of it and get away or bust out of the cycle of everybody's second guessing the destruction and park attendance and really kind of command the space it occupies, they need to take all of their original content and think about streaming video first.

And this signals that this signals that somebody is going to be running distribution, saying over the long term, wouldn't we be better off? Wouldn't our share price go higher? Wouldn't we be considered a viable competitor to Netflix if, in fact, we took our most valuable content and put it straight on a proprietary vertical streaming video platform called Disney Plus and rolled all that shit up? It should be Hulu, it shouldn't be ESPN, it should be Disney Plus.

It should also include a variety of other things. We've talked about this in terms of recurring revenue bundle, but we have an activist, we have a reorganization of the company. Realizing the distribution strategy is is so important they're doubling down on Disney plus.

And finally, finally, the real test is, can an old economy company that is constantly heckled out from their investors, from the cheap seats who are more short term minded, do they have the testicles to take a huge short term hit in revenues and earnings?

In order to start pulse valuing or really creating values, pulses of value around streaming video such that they can move, they can make the jump to hyperspace, make the jump to light speed and command the space they occupied with the ultimate recurring revenue bundle anchored by Disney Plus.

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Welcome back. Here's our conversation with Senator Honorable and MIT professor of management at marketing and data science and author of The Hype Machine.

So where does this podcast find you?

Well, it finds me deep in a conversation about how we fix social media, which is a deep trough to be in good time.

And where are you? Don't get old. Don't get on professorial on me. Where are you?

I'm in Brooklyn. Brooklyn, Williamsburg, Brooklyn. Yeah, I like to keep it. I like to keep the hype cool.

Keeping it real. So, OK, so the hype machine, how social media disrupts our elections, economy, health and how we must adapt. You sort of you were sort of in this stuff before. It was cool. So give us a lay of the land. What does your research tell us about social media, how it's destroying democracy and humanity? What is your give us the voice over the Cliff Notes.

Yeah, you know, the hot documentary of the day is the social dilemma, which everybody seems to be watching and talking about. And I have to say, I'm a big fan. We need more clarion calls like this to raise our awareness of the dangers of social media. And it's obviously not the first. I mean, there was the great hack before it and there was the book and surveillance capitalism. And these these clarion calls are great. But my book starts with these documentaries and books Leave Off, which is what do we do?

And the book basically argues that we can't be armchair theorizing about how this stuff works. We really have to get under the hood of social media with science, understand how it's affecting our society. And as the you know, as the subtitle says, it's about democracy. It's about elections. It's about our economy, our health. And so I really try to get into the science of it and get into very specific detail about what we can do to fix the crisis we find ourselves in.

OK, so what do we do? Well, I mean, the first thing we have to understand is how it works to kind of destroy our democracy, to affect our elections. And, you know, there if you think back to twenty sixteen, we were in the midst of a massive social media manipulation campaign that was the subject of a conspiracy to defraud the United States, as Robert Mueller called it. And, you know, hundred twenty six million messages on Facebook, 20 million on Instagram, 10 million tweets on Twitter.

Forty three hours of YouTube content. And fast forward four years, 30 days before the most consequential election in one hundred years. And we're no more prepared. Russia is more sophisticated and we're in the middle of a global pandemic with civil unrest and questions about in-person voting and by mail voting and and we're no better off. And so I think we're teetering on the precipice of a lot of calamities that have to do with social media once this election is over.

And we do the forensic analysis on Facebook and social media's role in this election, do you think it'll be as bad or worse or less damaging than what happened in 16?

It will be more influential and more if we stay more influential, bad or worse. A lot of the influence is going to come from legitimate political campaigning that is just incredibly persuasive and precise, very well targeted. We saw glimpses of that even back to the victory lap of Obama on if you go back even before that, it was trippy that was helming the social media sort of advertising of campaigning. It was really the first. But the Trump administration, the Trump campaign, I should say, in twenty sixteen was way more sophisticated than the other side.

So there's a lot of influence through legitimate political campaigning. Then we have the influence of Russia and now China and perhaps Iran. Russia is way more sophisticated than it was in twenty sixteen. Our intelligence community is unanimous in that they have, for instance, moved their servers to the United States to avoid domestic surveillance. They've infiltrated Iran Cyber War Department, perhaps to launch attacks made to look like they came from Tehran. They're nudging real American citizens to spread misinformation of propaganda, to get around platform policies against inauthentic content and accounts.

So I think it's going to be much more influential, both through the illicit manipulation attempts by foreign actors and through legitimate political campaigning that is targeted and persuasive.

So I'll put out a series of theses and you tell me where I've got this wrong. Until there's a perp walk, it's going to continue.

You mean Mark Zuckerberg in chains on the way to prison? Look, it seems to me the financial crisis, when we look back on 2008, the reason a lot of people think the reason it's kind of recurse to have a repeat every seven or eight years is that no one went to jail. So 450 million dollars in advertising on Facebook, 10 times revenues weren't half billion, 30 percent off. The Mark Zuckerberg of political advertising is worth a billion dollars.

And until the outdrive of disincentive, until somebody gets arrested, no one's really going to be serious around trying to stop this.

Yeah, you know, I, I would say I agree and disagree. So I agree completely with the current lack of incentive to change and the fact that there is a needed incentive to change. And, you know, there's a big call to break up big tech. And I think that's a misnomer because I think each of these cases is so different from the other. But in the case of breaking up Facebook, I don't think that solves our problems.

I really don't, because the underlying economics that creates concentration in social media is network effects. And if you break up one company, you don't solve the network effects problem and you'll just tip the next Facebook like company into market dominance. What you really need is data portability, social network portability, interoperability, just like we did with telecommunications, just like we did with instant messaging. Those two examples are examples in which we saw a decrease in market concentration immediately after that kind of legislation was passed and the Access Act is pending.

Approval in front of Congress right now would force all social media platforms over one hundred million users to be interoperable. And I think that that's a workable solution.

So data portability, explain how it works. Give us the example. The phone company.

Yeah. So if you remember, we didn't we weren't able to take our phone number with us if we switched from one cell phone carrier to another and you would have to give up your cell phone number. And in fact, that was social network portability because everyone knew you buy that number. That is how your network contacted you. And when we force through legislation that the service providers allow you to take your number with you, in other words, allow you to take your network with you from one provider to another, it created a tremendous amount of competition.

There's a study that shows that over the over 20 years when Europe instituted number portability in the cell phone market, it created eight hundred and eighty million dollars of consumer surplus every quarter for 15 years. And it also created a tremendous amount of competition. It's crazy to think today that I wouldn't be able to call you Scott on Verizon from my Sprint service. And yet that's exactly what we have in social media. Social network portability and interoperability would be where I could create a series of messaging standards based stories, text, video stories that disappear.

Vine's Real's. There would be a standard for each of those types of messages. And you could communicate with someone from Twitter to Facebook or from, you know, what's up to the other. And that would force them to no longer lock you in to getting value from being able to message your friends on any given network. And it would force them to provide us with user interfaces, privacy protocols, security, and that would force them to differentiate and compete on those dimensions, which they currently do not have to do because they say you want to talk to your friends.

Well, the only way you can do it is through us. And if you have a problem with that, then you can just stop talking to your friends. That's that's not an appropriate way to create competition.

Innovation is interoperability also a function of if I want to take my network, my friend network, then I've created a Facebook and ported over elegantly to Twitter such that it lights up Twitter friends or Twitter followers on Twitter format. Is that also part of it or is it just making the formats fluid between them?

I think it's a combination of both. I think you need to be able to to have both happening at the same time. I think that it's really a better way to think about is identity portability. I should be able to take my social media identity to any platform provider and have it be seamlessly, essentially the same for a standard set of messaging formats and content. And there might be differentiated content and formats on each of the platforms above and beyond a certain set of standard messaging formats that would differentiate one platform from from another.

But I would exist on social media through any device, quote unquote, platform that I would access it through, and I could speak to people fluidly from one to the other.

And what about so a notion of identity? And I was sort of one one thing that especially Twitter, although I guess we're going to read benefit, is. It anonymity gets starched when I look at my Twitter feed, when I look at accounts that look like they're trying to pick a fight or create dissent or a. between people are trying to undermine anything I might say about Russia. I think this is about this effect. This is someone pretending to be someone else.

It's one person managing dozens, thousands, millions of accounts that is tearing at the fabric of our society. What about the idea of a verified identity across all the networks?

Yeah, you know, I think this is a it's a tough question. I think that there is some need for pseudonymity. But I also think that there's a need for sorting out and often take accounts or inauthenticity. And so there are different ways that that can be accomplished. It's not clear that having everyone be a verified single identity all the time in every social network is the way to promote the healthiest communication ecosystem. There are some situations in which platforms like these can be used to resist oppression in parts of the world where, you know, a a ruling authority knew that you were the one saying what you were saying on social media, that it would chill that kind of speech and that it could create repercussions for the expression of minority opinions.

And so there is a need for pseudonymity to allow people in those situations to be able to speak. But at the same time, there can be backend verification. So I think one thing to to think through is the notion of applications of block chain, for instance, that would be able to verify who's who, but also keep the information about who that person is, private and secure. As long as it's being verified on a backend. It's not clear to me that everyone needs to know who everyone else is on the Internet at all times, as long as we have some accountability and verification at some level.

Yeah, the notion that you need some anonymity, you know, people talk about the Arab Spring and how a lot of people have their identity been revealed or would have been very dangerous for them. But I feel as if that is granted. It's important to I feel as if the downside of that has just gotten so huge.

Do you think there's maybe an opportunity for people to communicate securely to a filter?

In other words, there's there's anonymous filters or sources for anonymous content to come in and be passed in for somebody to do a better job of evaluating whether it's a legitimate content, whether someone behind it is actually it's a human, not a bot, because it just feels like it feels like that is that has the argument around the importance of anonymity for to fight against totalitarian governments has been the cloud cover across what I think is a great deal more damage? It feels to me, especially Twitter has just become a cesspool of hate, you know, just literally just it's starting fires everywhere, everywhere I can.

But let me move on to the to the money part. What about the idea of a tax? And that is any algorithmic any ad served up algorithmically pays a tax, given that slowly but surely people who used to make these decisions, whether it's editorial or a media buyer, the employer, they're paid a payroll tax because the algorithms don't have a payroll tax. We are not only encouraging the outsourcing and destruction of jobs, but the underlying algorithms, which are benign but also indifferent, will ultimately figure out a way to create content that is that is most engaging, which unfortunately tends to be rage, that what if we tax these things such that there was a better move or more economic incentive to move away from the ad model to the subscription model?

Because as far as I can tell, the distinguishing feature between these platforms that really fuck up our society are ad based or ad driven. And then the ones that are subscription based aren't nearly as damaging. The New York Times and Netflix have not been weaponized. It's the underlying ad model that really is the is the tobacco that creates the cancer in our society.

What about what about some sort of tax on algorithmically driven ad models?

Well, while I agree that the business model is a big driver of the negative consequences that we see in society, I sort of see the tax policy proposals as being a broadsword, not a scalpel. When you think about the advertising economy and you really evaluate it in a in a fair way and look at all of the costs and benefits. There is a tremendous amount of consumer surplus and benefit that's created by the advertising economy, and I'm not just talking about revenues created earned by advertisers or the platforms, I'm talking about consumer surplus that's generated for the consumers themselves because people got a phone for free or they get to watch a show for free.

Well, yeah, exactly. Exactly. It's not it's not just that they get to watch a show for free, which is so, for instance, research at the MIT Initiative on the Digital Economy, which I direct, as well as at Stanford, shows that Facebook creates about three hundred and seventy billion dollars a year in the US alone and consumer surplus. Imagine that worldwide attacks would be a broad sort approach that would kind of dampen those benefits broadly across society.

Another important thing to remember is that when you think about a subscription model, it necessarily creates inequality because some people can afford that and some people can't. And if you consider at the same time that Facebook in a lot of parts of the world is the Internet in the Philippines, Facebook is the Internet in parts of Africa. Facebook is the Internet. It is the source for economic opportunities, small and medium sized businesses getting new jobs, getting, you know, meaningful human connections, getting life saving public health information, creating a subscription service broadly would allow the rich to have access to that, but not the poor.

And that is an important part of considerations for subscription models.

I do think, however, that the basic point that you're making is the right one, which is that the incentives created by the digital advertising business model are based on the attention, economy and engagement. So what are the platforms? So they sell attention as a precursor to persuasion that get your attention, that creates ad inventory. They sell that ad inventory and then people can persuade through ads sold in that inventory. But I think that the true leaders of the new social age are going to be the ones that realize and with a little help from regulation that aligning societal values with long term shareholder value is more effective long term than getting this quick fix of short term shareholder value.

Because there's going to be a reckoning, there's a backlash either through regulation or through stop for profit, delete Facebook. These are these are indicators that employees and consumers are jumping off of the sinking ship. And that is not a ship that survives long term either because of regulation or because people delete Facebook or employees in droves. I think the the the ones that will succeed are the ones that align a sustainable long term profit maximizing business model with society's values in a wholesome information ecosystem.

And yes, government regulation is going to be required to create the incentives that make that happen.

Isn't there a way to make a progressive subscription structure, though? So for Twitter, less than a thousand or less than ten thousand followers, it's free. Ten thousand one hundred thousand. That's five bucks a month. You know, over a million. It's two hundred bucks a month or two fifty. It seems to me there's a lot of surplus value from corporations and famous people and people like you and me who use these things as platforms to circulate our IP that is not being captured in the company could capture that, maintain their shareholder driven model while at the same time not precluding or excluding people who don't have the money for a subscription service to still engage in these platforms.

Isn't there is there a way around it through tiered pricing maybe?

I think that at its heart it's still regressive because you're still taxing the person who finds it difficult to pay for the subscription and you're now taxing them on their reach and influence. So if they want to build a bigger business, if they want to take their small and medium sized business, they have a great product. And their audience, you know, they want to reach a great audience or even if it's a nonprofit in South Africa that wants to encourage condom use to stop the spread of HIV, you're saying the better you do, the more we're going to tax you on it.

And that is, again, a broadsword. I think that, you know, to begin with a competitive market that creates incentives for everyone to deliver what consumers want the most is the first step. And then just like with pollution and with every interoperability. Yeah, yeah, yeah, yeah.

And then and then with as with every other market failure that that we've realized and addressed. You know, we have to have regulations, so, yeah, I mean, so for instance, you know, pollution is a negative externality that companies don't internalize the costs of. So they pollute because, you know, they can't fully internalize the costs of pollution to society on their own bottom line. The same is true of misinformation because they can't fully internalize the costs of the impact to democracy on their bottom line, save their Facebook.

And as well, for instance, when we're talking about food that we consume at the grocery store, it's extensively labeled with calories and trans fats. And if it's produced in a facility that produces wheat and peanuts because it's regulated, it's required to label. Why don't why isn't the information we consume labeled? Why isn't the veracity or the source scrutinized and labeled in the same way? Large scale experimental evidence shows that when you nudge people to be reflective of the information they're consuming, they're less likely to fall for fake news and less likely to share it.

If you ask them every once in a while and their feed. Is this headline accurate? It not only scales crowd sourced labels of accuracy, but it nudges them to be reflective, which reduces the spread and belief of fake news.

You mentioned a number that Facebook creates three hundred thirty billion dollars in surplus value. Can you break that number down?

Yeah, so it's three seventy and the way this is a fascinating story of research that's told in the book. Actually, you know, the problem with regulating Facebook is that nobody pays for it. And so all of our antitrust conversations since Bork all the way through the Chicago School of Economics are all about prices. Monopolies try to charge higher prices. That's where we get harmed, consumer harm. But obviously, Facebook and the rest of these free services are free.

So how do you measure the benefits of a free service if you can't measure what people are willing to pay for it? Researchers at Stanford University offered to pay people to give it up. Mm hmm. And they did this at scale on very large scale, discrete choice experiments online. And they estimated, well, how much is it worth to people every month if we paid them to give it up? And based on those individual assessments, they created a demand curve for these products and then they were able to estimate the consumer surplus, the additional benefit that consumers got over what they paid for the service, which is nothing.

And from that, they aggregated it up to the economy. And in the US, that was worth about three hundred and seventy billion dollars per year.

I mean, I definitely see the. It strikes me that looking back, we're going to think that when something weaponized is our elections, when something perhaps even if it didn't elect an illegitimate president, creating doubt around our elections, teen depression, job destruction, tax evasion, it just it feels like we're going to look back and think, for God's sakes, I mean, why aren't we just sitting on our our hands here? It feels like we're I don't know.

I just and I worry. And I'm curious if you've looked at regulation or lobbyists, I worry we've been overrun, that it's too late, that with more lobbyists in D.C. than there are working for Amazon than there are sitting U.S. senators. And when the Facebook, PR and communications department is larger than the newsroom at The Washington Post, that we've just been outgunned, that we're just kind of I don't think it's too late because the world is what we make of it.

But it feels like this has gone on far beyond where our head is reached before we moved in with previous previous companies with oil or big tobacco.

Yeah, I mean, in some sense, you're telling the story of the book. I don't want anyone to get the impression that I try to paint a rosy picture of social media. I certainly lead with all of the catastrophes that we're all experiencing every day. And that's true. And I and I try to do that, not in a hyperbolic sense. But and here's the data. Here's the actual evidence. I mean, you know, I started researching social media before Facebook was founded.

And so I try to lay it out, lay out all of the scientific evidence for both the harms, but also remind people of the benefits in terms of is it too late? And the and the lobbying. I couldn't agree with you more that, yes, there is a problem of regulatory capture where we have big corporations spending so much on lobbying and people immediately talk about that. And in the first weapon, or will they go to in the in the quiver is antitrust.

But antitrust is a horrible solution for all that hurts.

That's my go to it. That's my go to put that one back in the quiver, because that really politicizes antitrust, which is really run by the executive branch. I mean. The corruption that's created by using antitrust in that way, the real way that we do that we do this is campaign finance reform, it's legislation, it's H.R. one. It's really getting serious about reducing corporate influence in politics. And we could do that. But we should do it through the correct means, through the ways that are going to create more corruption than it will solve.

So connect the two. I understand the arguments around getting money out of elections, but what link that how that will fix some of the externalities of social media? Yeah, absolutely.

I mean, you know, today we have the social media platforms spending tens, if not hundreds of millions of dollars each on lobbying to get their way on laws that are regulating them. And that money could be much better spent helping us. And it's being put to reducing our ability to control the harmful effects of social media on society. And so and social media isn't the only place where corporate money in politics is creating harm in society. I think it's a much broader problem that we've dealt with for a long time and have been unable to really come up with an effective solution for.

But I think that it's something that we really need to to address more broadly.

So why did you call this book The Hype Machine? Everything I heard you say wouldn't win a better title. Be The Rage Machine, because I read the Hype Machine, and I think it's some good, some bad that I should read this if I'm in PR and I'm going to leverage these platforms. Why did you choose that title?

Yeah, the reason I chose the title is because the business models are based on engagement in an attention economy. And the way that they engage us is they hype us up and they hype us up with good and bad. And the message of the book is that there is tremendous promise in social media and the potential for tremendous peril. So, yes, I do want to make sure not to overlook the positive benefits of social media on society. And yes, you're correct that a lot of our research has shown that, for instance, fake news travels farther, faster, deeper, more broadly than the truth because it is rage inducing and because it's salacious and it gets your blood boiling.

So the Rage Machine was it was a close second in the titles that I was considering. But at the end of the day, it does hype up positive things as well as negative things. In addition to, you know, I mean, there's a lot of princess social movements from Black Lives Matter to the Snow Revolution to Hong Kong, Ukraine, the Arab Spring. These are all examples of positive effects of social media as an accelerant. Like as much as people like to make fun of the ice bucket challenge, it did raise a quarter of a billion dollars with a B in eight weeks for ALS research.

The tremendous power of social media is also evident when you research it for twenty years. And so the point of the book is to say social media has the potential for tremendous promise and tremendous peril. The book is about how do we achieve the promise and avoid the peril. And I do I really do think that we have to get past the debate about is social media good or evil? You know, I think the answer is yes, exactly. The answer is yes.

And the much more important question is what do we do? What can we concretely do? And that is the point of the book is to is to get past the sort of techno utopianism that we had for a decade, followed by the techno dystopian ism that we've had for a decade and really ask, what can we do?

Sanandaj is a professor of management to marketing and data science at MIT and the director of the MIT Initiative on the Digital Economy is also a founding partner and manifest cap, but also Non's book, The Hype Machine. How Social Media Disrupts Our Elections, Our Economy and Our Health and How We Must Adapt is out now.

He joins us from his his Millennium Man Cave in Brooklyn, which we knew Senate. He was easily the coolest professor at Stern Low Bar, low bar, but nonetheless, he had that consonant stay. Well, my brother, congrats on all your success. Thank you so, so great to talk to you, Scott. Thanks for having me. I appreciate it.

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OK, it's time for office hours, the part of the show where we answer your questions about the business world, big tech, higher education and whatever else is on your mind. If you'd like to submit a question, please email a voice recording to officers at Section four dotcom roll.

The first question and by the way, I have not heard these questions before.

The element of surprise, the element of electricity, it's it's a dog and a jungle roll roll tape. Hi, Scott.

I'm Patrick, coming to you from Nashville. My question for you involves retailers trying to compete with Amazon on the last mile delivery, specifically with MasterCard. Many retail brands, both regional and national, have partnered with the card to handle the shopping and delivery experience. Yes, the card claims they serve more than 500 retailers and forty thousand locations. The problem they're not only real is brand loyalty is instant card doesn't share their customer data with the retailers they've partnered with, unquote.

And it was announced this week that they just closed on another round of funding and their valuation is now almost 18 billion. It's widely assumed that the car will soon open their own dark stores to provide specific products and brands for their customers, cutting out their retail partners and impairing the retailer's profit margins. So my question for you, big dog, why do retailers continue to make this short sighted decision to engage in a parasitic relationship with the cart? It doesn't make more sense for these retailers to band together to develop their own solution or find an alternative partner.

That's not a potential competitor thanks to that.

That was a thoughtful question. So it's a card. And American company operates a grocery delivery and a pickup service in the US and Canada. Our customers order groceries from participating retailers with the shopping being done by a personal shopper. OK, so inspired. So this is about everybody wants custody, the consumer or specifically everybody wants custody of your data. If you can control the browser in the search engine, that gets your data. If you can control the e-commerce platform that gets your data, whoever is the service provider who to the person that owns the customer relationship and gets the data, whether it's the cable company that didn't let Boehner, who was watching HBO, they ultimately over time, especially in a data driven age where you can start leveraging that data, putting some limited A.I. on top of it and establishing a stronger relationship with the consumer and all the leverage you're going to win.

Now, the question is, OK, theoretically, it makes no sense for people to engage in that relationship, except except the promise of owning that custody of the consumer and the promise of ultimately getting to a point of being that platform means that if you have the vision and the execution and you make progress against that vision, you can raise capital at such a cheap rate that, quite frankly, you can offer your retailers and those grocery stores a level of technology at a price that is really attractive.

There's a lot of people, small retailers aren't stupid to go on Amazon. The grocery stores partnering or using in-store cart aren't stupid.

But if you're some regional grocery chain in Idaho and you don't have the two hundred million dollars to invest in technology, you're overwhelmed just managing your unions in your labor force. You can't figure out how to how to create how to transport lettuce and figure out cold storage and then insert a card shows up and says for just eight or 12 percent of revenues, we'll do this for you and you can flip on. You can literally turn on a switch and have home delivery or you can sit on your hands and try and go find this type of capital as we blow by you and as Amazon blows by.

Oh, sure. It's it's incredibly hard to resist. I think it's it makes a lot of sense. You can absolutely see why they do it. If you're a small beauty brand, you don't have the capital to build stores. It is it is prohibitively expensive to drive enough traffic to your site as Facebook, Google and Amazon begin sequestering all traffic on the Internet.

So what I call capital wide distribution, capital light innovation is incredibly attractive. The problem is, is it a deal with the devil over time that slowly but surely you put these players, this platform in a position to be so dominant that they turn back to you and say, hi, we're going to go from eight percent to 12 percent to 15 percent, 18 percent.

And and we're going to stay on top of that data set and start figuring out what products are high margin, what products are profitable. We're going to see how people interact with your products, what type of SKU size they're going to learn on your dime and then offer their own private label. And this is anything that retailers haven't done in the past, whether it's J.C. Penney's learning from Levi's sales that they can offer Arizona jeans, which became a billion dollar denim brand, or Sam's cola.

The difference is with data now, you can just do it at scale much faster, whether it's Amazon, figuring out the batteries are a homogeneous product that Duracell and Energizer were getting ridiculous margins on, they understand how people, what sizes they want, what skills they want, and boom, overnight they introduce Amazon basics or Amazon elements if out with the. Branding is and boom, they have a 50, 100, 200 million dollar high margin battery business and the brand the trusted them to be their partner is kind of shit out of luck.

So look what they should do.

What they should do is these grocery chains should start a cooperative and start investing in their own technology and create their own independent company that they each on a piece of similar to what the content guys did with Hulu. That's actually kind of the model for how people, different parties play nice. The problem is, is that Vons and Albertsons and Wegmans, they all think a cooperative is a great idea as long as they're the lead dog. And that is they all want to play nice as long as they're in charge and they are the majority shareholder and the majority of the board seats.

So the best way to defeat an enemy is when the enemy gets atomized, and that is they don't join together, they don't cooperate. I think you could argue that that's probably the biggest threat to the world right now, is that we're no longer cooperating across the North Atlantic Treaty. But that's another talk show anyways.

Easy to understand why people would participate in what is an unhealthy long term ecosystem. They get cheap distribution, cheap innovation. But yeah, you're right, if the grocery guys had any real vision, they'd figure out a way to put ego aside and create a cooperative or a separate company such that they could pull a Hulu and all go on one platform and ultimately not become beholden to the much better capitalized insecure. Thanks for the question. Next question.

Hi, Professor Galloway. My name is Amanda Lee Barber and I'm reaching out from Bethesda, Maryland. We're coming up on the year anniversary of the wheels falling off. We work, in fact, listening to your cutting remarks, I'm wondering if we crash series is how it becomes such a big fan of yours. Anyway, my question is about the current state of the coworking industry after the pandemic. Is there, so to speak, of what do you think of wharfs attempt to focus more on business services?

It seems like coworking is going to make it through, albeit with the marketplace getting reduced due to the pandemic. We'd love to hear from the oggi who predicted we work was a house of cards. Love the show. Thank you for your thoughts. Will Amanda Lee Barba.

So you demonstrate a very easy lesson and that is when someone is nice to you. When someone likes you, you immediately like them. And I think that and there's a lesson here and that is if someone has the confidence you have, if someone is as generous as you are and is willing to articulate admiration or say nice things about someone, if you don't act on those positive feelings, you are really missing out.

Because immediately, Amanda Lee, I like you and I want good things to happen for you. So anyways, thanks for the kind words. And the lesson is, if you are if you feel good, things are impressed by people are like the work I have the confidence in Amanda Lee has and tell them that and you immediately have friends anyway. So that's not that's not why you phoned in. So we work at its peak or its trough, depending how you look at it, was flying of a Badia Global Express into a mountain every week.

They were losing about 70 to one hundred million dollars a week. This thing made absolutely no sense and supposedly they wanted to take a public or Goldman was going to take a public at a value that said it was worth more. The entire automobile industry, this dish, it just made no sense. And people often say to me, how did you know? And it's I brought this incredible skill called math to the party. This thing made no sense.

Now, what about coworking now, Amanda? Amanda Lee Barber from Bethesda, Maryland. What about coworking now? I actually think coworking has a bright future and a post pandemic world. We are absolutely. You want to talk about a reconfiguration. You want to talk about rivers changing direction.

Let's talk about office space. So many of us have rethought, reconfigured our relationship with commuting and with office space that it just makes sense that a lot of companies are going to say, you know, at one, two days a week, we need to get together. Herding is still important ideas. The electricity of people bumping into each other, still important. But do we really want to spend? I was spending seven or eight grand a month on office space.

Think about that for nine thousand square feet because I made the same work and moved a lot of entrepreneurs make when I started sectioned for my online learning startup. But OK, we're going to be one hundred people within six months and I am fortunate in that I don't have a difficult time raising capital.

What a stupid fucking move. What a stupid fucking move. Anyway, anyway, where we'll go from here, like a lot of small businesses, is I think it's important that we get together on a regular basis and we'll probably just do coworking and that is either get a static space or just rent space in a cool place with reclaimed wood and frosted glass and IPA beer and cool coffee, and we'll pay a premium. But we on the on the whole will pay a lot less and have a lot more flexibility.

So I think coworking actually does well. Why? One of the reasons we work has significantly evolved.

The space coworking used to be bad cherrywood death and stupid plastic plants that were expensive like Regius.

I think we work the amount of cheap capital they literally burn through. Absolutely evolve the space and at a valuation of. Three billion, I think we work makes sense with a CEO, Sandy Masrani, the guy who used to run General Growth Properties, a very bright guy, the exact opposite of Adam Newman. I think we work actually has a decent future. And I think the future of coworking is actually pretty bright.

Despite the debacle that was we work, we work will go down as more spectacle than historic. The markets did their job. They shut the fire door. The people who registered the losses were PPIF Biloba, the investment fund out of the Gulf, Softbank, and we were employees. But the Markets Union's institutional investors, retail investors didn't lose any money because the markets did what they did. The SEC did what it is supposed to do, the media did what's supposed to do, and the dog did his job.

The dog ran after that ball and started barking. Thanks for the question. All right, one more. Hey, Scott Conner from Alabama here.

I was wondering any advice on how to find funding for a possible business? I wanted to find while I do have a significant amount of money and assets, investments and various other things, I don't feel that I have the money needed to completely fund this business. I've been trying for a little bit, but I don't think I have the connections. You have any advice? Also don't want to hear it out. Scott, give up the good work in the dog pound Buddy Conner from Alabama.

That's a good wrap. Conner from Bama. Conner from Bama. I just like that. So, Conner, first mistake entrepeneurs.

Your make are the ones I made when I was your age is a believing that expenses make a business, that if I can raise money and spend money, I'll build a business.

Now they don't I don't know the business you're trying to build, but unless it's a really capital intensive tech company, most businesses, most businesses can bootstrap on a small amount of capital that is the key to a small business is not expenses. It's not raising money and building infrastructure, it's revenues.

So if you have an idea, the ultimate litmus test of the business is to go find revenues or specifically go find that first client profit red envelope L2 section for action is lie raised a bunch of money because I could, but with all those companies I raise a very small amount of capital from friends and family are no capital at all.

And I threw around nickels like their manhole covers and I tried to validate the concept and then use client money to fund the business. Now, once you prove the concept, then you should have the ability to go raise money. It is very hard to raise money on a brand new concept. Also, at the age of twenty five, I'd be careful about putting too much of your own capital into it. It's easy to enter into consensual hallucination with yourself that it's worth it and it's your dream.

So see if you can bootstrap the thing, get some proof of concept initially. And I say that without having really knowing, without knowing the business. There are things like Kickstarter. There are some angel networks you can tap into. There is a lot of capital out there. But despite the fact there's a lot of capital out there, less than one out of thousand, I think it's even less than that. Like maybe one even like five thousand startups ever raise institutional capital.

And if you watch CNBC and you read The Wall Street Journal and TechCrunch and Recode every day, you would think everybody was raising tens of millions of dollars and that you koner from Bamma are a loser unless you can raise tens of millions of dollars. No, you're not. You're ninety nine percent of entrepreneurs and you need to go out there, maybe raise a small amount of money from friends and family and tell them most likely they will lose it. All small businesses are very risky in that way.

You won't want to kill yourself if in fact it doesn't work out.

Like most of my businesses or at least half of them have not worked out, start small, find revenues, revenues, make a business, find a client or try and sell, get a prototype and try and sell one or whatever it is you're trying to sell into a company and see if you can sell fund until you have proof of concept.

But Connor, Connor, at the end of the day, the way the best way to predict the future is to make it OSB shipping. If you want to be in a services business, start offering that service, build a prototype if you're on a product business, and then and then see if you can get the proof of concept and then raise the money.

Thanks for the question from Pamela. Keep sending us your questions again, if you'd like to submit a question, please email a voice recording to office hours at Section four dotcom.

How to of happiness, what does it mean to be appreciative? What does it mean to take stock of your spoils? What does it mean to actually be the person you want to be? So many times I have not lived up to my own expectations. And the gap between my intentions and what I did was just enormous. And it's something I'm embarrassed by. When 9/11 happened, I thought, I'm going to go down to the pile and help. And of course, I did.

When Katrina hit, I thought, you know, why don't I just run a fucking motor home and go down there and find some people who need help and get them out of there, give them a little bit of money, get back on their feet. And what do I do about a fucking really nothing.

And I've decided in this pandemic I'm going to try and be the man that my kids think I am. And I think there is a strategy. And first off, there's a very dirty secret around the novel coronavirus. And that is despite the fact that I believe seven million Americans I know about two hundred and twelve thousand have died as of today. I think it's about seven million infections.

The majority of us, you know, the majority of us. What does that seven of three fifty. That's what I means. 97 or 98 percent of us have not experienced novel coronavirus. Not only have not experienced it, but if you're one of the ninety 97 percent and you're saying the top 10 percent of income earners and maybe you're old enough to already have established relationships, already have some economic security, maybe you're fortunate enough to have enough economic security where you're invested in stocks.

This is where you are, you're not commuting, you have more time with your family, you have more time with Netflix. The water is cleaner, the air is crisper. You are living your best life. This is accelerated. If you are on the right trajectory, if you kind of made the jump to light speed in terms of your relationships and your economic situation, everything's gotten just fucking disco cocaine. Wonderful. If you're young and trying to establish yourself, if you're trying to make a living, if for whatever reason you were out of work, if you were economically strained, if you had comorbidities in your life, you didn't have good relationships with people.

You were struggling with mental illness, you were struggling economically, then shit's gone from bad to worse. This has taken every trend in the economy and every trend in your life and just extrapolated to just pour fuel on.

And if you had a good life going into this, you're living your best life and if you are struggling, you are really enduring hits. And so what do you do? What do you do? Do you want to bridge the gap between your intentions and your actions? And I think the methodologies, the following, you have to fix your own oxygen mask before helping others. And that is an honest appraisal of where you are in your life and whether you need help.

And if you do need help, do you have the courage, do you have the self-awareness to reach out for help, then go to the next circle? And that is the people around you, your family and friends, the people you know the best, the people who you can kind of sense if something's wrong and then having the grace and courage to reach out to them and make sure they're all right and do it in a way where you're not.

A lot of times I think expressions of help are humble. Brax, you know, people who want to show how just fucking awesome their life is and do you need help? And people are embarrassed sometimes to take help because they don't feel it's like a real offer of help. It's more like schadenfreude of people relishing in your misfortune. I know that's a terrible thing to say, but make sure when you present help that you really present it in a nonjudgmental, humble way.

And then if you're fortunate enough to have your own life going well, to have the people around you, the circle around you, doing well, then that's where you really get off your heels and on your toes. The ultimate the place in heaven that is reserved for people who are generous without any recognition and also help people they will never meet. I've just gotten there in my own life. I'm still such a fucking narcissist. And when I give money away, I want recognition.

If I give money to a university, I want to be in the alumni magazine so all my classmates can go, Oh, what a baller. Isn't he cool? But the real the real grace the people are going to get into heaven first are the ones that figure out a way to help people without any expectation or recognition. And if you're in a position to do that, I think you look back on this period and think, you know, my intentions, the person I am really met who I want to be.

It all comes back to the similar theme. Be the man you think you are, be the man your kids think you are. Foot your intentions to your actions. We are in a crisis.

People need help. Our producers are Carolyn, Chagrinned and Drew, if you like what you heard, please follow, download and subscribe. Thanks for listening. We'll catch you next week with another episode of the show from Section four and the Westwood One podcast network.

Oh, daddy's on fire. Daddy's on fire.