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Secret Stories: Microsoft, Activision, Spotify, Joe Rogan, Neil Young, Facebook
Sometimes what's important about a big business story isn't obvious unless you look at it from an odd angle. Here are two recent examples.
When a big business story hits I try to ask myself, "what else is going on?"
When Amazon bought Whole Foods in 2017, for example, the obvious story was that the ecommerce giant wanted to tap into the nearly $800B annual U.S. grocery business. Less obvious was that by buying Whole Foods Amazon also acquired a lot of geography that they could use for logistics and distribution for ecommerce. Plus, getting customers—even Prime subscribers trained to expect things in two days or less—to drive down to their local Whole Foods to pick up a package or make an easy return would reduce Amazon's last-mile delivery costs. Likewise, there are non-obvious strategies behind Amazon's recent decision to open department stores.
These are the secret stories behind the stories. Sometimes looking at the big story from an odd angle (my old boss Randall Rothenberg loves to use the word "orthogonal" to describe this sort of thing; I like "blind spot") can light up a company's strategy. Other times, it can reveal missing context. In the last couple of weeks, two such secret stories caught my attention.
Story #1: Microsoft buys Activision for the games, but what about the data?
On January 18, Microsoft announced its plan to buy one of the world's biggest videogame publishers, Activision, for a whopping $70B. The New York Times headline captured the obvious story: "Microsoft will buy Activision Blizzard, betting $70 billion on the future of games." Likewise, the Wall Street Journal coverage focused on how the acquisition expands Microsoft's existing videogame empire:
The deal, if completed, would sharply expand Microsoft’s already sizable videogame operation, adding a stable of popular game franchises including Call of Duty, World of Warcraft and Candy Crush to Microsoft’s Xbox console business and its own games like Minecraft and Doom. Microsoft said the transaction would make it the world’s third-largest gaming company by revenue, behind China’s Tencent Holdings Ltd. and Japan’s Sony Group Corp.
Follow-on analysis quickly linked the Activision acquisition to Microsoft's desire not to hand the "metaverse" (shared virtual worlds that we'll access through our current screens and new wearable heads-up displays, which is the next shiny object in tech) over to Facebook, which recently renamed itself "Meta" both to stake a claim and in an attempt to dodge negative scrutiny.
But what about the data? Buying Activision also gets Microsoft access to a treasure trove of first-party user data that it can use for a growing advertising business that includes Bing, LinkedIn, Xbox, and more.
Why is this important? The digital advertising community has been anxiously fanning itself ever since January of 2020, when Google announced that it would follow Mozilla and Apple into no longer supporting the third-party cookies that are the backbone of targeted advertising. A combo-platter of the pandemic and industry outcry has resulted in Google staying the execution of the third-party cookie and delaying some of its successor technologies (like Floc just last week). Legislation around the world is also getting in the way of third-party tracking.
As a result, first-party user data is becoming a priceless resource for companies that want to put the right ad in front of the right person at the right time.
Adding Activision to its data collection gives Microsoft access to how millions of people spend their time at work, play, and on the move:
Microsoft Windows is the dominant operating system for computers
Microsoft Office is the dominant system for email (Outlook), spreadsheets (Excel), word processing (Word), and slides (PowerPoint)
Microsoft Teams is giving Zoom a run for its money on videoconferencing
LinkedIn is the de facto resume for every professional
Although Bing is a distant second search engine to Google, it still has 7% of search traffic, which is a lot of data about what people want
Xbox vies with PlayStation for every minute of gaming
World of Warcraft, just one of Activision's titles, has nearly five million subscribers
Candy Crush, a mobile game and another Activision title, had 273 million subscribers in 2020; it is likely to have declined since then, but not precipitously
Microsoft also makes hardware: the Surface computers and tablets
Cortana, Microsoft's Siri/Alexa counterpart digital assistant, is increasingly available across platforms
Microsoft is one of the world's dominant AI technology companies, and AI's ability to link different bits of a person's data can turn the gold of first-party data into platinum.
Google has incredible data on what people are interested in. Facebook has incredible data on how people feel about things. Microsoft's data is more varied and disparate, but don't let the obscurity fool you: Microsoft knows what you do, minute to minute, across more corners of your life than any other company.
Acquiring Activision teaches them even more.
Story #2: Spotify, Joe Rogan, Neil Young, Joni Mitchell, Facebook, and Section 230
On January 24th, Rolling Stone broke the story that Neil Young had asked to remove his music from Spotify because Joe Rogan, Spotify's most-popular and exclusive podcaster, spreads misinformation about COVID vaccines:
I am doing this because Spotify is spreading fake information about vaccines – potentially causing death to those who believe the disinformation being spread by them…. Please act on this immediately today and keep me informed of the time schedule.... I want you to let Spotify know immediately TODAY that I want all my music off their platform.... They can have Rogan or Young. Not both.
Joni Mitchell and Nils Lofgren quickly followed Young in pulling their music, and social media burped with people announcing that they were cancelling their subscriptions. Catty remarks from both sides of the political aisle quickly surfaced. My favorite is this one found in a Forbes article: "First Neil Young left Spotify over Joe Rogan and now Barry Manilow. Who is next? Flock of Seagullls? Captain & Tennille? Where does this attack on elevator music end?"
Alas, as punishment for my sin of laughing at that quip I now have "I Ran (So Far Away)" by A Flock of Seagulls trapped in my head.
The obvious story here is that Spotify is not going to choose a trio of septuagenarian singers (Mitchell is 78; Young is 76, and Lofgren is 70) who are no longer creating a lot of material over 54-year-old Rogan who creates several three-hour podcasts each week. Even if the most popular 100 artists on Spotify pulled their music, which is unlikely, the profit margins for Spotify on podcasts is presumably higher than it is for music given the less complicated rights on podcasts.
Less obvious is the link between what's happening with Spotify and vaccine misinformation in 2022 and the unsuccessful Facebook "StopHateForProfit" boycott from the summer of 2020: a collection of big advertisers pulled their ads from Facebook (now Meta) to protest the company's lack of interest in stopping the spread of Hate Speech and Misinformation. As The New York Times reported a few months later, the boycott didn't work because even though 1,000 advertisers canceled or reduced their spending on Facebook (and its other sites like Instagram) that didn't amount to much because Facebook has more than 9 million advertisers.
“We want all the world’s music and audio content to be available to Spotify users. With that comes great responsibility in balancing both safety for listeners and freedom for creators,” a Spotify spokesman said Wednesday. The company has detailed content policies in place and has removed over 20,000 Covid-19-related podcast episodes since the start of the pandemic, he added.
Removing 20,000 podcast episodes sounds like a lot, but when you put it the context that Spotify had 3.2 million podcast episodes on its platform in October of 2021 (a number that has grown a lot since), then their efforts to make the platform safe for accurate information look less impressive.
In both the Spotify/Misinformation and Facebook/Hate Speech imbroglios, the protesters are treating a platform as if it were a publisher. But the platforms work very hard to be seen as anything but publishers because 1) technology companies command higher valuations by Wall Street analysts, 2) publishers are the customers of platforms; if the platforms are also publishers, then there are conflicts of interest, and 3) because if ordinary citizens see the platforms as publishers, then they will start to hold the platforms responsible for what content says.
In this regard, Facebook is in better shape than Spotify. Facebook should do more to eliminate Hate Speech, but unless the Legislative logjam in Congress breaks the government can't force them to do it. Facebook is protected by Section 230 of the 1996 Communications Decency Act that said digital platforms aren't responsible for what third parties say on their platforms. (It frightens me to agree with the 45th U.S. President about anything, but it is certainly time to rethink Section 230.)
The problem for Spotify is that Joe Rogan is no longer a third party: Spotify signed an exclusive distribution deal with him for $100M in 2020. A January 26th piece in the Los Angeles Times made the implications clear:
“If we’re thinking about Spotify five years ago, it was just a hosting service for audio,” said Natascha Chtena, editor in chief of the Harvard Kennedy School Misinformation Review, which studies platforms and misinformation policies. “Four years ago, Spotify could say, ‘Well, you know, we’re just hosting this content.’ Now you can’t make that argument anymore because you’re paying Joe Rogan’s salary.”
However, Spotify's likely strategy is to delay, defer, diffuse, and dodge, hoping that the media will turn its attention to other things and that—like all the advertisers who quietly returned to Facebook after the boycott lost steam—most artists and subscribers will return or never leave in the first place.
Sadly, the big takeaway is that if we expect either artists or advertisers to make a difference in the quality of the information we consume, then we're going to keep waiting. The math doesn't lie: there aren't enough advertisers and there aren't enough conscientious artists to fight the platforms that can treat the losing the ad business or artist content of the protesters as rounding errors.
Only government intervention can improve this situation.