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The 30% Tax1


Apple and Google’s duopoly on mobile operating systems give those two companies incredible power in the market and one of the most obvious places to see that power is the 30% tax they take on transactions that happen in their app stores. For subscriptions the tax is 30% in year one and 15% on the renewal. Typically transaction fees on payments are 5% or lower with the credit card networks being the obvious comparison at roughly 3%. But Apple and Google are able to charge 5-10x what a typical payment system charges because of their dominant market position and because the economics of acquiring a customer and renewing that customer in their ecosystem is so strong. While it is hard to stomach the 30% number, it is the case that many companies have done the work to look at their acquisition and retention numbers in and out of these environments and often it is the case that paying the 30% tax is rational behavior. So I was interested to see that Netflix is currently testing a bypass strategy. Certainly the biggest brands like Netflix and Spotify have the market power to at least consider this approach. If the biggest brands can condition users to bypass the app stores maybe we are seeing the beginning of a crack in the armor. It may also be possible for these big brands to bundle subscription offerings and take a piece of the action themselves. Imagine if Netflix let you subscribe to a bunch of other services via your Netflix account which you pay for directly on the web outside of the app stores. Or imagine if Amazon offered something similar. The economics of that relationship for a smaller company could be more attractive than the economics of the current Apple and Google channels. And most companies would likely participate in multiple channels, including the app stores, as well as sell direct. It seems inevitable that subscription bundling is going to happen. It already does via the Apple and Google app stores but that’s a crude version of what I’m thinking is on the horizon. Consumers have demonstrated a willingness to pay for the apps and the content they value most. The subscription business model is a terrific one that aligns the interests of a company and it’s customers. But managing dozens of subscriptions via multiple payment systems is annoying. And there should be attractive economics for both bundlers and bundled apps. So while I’m not predicting the end of the 30% tax anytime soon, I do think we will see Apple and Google’s largest competitors build significant bypass user bases and potentially start competing with Apple and Google in the subscription bundling business. There is a lot of money up for grabs and I think at least some of it is available for companies other than Apple and Google. https://avc.com/2018/08/the-30-tax/

The 30% Tax1


Apple and Google’s duopoly on mobile operating systems give those two companies incredible power in the market and one of the most obvious places to see that power is the 30% tax they take on transactions that happen in their app stores. For subscriptions the tax is 30% in year one and 15% on the renewal. Typically transaction fees on payments are 5% or lower with the credit card networks being the obvious comparison at roughly 3%. But Apple and Google are able to charge 5-10x what a typical payment system charges because of their dominant market position and because the economics of acquiring a customer and renewing that customer in their ecosystem is so strong. While it is hard to stomach the 30% number, it is the case that many companies have done the work to look at their acquisition and retention numbers in and out of these environments and often it is the case that paying the 30% tax is rational behavior. So I was interested to see that Netflix is currently testing a bypass strategy. Certainly the biggest brands like Netflix and Spotify have the market power to at least consider this approach. If the biggest brands can condition users to bypass the app stores maybe we are seeing the beginning of a crack in the armor. It may also be possible for these big brands to bundle subscription offerings and take a piece of the action themselves. Imagine if Netflix let you subscribe to a bunch of other services via your Netflix account which you pay for directly on the web outside of the app stores. Or imagine if Amazon offered something similar. The economics of that relationship for a smaller company could be more attractive than the economics of the current Apple and Google channels. And most companies would likely participate in multiple channels, including the app stores, as well as sell direct. It seems inevitable that subscription bundling is going to happen. It already does via the Apple and Google app stores but that’s a crude version of what I’m thinking is on the horizon. Consumers have demonstrated a willingness to pay for the apps and the content they value most. The subscription business model is a terrific one that aligns the interests of a company and it’s customers. But managing dozens of subscriptions via multiple payment systems is annoying. And there should be attractive economics for both bundlers and bundled apps. So while I’m not predicting the end of the 30% tax anytime soon, I do think we will see Apple and Google’s largest competitors build significant bypass user bases and potentially start competing with Apple and Google in the subscription bundling business. There is a lot of money up for grabs and I think at least some of it is available for companies other than Apple and Google. https://avc.com/2018/08/the-30-tax/

The Wizard of Omaha and Tech


Source: http://themusingsofthebigredcar.com/6619-2/ Big Red Car here on a lovely, sunny Texas day, y’all. Hope it is going well for you and yours. I always like to take a peek at what Warren Buffet owns as it relates to stocks. It is often an eye opener. It is often pretty damn plain vanilla and boring, but something caught my eye. Buffett famously has eschewed investing in technology suggesting that there is a limited longevity and defensibility of the competitive advantage for tech based companies and that it is very difficult to identify the big winners at a time when their stock price is reasonable. This was his view back in 1999 when Forbes interviewed him for an excellent article. Take a second and consider that statement. This from a guy who has to deploy $200B in stocks. “My name is Warren Buffett. I’m 84 and I’ve been at this investing business for a long time. Don’t be blowing smoke up my ass about bitcoin and cryptocurrency. I was in business when the US was on the God damn gold standard.” He and noted venture capitalist Marc Andreesson had a pithy exchange about the future of bitcoin. When Buffett called it a “mirage” Andreeson countered that Buffett “…was just an old white guy crapping on a technology he didn’t understand.” [I see no reason why Buffett’s ethnicity was germane to the discussion, do you?] Buffet has long been quoted as saying, “All you people piling into dot-com stocks must be much smarter than I am, because I just don’t get it.” So, you can imagine my surprise when I found out that Apple is Berkshire Hathaway’s largest stock holding by value at 23.83% of his portfolio of 44 stocks. OK, I want to know why Warren Buffett and Berkshire Hathaway own 928 shares of Verizon Communications? Maybe he should give it to his secretary? So, there you have it, dear reader. The Wizard of Omaha, who is not a tech investor, has as his largest holding Apple Corporation. But, hey, what the Hell do I really know anyway? I’m just a Big Red Car. Be good to yourself cause nobody else wants the damn job.   Share this:EmailTweetShare on TumblrPrint Related Source: http://themusingsofthebigredcar.com/6619-2/

Panic Attacks


I read the ESPN piece on Kevin Love and other NBA players’ mental health issues this morning. My son had sent it to me yesterday. The bit about his panic attack during an Atlanta Hawks game, initially disclosed in this piece Kevin wrote on The Players Tribune, was particularly hard to read. Kevin Love started out his Players Tribune post with this: It came out of nowhere. I’d never had one before. That’s how it happened to me too. I was on a flight from NYC to DC in my mid-thirties, trying to close an important acquisition of a portfolio company by a publicly traded company. I had no idea what was happening to me, but I couldn’t breathe, and I was freaking out. Anyone who has had one of these things knows how it feels. Right after it happened I went to see my regular doctor and got a prescription for medication that can calm me down in that situation. I have carried that medication with me when I travel ever since. But the real solution has come from many years of trying to understand the root causes of the panic and anxiety and working to deal with them. Kevin also describes another aspect of his personality (and mine too): “I’m a type of guy who has a very long fuse,” Love says. “I try to be as nonconfrontational as I can, but when that fuse breaks, I explode.  Understanding things like that about yourself and working to change that kind of behavior is hard work. It takes years and you are never really done. But I have found that admitting that you have an issue and need help is the hardest and most important part. Once you do that, you can get help and eventually get better. I really admire Kevin Love and the other NBA players who are speaking up and talking about this. It is hard when you are a superhuman to admit that you really aren’t. https://avc.com/2018/08/panic-attacks/

Panic Attacks1


I read the ESPN piece on Kevin Love and other NBA players’ mental health issues this morning. My son had sent it to me yesterday. The bit about his panic attack during an Atlanta Hawks game, initially disclosed in this piece Kevin wrote on The Players Tribune, was particularly hard to read. Kevin Love started out his Players Tribune post with this: It came out of nowhere. I’d never had one before. That’s how it happened to me too. I was on a flight from NYC to DC in my mid-thirties, trying to close an important acquisition of a portfolio company by a publicly traded company. I had no idea what was happening to me, but I couldn’t breathe, and I was freaking out. Anyone who has had one of these things knows how it feels. Right after it happened I went to see my regular doctor and got a prescription for medication that can calm me down in that situation. I have carried that medication with me when I travel ever since. But the real solution has come from many years of trying to understand the root causes of the panic and anxiety and working to deal with them. Kevin also describes another aspect of his personality (and mine too): “I’m a type of guy who has a very long fuse,” Love says. “I try to be as nonconfrontational as I can, but when that fuse breaks, I explode.  Understanding things like that about yourself and working to change that kind of behavior is hard work. It takes years and you are never really done. But I have found that admitting that you have an issue and need help is the hardest and most important part. Once you do that, you can get help and eventually get better. I really admire Kevin Love and the other NBA players who are speaking up and talking about this. It is hard when you are a superhuman to admit that you really aren’t. https://avc.com/2018/08/panic-attacks/