It’s a New Day.
Whether you like or hate the new administration’s policies, we’re witnessing a populist revolution. Just look at the tech sector and its billionaires. Feel the gale-force winds of change.
Titans who had been neutral (Musk) have gone all in with full-throated support and major financing. Those who were antagonistic (Zuckerberg, Altman, Bezos) have halted criticism and now highlight opportunity. They celebrate the new day and make their own financial bets.
It’s a new day for speech, a new day for the role of government, and a new day for the forgotten worker. It’s a time for American exceptionalism to shine, a time when we can fortify our position as the global leader in Artificial Intelligence, the technology ushering in our Fourth Industrial Revolution.
The political elite have been put on notice. So has the “deep state.” It’s time to take the shackles off of our poor Tech industry. Time to make sure they’re not saddled with any lingering fears that they might be held accountable for negative externalities.
They will be McLaren-driving victims no more!
And what does this new day portend? Those tech leaders are quick to tell us. They promise abundance– instant cures for cancer, access to cheap goods, the emergence of a growing leisure class, comprehensive energy solutions, a new world order, and the crypto revolution.
We should just let them cook!
But is all of this feasible? And are they really concerned with the vanishing middle class? Weren’t many of them championing DEI efforts not six months ago? Do they really hold dear the values they espouse?
A recent experience has me wondering if maybe, just maybe, there could be other motives afoot. And, fresh off of that experience, perhaps we shouldn’t be 3D-printing the oversized scissors they plan to use to cut the ribbon on our imminent Utopia.
To bastardize a William Gibson quote, The future is already here; it’s just not where those guys keep waving their jazz hands.
Let me take a brief detour and share the above-mentioned experience.
On January 9th, my alma mater won a hard-fought game to reach the College Football National Championship. They hadn’t won since I was a sophomore in college, and I planned to attend in person. So did just about everyone else I knew.
I had entered my name in the school ticket lottery weeks earlier, but received an email letting me know that my application had not been selected. Not a surprise. Corporate sponsors controlled the majority of tickets for this game. At least that was what we surmised.
I started checking the secondary market the evening of the 9th. The “get-in price” on StubHub was $1400. Ticketmaster was $1600. SeatGeek was $1400. VividSeats was $1250.
But that wasn’t really the price. The fees weren’t always clear, but with a fair amount of digging, you could find them out. When you added in fees, the “get-in price” grew to roughly $1800 before taxes.
Both teams boasted rabid fan bases that “travel well;” as such, I feared prices were not coming down. I planned to monitor through the week, assess supply and demand, and make an informed decision about if and when I pulled the trigger.
Easier said than done.
Stubhub constantly told me how many seats had been sold in the last hour or the last six hours or the last day. Magically, for five straight days, they showed roughly 1,000 pairs of tickets still for sale. Shouldn’t that number have been dropping? Did people wait to put their tickets in the marketplace at the same rate as they were sold? Other sites didn’t disclose supply. Or gave some general number when you moved your cursor over a section.
I was on multiple text threads. We’d hear about a school releasing tickets to different populations throughout the week. Corporate sponsors would be getting theirs later. Maybe that new supply would soften pricing.
It didn’t.
A few days before the game, prices shot up. People were panic-buying. Not surprising, fees scaled with the prices. I assume StubHub’s costs to broker a transaction are roughly the same for a $13 ticket as they are for a $2,200 ticket, but the fees for that $2,200 ticket? An additional $500.
Thank god for all this frictionless, digital efficiency we’re gaining. Welcome to the world of abundance.
Here’s what the experience has led me to believe:
- Adam Smith’s invisible hand has been amputated: Ticket brokers have a perverse incentive to get people to pay as much as possible for every ticket. They’ve rigged the system to drive prices up. The system gouges the consumer, and that’s by design.
- There’s a fine line between Competition and Collusion: “Competition” among websites furthers the aim of driving up prices rather than finding some market equilibrium. These ticket brokers show different prices for the same tickets to provide the illusion of competition. They anchor buyers on a high price point and allow comparison to massage people’s psyches into thinking they’re getting a deal. We’re all getting played.
- The Schools are in on it: Those fees are not pure profit for the brokers. Some of that gets kicked back to the promoters (in this case, the CFB Playoff and either directly or indirectly, the representative schools). In this way, the promoters also benefit from driving prices up. No wonder they time-release tickets to constrain supply. They let Ticketmaster take the black eye while they reap the rewards.
- Scalpers Are a Feature, Not a Bug: Everyone can rail against scalpers who leverage bots or offshore call centers to amass presale tickets, but they’re a feature, not a bug to brokers and promoters who want to jack up fees and drip-feed supply to maximize prices.
- Our Politicians Are Bought and Paid For: The system will not be fixed because the people who benefit do not want it fixed. The brokers donate to political campaigns to fend off attempts to reform the system. There’s no other way they could get away with this level of obfuscation and price gouging. People hate this system, know it’s broken, complain to politicians…and nothing happens. OK, that might be a little overstated. After TicketMaster went toe-to-toe with Taylor Swift (not recommended), several bills have been drafted at the state and local level. Lawsuits have been filed against Live Nation (Ticketmaster’s parent company). Maybe change is afoot. But I’m not holding my breath.
In the end, we’re the problem. We know all this, and we buy the tickets anyway. Ticketmaster becomes a punching bag for Swifties and Eddie Vedder and, well, me. We long for the days of haggling with some scalper outside of the stadium ten minutes before kickoff. We come across our first concert ticket and share the $11.00 price on social media. But we have little choice if we want to see the game or attend the concert, so we hold our nose and, too often, pay the exorbitant prices (including some 30%+ upcharge).
This sounds like an isolated, first-world problem. The equivalent of red velvet dessert a wealthy populace feasts on after industry declares, “Let them eat cake.” In the grand scheme, is it really that big of a deal?
It is if it happens to be a cautionary tale.
My fear: while billionaire hucksters pitch us cancer-cures, energy solutions, and untold abundance, we are experiencing the Tickemastification of America.
Two macro shifts have reshaped our economy in recent decades.
- Our most successful businesses have transitioned from Value-Chain Business to Platform Businesses.
- The healthy tension between Business and Lawmakers has become ineffectual, performative nonsense as we’ve unleashed unfettered lobbying/ campaign contributions on our political system.
What does it mean to shift from a value-chain economy to a platform economy? It means that for hundreds of years, the most successful businesses delivered a product or service to an end customer at the best possible price point. As long as there was fair and healthy competition, prices would generally come down or the product and service would improve. Consumers would win.
Now, the most successful businesses own and manage platforms and extract rent from the players on the platform. Amazon runs its marketplace. Google sells ads for its search business. Apple manages the AppStore.
Network effects make platforms winner-take-all propositions, allowing for limited competition. Usually, only one or two players are in a position to determine the rent they’ll charge. It’s why Apple can charge massive fees to anyone on the app store and why google pays Apple billions to favor its search engine. The consumer is no longer the real customer, as the platform orchestrator optimizes the model to ensure the players get their share.
Shouldn’t someone stop this? And what about the externalities? It doesn’t seem right that these massive companies get to privatize the gains while socializing the costs.
That’s where the second shift comes in.
We’ve always lived in the tension between regulatory agencies and business interests, but with the Citizens United ruling turning 15 years old, we’ve seen what legalizing bribery does to a competitive marketplace. We don’t just turn a blind eye to regulatory capture, we sanction it.
SuperPACs amassed $4 billion this last election cycle. That’s on top of the $4 billion businesses spend on annual lobbying efforts. Funding politicians has proven to have the best ROI of almost any investment a business can make. We’re watching those efforts play out in real time in our tech sector. Our kids battle depression and see spikes in eating disorders and our politicians hold performative, finger-wagging hearings but ultimately do nothing.
Baudelaire has a line that shows up in “The Usual Suspects.” The finest trick of the devil is to persuade you that he doesn’t exist. Maybe an even finder trick is to convince you that he’s your champion.
I’m not wading into these waters to weigh in on right or left-leaning political issues. With a few exceptions, I don’t think most of these tech players actually care about any of that.
That’s their trick. Our technology sector is tapping into people’s fears and basest instincts about hot-button political issues. They’re portraying themselves as the good guys, fighting for a much-needed reckoning. They’re not just joining a populist chorus– they own the platforms and are dousing gasoline on populist flames. They’re for free speech and lower taxes and less government. They’re finally going to drain the swamp.
What we’re seeing from the tech industry is naked self interest. They want to own the platforms and they want to write the rules for those platforms. They are draining a swamp so that they can buy it, tell us it’s a lake, and then charge us outsized (often undisclosed) fees when we have nowhere else to swim, paddle our canoe, or, ultimately, access potable water.
It’s not more complicated than that.
And what do we get as consumers? More and more Ticketmaster-like experiences. Obfuscation, perverse incentives, near-monopolies, and jazz hands.
Be warned. It’s a New Day indeed.
We’re fast-becoming the United States of Ticketmaster.