Every now and then (and I wish it was more often), I like reading something so much that I don’t just take notes, I put them down here rather than in Roam. It forces me take more careful, structured notes, and the act of writing it all down allows for more thoughts to bubble up – which is the whole point, no?
Noah Smith’s interview of Marc Andreessen definitely qualifies. It was interesting throughout, and I related with some of the points/concepts more than I would have wanted to1.
Before we begin, a quick aside: most of my thoughts and reactions to the interview are because of what I do, and where I’m located. I am in charge of one course at my University, and am also in charge of placements. This University is located in India. So my excerpts, and my reaction to those excerpts are contingent on these two things.
We’ll follow the usual format: excerpts, and then my thoughts.
Consider the three primary markers of the American Dream, or more generally middle class success — housing, education, and health care. You have written at length on how all three of these success markers seem further and further out of reach for many regular people. I think — and you would agree? — that these three deficits are not only causing problems for how people live and how the economy functions, but are fouling our politics quite dramatically.
https://noahpinion.substack.com/p/interview-marc-andreessen-vc-and
Education, in India at any rate, can either scale, or it can maintain quality. It has never been able to do both. How to increase scale without losing quality, and how to maintain affordable quality without gaining scale – both of these are really, really difficult questions to answer. The impossible trilemma of higher education in India, as it were. The BSc programme at the Gokhale Institute is (in my opinion, and it is of course a biased one) affordable quality. Far from perfect, I’ll be the first one to admit, and could always be a whole lot better, but I genuinely do think we’re doing good work. But scaling is impossible. And we all know of educational institutes that have managed to scale really well, but don’t do so well when it comes to quality.
And when I say quality, it is very much a “you know it when you see it” definition I am going with. Not NAAC reports or percentage of students placed.
Housing, education, and health care are each ferociously complex, but what they have in common is skyrocketing prices in a world where technology is driving down prices of most other products and services.
https://noahpinion.substack.com/p/interview-marc-andreessen-vc-and
Before you begin to read the rest of this post, please do learn more about the Baumol cost disease effect. That is certainly one of the factors at play. This post is the probably the best essay to read about the topic, but be warned: micro, when done right is (also) hard.
This chart from the interview is easier to think about if you’ve studied the Baumol effect well:
Software is a lever on the real world.
https://noahpinion.substack.com/p/interview-marc-andreessen-vc-and (note that the emphasis on “lever” is in the original)
The Archimedes reference is obvious, but that’s not the reason I want to focus so much on just this one sentence. How exactly is software a lever on the entire world? Marc gives the examples of Lyft and Airbnb in the interview, but they’re the outcomes for having deployed software. The inner mechanism (I think) is that software goes a very long way towards reducing transaction costs, search costs and therefore overall friction in economic transactions.
The guy driving the rickshaw, and waiting for a customer at a traffic intersection isn’t aware of the person two blocks away who is outside their apartment building, waiting for a ride. Search costs. These are minimized because of the app.
The whole “bhaiya, xyz jaana hai” – “Itna duur, itna late, double bhada” – “kya bhaiya, itna thodi lagta hai” song and dance is avoided (although not always in a way that is fair to the rickshaw driver). Transaction costs. These are minimized because of the app.
And so more transactions take place than they would have if Uber/Lyft/Ola had not been around. And the same is true for Zomato, or Swiggy, or Airbnb or… you get the picture. This (I think) is the lever at play. More gets done because software is involved.
There are legitimate worries about whether the system is always fair, always perfect – and the short answer is always “no”. A better question to ask is if the world is better for these services being around – and the short answer (I think) is “yes”. The best question to ask is how these services could be made better – and Andreessen has suggestions later on in the interview about this.
Software is alchemy that turns bytes into actions by and on atoms.
https://noahpinion.substack.com/p/interview-marc-andreessen-vc-and
A lovely way to think about what software does, when used well.
Everywhere software touches the real world, the real world gets better, and less expensive, and more efficient, and more adaptable, and better for people. And this is especially true for the real world domains that have been least touched by software until now — such as housing, education, and health care.
https://noahpinion.substack.com/p/interview-marc-andreessen-vc-and
The Baumol effect has some potentially disturbing implications:
When we recognize that all prices are relative prices the following simple yet deep facts follow:
https://marginalrevolution.com/marginalrevolution/2019/05/the-baumol-effect.html
If productivity increases in some industries more than others then, ceteris paribus, some prices must increase.
Over time, all real prices cannot fall.
As a society it appears that with greater wealth we have wanted to consume more of the goods like education and health care that have relatively slow productivity growth. Thus, preferences have magnified the Baumol effect.
https://marginalrevolution.com/marginalrevolution/2019/05/the-baumol-effect.html
But I think what Marc Andreessen is (in effect) saying is this: sure, even accounting for the Baumol effect, are there ways to reduce search and transaction costs in education, healthcare and housing? And if yes, can we drive down prices in these sectors while maintaining (or even increasing!) quality? That’s the power and potential of software.
And yes, each one of us will react with differing levels of skepticism to the proposition. That’s fine, and I’d say desirable. But the idea is worth thinking about, no? (And if you say no, it’s not, I’d love to hear why you think so.)
It’s more the importance of communication as the foundation of everything that people do, and how we open up new ways for people to communicate, collaborate, and coordinate. Like software, communication technology is something that people tend to pooh-pooh, or even scorn — but, when you compare what any one of us can do alone, to what we can do when we are part of a group or a community or a company or a nation, there’s no question that communication forms the backbone of virtually all progress in the world. And so improving our ability to communicate is fundamental.
https://noahpinion.substack.com/p/interview-marc-andreessen-vc-and
Remember the “If you’re the smartest person in the room, you’re in the wrong room” quote2? The potential advantage of Clubhouse, Spaces (or whatever it will be called on all the apps that copy the concept) is that it solves for the geographic constraint when it comes to your menu of rooms to choose from. That’s what makes Twitter so great too – you never have to worry about being the smartest person on Twitter (and I mean that in the nicest way possible!).
It is a great time to be young and angry about the quality of the education system, because the internet can solve some of your problems better than was ever possible in the past.
It’s so striking that in our primarily textual technological world, people are instantly enthusiastic about the opportunity to participate in oral culture online — there is something timeless about talking in groups, whether it’s around a campfire 5,000 years ago or on an app today
https://noahpinion.substack.com/p/interview-marc-andreessen-vc-and
At the Gokhale Institute, we were lucky enough to listen to a talk by Visvak where he spoke about some of the positive aspects of Clubhouse during the recent elections in Tamil Nadu. The ability to listen to, and possibly chat with, people with skin in the game who are actually Doing The Work, is truly remarkable. And again, what we have isn’t perfect, and it could be better, and there will be problems. The question to ask is if the world is better with Clubhouse (and it’s imitations) or without? And the better question to ask is how to improve upon it. But when I have the opportunity to listen to Krish Ashok talk about food on Twitter Spaces, and I see people just straight up ask Krish Ashok to host a Spaces about chai – well, what a time to be alive. No? (And if you say no, it’s not, I’d love to hear why you think so.)
Substack is causing enormous amounts of new quality writing to come into existence that would never have existed otherwise — raising the level of idea formation and discourse in a world that badly needs it. So much of legacy media, due to the technological limitations of distribution technologies like newspapers and television, makes you stupid. Substack is the profit engine for the stuff that makes you smart.
https://noahpinion.substack.com/p/interview-marc-andreessen-vc-and
I don’t exactly disagree with Marc Andreessen over here; but I have a lot of questions. I’ll list them here:
- Substack is a substitute for blogs or newsletters, but with the additional ability to charge payments from subscribers for some (or all) of your posts. Is that a good definition of what Substack is?
- Not all Substack writers will initially get enough paying subscribers. In fact, I think it is safe to say that most will never get (enough) paying subscribers. If the first sentence in the excerpt above is to be agreed with, what other incentive is at play for “enormous amounts of new quality writing” to come through? This is not intended as sarcasm or implied criticism – I really would like to know.
- Especially in India, I completely agree that legacy media makes you stupid. It is the middle part of that sentence that I am not so sure about: I do not think it is just the technological limitations of distribution technologies that is at play. It’s a much broader question, but what other factors would you think are at play, and how does Substack help mitigate those other problems?
- Is bundling inevitable on Substack? Shouldn’t it be? How will this play out? Will Revue stand a better chance as a bundle because it can be combined with so many other offerings?
This isn’t a complete list of questions, and I am not sure of the answers. But this is the part of the interview that I understood the least, for sure.
A longish excerpt in a longish post, but a very important one:
M.A.: My “software eats the world” thesis plays out in business in three stages:
https://noahpinion.substack.com/p/interview-marc-andreessen-vc-and
1. A product is transformed from non-software to (entirely or mainly) software. Music compact discs become MP3’s and then streams. An alarm clock goes from a physical device on your bedside table to an app on your phone. A car goes from bent metal and glass, to software wrapped in bent metal and glass.
2. The producers of these products are transformed from manufacturing or media or financial services companies to (entirely or mainly) software companies. Their core capability becomes creating and running software. This is, of course, a very different discipline and culture from what they used to do.
3. As software redefines the product, and assuming a competitive market not protected by a monopoly position or regulatory capture, the nature of competition in the industry changes until the best software wins, which means the best software company wins. The best software company may be an incumbent or a startup, whoever makes the best software.
For a great, and relatively early example of this playing out in practice, please listen to this podcast episode:
One simple viral video drove a pizza company to reinvent itself as a tech company. Walter Isaacson tells the story in this episode of Trailblazers.
https://www.delltechnologies.com/en-us/perspectives/podcasts-trailblazers-s01-e03-fast-food-delivery/
See this, for example, from the transcript:
So this is the part of the Domino’s story that struck me more than anything, when he simply declared for all to hear, we no longer think of ourselves as a pizza company. We think of ourselves as a technology company. I said, excuse me? Well, turns out, they’re headquartered in Ann Arbor, Michigan. They’ve got 800 people working in headquarters. Fully 400 of those, half of their headquarters employees, are engaged in software analytics and big data. They really– once they finally got the product right, they really are, from this point going forward, as much a technology company as they are a food company. And many of the initiatives have to do with making it as easy, as convenient, as kind of natural and impulsive almost to order Domino’s, much more so than any other pizza company.
https://www.delltechnologies.com/en-us/perspectives/podcasts-trailblazers-s01-e03-fast-food-delivery/
But, but, but – and this is where the “what I do and where I’m from part” really comes into play – has higher education in India successfully (or even partially) gone through Marc Andreessen’s three stage transformation?
Short answer, no.
Long answer: because “assuming a competitive market not protected by a monopoly position or regulatory capture” doesn’t apply in the case of higher education in India (yet). See this, this, this, and this from earlier on in EFE.
But especially see this! College, as I’ve written in this post, is a bundle. It sells you the learning (Coursera), the signaling (LinkedIn) and the peer network (Starbucks):
If you want to go up against college as a business, you need to sell the same thing that college is selling. And the college sells you a bundle.
https://econforeverybody.com/2020/03/12/signaling-bundling-and-college/
A business that seeks to do better than college must do better on all three counts, not just on learning. All of the online learning businesses – Coursera is just one very good example – aren’t able to fill all of the three vertices just yet.
And that’s why education hasn’t been truly shaken down by the internet just yet:
Because college today is more about signaling than it is about learning, and because when you pay money to a college, you are getting a bundle.
And partially by regulatory capture (UGC approved degree, yay!) and partly by cultural conformity (Sharmaji ka beta went to IIT. Whaddya mean, you will learn from YouTube. Kuch bhi!) we still celebrate getting into a “top” college.
Since “top” colleges know this, there is no incentive for them to change. And since ed-tech firms in India also know this, they design excellent software that is designed simply to get students into these colleges3.
And so we in the education sector in India continue to wait for the revolution.
Phew! That’s enough for today. I’ll be back tomorrow with Part II of my reflections on this interview.
Just excellent analysis.
Thank you, both for the compliment, and for reading 🙂
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