In the last months, we saw an increasingly volatile technology sector quickly bracing itself for the most significant restructuring in what I recall in my life since the dot com boom.
Many of you reading this have probably lived through it as an adult, teenager, or like me, as a child who was only beginning to experience technology's capacity as a service. When I look back at how technology was changing at the time, alongside the consumers it rapidly amassed in the 2000s, I think about how difficult it was to change consumer behavior or introduce a new device/service into their life.
When you look back on the 2000s, what did it feel like and look like? For me, it started with getting a family desktop computer in the 2nd grade and continuously trying to access the internet through dial-up via CompuServe. If you’re wondering where they are now? The company had changed hands several times via acquisitions. Founded in 1969, CompuServe eventually sold its entity to AOL in 2007. Finally, by 2017, Verizon had merged its massive acquisitions into the Oath Subsidiary, which consisted of dotcom-era companies, CompuServe and Yahoo!.
I bring up these transitions because these acquisitions reflect a time when they also brought massive restructuring to legacy businesses. These businesses have either had to innovate from their business model or create enough theoretical value for another company to acquire them. I wonder what was the ROI for AOL when it acquired CompuServe and did Verizon get the returns it wanted in ad dollars when it bet big on acquiring Yahoo!, CompuServe, and other ad-based social media companies?
In 2002, I was so eager to join the internet that I amassed several hundred dollars of fees from AOL because whenever they would send those “Free-Trial” disks, I would always re-subscribe. After all, I wanted to play a certain game only in their gaming service. We’re talking about 2D pixels for the Gen Z folks reading this. I was trying to play Diablo at internet cafes in the Philippines as early as the late 1990s.
Free trials allowed consumers to try something risk-free and then opt out should they not want the service, but their support team made it difficult. If you want to know what ended up happening to the hundreds of dollars I “accidentally” got invoiced with for AOL, my parents paid it, and they were furious.
AOL, like many other companies at the time, had tried to provide a free trial to entice customers like myself and my parents to try and make it difficult for us to cancel once the fees got high. There were also other innovators in the space at that point who led the foundation to where we are today with Spotify.
Napster, the popular music streaming service of the 2000s, had faced countless challenges and lawsuits to its business model of delivering music via the internet to consumers. The monetization aspect was a difficult conversation for their business because music consumption had not transformed radically enough that the value of a song and the physical purchase of a CD album or singles (remember those?) could be equated to the number of listens for royalties on Napster.
Nowadays, it is only expected that artists will simultaneously release music on Spotify, YouTube, Apple Music, TikTok, Tidal, and Soundcloud to see which platform can deliver the most listens for their new music. Virality can come instantaneously, whereas before, music releases asked for a deliberate and process-oriented distribution and promotion process. Songs would take weeks to catch onto the radio, build their audience, get views of their music video on MTV, and drive sales of albums and singles on iTunes. In the last week or so, Taylor Swift was able to release their midnights album and then debut at number one on the Billboard 200 chart and have ten tracks from that album also debut and take all top ten spots in the Hot 100 chart.
However, where technology companies like Spotify, Apple Music, and Napster have worked hard to democratize access to many of these artists, they also subsidized a lot of consumer consumption to gain the market traction it has. I have recently started collecting vinyl records to support the physical consumption of artists' music that I truly enjoy. I know it is an investment of several hundred dollars for my favorite albums. I also go to many concerts when I can, as touring has become the default monetizing scheme of many artists. Even artists who were hesitant to tour previously, like Mariah Carey, had to make ends meet and remind their fans of their content through extended residencies in Las Vegas or through Christmas specials and holiday tours.
When “technology” disrupts an antiquated industry or service, they try to amass a large consumer base by subsidizing the end user in the hopes that they will continue to pay for the service, should they the company like Spotify, Netflix, or any of the content-delivery platform require users to pay market value for the content and service they consume.
This distorts the market’s perception of the value of the content or service that we consume, and we become dependent on the subsidy to use the service continuously. Therefore, when market dynamics change, such as now, large technology companies and startups alike reconcile the need for growth while also cutting their cash burn and passing the additional costs to the consumer. Netflix this month released its first-ever ad-supported streaming service for $6.99 in the U.S. market to compete with low-priced content streaming services such as Peacock and Paramount+.
Looking forward, it is apparent that the era of consumer subsidization is over. Yes, there will be plenty of companies who will try to achieve hyper-growth through consumer subsidization. Still, they will need to operate much leaner than how Lyft, Uber, Airbnb, and other technology disruptors previously had. I am on the camp of paying for what the service is worth to the end consumer. Pricing exercises aside, we have to reimagine a new world of tech where we build businesses and monetize in a sustainable way. When market shocks, such as the corrections that happened in the last months due to increased inflation, and the tightening of the federal borrowing interest rate, it makes sense that there is a need to transform technology businesses to be more resilient and cash-conscious.
Even when you look at the rate companies take to IPO now as technology companies, they take longer to go to the public market. Oftentimes, they are still cashflow negative and use the public raise as an effort to raise equity capital for additional funding. Venture capitalists will receive their money back, but for every Meta, Spotify, Netflix, Uber, and Lyft, other ventures will have to rethink their monetization and revenue strategy to drive long-term growth beyond their core user base.
Boombust is entering a new era of technology startups and services that I hope will drive toward long-term sustainable growth for companies and improve some of the culture and work processes that are no longer in vogue with the next generation of workers and employees. For one, I am confident that one solution in the short term is for experts and operators to join new talent marketplaces like Boombust to offer their service at the rates they should be warranted.
If you are interested in learning more about what we do, check us out at www.boombust.net or email hello@boombust.net.
xoxo
John Dio, Founder & CEO of Boombust
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This blog post is also featured as a written article on LinkedIn; check it out.
Sources:
Please check out the backlinks included in the acquisition parts on Wikipedia regarding AOL, Napster, CompuServe etc.