Weekly reading – 19th November 2022

What I wrote last week

PayPal has a monetization problem with Venmo

Harvard Business Publishing

Business

Why investors have jumped off the Carvana bandwagon. Carvana is another example that reminds me of that famous quote from Warren Buffett: “Only when the tide goes out do you discover who’s been swimming naked.”

Basically everything on Amazon has become an ad. “Successful Amazon sellers have to spend anywhere between 10 percent and 20 percent of their sales on Amazon ads, according to six high-volume sellers Recode interviewed. That’s on top of the other listing and warehousing fees they also give Amazon. Some said that the pay-to-play evolution of the site is one of the top two reasons they have had to substantially raise the prices of their merchandise on Amazon over the past year.” This is going to spell trouble for Amazon soon. A few of my purchases were off Amazon simply because the same items sold on the site were markedly more expensive. Keep this up and the company will soon have to re-acquire customers and rebuild its brand image. That’s too high a price to pay, just for advertising dollars.

Local ride-hailing startups thrive in the towns that Uber forgot. Giant ride-hailing companies compete fiercely with one another in big cities, leaving small and medium-sized towns ripe for the taking. And they are being taken over by local startups that saw unserved markets and decided to act. To grow, these startups should not venture into big cities. They should strive to continue to serve small and medium-sized towns across the continent. Regarding the likes of Uber, I don’t blame them for not attending to these small towns. Resources are limited and they can’t stretch themselves too thin.

Global Twitter employees describe chaos as layoffs gut their teams. The word chaos can’t even describe what is going on at Twitter, especially to the staff in India. Axing 50% of the policy team and 75% of the product team can’t benefit the company.

Sam Bankman-Fried vs. The Match King. The last few days have been littered with news and coverage of Sam Bankman-Fried (SBF) and FTX. The glamour and the superficial valuation masked the mess that went on behind the scenes. But this scandal is hardly the first. Not even close. This post compares what happened with SBF & FTX with the Match King, a businessman who had great success early on yet ruined everything when he was consumed by greed

The vomit-inducing piece on Sam Bankman-Fried by Sequoia. The venture capital firm is legendary for its longevity, success and role in helping entrepreneurs and startups thrive. However, this is a serious black eye. They penned this ridiculously flowery article on SBF, stuck it on its website under the tagline “We helped the daring build legendary companies”, yet removed it the moment news of trouble at FTX surfaced. Worse, the article recalled a meeting where the firm’s partners met Sam. No hard questions and little due diligence. They were wowed by SBF, who was literally playing games during the meeting. Mind-blowing stuff

Other stuff I find interesting

FTX turmoil destroys clout of crypto’s Washington spokesman. The fall of SBF and his companies apparently threatens to bring my regulatory heat onto crypto firms in the future. Well, I personally think that it’s a bit late. Regulators should have had more oversight and scrutiny over these crypto companies and celebrities.

TikTok’s Subcontractor in Colombia Under Investigation for Traumatic Work. On one hand, I understand that a job is a job, even one that requires people to watch horrifying content for hours. On the other hand, there should be safeguards built to ensure that these workers are treated properly and all measures are taken to limit the exposure to mentally harmful content.

People protested when this capital city went car-free. Now they love it. Ljubljana, the capital of Slovenia, sets an excellent example of how cities can transform themselves with micromobility and car-less space.

Stats

US consumers spent $72.2 billion online in OCtober 2022, according to Adobe

Americans have almost $5 trillion in cash as of Q2 2022

Honey bee life spans are 50% shorter today than they were 50 years ago

The world’s population hit the 8-billion mark on 11/15/2022

US online grocery sales totalled $7.8 billion in October 2022

Global lithium supply & demand forecast
Source: Global lithium supply & demand forecast by BloombergNEF

Breakdown of Harvard Business Publishing

If you have been to a business school or are just interested in business in general, it’ll be hard not to know about Harvard Business Publishing (HBP). Operating under Harvard Business School, the publishing arm is a well-known established name that offers great content, whether it’s case studies, articles or books on business lessons. Yet, very little has been talked about its unit economics and scale. In fact, nobody has spoken officially about HBP on record. Hence, I was really fascinated by Business Breakdowns’ episode on HBP.

HBP has a long history. Starting well over 100 years ago, the unit has evolved to being more than just a publisher of books. Today, it has four major business lines: case studies, advertising, print & digital subscriptions, and books. Together, these business lines generate $270 million in annual revenue with 40% from international markets, up from around $100 millions in the early 2000s. In terms of distribution, below is the estimated breakdown of HBP’s annual revenue

  • Subscription business: $35 million
  • Case studies: $80 – 100 million
  • Books: $27 – 54 million
  • Advertising: $90 – $130 million

HBP has great bargaining power as a seller and a buyer. From the supply standpoint, HBP has an unsurprising source of content. Harvard faculty members must contribute to the library of case studies to maintain tenure. Harvard is reportedly paying little for these case studies, yet making somewhere between $80 million to $100 million per year. These case studies from Harvard professors only make up 20% of what HBO has to offer. The other 80% are penned by professors from other places who are likely not better compensated than their Harvard counterparts. Even though we won’t find individual authors’ names on case studies, being able to show your work with a stamp of approval from Harvard means something.

On the other hand, HBP has no problems selling these case studies to business schools and companies. Universities love to add a flair of reality and pragmatism to theory by using real case studies. HBP carries a certain weight of authority and swagger in the academic world. Case studies are used semester after semester and they don’t need to be rewritten every year. In fact, my personal experience at a US university is that professors don’t like to change their curriculum every year either. As a result, HBP gets a sweet deal for them: pay little for a case study and milk revenue out of it every semester from every school that wishes to use it. The same goes for companies. If they want to train their managers and executives, what’s better than HBP case studies?

This goes to show what I think is the best asset of HBP: its brand. The brand draws readers to the materials that the publishing arm puts out and professors to create content for them. It makes everything tick.

While HBP’s achievements are admirable, there are two things that irk me. First, HBP can force professors, especially those employed at Harvard itself, to write case studies for them to avoid losing tenure and make a lot of money out of it while allegedly paying little for it. It would be a different matter if these professors weren’t under employment contract and voluntarily wrote for HBP knowing all the conditions. But since they already put in the work to keep the level of education worthy of the name Harvard, why can’t they be paid commensurately to what HBP earns on those case studies?

Second, a lot of HBP’s revenue is tax exempted. The speaker said that while HBP has to pay taxes on their advertising revenue, they don’t need to do so for the rest. I mean, Harvard charges arms and legs on tuition fees and has an enormous endowment fund of, wait for it, $53 billion as of June 2021. Do they really need tax breaks as much as small businesses that don’t even earn a fraction of what they do? I am not arguing that they can’t sell materials to other schools or whoever wants to read them. But there should not be any tax exemption on that revenue stream. That’s just absurd.

In short, I like this episode of Business Breakdowns as it sheds light on a business that few talk about. Have a listen if you are interested.