Alex Katsomitros speaks to former Spotify chief economist Will Page about his new book and what the music industry can teach us about digital disruption
When Napster hit the music industry like a wrecking ball two decades ago, it was met with a mix of bewilderment and insouciance. This was a time when CDs were bought and sold based on their weight, rather than their content – in an analogue world, the internet seemed like a faraway comet in the distant future. And yet, for once the pirates won the treasure. Legal action against file-sharing did little to prevent users from downloading the latest hits. Revenues plunged, labels closed or merged, a sentiment of doom and gloom prevailed.
Fast forward to 2021, and the industry has turned around, with revenues growing for six years in a row. How did that happen, and what can other industries learn from this rollercoaster? Will Page, a Scottish DJ-cum-economist and one of the world’s first “rockonomists”, is well-placed to offer some advice. As former Chief Economist at Spotify, the Swedish tech company that revolutionised the music business with its streaming service, he can offer unique insights into the art of transformation.
In his book Tarzan Economics: Eight Principles for Pivoting Through Disruption, he charts a pathway for companies and even whole industries to wake up and face the music, before their own “Napster moment” arrives. Like the King of the Jungle, they need to move forward to “the new vine” – a term Page uses a lot – to stay relevant. However, his recommendations are anything but conventional. The book’s eight principles for survival in the jungle of digital disruption don’t sit easily alongside those digestible mantras from veterans of the tech realm. Big data can be less useful than old-fashioned chats with customers. Greed is not necessarily good, and can even be self-destructive, as in the case of record labels that tried to battle online piracy in the court. Drawing a crowd is more about building a “one-to-one” relationship with customers, rather than the “one-to-many” gatekeeping model. Serving minorities pays off. Modern monopolies eliminate prices, rather than hiking them. With examples ranging from record labels to football, tupperware and the eurozone, Page draws a landscape rich in academic detail and musical intonations, proving that it’s not just history but also the economy that may not repeat itself, but definitely rhymes.
Alex Katsomitros: What prompted you to write the book?
Will Page: I started writing it in September 2019, back when the world was normal. The pandemic has accelerated changes that were already taking place. The origin of the book is my passion for teaching economics. As my father used to say, when you teach economics, you have to focus on those who don’t understand it or don’t want to understand it but have to. I also had a unique job that merged my two passions: music and economics. The music industry matters, because it got a 20-year head-start to deal with disruption. Being a lonely “rockonomist” gave me the best seat to witness what so many others are now experiencing.
In the book, you argue that other industries can learn from the music business, for example by forming collectives to tackle disruption. Are you optimistic that the people who run these industries will realise that their “Tarzan moment” has come?
The term Tarzan Economics was coined by the technologist Jim Griffin, who created the first digital music file sold on the internet. He argued that we have a tendency to hold on to the old vine of doing things, because it pays the bills. We know it is dying, but we refuse to let go. So we need to overcome our fear and propel ourselves forward to reach the new vine.
Different companies can decide when they should compete and when the collective model makes more sense, depending on their circumstances. Record labels that acted in their self interest saw their business decline and only recently recovered that loss. Royalty collection societies, like PRS for Music, succeeded through disruption by reporting record collections every year, whereas the self-interest model of labels experienced boom and bust.
A current example is football’s European Super League fiasco. A league is a collective, with money distributed across members. Then a group decided to act in their own self interest and break away. It’s one of those cases where it’s better to be grateful for what you have. The temptation to go for short-term greed was there, but the existing collective had already incredible results and was sustainable in the long-term. In the same chapter, I introduce the concept of Marxism, but based on the wisdom of Groucho Marx, not Karl Marx. Groucho Marx famously said that he would never want to join a club that would have him as a member. The most valuable member of a collective has the least incentive to join, and the greatest incentive to leave – which is the story of the Super League fiasco.
You also argue that platforms like Facebook and Google, unlike old monopolies, do not hike prices and reduce output, but expand output and eliminate prices altogether. However, these platforms are criticised for being too powerful. Should we be content with them just because they are economically efficient?
It’s fascinating that you refer to “monopolies” in the plural. It’s more than one, so it’s an oxymoron. In the book, I quote Screaming Lord Sutch, a British eccentric whose political party lost over 40 elections. One of his greatest policies was to establish two competition authorities. How can we grant a monopoly institution the right to uphold competition? What if I got a better way of upholding competition than you, but I can’t compete for that idea? If Sutch was answering your question, he’d ask how many tech monopolies do we need to worry about, before we have a problem with competition?
The theory taught today says that a monopoly reduces output and increases cost. I do not see that happening with tech “monopolies”. They expand output and eliminate costs. How much money do we pay to Facebook and Google? So the old textbook is not fit for purpose. We can have a debate about how to deal with large tech companies, but not with a framework like that. We can discuss monopsony, perhaps, but not monopolies.
I believe that these monopolies self-regulate with what I call a “strategy tax” – making their competitors’ features more accessible to compete for convenience. When we entered lockdown, it was easier to set up a Zoom meeting on Google Calendar than a Google Meet one. So Google made it easier to use a competitor video conferencing service rather than their own. This is a strategy tax, an example of monopolies regulating themselves to compete for convenience, for the common good, as opposed to self-interest. Would monopolistic regulators be capable of thinking up such an innovative solution? Probably not.
Unlike most techies, you are a big data sceptic. So, why do we fall for the allure of big data?
One reason is that there are nine thousand books with “big data” in the title – there’s no shortage of big data enthusiasm out there. I had been a big data enthusiast myself, but as an economist, I want to help swing the pendulum back. At Spotify, we would always go to Chris Tynan, who built one of Spotify’s first data dashboards, to get some data. He would say to us, “what are you going to do with it?” We would naively answer back, “plot a big spike and claim a success” and he would say, “is that it? Is that how far this goes?” And this was 2012, before big data was such a popular concept.
Big data today is capable of big mistakes. So let’s pull the pendulum back and try to understand the people who create the data, not just the data points they create. How many data scientists actually speak to customers? Probably one less than none! It would help if they picked up the phone and spoke with customers, or met them even. If you don’t know where your customer support team is located within a firm, then you have a bigger problem than big data.
There is a hilarious example in the book where you describe how an economist helped you figure out why a playlist was popular.
That was Richard Thaler, who later won the Nobel Prize. In 2015, we launched the Discover Weekly playlist. Until then, we were talking about curation-at-scale, but we had failed to deliver. Suddenly, we hit gold with Discover Weekly – a collection of 30 songs curated for your tastes and delivered every morning. It was being used by 40 million people every Monday morning, but we couldn’t find out why it was successful, although we had loads of data.
That took me to Chicago to meet Thaler and tap into his knowledge of behavioural economics. ™囡
We trawled every data point, yet still, we couldn’t find the answer. We thought that customers knew that everyone was getting a different playlist, whereas many thought it was still rooted in the “one to many” model of broadcasting. Thaler calls this “the curse of knowledge”: some clever engineers in Stockholm believe everyone thinks like them.
Then Thaler took me through some counterfactuals to check why other playlists like Feel Good Friday had failed. Finally, he asked me: “You tried Discover Weekly on Monday, and you’re telling me that you’ve replaced one-to-many broadcast with many-one-to-ones ‘narrowcast’ and changed media forever?” He then pulled up an academic paper and explained that Monday is the day of the week when people do new things. That’s why gym memberships are always promoted on Mondays. My brain travelled back to Kentish Town tube station, which is only surrounded by people handing out brochures for new gym memberships on a Monday! I realised that we had the best data scientists, and the best data, but nobody had thought that gym memberships were being promoted on Mondays for decades.
One of the topics you discuss is the decline of gatekeeping. In the financial sector, the rise of Robinhood and other stock trading platforms has stirred a debate on the future of the industry. Is this finance’s Tarzan moment?
We get these hysterical headlines that the City will move to Frankfurt or Amsterdam. It’s not going to happen, but nevertheless this is a good example of Tarzan economics. Take that old retail banking model to Europe, it’s the old vine. What’s happening in London with fintech is jaw dropping. Think of companies like iProov, an online verification service that help banks identify who you are. They do in 20 seconds what used to take weeks. That’s the new vine. If the old vine wants to relocate, then watch the new vine of fintech flourish even faster.
You also introduce the concept of veganomics and you discuss its link with diversity. Can you explain why they are important?
Veganomics teaches us that diversity is important. If you go out for dinner with your friends and one of them is vegan, you need a restaurant that can serve that outlier. At a typical restaurant the meat, chicken and vegetarian dishes make 95% of the business and the other 30 dishes just 5%. But they cater to special preferences and therefore bring more customers. If that one vegan customer can’t be served, then neither can their friends. So you have to understand the interactions in the group.
When you think about diversity in the workplace, we have that balancing act of serving the majority, but also understanding the value of those minorities who need to dine – or work – with their colleagues. If you don’t offer the equivalent of the vegan dish, you have lost the vegan and their friends. That shows why the value of niche products or people is worth more than what you may think.