Cloudy with a Chance of Gamblin'- Week in Review 04/02

Advertising synergies, sovereign clouds and impressionist music

Hello! Many of you are new here. Welcome :)

First, just want to say a massive thanks again to Alex Danco for tweeting last week’s post out. I have no idea how he even found it but it is such an honor to be recognized by a person I admire as deeply as Alex. One of the best moments of my rather young career for sure!

So you’re probably wondering who I am? Allow me to quickly re-intro myself for all you new people. I am a graduate of the University of Pennsylvania, where I majored in Politics, Philosophy, and Economics and minored in German. Previously, I worked on the investment teams of Bowery Capital, an enterprise software focused seed fund based in New York City, and Project A Ventures, the Berlin-based Operational VC fund investing in Series A rounds across Europe. I am into a bunch of things but at the moment am really enjoying guitar-based jazz, improvised cooking and obsessing over how religion and capitalism intersect. I am currently based in Berlin.

You can find me on Twitter here. Would love to chat, especially keen for feedback and criticism :)

Abundant News (and Ads) and Barstool-Penn Gaming Marriage

On News in the Age of Abundance by David Perell

Newspapers, back when they exercised a stranglehold on the dissemination of news and information, functioned as remarkably useful and successful bundles. Advertising in the exciting, widely-read sections of newspapers, in which sports news and celebrity gossip were found, allowed journalists to pursue accountability-enforcing investigative reporting. However, this model was ripe for disruption. Perell reports that the average newspaper in the 1950s made around 80% of revenue from advertisements, with the rest coming from subscription fees.

When the internet arrived in full force, the bundle was torn apart. The internet made possible increased distribution AND targeted advertising. On the distribution side of things, channels, which unbundled specific sections of newspapers (i.e. The Athletic for sports or Politico for D.C. politics) and built their businesses around optimizing distribution, leveraged the internet successfully. Brand advertising, traditionally at the heart of the newspaper business model, made way for internet-enabled performance advertising. This evolution caused a big shift in the placement of media advertisements in the sales funnel. David explains it very well:

“People who type “best bicycle shop” or “flight to San Diego” are much later in the purchasing process than a laid-back, latte-in-hand newspaper reader looking to kill some time. The lower an advertisement is in the marketing funnel, the bigger the internet’s advantage over traditional forms of media. Newspapers can’t deliver bottom-of-the-funnel marketing needs because nobody picks up a newspaper when they’re ready to buy a product.”

What happens, though, when instead of nobody looking at the newspaper when they want to buy a product, everyone (or a sizable sum of peeps in the addressable market) flock to your website mere moments away from parting with considerable cash?

Let’s move now to the US, where an important transaction happened recently in the media industry involving Barstool Sports, a controversial (to say the least, really) sports and lifestyle brand catering to Millennial and Gen Z American/Canadian men, and Penn National Gaming, a $3B revenue business operating 43 casinos in North America. In the deal presentation, Penn National defines Barstool as “a sports & entertainment digital platform delivering satirical, relatable and engaging content to audiences 24/7”. Penn National acquired a 36% stake in Barstool at a valuation of $450M post. For context, the US Supreme Court legalized sports gambling nationally in 2018, though the states do control how it takes shape within their boundaries.

This partnership likely sets a few significant events in motion. First, Barstool should absolutely dominate the content layer of sports betting for the considerable future. While it was trending towards happening without this deal, this rosy future ought to be all but guaranteed because information/data sharing between the two organizations will drastically reduce customer acquisition costs (especially for the casino operator) while simultaneously opening up multiple avenues to grow customer lifetime value. Penn plans to “create a bespoke omni-channel sports betting and casino ecosystem for retail and digital customers across the US” by leveraging Barstool’s rapidly growing brand (65% revenue growth last year!) and reach with the ideal target demo for sports gambling. In fact, 62% of ‘Stoolies’ (Barstool readers) bet on sports, almost half of whom do it in on a weekly basis. Remarkably, sports gambling is legal in only 13 of the 50 states.

For me, though, the opportunity really sparkles when using Perell’s framework around media advertising. If Barstool becomes THE resource for sports betting information, then, in theory, Penn Gaming should be able to target future customers with bespoke advertisements for betting products mere seconds from the spending decision. Even better, the ad could very well represent the spending decision itself. Frictionless fun!

That being said, there are first-movers—FanDuel and DraftKings— in the space who boast significant advantages. Most pressingly, Penn will have to ship a “best in-class” product to take advantage of synergies with Barstool. Nonetheless, this partnership portends to drive massive benefits for both organizations, most notably with advertising reach and penetration, and should set them up nicely to capture a significant share of the potential $10B market in interactive gaming.

Source: Penn Gaming Deck on Barstool Transaction

Europe’s Head is in the Cloud(s)

On Europe has a plan to break Google and Amazon's cloud dominance by Will Bedingfield

Florent Crivello started a rather involved Twitter discussion with this tweet:

Before we pile on, let’s take a moment and summarize the facts—as currently known—about this initiative. This project will be carried out by the governments of Germany and France and the European Commission, along with some 100 private firms (in the article, all the mentioned companies were German!?). As I understand it, Gaia-X, as it’s called, is attempting to build a cloud services platform designed for firms of all shapes and sizes with data sovereignty at its core. The function of data sovereignty seems to be, in this case, related to the desire “to enable a certain level of independence from external service providers” (i.e. Amazon’s AWS or Microsoft’s Azure) ostensibly for security reasons. An expert on Internet Geography (didn’t know that was a thing tbh) from Oxford, Professor Mark Graham, points out that American cloud providers are not subject to EU law, which naturally produces some anxiety for European regulators. I think it’s fair to say that the end goal with this endeavor is, in the words of the author, to “repatriate data”, which, on its face, seems to run into a myriad of legal, technical, co-ordinative and generally conflicting issues.

Critics have pounced, citing previous failures of Europe-wide tech initiatives, such as the attempts to build ‘Google Killers’, which failed completely. More so, such a top-down ‘edict’, encompassing many thousands of stakeholders across hundreds of organizations, flies in the face of the entire logic of the startup. Peter Thiel, in Zero to One, defines startups as the “largest group of people you can convince of a plan to build a different future”. With Gaia-X, there’s definitely a large group, but such a staggeringly diverse array of stakeholders will prove quite difficult to convince.

Flo tweeted that such a plan “shows that policy makers have no idea how innovation works”. Most in the startup world would likely agree. Ultimately (and some of the people in government surely understand), private persons/firms will not opt for inferior, less delightful products, regardless of the nationalist angle.

I would suggest, to perhaps keep ambitions in check and set up a somewhat viable path to success, for the government orgs involved in building Gaia-X to limit potential applications and use cases to only government customers, at least in the beginning. Then, it’s tenable, more or less, to iterate on the product with captive customers, who can’t move to better products built by more coordinated teams ;)

Art of the Week

House of Woodcock composed by Johnny Greenwood for The Phantom Thread (2017)

This is a great example of impressionist music, invoking similar vibes and feelings as Van Morrison’s Astral Weeks. Fixate on the moods of the music and the emotions it makes you feel. Browse Alfred Sisley’s paintings to visualize what you are taking in aurally. Just beautiful :) and an amazing movie, if you haven’t seen!

Back soon,

Max