How Naive! - Week in Review 28/01

AirSpace, social capital, financial-infrastructure-as-a-service and naive art

I “discovered” Tik Tok last week and I’m obsessed. The product is absolutely brilliant. Lmk the good channels please.


It’s a Small World After All

On Welcome to Airspace by Kyle Chayka

The ubiquity and convenience of technology is contributing to an offline cultural convergence, one driven by the taste-making platforms and recommendation engines central to the most popular consumer-facing apps of the decade. Kyle Chayka calls the geography created by this convergence “AirSpace”.

Anyone who has spent some time in the culturally significant metropoles of the West knows how “AirSpace” finds it expression in the physical world. “AirSpace” is the Scandinavian minimalist aesthetic at the heart of 90% of the West’s coffee shops. “AirSpace” is what makes the mobile, “rich-world” individual comfortable wherever they are on the planet. It’s hygge, but purposefully not special in any way.

More significant (at least from a theoretical perspective), “AirSpace” is about frictionless movement between physical spaces for the purposes of minimizing discomfort and promoting efficiency. Companies like AirBnB, according to Chayka, “foster a sense of placelessness” as a concerted strategy to widen their addressable markets.

Historically, geography/cultural taste has been the chief obstacle for enterprise expansion. David Kreps, in his seminal paper from 1984, “Corporate Culture and Economic Theory”, built on the contracting theory of Ronald Coase, who concluded that firms grow until the cost of executing a contract internally becomes greater than contracting with the market, to propose a new theory of the firm. He noticed that the firm and its culture are one and the same, and thus, that the firm’s growth is strictly limited by its viability of enforcing cultural principles in novel situations, markets and geographies.

Taking the work of Kreps a step further, it is easy to see how the cultural and aesthetic convergence underway in the western world primarily satisfies a capitalist impulse, a way to feed the hunger pangs of firms with grow-at-all-costs mandates. Fundamentally, the more cultures (and the tastes therein) around the world differ, the more difficult it is to produce useful and loved products across geographies. As aesthetic tastes narrow and minimalism continues to persist as the style du jour, companies offering products which allow users to inhabit “AirSpace” on demand will likely continue to thrive.

I’m looking forward to getting my hands on Chayka’s new book The Longing for Less, which dropped last week.

King Danco Returns

On Social Capital in Sillicon Valley by Alex Danco

Alex has yet again written a heroic and insightful piece focusing on how social behaviors and systems make marginal yet significant differences in the success of entrepreneurial ecosystems.

This paragraph stood out to me, particularly for its applicability to myself:

“If you’re too different, you won’t fit the pattern at all, so people will ignore you. (Did I mention tech has diversity issues?) And if you’ve been in tech too long, you’ll fit the pattern too well, so people will also ignore you. But if you’re a newcomer who speaks the language? Then you’re interesting. You have “Goldilocks novelty”: a valuable form of social capital, which you can cash in immediately. You’re different enough to have unique potential, but similar enough to fluently use all of the leverage that the tech ecosystem offers you.“

Now, as an active Twitter user for nearly 10 years and a full-throated yet perhaps voyeuristic constituent of VC Twitter, I had the expectation that most tech hubs would abide by these rules, codes that are repeated ad nauseum by VCs and founders from the Valley alike. Especially a city like Berlin, with its international flavor and anarchist history, should be just teeming with ‘social capitalists’. Unfortunately, after half a year here, I don’t feel that is the case, yet (large caveat being the upcoming generation, who absolutely get it). I tweeted Alex with my thoughts:

Allow me to explain. First, upside-regret. This is also known as the anti-portfolio concept. Basically, upside-regret is the feeling VCs/anyone get when they scorn/ignore/reject an enterprising young person who then ends building or doing something big. In an ecosystem like SV, this has happened countless times and people with power are terrified of it happening to them because it is a surefire way to lose such hard-won influence. Regarding Berlin, there has simply not been a large enough volume of massive exits yet that would strike such fear into the hearts of VCs. Thus, powerful people here are less pressured to respond to ambitious newcomers. To my point, Danco writes:

There’s a kind of “Golden Rule” that’s in place if you participate in tech [in Silicon Valley]: “Treat others as if they might be the next great founder.” Status illegibility is a virtue.”

Emphasis above is mine. Basically, he’s saying that open-mindedness is key.

Now, to explain Social Fog of War, a concept I’m in awe of for its brilliance and originality. Here’s how Alex defines it:

“Social Fog of War is a counterintuitive concept: in order for status- and social capital- driven social systems to work optimally, they must be opaque. You can have a sense for who’s at the top and who’s near the bottom; but the exact position and relative rank of anyone’s social status in the community should never be precisely knowable. Social Fog of War means you should never actually know, at any given moment, who is above or below whom.”

This Social Fog of War functions brilliantly at creating spaces for people to belong in. The more opacity there is in the middle order, the more space there is for people to exploit social capital for the benefit of the ecosystem. My point in the tweet about Berlin, is that, because there are few ‘celebrity’ founders, VCs (IMO) enjoy an outsized social status and, since the ecosystem is just smaller, the obscurity is, well, less obscure. The fragmented nature of the European ecosystem does not necessarily help things either, as those at the top of “lesser” local ecosystems often look to the more established/capitalized regions (not to mention the US) for a sense of belonging within the wider scene. As Danco writes, “clarity and order tilt the game theory away from the communal group and towards less productive posturing and gatekeeping”.

All of this is not to say that Berlin does not produce social capital. It does, but it needs time, more large exits and an evolution in some attitudes for things to change materially. One thing in particular I would like to see is more startups founded by immigrants. I see a lot of untapped potential here. I’m looking forward to the future!

FinTech or TechFin?

On Every Company Will Be a Fintech Company by Angela Strange @a16z

The infrastructure underpinning financial services is experiencing its AWS moment. Infrastructure-as-a-service is coming to financial services. Strange sees this revolution paving the way for thousands of experiments that will forever change the banking industry.

Companies like Uber, Lyft and Apple have figured out that by adding financial products to their existing offerings, they can unlock distinct synergies leading to lower churn and CAC, not to mention higher LTV and ARPU. In the past, selling products so far from the core business would have imposed massive contracting costs internally (remember Coase!), rendering such a venture completely impossible. However, due to the development of banking infrastructure as a service, the entire stack of partnerships (contracts) necessary to provide financial products to consumers are now offered through an 'as-a-service’ model. This diagram from the article illustrates this brilliantly.

Strange goes on to name an impressive list of companies who are utilizing this stack of financial technology as a service providers to deliver their customers financial products on top of their core offerings. She concludes the article on an emphatically optimistic note:

“Finally, the really exciting part comes to us as consumers. With new financial services companies spinning up—and some of our favorite brands launching financial services—our existing services are getting better. I believe that in the not-too-distant future, everyone, no matter their socioeconomic demographic, no matter where they live in the world, will have access to affordable financial services, and we might even love them.”

Now that’s some definite-optimism I like to see!

Art of the Week

The Football Players painted by Henri Rousseau (b. 1844 Laval, France; d. 1910 Paris)

This style of painting is called naive because painters in this milieu (like Rousseau) never received formal instruction and thus, didn’t cultivate the conventions of those classically trained. Regardless of its naivete, I find this to be a brilliant painting. The shapes of the orange leaves, the jazz hands of the blue players and the beautiful blue sky contribute to the sense that this painting originates in a world much like ours, though slightly different, a sort of dream-limbo. In this sense, one can recognize that such a scene resembles our world but also crucially is lacking in certain realistic proportions. I reckon this is mostly a result of the mismatch in the light on the field with that of the sky. Amazing.

Thank you for reading and see you next week,


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