SVB blame games
Let the narratives begin
I became fully engrossed in the Silicon Valley Bank saga. My interest in these occurrences, like the FTX meltdown, tends to trend toward the narratives that are shaped around them. No matter the event, we have a remarkable capacity for using it as a prompt to tell stories, usually casting those we don’t like as villains and ourselves and those we like as protagonists.
First up, a message from The Rebooting supporter Glide, which is a CMS provider publishers turn to in order to avoid the tech debt and outdated custom CMS that weigh down many publishers. (I would cringe when a publisher would use the words “custom CMS.” Rarely a great sign, often a red flag.)
I asked Glide CEO Denis Haman for his view of how artificial intelligence will change the publisher tech stack.
“Our mission statement for Glide is that it exists to augment human creativity and remove obstacles, so that’s what AI needs to help do better if it has any place in Glide - and it will, pretty soon actually. Our responsibility to our customers is to leverage ChatGPT and other tech like it in a way that’s meaningful for users. It is already clear that AI will have a profound impact on how we all do business. It will be a major time saver, and encouragingly it will force the likes of Google to fix and improve the thing it became famous for: search. Doubling down on quality interesting content and product will be the only way to differentiate it from mediocre AI content. Creativity, humor, analysis, opinion – all stuff that make us human will come back to the fore as a point of differentiation. There will be a period of explosion in AI content, like click-bait headlines, but it will settle into the workflow as a drafting engine and research time saver, rather than a journalist replacement. Direct traffic and brand loyalty will obviously become even more important. More profound impact will happen at the search engine side. When Google inevitably moves from link based to answer based service, many media companies will go out of business, in particular if this is a quick change.”
Find out more about how Glide helps publishers build lean tech stacks. Thanks, Denis, Richard and the Glide team.
SVB blame games
The demise of Silicon Valley Bank is a fairly simple story at this point: A high risk industry, which in normal times (without zero interest rates) is all boom and bust, overly concentrated its capital in a preferred lender that offered all kinds of extra perks and slick interfaces. This bank catered to its clientele with generous loans, wealth management, easy access to venture debt and even took warrants to buy shares in its clients. A very clubby affair.
The problem came with risk and how it was managed. SVB borrowed short (took in deposits) and invested long (locked up money in government bonds to get higher rates). The bank didn’t adequately mitigate that risk; interest rates started rising in 2022, the gushers of capital to tech companies ceased, leading the bank to take hefty but manageable losses.
With the FDIC now guaranteeing depositor securities, this story moves on to the blame game and shaping the narrative, as the long-term impact of the government backing all bank deposits, even beyond the $250,000 limit, gets sorted out. When these companies unravel, we keep finding that there were plenty of warning signs, like the case of Ozy Media, and the very serious adults in charge keep missing them. That should give the rest of us confidence.
As Puck’s Bill Cohan notes, banking is a confidence game. When your depositors lose confidence, they head for the exits. The venture capitalists which had plowed their own investors' money into the bank, panicked, scrambling to take their own money out and telling their portfolio companies to panic. A bank run ensued. Silicon Valley Bank started the week as the 16h largest US bank and ended it under control of the FDIC, with thousands of startups, VC firms and wealthy people left twisting in the wind with billions in uninsured deposits trapped in a bad bank. Bad week.
The collapse of Silicon Valley Bank was not a natural disaster. It was an unnecessary mess created by a small group of people through poor risk management combined with a herd mentality and knee-jerk impulse to skirt regulatory oversight. The VC class, thanks to toxic loudmouths on Twitter, has been a readymade villain. Witness the levels of hypocrisy, fear mongering and histrionics over the weekend. After all, this bank wouldn’t have collapsed if VCs hadn’t panicked and ignited a bank run. Yes, not all VCs.
Any collapse of this magnitude will cast a shadow on those whose job is oversight. There were warning signs that SVB was over its skis. I mean, Jim Cramer recommended SVB’s stock just last month. That should have been a red flag. Wells Fargo had recently seen SVB as a buying opportunity. KPMG gave it and Signature Bank, another bank closed by the FDIC, clean bills of health recently. The board of SVB has explaining to do. As do banking regulators, financial journalists and many others.
Nobody likes embarrassment much or admitting they’re mostly jazz handsing their way through like the rest, so the blame game kicks in. The lack of accountability has been both expected and infuriating. The most common culprit for some in tech is the Fed raising interest rates. SVB and the broader tech industry benefited greatly from low interest rates. If these businesses cannot operate in a different rate environment, you have to wonder how resilient it truly is. Coincidentally, the collapse of SVB and Signature Bank could end up slowing down rate increases. There are more culprits. The Media, of course. Without Twitter and mobile banking, maybe the run could have been avoided. Even SVB’s PR investor relations and PR teams are getting thrown under the bus.
Politicians are expert at taking any development and making it fit their narratives. Ron DeSantis is somehow trying to pin a bank run on DEI, and Tucker Carlson and the WSJ editorial board have echoed this absurdity. Politically, the government “backstop” will be seen by many as a bailout, and nobody likes bailouts. The money to guarantee these deposits comes from somewhere, and shifting it to other banks is a neat way to make this an indirect bailout. After all, the banks are just going to pass on the extra costs to their customers – hey, wait a second, that’s us. This is what Scott Galloway calls “capitalism on the way up, socialism on the way down.”
The depositors have mostly escaped blame. Nobody vets their bank’s risk management, even if you’re depositing $3.3 billion. Putting unlimited money into a bank isn’t risk-free. As a depositor, you receive lots of services and even some modest interest. That’s because you are making a loan to the bank to turn around and loan that money out. Citadel’s Ken Griffin believes depositors should have been parked in the barber chair for their hair cut on the principle that “uninsured” actually means “uninsured.”
The entire affair also plays into the shifting narrative about the overall tech industry. The inability to manage risk – and then try to blame others for their own poor decisions – should give us all pause as the tech industry plows ahead with artificial intelligence. No wonder most people don’t believe AI will be a benefit. They see a 10% chance of AI wiping out humanity as inherently risky. s?
The overall tech industry is now so big and powerful that it is, to use the parlance of the weekend, a systemically important entity. Democratic societies tend to regulate those type of industries. With great power comes great responsibility – and some measure of oversight.
For more, Troy, Alex and I discuss the fallout from the SVB collapse on the next issue of the People vs Algorithms podcast.
Customer-first subscription strategies
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BuzzFeed is in a deep hole. The company promised to be a digital media bellwether when it went public in December 2021, and since then it’s been mostly downhill. In its fourth-quarter 2022 earnings report, BuzzFeed said ad revenues shrank 27% and overall revenue was down 9%. Time spent was down 27%. The company’s net losses ballooned to $102.3 million. An interesting trend is how the weight of BuzzFeed’s business is shifting from advertising to commerce. In all of 2021, commerce (aka affiliate) was 15% of revenue; in Q4 2022 it was 22%. CEO Jonah Peretti warned the first quarter isn’t shaping up great and a new pivot to video is underway, only this time to produce short-form content for Tik Tok and others. Jonah sees the future of the company around the twin trends of creators and AI tools. Judging from the first AI game, this is going to be a long term project. It’s quite a comedown and indicative of the eroding value of many large digital publishing brands. The upside: BuzzFeed is getting its money out of SVB.
NFTs are high on the list of zero-interest rate phenomena. Brands and publishers are still rolling out projects they’ve had in the hopper, but it’s hard to see how anyone but the the hard-core believers commit to NFT projects. Meta is putting a bullet in its NFT projects after just a year as it prunes side projects in its “year of efficiency.”
Ziff Davis is a large, profitable digital publisher that doesn’t get as much attention as it deserves. It has scooped another good asset, taking Lifehacker off G/O Media’s hands. The scale era of digital publishing is clearly winding down, and the winners aren’t those who most expected. Instead, the best bets were in mastering SEO vs social distribution.
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"The scale era of digital publishing is clearly winding down, and the winners aren’t those who most expected. Instead, the best bets were in mastering SEO vs social distribution." I'd love to see you unpack this idea a bit more, particularly in light of AI's TBD impact on search moving forward. FWIW, I wholeheartedly agree, but I wonder if the ground is about to shift again, and if so, in which direction? I suspect the other frequently underrated pillar will become even more important again: email.