Promoters: October 14, 2018 Snippets
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This week’s theme: The Promoter as a recurring historical figure any time there’s hype around a new thing, but why the term — and one particular aspect of their role — is uniquely missing from Silicon Valley.
In our ongoing Snippets series on bubbles, last week we talked about a core aspect of human behavior that drives much of our world forward: mimicry. This week, we’ll look at one particular person who plays a central role in the innovation economy, and whose job is to exploit mimicry to its full potential in order to create interest and demand where previously nothing existed before. We call these people promoters.
I’ve always found it a bit funny that the term “promoter” gets barely, if ever at all, used in Silicon Valley. It’s simply not part of the vocabulary, the way it was commonly used in on Wall Street to describe stock promoters, or is still used today in the music industry to describe event promoters. Promoters, after all, have a very important job: they create awareness and interest for something new, and then use that awareness to sell tickets, or stocks, or whatever, to an eagerly buying audience. Their job is to make sure that the retail public is made aware that they simply have to go attend this nearly sold-out concert from a hot new band, or buy some oversubscribed shares of a hot new stock. Their job is to create demand, and particularly to do so in an environment where buyers will be highly influenced by what they believe other buyers are thinking. To put it in last week’s terms, their is to create a positive feedback cycle of mimicry: nothing sells tickets better than buyers realizing they’re selling out. The same goes for stocks, perhaps more so.
The interesting part of the promoter’s job, and which often leads to bad behavior, is the fact that most of the time the promoter will have more information than the buyers do as to whether the product they’re hyping up is actually any good or not. If the band they’re promoting or the stock they’re pumping is actually great but people don’t know about it — so, if [perceived value < actual value] — then the promoter’s job is to create hype — if they fail, then they’re stuck with a bunch of unsold product. But in the opposite situation, where the band actually stinks, and [perceived value > actual value], the promoter’s job is still to create hype, perhaps even more so — they need to make sure they can dump all their product onto unsuspecting buyers before the crowd gets wise.
As you’d expect, stock promoters have a long history of involvement in bubbles, scams and unscrupulous behavior. But they also have played a crucial role in the innovation economy, by helping create speculative fevers that unlock cheap capital and direct it into the hands of entrepreneurs. While acting totally selfishly, the promoter is both helping and hurting the future prospects of the technology they’re hyping up. By creating irrational exuberance and inflated expectations, they’re setting those entrepreneurs up for failure and shareholder revolt when the bubble bursts; but without that exuberance, we wouldn’t be able to move forward much at all. Alexander Siemens describes this dynamic in “The Brush Broom”, writing about the speculative bubble around electric lighting at the turn of last century:
“However much other causes may have contributed to delay the development of electrical engineering, it is clear that the principal must be looked for in the exaggerated expectations that were raised, either by ignorance or by design, when the general public first seriously thought of regarding electricity as a commodity for everyday use. At that time the promoters of electric companies preached to the public that electricity was in its infancy, that the laws of science were totally unknown, and that wonders could be confidently expected from it. There was a short time of excitement to the public and of profit to the promoters; then the confidence of the public in electricity was almost destroyed and could only be regained by years of patient work.” Were the exaggerations of the promoters ultimately helpful or harmful to the deployment and adoption of electricity? To be honest, likely both.
Coming back to Silicon Valley, we can recognize many different components of this drama: as I mentioned earlier, I find it funny that we don’t ever use the word promoter because in a sense, we’re all doing that job. Founders, VCs, marketers and thought leaders galore are continuously doing work to inflate hype, and create time and space for their teams to go build whatever exciting version of the future they pursue. But there’s another reason why I completely get why the term has vanished, and that’s a peculiarity of the modern tech industry that often goes underappreciated by many of its participants: equity shares of startups aren’t freely traded. When investors buy shares in a startup in a funding round, it’s to keep them — not to flip them to some excited sucker who’ll be left holding the bag later when the startup fails. Investors may continually talk their own book by hyping their own portfolio, but it’s not for the purpose of unloading their shares onto those with less information. So in that sense, this second core function of a promoter — to move product — is almost entirely absent from Silicon Valley, minus the occasional secondary market that accompanies late-stage funding rounds meant to give employees or angels a bit of reward for their patience.
But you know where that’s most definitely not the case? In the cryptocurrency community, where issued tokens and coins can be freely exchanged on liquid exchanges, as if they were publicly traded securities, whether the law agrees or not. And, sure enough, that job of the “promoter” has become roaring back: “ICO Promoter” has fully reemerged as part of the crypto lexicon, highly reminiscent of the dot com bubble when those same kinds of people promoted internet IPOs to an eager public. It’s been a great story of “be careful what you wish for”, as one of the biggest rallying cries on the way up had been, “think about how much innovation we’ll be able to fund with a fully liquid and public market for ICOs!” It makes you really appreciate that in Silicon Valley’s privately-held, promoter-less model of funding innovation, there are remarkably few outright scams. But in the innovation economy’s past, and undoubtedly in its future as well, scams have always played a central role, both on the way up and on the way down, in the bubbles that have moved the world forward in fits and lurches. Next week, we’ll go through some of the most common kinds of scams that we saw in past centuries in canal and railroad stocks, and see once more today with cryptocurrencies.
As a follow-up to last week’s drama about the potential Supermicro hardware hack reported in Bloomberg, and the subsequent denials by, well, just about everyone: it now appears that although Bloomberg has dug in and stuck by their story, even adding a new software side to the intrigue. But nearly everyone else, from security experts to the US government, has strongly denied that the story holds water, at least the way it was presented.
We’ll have to wait and see what happens, I guess. Patrick Gray (@riskybusiness on Twitter) continues to be a good source of security wisdom, so follow him to stay in the loop.
Another interesting drama playing out north of the border: for the last year, Sidewalk Labs (Alphabet’s city-building venture led by former Michael Bloomberg deputy Dan Doctoroff) has been working towards building a “Smart City” district on a prime piece of Toronto’s waterfront. Although the partnership was initially celebrated with great fanfare, the past year hasn’t been a friendly one for either side of the agreement: Sidewalk Labs has been accused of treating prospective citizen data with different levels of protection from its own employees, while Waterfront Toronto has come under fire from numerous city councillors over just what city assets, exactly, they plans to hand over to Alphabet. This past week, Saadia Muzaffar (@ThisTechGirl on Twitter, and worth following) resigned from the Waterfront Toronto Digital Strategy Advisory Panel and did not mince words: “Waterfront Toronto’s apathy and utter lack of leadership regarding shaky public trust and social license has been outstanding.” The developing saga has been a fascinating study of what happens when tech makes big plans with local government, is worth following for anyone interested in the future of smart cities and of tech-government interaction:
Open resignation letter from Saadia Muzaffar to Waterfront Toronto Digital Strategy Advisory Panel
Elsewhere in the world:
Trying to sell beer in Muslim Niger | The Economist
The IPPC’s most recent climate report is no cold comfort:
Global warming of 1.5 degrees C | IPCC Special Report
We have 12 years to limit climate change catastrophe, warns UN | Jonathan Watts, The Guardian
The latest report on global warming makes for grim reading | The Economist
Multivariate matters:
Reflecting on past experience:
Other reading from around the Internet:
A map of every building in the United States | Tim Wallace, Derek Watkins & John Schwartz, NYT
Microsoft open-sources its entire patent portfolio | Steven J. Vaughn-Nichols, ZDNet
In this week’s quick hits from around the Social Capital family:
Intercom hosted their “Next Chapter” event, featuring CEO Eoghan McCabe and product leader Matt Hodges, as they share their vision for the future of customer communication. You can watch the keynote here:
Mike Burshteyn of Cryptomove published a long and thorough overview of Secrets Management: how to think about guarding passwords and keys in an environment where everything gets shared with everyone, and how to make the math of information security work in your favor:
Propeller Health published a new study reaffirming the notion that existing asthma assessment guidelines are out of date, and that digitally connected inhaler puffs, not patient self-reports, are by far the most effective and objective way to track progress in respiratory medicine:
And finally, Glooko’s partner Novo Nordisk, one of the world’s largest diabetes management companies, is officially launching a new digitally connected insulin pen, in partnership with Glooko, Dexcom and Roche:
Novo Nordisk to launch connected insulin pens | Andrew McConaghie, PMLive
Have a great week,
Alex & the team from Social Capital
