Empire and Post-Empire

In 2011, Bret Easton Ellis made waves with an essay about Charlie Sheen in which he coined the terms empire and post-empire.

The people unable to process Sheen’s honesty can’t do this because it’s so unlike the pre-fab way celebrity presented itself within the Empire. Anyone who has put up with the fake rigors of celebrity (or has addiction problems) has got to find a kindred spirit here. The new fact is: if you’re punching a paparazzo, you now look like an old-school loser. If you can’t accept the fact that we’re at the height of an exhibitionistic display culture and that you’re going to be blindsided by TMZ (and humiliated by Harvey Levin, or Chelsea Handler—princess of post-Empire) walking out of a club on Sunset at 2 in the morning trashed, then you’re basically fucked and you should become a travel agent instead of a movie star. Being publicly mocked is part of the game now and you’re a fool if you don’t play along with it and are still enacting the role of humble, grateful celebrity instead of embracing your fucked-up-ness. Gaga’s little monsters, anyone? Not showing up to collect your award at the Razzies for that piece of shit you made? So Empire. This is why Charlie seems saner and funnier than any other celebrity right now. He also makes better jokes about his situation than most worried editorialists or late-night comedians. A lot of it is sheer bad-boy bravado—just saying shit to see how people react, which is very post-Empire—but a lot of it is transparent, and on that level, Sheen is, um, winning. And I’m not sure being fired from Two and a Half Men and having to wear those horrible rockabilly bowling shirts for another two years is, um, losing…
 

In an interview with Vice earlier this year, Ellis was asked to clarify the distinction between Empire and Post-Empire.

Can you explain this empire and post-empire distinction? Because you refer to it a lot.
Empire is the US from roughly WWII to a little after 9/11. It was at the height of its power, its prestige, and its economic worth. Then it lost a lot of those things. In the face of technology and social media, the mask of pride has been slowly eradicated. That empirical attitude of believing you’re better than everyone—that you’re above everything—and trying to give the impression that you have no problems. Post-empire is just about being yourself. It’s showing the reality rather than obscuring things in reams and reams of meaning.

But can you ever present a "real" version of yourself online?
Well, turning yourself into an avatar, at least, is post-empire. That’s a new kind of mask. It’s more playful than hiding your feelings, presenting your best self, and lying if you have to. Unless, of course, you argue that that’s just a whole new form of empire in itself.
 

Ellis's podcast is one of the more consistently interesting ones out there (listening to it is what reminded me of his empire and post-empire missive) though it's always funny to hear him tout his sponsors like Dollar Shave Club and try to detect even the slightest undercurrent of irony.

Why the internet is all cats and lists

The Allen-Alchian theorem explains why places with high-quality produce (Allen and Alchian had in mind apples in Seattle, which is where apples come from in the US) nevertheless do not always get to consume that same high quality (they pointed to the market for apples in New York city, where no apples grow) because of the relative costs faced by consumers in each case (for New York consumers, a high-quality apple, once you account for transportation costs, was actually relatively cheaper than a low-quality apple compared to relative prices in Seattle). Hence the market sent the high-quality apples to New York.

You’re still with me? It’s all about relative costs. When you move something, or impose any fixed cost, the higher-quality item always wins, because it now has a lower relative cost compared to the lower-quality item.

The interesting idea is that this also applies in reverse – namely when we remove a fixed cost. The internet does this: it removes a cost of transport, and it does so equally for high quality and low quality content. Following the Allen-Alchian theorem, this should mean the opposite. Low-quality items are now relatively cheaper and high-quality items are now relatively more expensive. This idea was first explained by Tyler Cowen, but the upshot is that the internet is made of cats.
 

Intriguing. Combine the Allen-Alchian theorem with the death of homepages and the rise of social networks consisting of short bits of text like status updates and tweets and you can probably explain much of why the internet is made up of cats, lists, and linkbait/clickbait.

Of course, we're talking about the average. For those of you with taste, the internet has enabled access to some of the great works of high culture in ways my childhood self couldn't have imagined.

Liquidation preference

If I put a hundred million dollars into Snapchat today at a 3 billion dollar valuation, three things can happen:

Scenario A – BIG WIN

At some point in the future, Snapchat IPOs or gets purchased for more than 3 billion dollars. I reap the rewards through an appreciation of my stock price.  That’s what happened to everyone who invested during Facebook’s long run up.

Scenario B – SMALL WIN

Snapchat gets bought or IPOs for less than 3 billion dollars, but more than I invested in the company.  I’d actually do just fine. It’s not the result I was hoping for, but it’s actually not bad.  I get a hundred percent of my money back (assuming I’m the most senior investor) plus I also earned interest on my money every year.  While the interest rates vary, often they are as high as 8%.  So basically, my investment in Snapchat looks more like an interest bearing bond than anything else.

Scenario C – LOSS

It goes bankrupt or sells for less than the amount I invested in the company.  I lose my money along with everyone else.

***

And now things start to look a lot more sane from an investment perspective.  With acquisition offers already rumored around 3 billion dollars from Facebook, it’s hard to imagine a world in which Snapchat dies so dramatically such that that the acquisition value dropped below a hundred million dollars.   I won’t say it can’t happen – but that’s effectively the bet I’m making as a late stage investor.

So now you can see why these valuations get so high.  It’s because the risk profile of the last money in is actually pretty low.  They can afford to get into these bidding wars because they have the confidence that they are likely to at least get their money back, and yet they still get upside exposure if things go extremely well.
 

Good explanation of liquidation preferences and how they influence technology investors' tolerance for high valuations. Generally, if you can play any financial game where your downside is getting your money back and your upside is many times your investment, that's a good game to play. Your average retail investor is shut out of that game, however.

The economics of MOOCs

But.. For now, Moocs are a quite high fixed-cost business. Putting a class up in a mooc is not quite as much work as writing a textbook, but it's nowhere near as easy as teaching a new class. If you're tempted, beware!  Preparing, taping, editing and uploading a lecture is not the same as walking in, telling a few jokes, and getting through the week. Fixing anything that went wrong or updating is costly too.

Part of the high fixed costs lie in the limitations of the software. This is still version 1.0 stuff. Quizzes and assessments are key to the success of a class, and these are still particularly rudimentary. On Coursera, really, not much more than multiple choice and numerical entry works well.  Coursera software does not allow parts to questions, or students to try question 1, get a hint, solve it, see the answer,  and then go on to question 2 which builds on question 1. You can't even cut and paste pictures. As an instructor, taking those "prove x theorem" or "how do you resolve y puzzle" problems and turning them into meaningful multiple choice or numeric entry questions is the hardest part. Artificial intelligence programs reading text entries, guiding the student to different material based on his misunderstandings, and so on... this is all personal flying jet packs dreams.
 

John Cochrane on the economics of MOOCs. He speaks from experience, having taught one himself.

The first generation online courses I've taken are still in a very rudimentary form, perhaps because they are quick and dirty ports of real-world classes. They recall some of the first generation mobile apps which were simply wrapped websites. If you were to build a class from scratch for a MOOC, as an experience, you'd make many different choices than if you were trying to just convert a class that was taught in the traditional sense. Just as native apps have come to dominate the mobile phone experience, the next generation of online courses, built from the bottom up to be an online experience, will make today's online courses look primitive. The issues, of course, is that the tools are limited so far, and building such an experience is a high upfront fixed cost.

Companies like Coursera and Udacity need to arm instructors with the tools to build a great experience at a lower investment of time and money. That will come. The benefits come downstream: once constructed, an online course can be spread to a near infinite number of students at a fractional marginal cost. This has always been the chief appeal of online instruction to me, the ability for great instruction to achieve massive leverage and scale.

Of course an online course can't replace an intimate lecture taught by a great professor at a prestigious school like Stanford or Harvard or one of our nation's top universities. That's not the point. Most kids in the world, for a variety of reasons, won't ever have the opportunity to get that level of instruction. Many will get either poor instruction or none at all. For them, the difference in educational capital from a well-constructed MOOC will be massive.

We're still in the early early stages of the impact of MOOCs. It's likely their early struggles will have people dismissing them prematurely. In the long run I'm still quite bullish on their societal impact.

High Maintenance gets second season courtesy of Vimeo

The acclaimed web series High Maintenance got picked up for a second season with funding from Vimeo. This is Vimeo's first foray into an original web series.

Everybody in tech is getting into the original content game. That's the nature of video and TV: licensing is expensive and usually not economically attractive (see wholesale transfer pricing), so eventually players of sufficient audience look upstream, into financing their own content so they can capture the lion's share of profits available in the first window.

Seems tough to do with a one-off series of niche appeal like this, however.