As Founder and CEO of O’Reilly Media, Tim O’Reilly talks about valuing your financial people, the fact that leadership isn’t just about your own company, and considering how leadership creates context for other people to act.
Every few weeks as part of The Heartbeat, I ask one question to a founder, CEO, or business owner I respect about their biggest leadership lesson learned. This week, I interview Tim O’Reilly, Founder and CEO of O’Reilly Media.
Have you been enjoying these Heartbeat episodes, lately? If so, it’d mean the world to me if you wrote us a review in iTunes. The more reviews we have, the more we’re able to share all our lessons from leaders. Thank you! <3
CLAIRE: Hi everyone, I’m Claire Lew and I’m the CEO of Know Your Team, a software that helps you avoid becoming a bad boss.
Today, it is my absolute honor to have on The Heartbeat an incredible human. I have with me Tim O’Reilly who is the Founder of O’Reilly Media, a media company that for the past almost now 40 years, has published books, ran conferences, and been just really a source of innovation around technology. I don’t even know if you know this, Tim, but some of the books that you’ve actually published are the reasons that I actually learned Ruby on Rails. I have Head First Rails on my shelves somewhere, Agile Web Development, everything that you’ve published has had such an enormous impact on millions of people’s lives. And not to mention, Tim and I are also sort of connected by way of the fact that there’s a fund that you recently started in the past few years called Indie.vc. And it’s focused on profit-focused companies and we are in the portfolio batch for v3. And so, an honor to be able to partner with you, to be able to partner with Bryce Roberts, who we’ve also had on the show. So excited to have you here, Tim, today. I know you’ve been thinking a lot about the way technology has —
TIM: Can I interrupt you very briefly?
CLAIRE: Oh, please, yeah.
TIM: Just a small addition to the introduction. The biggest part of our business today is our online learning platform. It’s actually bigger than books and conferences combined.
CLAIRE: Amazing.
TIM: You’ll find out about that if you go to OReilly.com. But the other thing I wanted just to mention that Indie.vc is part of our fund which is actually about ten years old for O’Reilly Alpha Tech Ventures where I’m a partner with Bryce.
CLAIRE: Exactly. Thank you so much for that elaboration. There’s so much about what you’ve done and what you’ve built. It’s almost like, how can I even fit into the 30-second intro, for sure. I know right before this, we were talking about how a lot of your energy, in addition to running and building O’Reilly Media, in addition to OATV and Indie.vc, et cetera, is thinking about the way technology is influencing policy and influencing our world. And so, we could definitely go into all of that and talk all about that, Tim. But today, in particular, I’m actually dying to ask you this one question that I’ve been asking leaders for almost the past two years now on this podcast. And you don’t know the question. So, I’m going to give it to you here live, if you’re ready.
TIM: Sure.
CLAIRE: All right. We’ll do this. The question is: what’s one thing, or could be several things, that you wish you would have learned earlier as a leader?
TIM: Probably the thing that certainly as advice that I give to others is value your financial people more than you do. If you’re a technology person, you tend to think that technology is all that matters. I wrote a piece maybe eight or nine years ago for LinkedIn called ‘How I Failed’. I actually described the problem I had which was that for many years, I was the most sophisticated financial person in my company. And it wasn’t for lack of trying. I hired CFOs and so on, but I would always be saying. “Hey, there’s something wrong with that number.” And my CFO would say, “What? Why? How do you know?” And I say, “Well, a number doesn’t go from being 1.5% of revenue to being 4% in a month without some reasons. So, tell me what the reason is.” So I kind of built this dashboard sense of all these things are speaking to me and I was pretty good at it. But until I actually had a CFO who was better at it than I was, I was just missing a huge opportunity. We really got that actually because of the dot-com bust where we had somebody who had actually been working with us as a consultant and we nearly went out of business. She came in and she renegotiated our contracts. She shifted many parts of the business and made it way more efficient.
And I look back during the 90’s, we were primarily a publishing company at that point, we’d started conferences and we’d done some other things on the side like start the first web-content company with a web portal, the first website to have advertising. But we had all these money tied up in the inventory and we had all these bad agreements. And as a result, cash flow was killing us. We were always [crosstalk]. We were a company that had started with no investment other than $500 of used furniture that I used to start the company.
[Laughter]
TIM: All of our profits were getting sucked up by inventory. As a result of that, we had to do over these things. We had a number of equity exits from projects that we’d spun out, like this other thing with GNN, we sold the AOL. Later, we were an investor in Blogger which we sold to Google. And in each case, we had to bail out of the stock way early because we needed the cash. And just to get clear just how bad this was, in the 90’s leading up to the dot-com bust, our average revenue per title, per book in our publishing business was about $250,000 per title. And after the dot-com bust, it was about $60,000. In the 90’s, we were always short of cash. And in the 2000’s, once we got this real financial discipline from Laura Baldwin, we started putting money in the bank. We end up putting tens of millions of dollars in the bank. And it was all about understanding what a powerful lever cash flow is.
And so this kind of relates to the Indie.vc story because if you actually don’t have — we were not on the VC drip but we were sort of on the ‘grow and money will come’. Our version of VC was we would invest something new and we would spin it out and sell it, or we’d have our best selling product that would give us a big cash infusion and then we would spend it. It was sort of like lacking the financial discipline.
CLAIRE: Yes.
TIM: Lacking the financial discipline. We still succeeded but we could have succeeded so much more if we had been running tight from the get-go.
CLAIRE: Absolutely. I’m sitting over here just like nodding my head because it is a thing that unfortunately happens so often that is the main contributing factor to a lot of companies going under and to a lot of CEOs. I have friends of mine who have disclosed to me just how that lack of financial discipline has put them and their company in a place where they can’t make good decisions anymore as a leader, and yet it’s interestingly not talked about. I think literally, I’ve interviewed more than 50 people over the past two years and no two people have said the same exact answer to this question. But no one has come even close to talking about this financial discipline. And I do remember you writing about this in your piece, How I Failed. So, I’m curious to get your perspective. I mean, you work with hundreds and hundreds of entrepreneurs all the time and leaders, not to mention. Why do think it is that we don’t talk about this? Why is this not as obvious as it should be?
TIM: There’s two things. First, we are in an industry that is driven by venture capital. And the incentives of venture capital are to basically have you spend money fast, run out, raise a new round, experiment fast to figure out if you are going to be one of the ball rockets because that’s what they’re looking for. So, if you think about the portfolio of the venture capital as a lab, they’re scientists in white coats and they want their various lab cultures to grow fast, you’re giving them lots of [inaudible] because you want to figure out which ones are going to be winners. And that’s not necessarily the incentive for the entrepreneur. The incentive for the entrepreneur should be to right size, to do market discovery at the right pace. And we’ve started to get narrative about that from The Lean Startup movement. When you hear from Eric Ries and he says he first failed and he realized that should they have done three systems instead of ten, and now he said, “No, actually what we should have done is just done a webpage advertising our product and we would have found out that nobody wanted it.” That whole minimum [inaudible] idea is certainly related at.
But also, I remember Mark Leslie who was the Founder of Veritas, he actually has a bit of a chip on his shoulder because he feels like he talked about Lean Startup principles except in sales long before Steve Blank and Eric did. But Mark talked about the mistake that a lot of companies make on sales which is they build a giant sales force. He said, “Look, when you’re trying to figure out whether you have the right product or not, you need to bring a very different kind of sales person and you only need two or three of them because they’re doing discovery and you don’t want to scale it until you know that it works.” And I think that in general, that is the discipline of seed to First Round, and the scaling of VC is supposed to follow that model where you’re doing a small thing and discovering. And so, you should be lean. But in practice, there’s been so much capital that it became very easy or too easy for companies to say, “Oh, my job is to put the pedal to the metal from the get-go.”
CLAIRE: And I think when you’re living in an ecosystem where the incentive for yourself isn’t there to be accountable to being profitable, and the primary stakeholders, the folks who are even the one giving you money and also encouraging you to continue to spend, they have different incentives than yours. Of course, you don’t want to think about it or talk about it.
TIM: There are people like Reid Hoffman who writes a book about Blitzscaling saying this is the way to succeed, taking same risks, do the blitzkrieg. That is actually, as I said in the piece I wrote about that for Quartz back in [inaudible], I said that it is a survivorship bias masquerading as a strategy. Yes, companies have done that and they’ve succeeded but it’s self selected. And if you look at a company like Google, they raise very much money. They scale up as they succeeded. Even Facebook which did raise a lot of money, I asked Mark about it and he said, “We raised a lot of money because we saw how fast we were growing and we said we better have a cushion.” He said, “But we were close to cash flow positive the entire time.” And so that’s sort of an interesting way of understanding.
Again, I think way more businesses would benefit enormously if they understood that you’re not building a financial instrument, i.e. something to exit. You’re really trying to build a lasting business because then you have the opportunity to exit if you’re really successful. But we’ve increasingly gone into a world where it’s this self-fulfilling prophecy where you even go talk to an entrepreneur and you’ll say, “How are you doing?” And they’ll say, “Oh, we just raised our money.” And I go, “Well, that’s not about your business. That’s about your fundraising.” I want to hear them say, “We just have these amazing new customers.” Or, “Our users love us.” Why is the first thing out of your mouth is how much money you raised?
An example I used is I say business is like a road trip. You can’t forget to stop at a gas station but that’s not what you’re doing. And this is like you ask somebody, “How’s your trip?” And they go, “Oh man, I just filled my tank at the local Exon and it was great.” “Really? That’s how your trip was?”
CLAIRE: I love that analogy. It’s such an important reminder, I think, to actually re-center on even why we even do this in the first place. That articulation of sort of the highlight of what they’re building, being a funding says so much in itself. I’m wondering for you, Tim, you talked a little bit about this in your piece of How I Failed, bringing in a CFO, becoming a lot more financially rigorous, realizing, “Oh wow, I should actually treat the financial team as partners in the business.” What on a more maybe tactical level do you feel like leaders overlook or feel like they could be doing to make sure they have this financial rigor? Is it, as soon as you can, hire a CFO? Is it make sure you have, depending on the — I’m curious as you look back kind of when were the moments when you’re like, “Ahhh, I really wish someone would have told me this earlier.”
TIM: I think it’s just something that grew on me over time. Obviously, I had this really wakeup call with the dot-com bust where we shrank by 30%. We were about a $70-million company in 2000, that’s in revenue in audit, not in funding.
[Laughter]
TIM: And then suddenly we were a $50-million company and we had to lay off a quarter of our staff. It was pretty harrowing. I’d always been a very paternalistic employer too, so I kind of like, I would have probably gone down with the ship. And Laura came and said, “You have to do layoffs or the company’s going to go down.” And we did, about 5% of our staff. It was one of the worst experiences of my life. We had these binders of the people we were considering, and I’m sitting there kind of looking at the binders and I see all these hair on my binder. And I go, “What the hell?” My hair was falling out literally as I was confronting that reality. It was really kind of a horrible experience. But anyway, that’s what woke me up to it.
The other thing I would just sort of say is I did have this sense of finance as a kind of dashboard. And I think we have a lot of entrepreneurs who understand this from the point of view of, “How’s my app doing? What are the users doing?” This idea you’re building a shadow app that’s sort of tracking your users to the system. And I think the best companies understand that those two things are the same. There are a lot of financial people out there and CFOs out there who are just being counters. They are just on the numbers side. And you have to actually go, “No, I want a CFO who’s really attuned to ‘this is the life load of the business’. How do all these activities come together?” And that’s also really about strategy.
There’s a wonderful line from these consultants I worked back also around 2000, Dan and Meredith Beam. They did this work on what’s your business model, and they had a line which is ‘a business model is the way that all the parts of your business work together to create customer value and business advantage’, something like that. “What do you mean by that?” They used as an example, Southwest Airlines. And I go, “Okay, you say Southwest Airlines. United. They’re both airlines.” “They have completely different business models.” And I go, “Explain.” And they go through, “Look, United had this hub and spoke model. Southwest is all point to point. United does baggage handling, Southwest doesn’t. They won’t forward your baggage from one flight to another. They’ve done all these things that make them able to be the low-cost airline.” And surprisingly, they also pay their people more, which is counter-intuitive. But again, stock ownership, these are all part of the business model. They say, “Oh yeah, we’re going to have a low-cost version of the United Airlines.” That’s why all those other low-cost airlines failed because they didn’t actually understand how all the pieces come together. It’s just a really great way of forcing you to think about what makes you special, what is the source of your value, and how all of these pieces come together. Your financial team should actually be helping you understand how that actually leads to financial outcomes. They’re mapping the flows of activity through the business that lead to your results.
CLAIRE: Definitely. There’s like two different threads that I’m sort of pulling together here. One is this sort of insane amount of sensitivity right around the linkage between finances and the actual progress and movement in the business. And two is just this integrative approach to thinking about it, and that you actually want your financial team to be, not just like you’re saying, being counters, but a part of the strategy and really understanding how the two influence each other. I mean, my guess is it sounds like even in the beginning, you had that very intuitive sense of, “Okay, if these numbers are down, then this means it’s not good for the business and I have to pay extra attention.” And this often has become sort of a gut feeling. I think a lot of leaders don’t even pay attention to [inaudible], especially if you don’t consider yourself like a numbers person or a finance person. You’re just like, “Oh, someone else is going to take care of that.” I love that reminder of just that linkage and sensitivity between finances and the business and that integrative approach around thinking about finance.
TIM: Can I pivot the conversation a little bit to a totally different topic?
CLAIRE: Let’s do it, yeah. And I also have like five million questions, Tim, as well. But I want to hear what’s on your mind. [Laughs]
TIM: I just want to talk about, since this is a podcast about leadership, and a really important concept for people is to understand that leadership isn’t just about your own company. I think the leadership that I am most proud of in my career has been leadership for the industry. And he we are, this little company. The one I’m probably proudest to have is the web 2.0 thing because it literally came out of our strategic objective in 2003. Here we were on the ropes on the dot-com bust and our strategic objective in 2003 was we want to reignite enthusiasm in the computer industry. And we said, “How are we going to do that?” And we said, “We’re going to tell a story about why things are going to get better.” And it was like, “You thought the dot-com bust was the end, it was actually the clearing out of the people who had the wrong business model. We were starting to see the emergence of the people who had this new business model. Let’s talk about what that new business model is.” And we went through this list of things like, the old model did this and the new model does that. And that was really the heart of that storytelling, and it really did reignite enthusiasm. We literally had consultants come in and saying thank you.
It wasn’t the first time we’ve done it. We kind of had that early experience back in the early 90’s where we were very involved in the commercial internet and evangelization for that as a model. We literally got information from the National Science Foundation to do advertising with GNN. We’re the first people who’d do it and it made it possible for other people to do it.
Leadership is showing what’s possible. And then in this line that we would always use at O’Reilly, “create more value than you capture”, because you make opportunity for others, you can grow with the market. Same thing when we were working on Unix on open source. We were this publisher on this sort of obscure topic. And I still remember all of my competitors. I went to them and I said, “I want to give booksellers a bibliography of all the best books on Unix and Linux and the X Windows system. And they’re like, “You’re going to do a marketing piece that includes our books?” And I said, “Yeah,” because I figure if they expand their category because they understand how they see it as a category, we’ll do well. “And I’m sure you’ll do well, too.” It’s also [inaudible] when we started what’s analogy of the O’Reilly online platform is an eBook platform, we invited in our biggest competitor. We said, “Yeah, it will be good for you but it will even be better for our customers and better for us because yeah, we’ll be competing on our platform but they’ll be more value for everybody. Grow the pie.”
And so, yes, leadership is super important inside the company, but you have to think about your industry and how the really great companies are creating value for others.
CLAIRE: Period. Like no bounds in terms of, “Oh, this person giving me money for my product, for my books, for my conferences.” I think so much of the impact and the influence that you’ve had is coining terms like open source software and being a leader and thinking through that space, is in thinking about web 2.0. That term didn’t exist before O’Reilly introduced that and how much that shaped the way people thought and acted in our industry.
Here’s the thing, Tim. I love this reframing of leadership not just specific to your organization. But to a broader scope, thinking more maybe about problem orientation, thinking more about the people you’re trying to serve, what advice do you have for, let’s say the new manager who says, “Tim, this is my first leadership role. How can I be thinking about being a leader in my industry at this point? Don’t you feel like it’s too early or I can barely sort of even create an influence.” What would you say to someone who presents you with that?
TIM: That’s an interesting question because I was going to say first thing is your job is to actually help create value for the people you’re leading. That being said, I don’t really have any experience of that. Literally, O’Reilly was my first job other than being a janitor. So, I don’t really have any experience except being the boss. What’s the idea of what it would be like for somebody who’s somewhere down in the hierarchy, say at a big company, or even a fast growing startup. I guess I would say the key thing for every employee, not just a manager, is think about value because if you’re really focused on ‘are we creating value’ and you understand what value means, and again obviously you could mean a lot of different things by that. You could mean simply financial value. But when you think broadly, you say, “Okay, I want to create customer value. What is that? How am I going to get my team to do that?” You’re going to have a very different conversation than if you think your job is simply to execute a bunch of commands that have been handed down which you don’t really understand. I guess I would just say see through the instructions that you’ve been given, see what the objective is and help find that objective.
I read some amount of military history and you think about the Battle of Gettysburg. Some lieutenant who was like holy shit, he was just [inaudible]. He was like, “This is hill, it’s going to be totally critical to control this battle. We’re going to stay here even though we don’t have any orders.” He knew what the objective was and he’s frantically saying, “Send more troops here because this hill really matters.” If somebody was just like, “Well, my orders were to go do this thing,” then they’ve found the objective. I think anywhere in the organization can recognize when there’s an opportunity for value creation that is aligned with the company objectives but being missed.
CLAIRE: Yes, that mindset shift is so key. Being more concerned with being additive than extractive, asking questions about what can I give, how can we create more or make something better rather than what am I getting in return. Does this mean I’m going to get credit, does this mean I’m going to move up in the ranks? And what it does, at least from my perspective as the CEO running my own company, is beg the question of then sort of zooming out as the boss, how do you create that environment for then everyone in the company to feel that way and to be more concerned about creating value than what they can get. One of the things I remember you writing about is how you actually felt like this is something that you did right is sort of creating that guiding path, that North Star, and helping people see that objective. I’d love to hear your thoughts on how you do that as a leader.
TIM: It is funny because I often tell the story of this musical from the 1950’s, The Music Man. It was about this conman. I was in The Music Man in high school which is how I happen to like it. It was about a conman who basically sells band instruments. He’s travelling, sells band instruments, and he doesn’t actually know anything about music. So, he has this thing that he calls the Think System. So, he hums a tune and tells the kids to figure out how to play it. [Laughs] I won’t go into the story but I often said that my management style is a little bit like The Music Man and the Think System. I hum the tune and you go figure out how to play it. That’s not always true because sometimes I see something and I’m like, “No, this isn’t it.” But that ability to tell a story.
And of course if you like a more poetic version of that, I was actually thinking about this earlier, the Antoine de Saint-Exupery quote: If you want to build a ship, don’t drum up people to collect wood and don’t assign them tasks and work, but rather teach them to long for the endless immensity of the sea.
A great example of that, it was in 2008, I gave a talk at our Emerging Technology Conference called Why I Love Hackers. And I ended it with this poem of Rilke. He talks about the restless of the old testament wrestling with the angels, they couldn’t hope to win but they [crosstalk] from the fight. And he says, “What we fight with is so small and when we win, it makes us small. What we want is to be defeated, decisively, by successively greater beings.” Jen Pahlka who’s now my wife came up to me with shining eyes — we were working together on web 2.0 expo, and she said, “I need to talk like that for my conference aimed at entrepreneurs.” And that’s when I started to give my series of talks called Work On Stuff That Matters. And it’s that ability to kind of tell people it’s okay to be idealistic. It’s okay to do things that are hard and worthwhile. There’s a kind of aspirational leadership that we need more of that tells people that it’s okay to be about more than making money.
I’m really proud of this. I remember one guy talking to me and said, “I was just kind of thinking about all this possible startup ideas and they didn’t pass the Tim O’Reilly test.” And I was like, “What do you mean?” He’s like, “Well, they were just about like I could make money some money doing this thing.” And he’s like, “I want to find something where I could make money doing something really worthwhile.” He’s one of my favorite entrepreneurs. They are like that. I think about someone like Will Marshall at Planet. He’s like this big vision about what could we do if we had access this daily review, or ultimately an hourly review of the changes in the Earth’s surface. Fantastic visionary investment. I’m just thinking about companies from our portfolio, Control Labs. They’re thinking about direct brain machine interfaces because they think of all the possibilities that this creates for humanity.
CLAIRE: Absolutely.
TIM: I get these pitches and somebody’s like, “Well, I have this new thing to extract money from people via advertising.” I go, “Ah, not that interesting. I’m sorry. I don’t know if it’s going to be a big success or not.”
CLAIRE: And what does success even mean from that standpoint?
TIM: Yeah. Although sometimes people start that way and then they come around with an interesting twist and I go, “I love it.” There are advertising-related businesses that are creating really interesting values.
CLAIRE: Completely. That hopefulness is so refreshing and to your point is exactly what we need. I know for so many entrepreneurs who feel like they are hoping for that better place, for that world where, “Ah, this could be just so much better and we could be helping people in such a better way.” I think it’s easy to get bogged down and the rest of the world telling you, “You know what? Maybe you’re not going to make it.” Or, “Maybe you shouldn’t be thinking this way.” Or, “Maybe you should be more focused on your short term gains than trying to make it in the long term.” So, hearing that is so refreshing.
The second thing that made me kind of emote is something that I’ve been thinking a lot about and in the past, in almost ten years of studying leadership has emerged as a consistent theme is this importance of vision for a leader and shared vision. You can’t motivate people. You can’t expect to make any progress if you don’t have that picture of a better place. And it’s different now than values. Values is how you do your work. It’s maybe like passion, simplicity, et cetera. It’s also different than mission. Mission and purpose that’s why in what you’re doing, different than vision. Vision is, as you were saying, it’s what you can see. It’s how you actually are thinking of that value. It’s a very tangible thing. And without that, we’re lost.
TIM: There’s a great quote from this guy, Edwin Schlossberg, and he said it about writing but it applies to this idea of leadership. He said, “The skill of writing is to create a context in which other people can think.”
CLAIRE: Oh, I love that.
TIM: And in some sense, in leadership, what you are trying to do is to create a context in which other people can act.
CLAIRE: Exactly.
TIM: You’re building a map and a vision that people go, “Okay, I don’t have to have every detail filled in because I know where we’re trying to go, what this is all about.” So, creating a context in which people can act is a big part of vision because it gives meaning and purpose to the choices that you make.
CLAIRE: It’s the most powerful motivating force for someone to take that action, and it’s the ultimate clarifying force as well, to your point, to those decisions in that context.
TIM: And they’re often a little orthogonal to the obvious. Like one of the things that a lot of time under my own company right now is around this whole idea of platform economics. It’s become clear to me. I’ve been spending a lot of time on this with Google and Amazon and Facebook, and this idea that these companies are building this big algorithmically managed economies. And they have economists and they have these systems that really allocate in this wonderful phrasing from this economist, Alvin Roth, who gets what and why. I’ve been asking and been challenging my own company to say we have to think that way. “We have to understand particularly because we do have a platform, we have other participants, we are allocating value through the algorithmic choices we make. Are we making the right choices?” It’s great because once you start thinking that way, people go, “Oh, we have to respond to this.”
One of my favorite expressions goes back to Laura Baldwin who became my CFO and now is really running the company, she was the one who kind of got me to do this layoffs back in 2000. A couple of years ago, in one of our meetings, she said, “We’ve got a crisis in our hands.” What was the crisis? We had introduced a new product on the platform, O’Reilly online training, and it was just so popular and it had some different dynamics in terms of pricing and attention. People can go to a book or watch a video and they can watch for five minutes. But suddenly it’s a high-priced thing, a live training with an hour or two hours people spending the whole time. It totally threw off the platform economics. She said, “Our crisis is that we went all in and our platform participants are just getting ramped up. We’re taking too much of the value.” You can see a lot of the people going, “Oh, no.” We’re taking much more of the value from the platform. No, that’s a problem because we want to incent them to produce value for our customers, so we radically reduced our pricing until our partners could catch up in their production of these things. All I had to say was this vision of we have this job which is to manage this platform in a way that it creates value not just for our customers but long term for our suppliers. And we’re really trying to manage this as an economy of supply and demand. And Laura, she had read my book and she totally groked all these stuff, she was the one who kind of came in and said, “Whoa, we’ve got a problem.” And so, all I had to do was paint the story of why this is an important way for companies to think if you manage a platform. And I’m having a much harder time.
I just had this conversation with a couple of Google execs at a party last week, and I’m trying to explain to them – and this is a subject of a Quartz piece that I wrote last month or maybe it was in May, I can’t remember exactly when it came out – about Amazon and Google and their management of their platforms and how Google is taking more and more of the space from the open web. They’re just kind of like, “Really?” They weren’t even aware, quite frankly. “Almost 50% of clicks are now no-click searches where people just get the answer right on Google, and you’re not aware of that? And you’re the top executives? The amount of space that’s given up to ads on the screen has grown to like two or three times as much than it was back when you started. Are you aware of this? Are you thinking about it? Are you even trying to understand?” And they said, “Oh yeah, we think all the time about our ecosystem.” And I go, “Well, maybe not hard enough.” [Laughs]
CLAIRE: Maybe not hard enough, exactly.
TIM: Their version of thinking about it is hand-wringing over the fact that publishers aren’t pulling their weight. It’s just inevitable. When I talk about economic policy and what we learned from tech, what we learned from tech is people are able to persuade themselves that what is in their own best interest is actually just a natural phenomenon. We are becoming a monopoly because, “Hey, we’re just performing better,” while actually they are in control of the rules that shape the market. And those rules just happen to make the profits swell in their direction.
CLAIRE: Exactly. I think it points to that discrepancy of when that vision is super clear in creating that context and when it’s not, when it’s a little fuzzier.
TIM: Well, I’m not sure. I have to say a lot of the things that I have worked on have been more in the fuzzy area because I’m not sure that super clear is the objective. I think the objective is, and this is why I love this framing of creating a context where people can think, creating a context where people can act, is identifying the problem that we should all be wrestling with because I don’t have a prescription for Google. I don’t have a super clear set of ‘you should do this, you should do that’. I am just saying, “Hey, based on what I’m seeing, your platform economics are at a whack and I have a basic theory that says that a good platform should be like an ecology where things are in balance. And if you become extractive, eventually that ecology or that economy will fail. So, go and look at your own.” I look at my world and I try to figure out how to apply that principle. But it’s like science, it’s not like this one answer. It’s really should be more for exploring and thinking about how you run your company.
CLAIRE: Absolutely. I think a lot of fuzziness, indeed. I think I was more remarking on the consistency in which that focus on value creation versus extraction runs through. That to me feels clear in an important way. Not to say that that’s an answer, not to say that that means that there’s prescriptions for what that looks like but I do think it’s admirable, it’s worth having more people think about instead of [inaudible]. It’s encouraging.
TIM: It is. It’s not like you can’t extract value. You want to extract value, but you just want to create more than you extract. A great analogy for this is the soil of the American Midwest. Something like back when it was 12 or 16 feet deep, when they started farming this. You come through the dust bowl, you come through all that stuff. And now we’re kind of at this point where you have to put in lots and lots of fertilizer because guess what? They extracted more than they put back. And at some point, it actually stops working as well. And so, if you thought about that and you go, “Oh, if we had figured out earlier on that the world is not limitless that you actually have to build in a cycle of regeneration,” you have these people talk about regenerative agriculture like, “These are the practices that actually rebuild the soil,” so you take something out and you put something back. It could be the cycle of animals and crops and various kinds of things. We’re slowly understanding how you do that. But it starts with an understanding that you have to do it, that if you don’t do it, that if you just extract, it will eventually run out of soil. And I think that that’s what Microsoft did with the PC. It’s what I think Google is doing with the web. And I think that we’re going to come to a point where everyone’s going to go, “Oh, how do we rebuild the economy.” I think, generally, we have an extractive economy that is not sustainable. And climate change, of course, is one of the big things that’s going to teach us that. [Laughs]
CLAIRE: Oh, and it’s already teaching us day by day, minute by minute. I could literally continue to ask you and barrage you with questions, Tim. But for the sake of wanting to put back more into the soil than we’re taking, I want to be respectful of your time. Thank you so much, as always, for your wisdom, for your time, for continuing to be a voice to the optimism that we need as we think about leadership. And yeah, I encourage everyone, obviously, to follow you, your work, O’Reilly. And that if you’ve enjoyed our conversation, to definitely write, of course, our podcast, share it, follow on iTunes. And yeah, thank you so much again, Tim.
TIM: Thank you, Claire. It’s great to talk with you and thank you for your leadership.
CLAIRE: I appreciate it.
