Slate Money – “The Vanishing Edition”

Date: February 18, 2017
Host: Felix Salmon
Co-host: Jordan Weissmann
Guest: Leigh Gallagher (Fortune, author of "The Airbnb Story")

Overview

This episode of Slate Money focuses on the state and future of three major digital companies: Snap (Snapchat), Airbnb, and the New York Times. Through a comparative look at their revenues, business models, and challenges, the hosts explore what digital success means today—and the obstacles that legacy and startup companies face. Special guest Leigh Gallagher provides an inside look at Airbnb’s meteoric rise and ongoing controversies. The discussion weaves through IPOs, profit models, pricing, trust, and the enduring value of “belonging” versus business scale.

Key Discussion Points and Insights

1. Comparing Digital Revenues: Snap, Airbnb, New York Times

[01:08 – 02:42]

• Revenues Revealed:
  • Snap: $400 million
  • New York Times: $500 million
  • Airbnb: $1.7 billion
• IPO Valuations:
  • Snap's IPO value at ~$20 billion, much higher market cap than NYT (despite less revenue).
  • Quote (Felix): “Snap had actually less digital revenue last year than the New York Times, but they are going public at a market capitalization of somewhere in the $20 billion range compared to the New York Times's $2.5 billion.” [02:42]

2. Snap’s Business Model and IPO

[02:42 – 08:23]

• Burn Rate Mystery: Snap lost over $500M, outspending its revenue—an unusual case even among tech startups, with high general and administrative (G&A) costs.
• Cloud Hosting as Overhead:
  • Snap’s biggest fixed cost: $3 billion to Google and Amazon over 5 years, due to video hosting needs.
  • Quote (Felix): “They pay...$3 billion over the next five years...just to host this vast amount of video.” [04:03]
• IPO Timing and Motive:
  • Snap is going public at peak valuation to provide early investors an exit.
  • Quote (Felix): “What you really don't want to do is IPO a lower level than your last round...if they think that now is the highest valuation...then it makes sense to do it now.” [07:08]
• Comparison to Facebook and Twitter:
  • Snap compared to pre-profit IPOs; growth is slowing but hopes are high for advertising potential.

3. Snap’s Advertising Prospects

[08:53 – 10:25]

• Snap is seen as a unique venue for "brand advertising" (akin to TV), a field still dominated by traditional media.
• Quote (Felix): “As Snapchat provides exactly the same kind of immersive experience that TV does...it's almost certain that companies like Snapchat are going to be seeing a huge amount of brand advertising.” [09:56]

4. Airbnb: Trust, Pricing, and the “Belong Anywhere” Philosophy

[11:30 – 27:29]

• Financial Realities:
  • Airbnb achieved profitability by EBITDA; $1.7 billion revenue (expected $2.8B next year).
  • Their revenue is a percentage of total platform bookings, much larger than just what Airbnb keeps.
  • Quote (Leigh): “This company...is a much bigger company than I think most people realize, and a much more profitable company than most people realize.” [12:56]
• Trust vs. Price:
  • Airbnb’s success is attributed to both trust mechanisms (two-sided reviews, integration, design) and price (affordability for travelers).
  • Quote (Leigh): “Trust is a big part of it, but it's not the only thing...you never could go to any city before and say, I want to choose from 40,000 different individual homes...” [14:53]
• Design and Payments:
  • Airbnb’s founders, trained in design, focused on user experience and integrated payments—innovations versus older “vacation rental” platforms.
  • Quote (Leigh): “Design wasn't just the look of it, though. It was also the fact that you could have payments right there.” [17:39]
• Era and Demographics:
  • The company capitalized on the Great Recession and millennial travel patterns.
• Pricing Tools and Market Saturation:
  • Hosts use sophisticated pricing tools; oversupply can drive prices down in crowded markets.
  • "There are outside companies that will also help you with your pricing as well.” [19:31]
• Regulation and Commercial Hosts:
  • Ongoing tension: “mom and pop” hosts vs. commercial operators running clandestine “hotels.”
  • Regulation, market sensitivity (NYC, SF), and enforcement remain key to future profitability.
  • Quote (Leigh): “They have reigned that in a lot...They have kicked off a lot of those listings, a lot of those listings. The major, major ones also just kind of saw the writing on the wall and have gone to other sites...” [21:14]

Memorable Moment:

• Felix Reads from Leigh’s Book: Highlighting Airbnb’s mission statements— “Belong Anywhere” and its ambiguity.
  • Quote (Felix, reading Leigh): “In November 2014, four months after the company launched Belong Anywhere as its mission…Chesky…still had some pressing questions. What does it actually mean? I mean, this is classic, right?” [23:07]

5. The New York Times: Digital Paywall, Subscriptions, and the Fate of News

[28:14 – 39:35]

• Revenue Reality:
  • Digital revenue is growing but print ad revenue is still larger (for now).
  • Smart implementation of paywalls has helped maintain subscription numbers and preserve print ads.
  • Quote (Jordan): “For every $1 of new subscription revenue, they only lost about 13 cents in advertising, online advertising revenue.” [30:37]
• Print-Digital Transition:
  • Long-term survival means shifting to digital-only, significantly lowering distribution costs.
  • CEO wants a stretch goal of 10 million digital subscribers.
  • Quote (Felix): “When print goes to zero...they actually get a huge financial benefit from that. Because...the cost of physically printing and distributing the New York Times is enormous.” [33:17]
• Targeted Ads and Engagement:
  • NYT trails other outlets (like the FT) in digital ad targeting for logged-in users.
• The Problem of Scale:
  • The NYT’s unique global brand means few other outlets can replicate its model.
  • Quote (Felix): “The New York Times always has been kind of unique...other news organizations really can't look to it as a model.” [35:28]
• Subscription Fatigue and Free Alternatives:
  • Despite a wealth of quality free news (Bloomberg, BBC, podcasts), people still subscribe for unique value.
  • Behavioral Insight: People don’t always seek the same story elsewhere if paywalled—they just move on.
  • Quote (Leigh): “The reason why people would say, now I really want to see what the Times has to say about this is because of decades and decades of expensive, incredible journalism.” [38:13]

Notable Quotes & Memorable Moments

• On Snap’s Cloud Costs:

  • “They have signed $3 billion...to host this vast amount of video. Because they are one of the largest online video companies out there, if you think about it, just to host all of that video because they don't want to host it themselves. And that's their big expense.” (Felix, 04:03)

• On Airbnb’s Brand and Philosophy:

  • “You know, the number of users on Airbnb...it's become a sort of social and cultural phenomenon...they've had 160 million trips taken, cumulatively.” (Leigh, 13:26)
  • “He says, well, what we're most concerned with is how many people can belong Anywhere. You know, it just answers every question.” (Leigh on Brian Chesky, 23:40)

• On the NYT’s Future:

  • “When print goes to zero, they actually get a huge financial benefit...the cost of physically printing and distributing the New York Times is enormous.” (Felix, 33:17)

Important Timestamps

• Snap Revenue & Burn Rate: [01:08 – 05:59]
• Snap IPO & Ad Model: [06:00 – 10:25]
• Airbnb’s First Profit, Growth, and Trust Mechanisms: [11:30 – 16:13]
• Design, Payment Processing, and Demographic Advantage: [17:01 – 18:36]
• Airbnb’s Pricing Tools & Regulatory Battles: [19:10 – 21:13]
• “Belong Anywhere” and Mission Statement Irony: [22:56 – 24:25]
• NYT Paywall Economics & Digital Transition: [28:14 – 34:10]
• Role of Legacy Brands in Journalism: [38:43 – 39:35]

The Numbers Round

[40:05 – End]

• Leigh Gallagher: 25.2 — The average P/E ratio of the S&P 500, well above the historical average, indicating possible overvaluation. [40:05]
• Felix Salmon: $136 billion — Value of Unilever, a recent takeover target, illustrating the scale of “real” consumer giants versus digital darlings. [41:45]
• Jordan Weissmann: $7,700 — The median white family without high school education is still worth $7,700 more than a black family with some college, highlighting the U.S. wealth gap. [42:21]

Tone and Style

The conversation remains sharp, witty, and data-driven, with the hosts and Leigh Gallagher interleaving industry analysis and personal anecdotes, often with humor (notably Felix's affectionate teasing and reading from Leigh’s book). The discussion balances skepticism with genuine curiosity, and the tone—while playful—is deeply informed.

Summary for Non-Listeners

This episode unpacks the crazy economics behind today’s buzziest digital companies, questioning where enduring value, trust, and sustainable business models really come from—whether in ephemeral apps, sharing-economy unicorns, or stalwart journalism. It’s a roundtable underpinned by strong numbers, skeptical inquiry, and the humorous recognition that, in the digital economy, very little is as simple (or stable) as it seems.