The Spotify Effect Devours AI: (NYSE: SPOT)
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Silicon Valley’s ancienne noblesse never seems to shy from the bold stroke. True to form, earlier this year, tech bazillionaire Jack Dorsey announced flatly that “Intelligence tools have changed what it means to build and run a company.“
Shortly after that, his fintech shop Block (NYSE: XYZ), formerly known as Square, laid off over 4,000 of its 10,000 total staff. Since markets love bloodshed above all else, company value jumped 20%.
With 4,000 fewer employees showing up for work, Dorsey won’t be needing most of Block’s spiffy digs in downtown San Francisco.
What seems to matter: Dorsey’s mass sacking confirmed the AI narrative that companies can do more for humans without hiring actual humans. But other managers say — particularly human resource professionals — that automated workers have morphed into an handy management excuse.
Dorsey, they argue, had simply over-hired out of Covid. They point out, when Elon Musk bought Twitter, he fired something like 8 out of 10 employees. Certainly, Block’s firings have done nothing to repair enterprise value.
Block, the stock, is still stuck at less than 60% of its peak value in 2021.
Layoffs have done nothing to repair Block’s collapsing enterprise valuation, which saw a peak in 2021.
What actually matters: Such AI anxieties over staffing and value overlook decades of high-quality sales and operating data for other digital assets.
By far, the most important is the Recording Industry Association of America’s revenue database. Here, starting in the 1970s, the famously chaotic music industry has taken extra care to keep an exact census of the sale of each-and-every vinyl record, cassette tape, compact disc, and streamed music file downloaded into the 21st century.
The Sales Remain the Same: RIAA revenue data graphically shows the rise and fall of LPs, tapes, CDs, digital formats, and finally streaming. Sales peaked in 2000, at about $21.5 billion, nominally.
Digital Deflation: What makes the Recording Association sales data even more indispensable is when inflation is factored in. Back out the effect of rising prices overall, and the deflationary pressure of digital assets become clear.
In the music industry’s case, sales peaked at about $15 billion. They never reached that peak again. Ever. Instead they leveled off at about $10 billion in inflation-adjusted sales, mostly in streamed media.
The music industry, like the latest Justine Timberlake album, is kind of flat.
The critical tune: When the affects of inflation over time are factored in, sales peaked at $15 billion about 2000 and never recovered.
The Spotify Effect: With music industry data in hand, AI needs no robots to understand. Deflationary pressure from digital products is so mature that software companies themselves are being devalued.
The reference for just how much value can be lost by a software company is streaming music giant Spotify (SPOT).
Flat sales and thinner margins that any digital asset feels is dragging down Spotify. Company stock is off about 20% since last year. It won’t improve.
Software Is Eating Itself: Even though Mark Andreessen, then-partner at venture tech shop Andreessen-Horowitz, wrote that software is eating the world way back in 2011, it is still quoted and actively read. That’s because it’s still true: Once time is is factored in, a digital thing does nothing but drive down sales, prices, and overall value.
And AI is just another digital thing getting eaten alive. Worrying about who will — and won’t — get hired changes absolutely nothing.