Cloudflare TV

🎂 Michael Wolf & James Allworth Fireside Chat

Presented by Michael Wolf, James Allworth
Originally aired on 

2020 marks Cloudflare’s 10th birthday. To celebrate this milestone, we are hosting a series of fireside chats with business and industry leaders all week long.

In this Cloudflare TV segment, James Allworth will host a fireside chat with Michael Wolf, Founder & CEO of Activate and former President and Chief Operating Officer of MTV Network.

Watch more Fireside Chats 🎂

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Transcript (Beta)

My name is James Allworth. I head up innovation here at Cloudflare and we have a very special guest here with us today, Michael Wolf.

Michael is the founder and CEO at Activate Consulting, a strategy consulting firm for technology, Internet, media, entertainment and sports businesses.

Previously, he was the president and CEO of MTV Networks, a senior partner and global practice leader at McKinsey and is currently a board member of Sotheby's.

Michael, we are very excited to have you join us here today on Cloudflare TV.

Thank you so much. It's a pleasure to be here.

It's very exciting to be part of Cloudflare's 10th anniversary. Yeah, we really appreciate you joining us.

I started following a successful IPO last year.

Yes, I know. Let's start off a little bit with your background, if that's okay.

Actually, I think we started off our careers at the same firm, Booz Allen Hamilton.

Is that where you got into this space? That's where I got into the space. I think that when I joined Booz Allen as an associate, everybody said, what industry do you want to consult to?

And I said, I want to consult to media companies.

Do you remember, they called it new media at the time. The Internet was also, and everybody said at Booz Allen, well, you'll never become a partner.

Media companies don't hire consultants.

Internet companies don't hire consultants, technology companies.

Fortunately, I built Booz Allen's communications, media and technology practice.

I became a senior partner there and then was a senior partner at McKinsey and built their TMT practice.

And then I left McKinsey to become president and chief operating officer of MTV Networks, which is MTV, Nickelodeon, Comedy Central, VH1, the full range of television networks.

And when I left there about 10 years ago, I started Activate.

And what we do as a firm is we are strategy consultants for the companies in those industries.

And companies come to us, they come to us instead of going to the big legacy consulting firms because they want to find a way to grow.

And everybody we deal with in these industries is challenged with how are they going to grow?

What are they going to do with new customers?

How are they going to build moats around their business? Trite term, but it's a big issue.

How are they going to find ways in which they can continue to grow in a world where technology moves way faster than they do?

Get new audiences, market, and really also grow their businesses.

So I definitely want to pick up on the Activate thread.

But before we go there, MTV, so you mentioned up to 10 years ago.

So that would have been right as the Internet was cutting into the music industry.

That must have been a fascinating time to be there. Yeah, it's interesting.

I got to MTV and I think the reason why they convinced me to move from consulting to an operating role, a $7 billion company, and part of it was they recognized every part of that business was going to be transformed by the Internet.

It wasn't just music side, but also kids, Nickelodeon with kids, the leading children's franchise on television, VH1, Comedy Central, every part of the traditional media world is being redefined or has been redefined.

And so being there in the early stages of that, Viacom, MTV, parent company didn't buy Myspace.

At the time, they thought it was a huge mistake.

We tried to buy Facebook. And we actually had a deal to buy Facebook, but a media company really couldn't put forward that kind of money.

And so yes, it's a great moment in that those businesses have been, all of those businesses in cable have been very profitable.

And some have made the turn into digital and others haven't.

Yeah. But it sounds like you wanted to get back to the consulting side of things.

Exactly. I mean, having been not only been a consultant, but also made the transition to being a client.

I mean, my joke was went from observer to operator.

I knew what I first of all, when I left there, I knew what I wanted to do.

I wanted to start a consulting firm. And I knew what the leaders of these businesses and their senior management teams and CEOs needed was a firm that could be native to technology, really deep in these industries, and very practical.

Nobody wanted to buy big, finely bound books, they wanted to make things happen, and they want to make them happen fast.

So as an operator, I used to say, I don't have time to buy green bananas.

So you have to make decisions yesterday.

And most of the people we work with need to make decisions fast.

And that's where we help them. That's awesome. Um, I think this notion of considering the Internet first and moving quickly, I think that makes a ton of sense to me in terms of running a business in any industry.

But let's turn to the Internet more generally.

I'm gonna fire a very broad question at you. And I'm looking forward to seeing what you have to say.

What surprised you over the last 10 years?

Um, I think there's a number of things. One of the things that you that that I guess maybe I left off my biography was that in 2012 2013, I went on the board of Yahoo as part of an activist slate.

And helped really make sure that that company was able to stay alive.

I the companies that you would have thought were able to dominate these industries are no longer there.

So if you look at AOL, Yahoo, and others, many of those companies, many of those businesses really face huge challenges along the way.

And yet, they were, they were totally the everybody expected that these these would be the people who would dominate the world.

And if I look at so many companies that were viewed as winners, that they were going to own the world as well as companies, everybody misjudged what would happen with Amazon, in fact, they thought Amazon was losing so much money, it could hardly make it.

And so there's so many places MySpace, there was the sense MySpace was going to dominate the world and that Facebook was just a weak cousin.

So I think what's been the most surprising to me is the extent to which the this world has been able to change so quickly.

And I think it says a lot about don't expect that the people that just because those people are successful, doesn't mean they're going to continue to be I always say that technology doesn't stop when you get rich.

And, and then the other thing is that people many times people in the technology world, they think they look at themselves and they say, if I'm rich, I must be smart.

And so therefore, the next thing I do, I don't, it's not the next thing I do, I'm going to be smart at that also.

And so, and so I think that that the lesson looking at the past is, expect this world is going to be very fluid.

Expect that, that also the other thing that that has has surprised me, or at least has been affirmed for me is the the primacy of the user.

The that I can't stand the word monetization. Because I can't imagine you never say to a user, guess what, we're going to monetize you.

And I mean, it just sounds like, it sounds like so exploitative.

And anybody who looks at these businesses and doesn't think about starts with the technology starts with the monetization doesn't realize at the end of the day, that the user, the customer is the most important.

Right. You're, that makes so much sense. And you think about the businesses that are dominant right now, and particularly in the consumer space, Apple, Facebook, Google, so much emphasis is put, put on that customer experience.

And a lot of that, a lot of that strength is derived from the fact that users just love the product so much.

As I was, as I was researching to chat with you, I noticed that activate puts out a tech and media outlook every year, and it's been doing it for seven years now.

It's, it's fantastic. I think folks in, folks, I have a few friends who are VCs, and they always send me Mary Meeker's Internet report.

And this reminded me of exactly the same thing. But in the, in the tech and media space, it was it was great reading.

The beautiful thing about these things, though, is there a point in time and you can go back and look and if you think back over the last seven years, what are the trends that you're expecting that perhaps others didn't?

And what are the things that surprised you? Yeah, I think that if I look back from the beginning of this, when we started to do this, there are a couple things that some of them are things that we expected.

And some of them, and many of them would surprise me is the extent to which they really happened.

And the other cases, things that I haven't happened.

So really going back to the beginning, we believed that messaging would be the dominant digital behavior worldwide.

It is. It's even grown more than we expected. We thought that that there would be you had really Facebook with with after its acquisition of WhatsApp, Facebook, actually, with between WhatsApp and Facebook Messenger, really is ends up in Instagram ends up being the biggest messaging company followed by WeChat.

But it's interesting to see the extent to which the their new new players getting in.

But I think what surprised us is that messaging outside has not developed outside of Asia in the same way it has in Asia.

WeChat is the Internet line is the Internet for the people who use the lines of service that's in Japan.

They do everything from playing games to hailing cars to to payments.

And that hasn't happened yet.

I think that we've been surprised we called eSports very early.

We and we've been surprised at how how how much it's exploded. We really believe that somehow YouTube because YouTube is really continues to be the largest music subscription music service does not subscription or paid.

We're surprised that YouTube hasn't ended up being the company that's dominated the tech world.

And we're amazed to see number of years ago, we looked at cameras, and we thought cameras were going to be one of the most important innovations or pervasive elements of the Internet.

And what's happened with cameras is blown past anything we would have expected.

Right. That that makes that that's absolutely the case.

I want to come back to a couple of those, particularly the eSports one. But let's just pause for a second.

I think it's impossible to talk about any of these trends right now without bringing up the fact that we're in the midst of a pandemic.

And some folks I've heard described this as an acceleration of existing trends.

And other folks I've heard described as unleashing a completely new set of forces.

And maybe the truth is somewhere in between. What do you how would you characterize this in the industries that you focus on?

Um, you once again, we'll start with the user.

Yeah. And we every year as part of our report, and I'll tell you, our new reports coming out in a couple of weeks, but and I'll tell you where to find it later.

But the we look at every year, we create something we call our attention clock.

And we look at not the 24 hours in a day, but actually, all of the time that gets stacked in terms of activities that get that take place on top of each other.

And that ends up with roughly a 30 hour day. And a small piece of it work is still a small piece of it.

But so when we look at the important thing that's happened over time, and we've been tracking this, so if I look back to 2018, we looked at around 12 minutes and 13 seconds a day of technology and media time, we 2019 12 minutes and 24 seconds.

Suddenly, this in the past months in shelter in place, that shut up to 16 hours and six seconds a day.

And so the amount of time that people had to spend with tech and media just really exploded.

Now, what's going to happen afterwards, we believe that it's probably going to return to a level of about 13 and a half minutes, 13 and a half hours a day.

So you end up having shifting the curve up for all of these industries in extra hour a day, that people are going to be in tech media, where are they going to get that from some of its, they're not commuting, some of its they've designed, they've, they discovered other digital activities, including whether it's on a connected bicycle or connected treadmill, or video conferencing, but but that's, that's really extraordinary.

And then we look at some of the industries. So I can throw out the numbers of video, the time spent with video during shelter in place has been about 43% increase gaming 39% browsing 34% social media 32%.

What happens afterwards is video goes up about stays at about 18% gaming 14% browsing and social media around 5%.

So once again, this comes down to activities that just an increase in the amount of activities.

And the impact across the tech business is extraordinary. So shopping, not only people increase their their amount of shopping, but they've tried new retailers, they've gone and bought from other places.

Suddenly, we thought it would take years and years for online grocery to happen.

Like right away, it's gonna slip back a little bit, but still at a high level.

Video games, which already started at a high level, people are discovering new video games, and they're playing more socially.

The fascinating trends is that video games, video games were already always social.

But now video games actually become a place of social for other things for other social activities for events, for concerts, for building things together, every every campus in the country has built a model students have built a model of Minecraft on their game.

So a lot of things have happened that are pretty amazing.

That that that is amazing. It's interesting how video games to a certain extent are evolving in a similar model to sports where there are people who play them recreationally, but there's also this professional layer that's emerged on top and with the rise of Twitch people, people watching professional video gamers.

And this is happening concurrently at the same time that a lot of traditional sports can't be played because of the pandemic.

Again, is this an acceleration?

What are you seeing there? I think that that eSports is eSports, the growth has been there for a while now, you have roughly about 500 million people in the world who are watching eSports, a lot of it started in Asia.

It's, it's not a huge business. And it might not be it's about we, we forecast that within three years, it's gonna be about a $5 billion business.

And so it's not enormous, but it'll enable so many other parts of the digital ecosystem, everything from video games, to sports teams, to Twitch, to band broadband, you in order to be able to play, they will be able to watch or play, you require requires a great deal more bandwidth into the home 5g.

It's going to enable so much and it's just it's a new sport.

And it's a new set of a new set of people. What makes it interesting also is that the people who watch tend to be the people who play those games.

And so if you were at home playing a new video game, you're spending another hour on it, then you're more likely to even watch more eSports.

Got it. So it's almost increasing existing consumption patterns.

Um, you mentioned, we talked a little bit about your role at MTV.

And, I mean, I'm sure like a lot of folks listening right now.

Music's a big part of my life and their lives as well. The model in the Internet has almost shifted a little bit for many artists where it used to be your tour to promote your CD and make the money on the CD and then the Internet came along and you kind of use the tracks on the Internet to promote the concerts and make the money on the concerts.

Now the concerts have stopped. What are you seeing in the music space?

I think that, um, that the most of the music artists are making their money today off of streaming.

The streaming contract for the music companies, music business contracted, and now it's, it's not only stabilized, it's turned up because music streaming has become an important part of revenue.

I think the biggest acts will go, will be touring again. I think there's going to be an enormous amount of pent up demand for them.

And so expect there'll be even more interest, maybe smaller venues, maybe larger venues with smaller crowds, but that'll come back.

I think the other thing that's interesting is the consumers themselves are becoming creators.

They're, they're consumers. There are all sorts of, of tools out there, which allow you to, um, to take excerpts to, to mix, to match, to create your own.

And, uh, and what that ends up doing is ends up increasing the interest in the most established and most important artists.

Got it. And so it does. Yeah.

I think that this, that, that the music world, music world will continue to grow.

Um, and if you look at it, there's always a set of top 100 artists that everybody wants, wants to, um, wants to listen to.

Very cool. Um, uh, you also do a lot of work in e-commerce and retail.

Um, I am, uh, I must confess, I am very glad that I am not in the, uh, the business of physical retail stores over the last six months.

It must've been pretty tough. What do you, what are you seeing there?

You mentioned a little bit about the fact that people are shopping more and trying new brands that they previously hadn't.

Right. I, I think that people are, are trying new brands, especially, uh, especially some of the highest spenders on e-commerce.

I think people who, um, people who are for the most part have been spenders in the past, uh, the, they, they are, they're actually discovering new e-commerce retailers.

They're, they're, they've tried something new.

Um, but if you look at the categories where e-commerce penetration has increased, it's gone way up in grocery, way up in household products, beauty and personal care, apparel, shoes, and accessories.

I mean, you go across the board, even home improvement because people were stuck at home and it was a good moment to fix the gutters or something.

And so across all of those categories, um, grocery usage has spiked, but the challenge is going to be keeping those, those consumers because, and it's, we're already seeing it that now that people can go back to stores, in a lot of cases, they're going back and they're shifting out.

The challenge is going to be what's going to keep grocers, um, what will keep online shopping.

And some of that is going to be free delivery. A lot of it's going to be access to things that are hard to find in stores.

In fact, um, finding things that are hard to find in stores is going to be one of the things that's going to drive e-commerce even greater.

Uh, even companies like the Gap where, uh, they've had their in-store is such an important part of their purchases.

People are going online because they can't, the in-store experience isn't great and they can't find everything they're looking for.

Um, and I think finally, uh, what we are seeing is, is that, is that everybody thought Amazon was going to totally dominate the space and put, uh, Walmart and Target and best buying Costco out of business.

And yet they, those companies have really come on strong. Kroger, others, uh, this is, COVID has been their moment, not just their comeback, but they're, um, they're moving back into the stream of being central to people's lives online.

That's, that's, that's surprising. Um, this touches on, um, this touches on the concept of physicality and it's probably been rough, uh, owners of, of physical spaces over the last six months.

How are you advising clients about how to think about physicality going forward, like store locations or so on?

Um, there are a lot of our clients who are in fact, omnichannel retailers and the store, there are a number of categories, whether it's everything from furniture to cars to what, whatever, um, you're talking about that there, there are a large considered purchase.

You want to buy a mattress, you want to buy a car, you want to buy a sofa.

People still want to go somewhere to try it.

But in a lot of cases, they want to browse online, discover online and go try at the store.

Or they want to make sure that they know that there's somebody at the store who's going to greet them.

And it's very much like the system for reservations at the Apple store.

So I think we're going to see a lot more sophistication and, um, and that's going to come down to some of the same things that are core to Cloudflare's business.

It's going to be security and data and, um, and capacity.

And so expect the world's going to be more omnichannel versus binary, one or the other.

That makes sense. So it sounds like, uh, the, the death of the retail store is, uh, that, that death knell is a little bit premature.

Yeah, it's interesting people, we look around in New York, and it looks like big chains are going to abandon New York or good.

And, and yet, it's going to mean probably the resurgence of a lot of a lot of other stores.

Think about the theme park.

Well, so you want to ask about locations and physicality theme parks, people are dying to come back, go back to theme parks.

So it's not surprising Disney reopened people were willing to put on masks and gloves and go back But at the same time, expect the VR is going to take the place of a lot of experiences.

So I might have a couple years ago, I might have one.

I don't know if anyone's ever tried the void or, um, or VR world.

I had to go to a place to experience them today with the next generation headsets.

I'm going to be able to experience them at home.

Once again, it's going to be in both By the way, James before I want to point out before we end that for people at Cloudflare and in general, our new report comes out on the 21st of October, and you can, you'll be able to find it on our site, which is and the 21st of October.

21st of October, we do this every year at the Wall Street Journal.

So I know the exact time. It's 10am on the 21st of October.

10am. There we go, folks. Set a calendar reminder for 10am on the 21st of October.

I'm looking forward to seeing that I discovered them through this process and they're absolutely great.

We're on. We've got a couple of minutes left.

We're on the subject of physicality and at home. I'm tempted to broach one other subject related to this, which is Working from home.

How have I'm assuming consultants, you guys are typically on site. How have you managed it.

And what do you think about the future of work, given everything that's going on.

Our team. I'll tell you, it's fascinating because our team has worked incredibly well we we have great group of people.

It's actually the best people I've ever worked with and they They picked up.

They found a way to work and they've scattered across the country or they're at home somewhere.

We have people as far as Denver or or Silicon Valley, wherever they might be, but everybody's been working.

They've been extremely productive. That that there's and we know people who are in the valley who moved to all sorts of places, Utah or or veil wherever they've gone, people have gone to other places.

I think that that What we're seeing in our research suggests that people are dying for physical contact the social environment of an office.

And in fact, There, there's this sense that zoom doesn't have peripheral vision.

And so I don't believe that again, some of this comes from listening to users and consumers.

I don't believe people are going to work home from forever.

I think there may want to do for four days a week, they will.

It gives people a lot more flexibility, but they're going to find a way to be to be social in in the same place.

Makes sense. Um, we have just a little over a minute.

And this is a probably an unfair question to ask, given how much time we have left, but looking out next 10 years big trend shaping the future of the Internet.

What do you think I think that, first of all, data is going to be the currency of the Internet think that we're going to expect we should expect that with This year with the elimination of a lot of consumer data around advertising, the whole world's going to ship.

Think security is going to become probably the most important issue for people because and I think it's where Cloudflare plays, of course, beautifully.

I think the final thing is expect we're going to see some dominant digital behavior that we never thought about in the past messaging.

I don't know what it is, but I think we should expect like hits come from nowhere, who would have imagined years ago tick tock.

Right. All right. Expect the unexpected.

That's a that's that's a pretty good model. The final thing I would say In the technology business, the company with the best technologists wins.

And I think we're going to see the premium on great technology talent is just going to get higher.

That's awesome. Michael, we've got just a few seconds left.

Thank you so much for joining us.