Turner Novak – The Past, Present, and Future of Consumer Social Companies

**Patrick O'Shaughnessy** (0:00)
This week's episode is brought to you by Bottomless. Bottomless is a smart coffee subscription which automatically reorders coffee for you based on your consumption habits.
You may remember Bottomless from Episode 124 when we had co-founder and CEO Michael Mayer on the show.
I'm also a Bottomless customer and like the service and idea so much, I became an investor. Here's how Bottomless works. They send you a complimentary WiFi scale with your first coffee order. Just set up the scale with your WiFi, store your coffee on top, and then from that point forward, Bottomless sends you coffee at the perfect time with no additional effort. The coffee itself is always roasted to order and shipped straight to you from a network of roasters across the country. My favorite part about Bottomless is how the technology could be used for almost anything I buy regularly. It feels like magic and how everything will work in the future. Bottomless is offering one month and your second bag of coffee free at bottomless.com forward slash Patrick. That's bottomless.com forward slash Patrick.
Hello and welcome everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, methods, stories, and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com.

**SPEAKER_2** (1:17)
Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.
Clients of O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast.

**Patrick O'Shaughnessy** (1:42)
My guest this week is Turner Novak, a partner at Gelt VC. Many of the largest companies in the world today are consumer social companies. So, Turner and I discuss the past, present and future of those businesses. When executed right, they are often the fastest growing companies in history, and the rise of TikTok and some other companies we discuss makes it clear that there may always be room at the top.
The network effects that support these companies make them unique beasts to analyze, and Turner's writing has been among my favorite content on the topic. Please enjoy our detailed conversation on this important area of public and private markets.
Turner, thanks so much for taking the time to do this today. The device that we're going to use for our conversation is the sort of past, present and future of consumer social businesses, which obviously represents some of the biggest and most profitable businesses in the world, some of the fastest growing. We'll go in other directions as well, but that will be sort of our true north through this conversation. To begin it, I think it would be neat for you to share with the audience what you think is sort of the first relevant idea or data point in the past piece of this. What antecedents are important for us to consider before we get into today's landscape of consumer social companies?

**Turner Novak** (2:54)
Thanks Patrick for having me. The first big thing that I really kind of think through is there was a point in time where Facebook was the fifth fastest growing social network. There's a lot of things you can unpack there, but I think one of the big things is that growth is really important, but the quality and the type of growth that you have as a social company is also very important.
It kind of all ties into the competitive advantage that you're building over the long term. Facebook built a pretty good one. We've kind of seen that reflected in how the companies and the business performed over the last two decades.

**Patrick O'Shaughnessy** (3:28)
Say more about that quality growth. Why is that interesting to you? How does the fact that they were once not the number one rocket ship in terms of growth matter in terms of how you think about investing and how you think about how these companies can build a durable advantage?

**Turner Novak** (3:43)
I think one of the prime tenets of social networks is UGC, user generated content. That essentially gives you higher margins over time because you don't have to pay to acquire the content. Your users do it for free and then you can show ads in between the content. In historical cases, that's been the case. That's super high margin when you hit scale.
I think that the quality and the competitive advantage that Facebook built was all built on real identities and high quality real identities. They use that as a position of strength to expand into what they've built today.