Strategy credits where due

It’s well-established that talk is cheap. 

Less appreciated is that actions can be even cheaper.

In evolutionary biology, the handicap principle posits that costly signals are credible because only the fittest individuals can afford to make them: The peacock’s cumbersome tail signals fitness precisely because it’s a handicap.

In political science, signaling theory distinguishes cheap talk from costly signals by measuring the costs they impose: A politician’s public ultimatum is most credible when backing down might actually cost them the next election.

In relationships, the inconvenience factor (trademark pending) is a measure of commitment: Handwritten notes mean more than text messages because writing on paper requires more effort than thumb-typing on a phone.

Stratechery’s Ben Thompson adapts these ideas for business by coining the terms “strategy credit” and “strategy tax.” 

• Strategy credit: an uncomplicated decision that makes a company look good relative to other companies who face much more significant trade-offs. 

• Strategy tax: anything that makes a product less likely to succeed, yet is included to further larger corporate goals.

Credits are more commonly encountered in the wild: Businesses taking a principled stance that makes them look good but costs them nothing to espouse. We should not take these too seriously.

Thompson’s canonical example is Apple’s stance on privacy. Tim Cook often presents Apple’s decision not to collect user data as evidence of corporate responsibility. But Thompson is unimpressed, because the policy doesn’t cost them anything.

“When Cook says companies have different values, principles, and business models,” he explains, “I, perhaps cynically, believe the first two flow from the third: I am far more impressed when a company does something according to its ‘values’ and ‘principles’ when it runs in opposition to its business model than I am when the company’s business model makes it easy to score PR points.”

Apple’s business model is to sell hardware, so it doesn't need the data which Tim Cook declines to collect. That also affords him an opportunity to take a dig at some of his rivals, like Google, whose business model of selling ads requires that they collect user data.

In the other direction, Google touts Android’s open-source model as a matter of principle — and, implicitly, as a criticism of Apple’s closed-source ecosystem. But this principled stance costs them nothing, because they don’t sell hardware.

Thompson labels these as “credits,” because the goodwill a company earns by taking a principled stand can be cashed in later when it has to do something un-popular.

But because these principles cost the company nothing, he thinks we should pay them little attention.

Conversely, strategy taxes are more worthy of our attention — but also much harder to find, because who wants to make a product less likely to succeed?

Only crypto people, I think.

What better way to frame the Ethereum community’s stubborn resistance to scaling? Ethereum has incurred a large strategy tax by prioritizing decentralization over speed and throughput.

The tax is what makes the commitment to decentralization credible. 

Another example is DAO governance: a messy, inefficient process that no right-minded person would endure unless they truly believed in decentralization.

And Bitcoin, of course. The general disregard for making the original cryptocurrency more useful has been crypto’s largest strategy tax of all — and therefore, by Thompson’s logic, the most deserving of respect.

Better yet, the cost of these principled stands is borne in pursuit of ideological and societal goals, not corporate ones. This arguably makes them even more worthy of our attention than the ones Thompson has in mind.

Crypto isn’t always so high-minded, of course. The ubiquitous dedication to “privacy,” for example, is sometimes as cheaply given as Apple’s.

But crypto projects that remain committed to decentralization have incurred a tax that deserves our credit.

— Byron Gilliam

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