Building Blockchain and Music Tools . . . with Morgan Hayduk from Beatdapp

Welcome back to Innovating Music with our guest today, Morgan Hayduk, from Beatdapp.

Morgan HaydukMy current business -- our current business -- is Beatdapp. So we're a music tech company. We're really focused on a fairly narrow problem or two problems, the music industry faces: 00:00:08

one around auditing, just more efficient auditing of streamed media. We can get into why that's a challenge, sort of getting back to the physical distribution days and the way it used to be done versus how it needs to be done today. And the second problem that we're working on is solving streaming fraud, which is a vintage of, you know, fraud and manipulation on the Internet that goes back about as far as people have been making money on the Internet. I almost think of streaming fraud as a badge of honor for the industry, because in some ways, it says we've made it. We're big enough that it's actually worth spending time trying to defraud us, which puts us in a category with banking, and ecommerce and digital advertising and other very lucrative, successful online mediums.

Morgan HaydukMy current business -- our current business -- is Beatdapp. So we're a music tech company. We're really focused on a fairly narrow problem or two problems, the music industry faces: 00:00:57

But it is a huge challenge for the music industry, and one that there's been very little to date done by third parties, certainly. And there's been some, you know, effort internally on the part of streaming services to combat it, but nothing sort of collaborative and cohesive. And that really sort of brings the industry together around a common set of tools and common vocabulary for that matter about what the problem is and how to solve it. So that's what we focus on.

So you're happy that you're . . . that the industry is in as much of deep doo doo at scale, that those other sectors are so Yeah. Yay, we've got a problem. Yeah, there's an opportunity to come in and play with it.

Yeah, there's, you know, it's....you don't get the attention of people who make money doing illicit things on the Internet unless there's a sizable part of revenue. And where music streaming is today, and where it's going in the next five years, it's pretty clear that, you know, the industry is bending the revenue curve back up from sort of the doldrums of the post-, you know, file sharing days. And that there's a tension, lots of good attention in streaming. And then there's some negative attention that's being focused on the industry by folks, who defraud companies on the Internet, basically, is the best way to think about it. There's just a pot of money that's accessible in lots of different ways.

The business in the business.

Yes.

So you are in Canada and lifetime Canadian?

Yes, I am. In Canada, I'm in Toronto now. I grew up in British Columbia, spent a stint in Los Angeles and then came back to Toronto.

So you, you started out as a creative? As somebody in music? As somebody who is a tech geek, who would be taking apart their parents' computer? What's your origin story with this?

Actually, bucket C, none of the above. I started. I started my career in government relations as a lobbyist in Canada. And I joke that lobbyist isn't such a dirty word in Canada, because unlike our neighbors to the south, we have far less money in our politics. And so your options as a lobbyist here tend to be much more in the vein of educating and building coalition and consensus around issues and working through legislation, you know, in a pretty collaborative way, without the not so veiled threat of being able to influence the outcome of, you know, elections through PACs and super PACs. And just big sums of money. . .

Wait a minute here, though. So Morgan, you as a kid, were sitting in high school going, I want to be influencing politics in Canada . . .

No, no.

What was that kid in high school wanting to do?

Oh, I wanted to play in the NBA. The kid in high school wanted to play in the NBA. I pursued basketball as long as my athleticism would allow me to, which was basically my college career. And then it stopped. Because turns out, I'm not that athletic. And so I kind of had to figure out if I'm not gonna be a pro athlete, what am I going to be? The original thinking was, was law school because I was going through my undergrad, I was always sort of passionate about the law and interested in pursuing a career in law. I spent a semester in Washington, DC, where I've had the opportunity to intern at a sort of quasi policy shop slash lobbying firm. And that was sort of where I realized, Oh, actually, the much more interesting work seems to be in this GR, government relations, space and not the actual writing of the laws themselves and the legal degree. So I decided to go that path from there. And I'd always sort of dabbled in campaigns and was interested in politics. And so I found my way to Ottawa after I graduated and started, you know, small, but very mighty government relations firm, I think, I think the best in Canada. And I'm not just saying that, because they're my former employer. They were excellent. And it was formative. And coming back to the first question, which was, How did I end up in music tech? My first client, the first file I was given to work on when I was just a junior lobbyist, was the Music Canada file. So this is the trade association that represents the major labels here. And at that time, we were right smack in the middle of I think one of the most consequential policy initiatives that they've worked on as an industry organization in Canada, which was extending copyright from 50 to 70 years in Canada. And so that was what, you know, after the MBA journey fizzled, and after law school became something in the rear view. And policy became where I was gonna go. Getting Music Canada as a first client ended up being really formative because it sort of -- following the long and winding path -- is part of why I'm here doing what I am now.

Did you like music? I mean, I'm, I'm an . . . I'm a very much of a nerd girl of the 80s music tastes. So when I come into music, I have that baggage behind me. So were you engaged in music? Did you enjoy music? Did you have friends that were musicians?

Always? Yeah, so my, my dad, Richard, played in a band in Hines Creek, Alberta, which is, if you look as far north as you can go basically in Alberta, and then go a little north of that, you'll find it. It's about maybe 300 people, and they're a bunch of other little farm towns smattered around. And so he was a musician, he played in a band, toured around Alberta. I grew up with guitars and drums and everything else in the house and picked up the guitar when I was -- you can't see them over my shoulder but there are a bunch of them just over there. So I picked up guitar early, and I was never great, but I always loved it. And it's been an outlet in this sort of creative outlet for as long as I can remember. I think I started playing when I was maybe eight or nine. And so music, you know, as a sort of through line in my life was always there. And playing with my dad is something that I like to this day, some of the best memories I have. And we had a terrible little band in high school. We covered Highway to Hell by ACDC. Smells Like Teen Spirit by Nirvana. We took a stab at I Want to Rock and Roll All Night by KISS at one point. That didn't go great. So that was the formal end of my music career was actually seen earlier than my NBA career. But still, it's that's it. I've always kept both of them with me as recreational activity ever since.

But you did end up back with basketball a little bit, right? You ended up with the LA Clippers in LA. So how did basketball come bouncing back in? Pun intended? Sorry, I had to do that.

No, no, what very well played. So actually, my, my wife works the entertainment industry as well. And she was offered an opportunity in Los Angeles back before we had two kids and a big dog. And so we decided that would be a fun adventure. And so we packed up from Toronto, and we moved down to LA. And, you know, I sort of ran out my contract with the Clippers, started with the Clippers -- with TELUS and was looking for what I was going to do next. And I learned really quickly that Canadian lobbyists is not actually a super transferable skill set in Los Angeles. And so the one-- I had kind of two choices, I could either figure out something that was transferable or at least come up with a way to make somebody else believe that it was transferable and give me a job, or I could go work on campaigns as a campaign consultant. But that would put me sort of roving around the states working on ballot initiatives and local elections. And I didn't really want to do that. So I was introduced to some folks, the Clippers, and my sort of pitch to them was, you know, I've been selling ideas in Canada for a while. I think I could probably sell, you know, a product, sports, advertising and sponsorship, if you give me a shot, and I definitely know the game of basketball. I'm a fan of it my whole life. So the subject matter isn't going to be that new to me. I just have to learn the sort of media acquisition side. And so they took a shot. And it was it was great, pun intended. It was great. It was it was an awesome experience. I that I mean a ton of memories from time with the Clippers on the basketball side. One of the sort of funniest to me was underneath of Staples Center, which is where we played, there's sort of a labyrinth of tunnels, and there's a hallway that you can kind of come down a back elevator and come out of a hallway and you walk past where the media sort of does the interviews after the games and where the weight room is, where they warm up. And there's a door and it opens right to left, which is important because the team stands right beside that door right before they run out of the tunnel. And a lot of the guys are sort of warming up there. And so this is my first game. I've got my badge. I'm running around under this sort of, trying to find my way up to the court kind of lost and I open that door and it swings open and DeAndre Jordan's foot swings right past my head as he's doing a leg swing and he's about 6'11" and his feet are about size 17 So that was my welcome to the NBA moment was almost getting KO'ed by by DJ's giant foot. About...yeah, it was it was it was an awesome time and I learned a lot about media business, you know, corporate partnerships and sales, things that I kind of had, uh, an academic understanding of for my, my business degree but not sort of having ever been applied. And so I you know, really enjoyed the time there.

So you built superpowers in several different skill groups, being able to move from place to place and learning anew how a system worked.

Yeah, pretty much.

And then how to work with external parties. And I would suspect that those things both came to bear with you really well as you continued to move forward. You also then did more adventures, before you started this wonderful company,

Morgan HaydukI did. So at the time, one of the things that we were working on with the Clippers was sort of there was a marquee new asset that we were selling: 00:10:04

the jersey patch, which is sort of the logo on the on the jerseys of the NBA teams. And one of the companies that we were talking to about, you know, our jersey patch was ZipRecruiter. And so I got to know the team there a little bit through that. And they built, I think, one of the most formidable marketing engines that I've ever seen or been around. And Eyal Gutentag, who was the CMO there, was sort of the person that I've been speaking with. And, you know, along the way, we just had built up a bit of a relationship. And they were building an SMB, small and medium business, product that was really like a direct sell to, you know, small employers. That was the core ZipRecruiter product originally. And then also, obviously, the job seeker side looking for a job and using their platform. But what they sold was this SAS product to small businesses. They were moving up market at the time. And so they were starting to look mid market and also to large enterprise orgs, very different sort of sales cycle, very different marketing pitch. And interestingly enough, that's what I've been selling to is a lot of enterprise organizations. And my background lends itself nicely to partnerships. So I end up getting the opportunity to jump over to Zip and go on the marketing side of that business. Now working on how we would sell as a company to enterprises, for the enterprise sales team, and then also doing some partnership work, which was really cool. I walked right into, I think one of the biggest partnership deals that we did, which was a partnership with American Express, and then worked on a few other ones that I don't think I'm allowed to say. I won't, but but yeah, I got a view from the other side of the table, going from sort of sales to marketing and sort of enterprise marketing and just building up that toolkit. And I think one of the, one of the best parts about ZipRecruiter is like, they're, they view themselves as scientists. That marketing team is as quantitative as you will find. It flows from Eyan and the CEO, and it flowed throughout. And so it was just this like level of rigor around thinking about what you were going to do, being able to quantify and justify why you were going to do it, measure it and show those outcomes over the long term, which in a lot of ways is hard, harder, at least I think in the enterprise space, because sales cycles are long, and some of the initiatives, particularly around things like brand awareness, where you want to be, you know, in the top of someone's evoked set to use a marketing term, when they think about whatever that need is. So in our case, hiring, it's a pretty squishy objective if you're actually trying to measure it. So what I loved about the time at Zip was that it just, you know, sharpened the pencil a lot around, you know, how to be a quantitative marketer and how to be part of a hyper growth, you know, tech company. I was there pre IPO, and they were already big when I got there. It wasn't like I was employee number seven, but a really, really exciting time for the business.

But living through a high growth cycle where you had come into more . . . I was gonna say stable but that's not, not the right word . . . normal growth companies for a while. So you kind of lived through different phases, mostly on the marketing, but also sort of the B2B side marketing but there were other pieces of the product. So . . . but you have such an interesting resume at that point in time with companies who, I mean, I've got a crazy resume where nothing connects. So I totally, support and appreciate the disparate areas.

So why then the transition into what you're doing now? What was the spark? What was the journey? What was the -- especially dad with a couple of kids and a large dog -- what was the jumping off the cliff mode to then be starting what you're doing? When did, when did, when did you guys get started?

We started in 2018. But we worked quietly and with no sort of public presence through the middle of 2019. So I actually jumped off the cliff a little before my first, my daughter was born, she was May of 2018. And we sort of started a little earlier that year, and then really made the plunge and decided to do it full time in 2019, right around the time my son was born. So we had two kids, thirteen months apart. And we didn't have a lot of, a lot of time to breathe between the two of them. But part of that was that we realized we had something here and my two co-founders, Andrew and Pouria. At that point, Pouria had been working on the on the tech and we'd been sort of bootstrapping the business. So he was working basically full time and Andrew and I were keeping our day jobs and the lights on by keeping our day jobs so that we can keep working on the sort of the underlying tech until we had enough of an MVP [Minimum Viable Product] to go out and raise some, some money. And so that was 2019 was really that that point where we had to decide, okay, are we leaving our jobs? And are we serious about this? And are we going to go full time and take a run at this thing? Or are we going to say you know, this has been a fun 18 months of tech discovery and we should go back to the comforts of, of a salary and a steady paycheck. So that was like a . . .

So I guess my question for it though is, so you're coming from ZipRecruiter and these two fabulous people, how did you go... there is a problem. We have the knowledge, ability, interest, relationships, to jump in and build something that is new in an area where there is some but not gigantic competition and awareness.

Morgan HaydukGreat question. So I'll try to pull it apart into a few different parts. First part is the team. So Andrew and I go back to grad school. We'd known each other for 10 years at that point, had always wanted to work on something together. He got his start in music, in, on a very different side of the industry. He's a kind of growth marketer by trade. And one of his first big successes was helping this artist who you may have heard of: 00:15:19

Sam[my] Adams, who was like a, kind of a frat rapper from Boston. So Andrew was sort of the brainchild behind a lot of Sam[my]'s digital efforts. And, you know, the success he had going campus to campus was a lot on the back of Facebook and sort of early Facebook, like when it was still, you know, you needed a .edu email address to access the platform. So he got sort of bit by the music bug. Then, then I obviously did when I was working in, in consulting and government relations. And so the relationships that we had, and our awareness of problems in the industry, kind of stayed with us for the whole time. So we hadn't, we didn't have a 10 year plan to start a company in music. But we still had these relationships in the music business and kept in touch with folks.

Morgan HaydukGreat question. So I'll try to pull it apart into a few different parts. First part is the team. So Andrew and I go back to grad school. We'd known each other for 10 years at that point, had always wanted to work on something together. He got his start in music, in, on a very different side of the industry. He's a kind of growth marketer by trade. And one of his first big successes was helping this artist who you may have heard of: 00:16:21

And it's actually one of those conversations with a label executive from a former client of mine that kind of sparked the interest in the auditing challenge. That was the first time we've really heard about this, you know, need for a more scalable auditing solution. So if you think about hiring one of the big four, big five auditing firms, and going in and, you know, matching up sales reports, which a label receives to the underlying server data from a DSP [Digital Service Provider], it's actually not really in their wheelhouse. Like, they're great at, you know, matching up periodic revenues. And they're great at making sure the subscriber counts match the totals that were provided. But the underlying data is a little bit more challenging. And so the technical problem that we wanted to solve initially was this auditing at scale, and in a more transparent way, because I think one of the things that's probably a through line in the history of music is that there's just this, you know, I don't know, creative tension, let's call it, between various various parts of the, of the industry of the value chain. And so we thought there might be an opportunity to build something that gave both the labels and DSPs, a little bit more of the same footing when they were looking at their sales reports.

So I think you need to unpack that a little bit further with me on here. So, I know that when I was aware of the issue, at that same time period, I had friends who for a living, were going in and auditing streaming data. And that streaming data was only kept for a -- I'm doing air quotes for those of you can't see me -- certain period of time. And that these massive files were showing up. They were coming from the digital service providers that didn't match each other. And so that people were getting this massive dump on them of data, of different characteristics. And I know of a bunch of companies who came to the point where they were saying, we're not auditing, we're just trying to make sense of it. So that you can take this flow in and be able to then do reports and see where there's holes. Or maybe you see where there's missing money. That was, for some people, the bellwether that they were looking to identify, you know, having, and I hate the term disambiguation, but the, the mismatching of names and all that. So there is quite a few companies I know who are all competing with each other for that space. But you're talking about the audit space. Can you talk about what the audit needs are? And who, who needs to audit what and why?

Yeah, so and I think the point you're making about disambiguation of, you know, these data fields, and just sort of the disparities that exist between different services and the reports that they give, we've stayed largely out of the sort of, I call it mostly like sort of the publishing metadata side. So, for that exact reason and credit to everybody who's working in the space, because it is a massive, you know, massively important field in music. It's also I think, the most terrifying space in music because you. . . Beyonce had 99 co-writers on one, I think, song or maybe one album previously, I mean, there are just these like impossible, capturing at the point of creation moments where you need precise metadata three years later, but in the moment, you're in the studio and you're just working as an artist and no one's writing down, you know, which fraction of what verse was responsible by or was, you know, owned by which person. . .

So the splits problem . . .

The splits problem is . . . real. . .

This raises a whole other set of great solution providers who are . . . chewing on that problem.

But we looked at auditing and said, okay, the biggest sort of stakeholder on the audit side are the recorded music rights holders and so major labels, major independent labels, independent labels, and any artist who owns their own masters, basically. And I think, you know, using the 80/20 rule, it's probably right here. So about 80% of revenue flows through to those folks. So let's start there. The benefit of working out of that space is also that the data is just a little cleaner. Generally speaking, you know, the majors and major indies and folks do a slightly tidier job of keeping track of their masters data, than, you know, perhaps, on the publishing side, and sort of more of the indie creative side. So we started there. And we heard the same thing that you heard and that your friends heard, which is that these, you know, reports that were given don't match up with underlying data when we see that data. And we don't know why. And there's sort of no explanation for it. We just know that whenever we actually conduct an audit. And to your point, we have kind of a three year window after we receive one of these reports to go back and audit after which point, maybe the data is still there, but maybe it's not. So we have this sort of period where we're timeboxed. And we have to go back and look at these billions of lines, trillions of lines of streaming data, and make it make sense against the sales reports that we've received. And we thought that was a good place to start ecause if you could capture each one of those play events at the source of the play, so on the server side, as close to the listener as possible, not after it had run through various scripts and various sort of data normalization processes, just by the DSP, before it even goes to the Sales Report, at least you'd have this definitive accounting of what was played by who and when. And then you could kind of work out if everything flowed through to the sales reports correctly, or if there were gaps, you could kind of zero in on them fairly quickly. And so that was the premise we started around sort of auditing was just can we make that process for recorded music make more sense, make it more efficient for the labels, and less of a pain for the DSPs. Because like one of the early, I'll never forget talking to one of this sort of folks from a household name DSP that we would all know, who said that when the auditors come in, it's a nightmare for his team. He was responsible for royalty reporting, and it's not fun to have the auditors living in your office for a period trying to make sense of the pretty labyrinth-like flow of information from server to end report.

So that was where we started. And I think I'm gonna jump ahead a little bit, but it's a good sort of digression. The thing that we didn't know then that we know now and why we've really oriented a lot of the business around solving streaming fraud first, is that, as we got more comfortable getting to know the folks on the service side, what we realized is that the discrepancies or a lot of the discrepancies that exist between what shows up on a server log and what makes its way to a sales report is due to streaming fraud and manipulation. And so some percentage . . .

So . . . I'm gonna roll into what that is, because I tend to find that most people don't even know about the ad fraud side, which is massive on pretty much anything . . . it's gonna say anything that's not Google or Facebook. But there's a large amount on Google and Facebook. But you know, people really don't realize that it's not just people who are just having their friends click a few more times. That there's a lot of competitor noise and mess. There's a lot of just plain old financial fraud. But what did you run into? And then how big was this issue?

So great question. So what we ran into initially was just that we would hear anecdotally, from the streaming services, that they have a big problem with manipulation, and that when they would say big, we would try to size it. And I think the number that most are comfortable with, maybe some aren't, but most are comfortable with, is that probably about 10% of all of the activity is manipulated. Now, that's not to say 10% of all of the payouts are related to fraud, because some of this gets caught. There are lots of examples that you can find very simply, where a single account has played 12,000 songs in a single week. And you can route that right out of a sales report fairly easily, because it's obvious, but there's a lot of non-obvious fraud that still slips through. And so of that 10%, you know, three, 5%, might still be getting through.

Can you give us more examples?

Of which?

Of saying manipulation. What happens and why would someone be doing this?

Yeah, so there's, I think, two big buckets of motivation. Tactically, they both sort of deploy the same, they've deployed the same tactics, but they're motivated for different reasons. So there's the pure financial fraud side. And this is similar to ecommerce banking, digital advertising. Because you can make money for every stream, if you can get music onto a streaming service that you own, and that the royalties will point back to you once they make their way through the system. And you can generate a high volume of streams for those and I will use air quotes on songs here, because a lot of what we see is just noise. It's just, it's not even ambient music. It's just whatever -- audio files that have made it onto a streaming service that gets targeted by high-volume listenership, and that those royalties flow back to whoever owns them, and so . . .

So, so this is shops doing this? This is a freelance deal? This is some kind of a bot world? Is it people sitting around in low income level countries just clicking and listening? What is this?

All of the above, different scale, but I mean . . . Michael K. Williams, before he passed, did a great episode on Vice that I encourage listeners to check out. His, his show was called Black Market. And he did an episode on streaming manipulation. And he was actually in New York, just running around the city visiting locations where everyone's faces are jumbled, and you can't tell where they are. But they're just running phones and computers on walls and streaming music. And so that I would say is like a medium level of sophistication. The lowest level of sophistication, and there's a great article, I want to say it's actually in Cracked magazine, which is a hilarious place for this article to exist. It's not satire or parody, but it's there. . . about an opp . . . about a worker at a streaming farm in the Philippines, talking about how his day was spent with targets of how many Facebook ads to click and how many songs on various streaming services he had to listen to. And they could only have the volume just just high enough that it was basically imperceptible but not zero, because zero volume play can actually be show up on the DSP side. So he sat in this very hot warehouse in the Philippines, clicking and listening all day, but all he could really hear was the ticking of everyone's buttons. And if they missed their quotas, they would turn the fans off on the workers to make them, to sort of punish them for not working fast enough, which is dark. And I think part of this, part of what like really gets me going to solve the problem, is that knowing that, you know, there's this sort of like, we almost abstract it away or we don't realize it's there. It's actual people who are doing this and being made to work in terrible conditions that just listen to songs over and over again. Again, that's probably the lowest specification. With the highest level of sophistication, it's bought farms. And so you're running, you know, hundreds of 1000s, millions of accounts all off of a single computer or sort of workstation. And you know, those can drive real volume. And you can do them a couple of different ways. You can surely run a bot where you've created a fictitious account and put it onto a streaming service. You can also steal the account of a legitimate user and use it at off times. And I think that's a whole other sort of interesting digression, and we can talk about it as well. But point being that there are human click farms, there are moderately sophisticated streaming farms that operate domestically, and they're very sophis. . . sophisticated streaming farms that operate globally and serve sort of the world market for anyone who's looking to buy streams and volume, and convert that into some sort of revenue for the end client. And that's all in the financial motivated bucket. There's a second bucket that we can talk about, too.

Well, what would be the second bucket? If it's not financial, it's aspirational? It's . . . ?

Yeah, I think of it as like, almost perception. And so if you're, and this is to be clear a much smaller bucket. So at least from the data that we see, the financial motivation dwarfs the perception motivation, but, you know, there are only so many playlists for where your song can can sort of be discovered. There are only so many charts that you can be at the top of. So there is a motivation to game the numbers if traditional marketing isn't working. There's a motivation to sometimes just buy streams. And there are a couple of high-profile cases that have been outed over the years of artists who have engaged in this. I won't name and shame them, but they're out there. But I think the perception bucket is interesting, because, for example, last week, Billboard ran a piece about a new tactic that's being deployed on Spotify, where artists are releasing their music and putting a featured artist as a fairly well known featured artist, which then shows up with that song on both of their, both of their pages. And so one of the examples we saw was an artist who was in complete unknown, who done a feature with The Weeknd. And that got him you know, incredible exposure. And so, and one of the playlists that this works most effectively on is Release Radar, which has massive organic distribution. So if you can subtly influence the algorithms by just, you know, increasing the velocity of your listenership just a little bit, just enough to trigger an algorithm to say, Oh, this is actually starting to move, let's pull it into one of our algorithm and curated feeds and have you know, this get distributed out organically, you don't need to do the streaming fraud anymore, and you now have your own audience and listenership, at least if the music is, you know, of some quality or better. So it doesn't work in the financial front bucket, because a lot of that music is not really music, it's just noise. But if you're actually trying to release music and get discovered, there's a reason to potentially engage in some, you know, light manipulation of the algorithms and do some streams that way. So those are the two buckets.

Other than . . . though . . . you don't have an engaged fan base?

Right.

So you end up having a very low engagement rate if you've been buying listens. . . for then people that come back in this highly congested noisy time. So. So you guys had this idea . . .saw that there was a need . . . What was your proof points? How did you um, we were talking before we recorded that you've got a slug of patents in this and related spaces that you put together. How did you say okay, while you're trying to think do I leave my company and all this fun stuff and have two babies? How did you end up then going, Okay, here's our proof. Here's where it starts to work. How do people pay us for this? How do we scale, especially you've lived in a high-growth environment? So how were those sort of. . . I was gonna say baby steps, but don't know, were they baby steps? Were you kind of stepping it out, or did you have a couple of sponsors ago, please come in quickly?

Morgan HaydukWe, it was, it was baby steps. I can tell you about a couple of the early iterations of products we developed, which at the time felt like, you know, massive milestones for us. And in retrospect, I wouldn't want my wife to even see. But we started, I guess the first thing was we had this the audit problem in mind first, and so the first thing we needed to build was high-throughput auditing technology. And if you remember, sort of 2017, late 2017, early 2018, Blockchain is all the rage for a whole bunch of different reasons and a lot of different use cases. It appealed particularly to the labels at the time, and still does I think, as a way of sort of having more transparent and sort of immutable, more auditable logs. And so we sort of had the question put to us, do you think blockchain could be the solution to the problem? And my co-founder Andrew is everyone's weird crypto friend. He wouldn't be upset with me saying that. He's been mining Bitcoin since 2011, when everyone was like, What is this thing you're even doing? And our co-founder Pouria is in a similar sort of world. He's been early early adopter of all things blockchain and cryptocurrency and everything else. And so he, so the three of us sort of sat down and said, "Do we think this makes sense as a sort of application of the technology?" . . . and the biggest limitation was speed. So in 2018, I think the fastest or the highest throughput blockchain was Visa, like the transaction company, the payment company, and they were doing like 24,000 transactions a second on a blockchain they'd built in-house. And we estimated that we'd need to do about a million transactions a second, if we wanted this to work in music. And so the first challenge we set out to solve was can we build a high throughput blockchain that could do a million transactions a second. And I joke about the early versions of the product, because version 1 could do one transaction a second, and we call it C Sharp, because it was just playing one music note, C sharp, and it was recording that to a ledger. And it had a three, three nodes in the network: 00:30:04

there was a DSP that we created and label that we created in Austin. So it was transaction song gets played transaction runs through the network, everyone signs it, and it gets written to this ledger.

And I'm going to pause you right there. A simple definition of blockchain for those who are going, "You know, I've heard about this, I don't really know what it is." It's a simultaneous ledger kept by many people?

I think that's a good way of describing it.

So that when you're looking at blockchain, for here, everyone is holding a version of the ledger, and you're needing to update it for all of the transactions.

Correct. And you want everyone to have signed off on each one of those transactions as they happen. So it's not just that the ledger is actually distributed amongst the parties, it's that in our case, it's all three of the parties, the streaming service, the label and us, are actually signing off that yes, this happened. And like we sort of agreed to it. That it was a legitimate transaction, nothing beyond that. It wasn't, you know, looking at the accuracy of the metadata, or anything else, just this thing, this play on this service happened at this time, and it was this song. And that was, that was the sort of V Zero was C Sharp. And then we spent some time exploring various existing chains that we might be able to build on top of. So Pouria had forked Etherium, and was working in there, but everything that existed at that point was very slow. And so it came to a . . .

And expensive per transaction.

And highly cost prohibitive on a transaction basis. And so it sort of came to Pouria to, to start building from the ground up our own. . . It's sort of propriet . . . I hate the word proprietary, because but it is. I mean, we built, we built it, our own sort of consensus algorithm, which is just the thing that allows for those three parties to sign off on the transaction every single time it happens, and build it in a highly scalable way, so that we could get closer to that million transaction per second goal. And so we spent the better part of 18 months iterating on that, and the patents really flowed from the breakthrough on Pouria's side of getting to a place where we were actually able to process a million simul . . . . And now it's closer to 10 million simultaneous transactions on our, on our blockchain. And so, at the time, we had the sort of breakthrough technically, that's actually when we started filing patents. That right as soon as we raised the first little bit of money that we brought in, in our pre-seed round. Because what we, we had a really great, or we still, we still have a really great patent attorney. And he said, I think you guys might be in sort of blue ocean here. Like there's not a lot around this idea of tracking streamed media of any sort, using blockchain, and the feedback you're getting from just the music side seems like there's an appetite for this. I can imagine that may in some other worlds translate to gaming or video or any other streamed medium. So why don't we start working on the patent strategy around this and expand it actually outside of music to all stream to media. And so that's what we did. And so the first patents that we filed really gave us, you know, ownership over almost every conceivable not just the version that we built, but almost any invocation of blockchain to track streamed media. So we look at whether you're tracking directly off the server, or whether you actually are the server. We looked at whether you're providing a proof of stake, proof of work, proof of authority algorithm type. Like we've sort of owned the entire space, and all, all of those things are like I going down the technical path of explaining those will ruin the episodes, all I will say is that there are multiple different methodologies for doing these things.

And go look in the patents, and you can see them, the ones that have been filed as well.

Yeah, and you can see the diagrams, but the point being that at the end of it, we own, I think a really sort of significant IP portfolio around the use of blockchain to track streamed media. And as new applications of streaming come online and new sort of potential customers pop up who might want to use this sort of technology, it's, it's a bit of a moat that we've built around the business. So that was a very long answer to the sort of first baby step of the company, the first proof point, but it was, you know, the million transactions. And what's, what's funny is a million transactions was what we thought we would need projecting out a few years at the time if we were to capture the global streaming market. It was also my CEO at ZipRecruiter, Ian Siegal, used to say, show me a million of anything, and I'll pay attention. And it was his way of saying, like, if you show me a million new subscribers, or pretend . . . , or potential subs to the product, based on this marketing channel, I'm interested. You show me a million dollars of revenue, I'm interested. Like, it was his way of saying like, aim big, right? Like there's, there's a lot of projects going on all the time of various shapes and sizes. But if you show me something that does a million of anything, I'm interested. And so I remember we were talking to the team, and it was like, what number do we need to hit? And it was both a million was a good number for the sort of scale of the industry. But it was also in my mind, like this heuristic for like, if you say a million people will listen to you, if you say 712,000, they might just, you know, pass it by. And so million was the first really . . .

Gigi JohnsonClients or potential clients: 00:36:52

a million catches attention.

Yeah, a million catches attention. So that was, that was it. And so that was the first proof point. We were able to fundraise off the MVP of the product. We had some interest from, from labels at that point as well. But really, it was, it was pure sort of deep tech. And at a good moment, like we were coming out of, I guess, a crypto winter a little bit. And there was interest in, in what we built. And so that was able to get us going. And then, you know, from there, it was this, this process of, you know, continuing to build up the product. And the auditing product itself is a fairly mature sort of stable product. But coming back to what we talked about earlier, as we went deeper on the client side, we realized we had this challenge, which was that we needed, obviously the DSPS to also want to work with us. And we were trying to figure out what the source of these discrepancies were that we were hearing about between these various reports. And that's where this sort of streaming fraud problem was brought to our attention. And we realized, if we ever want to be the best auditors in the music business, we're going to have to account for streaming fraud better than anybody else because if we can back that out of all these sales reports, now you have the actual, the auditable record, that someone would want to base, you know, a sales report off of. And so that took us down a sort of much deeper data science versus blockchain path. And it's where we spent a lot of the last year and it's been great. I mean, the buy-in from the industry has been really strong, I think, you know, we've spoken on it in sort of big public presentations. And we've had a lot of inbound interest from, from all the various services, and also even labels and distributors themselves, who just want us to take a look at their data for inconsistencies in a very different way. And so it sort of branched into this whole other thing that we're really excited about, because I think, you know, it, it pulled together a couple of things that we thought we knew, when we started the business, in a really obvious way to us, which is like at the heart of a lot of the questions about errors and omissions and discrepancies between reports. Is this like pernicious problem of fraud? And if we can just get our arms around that, a lot of the other stuff I think will be solved as a result, or at least closer to being solved as a result. And that's already unifying . . .

I anticipate it's going to be a bit of a game of Whack a Mole?

Yeah.

That, as the, as the systems get sophisticated in tapping it on the shoulder, then it will squirt out to someplace else, but then you'll have the tools to find that new appearance. Yeah, new technology or new systems.

Morgan HaydukAnd I think that's like maybe the most sort of central part of our thesis is that if we're all playing individual games of Whack a Mole, no one's going to get very good at the game. It's a lot easier to play Whack a Mole if you have a friend standing beside you with the second mallet than if you're standing there by yourself, trying to take down the whole board. And so we view all the DSPs as sort of individually playing the same game right now. And there's this great Amazon phrase: 00:39:15

undifferentiated, heavy lift . . . heavy lifting, which is what Jeff Bezos said about cloud computing, right? Why is everybody running their own servers? We could run your servers and you could go back to doing the thing that your clients actually pay you for, instead of running the tech. We sort of think of streaming fraud, not to make an analogy to Amazon because that we're definitely on Amazon right now. But. But we think of streaming fraud, in particular, as one of these great examples of, let us do the scut work, the undifferentiated heavy lifting of solving this problem, with the benefit of looking across multiple providers' data. So we can see the more nuanced patterns that are playing out across five DSPs simultaneously, as opposed to you just living in your own silo of data, and having to play Whack a Mole with one paddle. So that's, that's, that's really a kind of an animating point of our marketing and sort of message to customers. It's just, like, let us do the gross sort of grunt work that you, your customers probably don't even realize is happening behind the scenes, but definitely plays out in many consequential ways for your business, including your relationship with your licensor partners, who care deeply about getting pro rata percentages right.

Morgan HaydukAnd I think that's like maybe the most sort of central part of our thesis is that if we're all playing individual games of Whack a Mole, no one's going to get very good at the game. It's a lot easier to play Whack a Mole if you have a friend standing beside you with the second mallet than if you're standing there by yourself, trying to take down the whole board. And so we view all the DSPs as sort of individually playing the same game right now. And there's this great Amazon phrase: 00:39:32

So we're nearly at the end of our conversation already.

Morgan HaydukAnd I think that's like maybe the most sort of central part of our thesis is that if we're all playing individual games of Whack a Mole, no one's going to get very good at the game. It's a lot easier to play Whack a Mole if you have a friend standing beside you with the second mallet than if you're standing there by yourself, trying to take down the whole board. And so we view all the DSPs as sort of individually playing the same game right now. And there's this great Amazon phrase: 00:40:49

That was fast!

And you have taken us through your whole adventures here. What is exciting you now? What do you look, not necessarily tell us your whole roadmap, but what are you excited about, that you're heading into, or the problems you want to wrestle with next?

So, you know, for the next, I wouldn't say six to 12 months, there are a lot of, you know, DSPs that we want to bring into the fold. And just, just to build up the client base, because that shared sort of . . . shouldn't say shared . . . that's, I'd get in trouble for that. A series of algorithms that have learned from a sort of collective dataset is a really powerful thing. And so for us, in the next six to 12 months, it's about making those the most powerful algorithms in the music industry, our ability to detect streaming fraud at scale across multiple DSPs. And pull down the percentage of streams that are slipping through the cracks that are derived from acts of fraud is incredibly motivating. And I think the sort of thing that we'd like. . . There's a lot of room for us to just grow in this vertical. And part of it is because it's pretty new to the industry. It's . . . there's an educational component to . . . this is happening to you but it's not new. It's happened in other industries before and one of the things that tends to happen is when you get big enough, a third-party emerges who does this particular function, because there's no reason for you to be doing it. So there's an educational component to it. And then there's actually the sort of development of product that works. And that works the way it's intended and doesn't yield a bunch of false positives, which is the worst possible outcome. So, I think in the near term, you know, I'm really excited about just how far we can take this in music streaming. And then hopefully bending back around to the product we started with, which was our audit product, and in a place where everyone kind of views us as a trusted source of both, you know, analysis and truth in the space. And so, you know, winning the music vertical is what I have my sights pretty squarely set on for the foreseeable future.

And you have patents that can go into some other verticals, too. So. But of course, you want to bite one bite off the elephant at a time here.

Yeah.

Using an overly-used metaphor. So Morgan, um, who would you like to reach out to you? And how would you like them to reach out? And I'm glad to put stuff in the show notes. But what are you looking for? What do you need right now?

I think, you know, anyone who works in music streaming on the streaming service side, at the label side, or on the distribution side. We didn't really talk about distribution, but it's sort of the third leg of the stool, and a really important one, because it's how a lot of content makes it onto the platforms in the first place. So anybody from any of those three sort of large groups of potential clients for us and you know, interested parties in the music industry, we'd love to hear from you. But also just technologists and folks in the industry writ large, who have either an interest in cybersecurity and fraud detection, or have experience doing that. I mean, we've been very fortunate to have some awesome mentorship from people who've done this in other verticals. But there's, there are so many smart people who have been working in this space for a long time. And we definitely want to learn from you know, the lessons that have already been learned as opposed to having to figure them out for ourselves the first time. You can reach us, me. . . .My name is Morgan Hayduk. H-A-Y-D-U-K, but you don't need to know that for my email, because it's just Morgan at Beatdapp, B-E-A-T-D-A-P-P.com. And you can you can write me there. I'd be happy to hear from you.

Well, I'm glad that you've been on this journey. It sounds like we need this tremendously, and that you put such great energy and differentiated experience and hopefully, maybe get some basketball back in at a later time. But I'm glad that all this stuff all fits together.

I hope so. I'm still recovering from men's league last night. So.

Morgan, thank you very much for joining us.