E168: Can Google save itself? AI takes over Customer Support, Reddit IPO teardown

24:55We can't do that. This is where having founders in the organization every day changes everything because the founders would say, hey, we're here to index the world's information. We're here to present the world's information. We're not here to interpret it. We're not here to win hearts and minds. We're not here for a political agenda. But there's a group of people there who it's a parent thing that they're there to change the world, that Google is a vehicle for them to make social changes in the world. And you know, that's art and there's other ways to do that. And just paradoxically, like Hamilton making the founding fathers diverse and doing art, you know, that can win Tony's in that contact.

25:32You can win tons of awards and acclaim and make incredible, beautiful art. But on the other side, like, people are not looking for Google to do that. They're looking for Google to give them the answer and the data. And then these people are thinking, it's our job to actually interpret the data for you as we kind of touched on this week. So this is, look, I think you guys are really close to the bulls eye here, but I would just refine slightly what you're saying. So, here's how I think it happens. I don't think this is a row group. I actually think this is a highly empowered group within Google.

26:05I do agree with you. Yeah. Yeah. I think what happens is Sundar says from the top that we're going to be on the forefront of diversity and inclusion because he personally believes that and that's the way the social winds are blowing and they think it's good for the company on some level. To implement that mantra or that platitude really, HR hires a bunch of DEI experts. Lots of them. I think the company has this huge HR department. A lot of those people are basic fanatics. They're chosen career. Yeah, they're trained Marxists basically. So they're the commasauce. They're sitting in all these meetings.

26:45Again, they're the ones taking notes. They're the ones who push the company in a certain direction. But you have to then go back to senior leadership and say it's their fault for letting this happen because they should have made a course correction They should have realized what was happening. They should have realized that through a combination of bias and Through this sort of like overly empowered HR team who are pulling a legal card. I mean freeberg's right about that. They're saying that our point of view is the law which isn't true, but they're basically pulling the legal card and pushing the whole organization in certain direction.

27:21It was up to leadership to realize what was going on and make a correction. And the thing that you're seeing now is that in the face of what's happened, the statement that we got really doesn't cut it. What are the use of word problematic? Yeah, exactly. They're describing as a glitch or a bug. It's not. It's a much deeper problem. And so therefore, Before you give, it gives no confidence that the solution is going to be pursued as comprehensive manners as necessary. Yeah, I think it's just that memo is a tip off that there is a 20 ,000, 30 ,000 person riff and a reorganization and they're just going to keep cutting the DI group and they've already met at Google, have cut the DI groups a bit.

28:04I don't know if it's as much about cutting as much as it is about empowering. If you said to the product leaders, you can make the decision. DEI and responsible AI and whatever other groups, they're going to inform you on their point of view, but they're not going to tell you what your point of view is. Yeah, but that's the idea. It was pulling the legal card. They're saying this is the law. They're saying that is the use of you. That's what needs to change, right? If you don't do things the way we tell you, Google is going to be hit with the Civil Rights Law suit. That's what they're saying. Oh, well, I mean, let's see if leadership can overcome that threat.

28:36But I think that's exactly the threat that is keeping the organization from resolving this problem or could keep the organization I think it's that but I also wouldn't underestimate the bias so you know everybody there not I shouldn't say everybody But it's a very liberal culture right it's a monoculture So when you're swimming in that much bias. It's hard to see Right. Yeah, when everybody is left to center. I mean just look at something like political contributions, right? It's 90 something percent or democratic, I mean like high 90s. So it's just a liberal bubble, basically. And so when everybody's liberal, it's very hard to see when the results are way off center as well.

29:17Also, if you give people this job, like where are they gonna do every day for your work? If they've been given the job DEI, and they've been given the job to trust and safety, they're looking to fill their time and make an impact. You gotta, I think maybe have less of these people. I honestly think it's about kind of people. I saw Sean McGuire as a partner at Sequoia and he used to be a member of the team at Google Ventures. What's called Google Ventures and he did a Twitter post. Did you guys see this? Where he said, when he was at Google, he was told by his manager, I'm not really supposed to tell you this.

29:47It could get me fired. But you're one of the highest performing people here. But I can't promote you right now because I have a quota. My hands are tied. You'll get the next slot. Please be patient. I'm really sorry. It ultimately led Sean to leave Google. and the rest is history. He's a partner at Sequoia now. You're saying because he's a white male. Because he's a white male. And so the, you know, I'll be honest. Yeah, no, I had to say anything happened to me at ALL. When I was at ALL and Shabbat was there at the same time, the whole organization was white men from Virginia, whatever. And they gave me an SVP title and I said, well, I want the EVP one.

30:25and they're like, you know what, we can't have any more white males in that position right now. We have to like get some more women and people have called in that position. And they told me, you'll have the same comp and bonus, but we just can't give you the title. Jamat, do you think these like race and gender driven quotas make sense for HR departments to try and enforce upon managers to increase diversity? I mean, is that a good objective for an organization to have? This is like a topic a lot of people I've heard kind of flip back and forth on. Hi, there is no company where I have majority control where I have an HR department.

31:04You don't have an HR department? No. Same work. Why? I think that it's very important. You should go to a very respected lawyer at a third party firm, someone very visible, an Eric Holder type person. And you should work with that law firm and retain them so that you have an escape valve. If there are any kind of serious issues that need to be escalated, so that you can get them into the hands of a dispassionate third party person who can then appropriately inform the board, the CEO, and investigate. So that covers sort of all the bad things that can happen. Then there are buckets of, I think, good things.

31:45One important set of things is around benefits. My perspective is that the team should build their own benefits package that they want. They should understand the P &L of the company that they work for. They should be given a budget. And in my companies, again, what I do is I allow committees to form, and I ask those committees to be diverse. But what I mean by diverse is I want somebody who has a sick partner. I want somebody who has a family. I want somebody who's young and single so that the diversity of benefits reflects what all these people need They go and talk to folks they come back and they choose on behalf of the whole company and there's a voting mechanism Then when it comes to hiring I think what has to happen is that the person that for whom that person will end up working for It's the head of engineering.

32:37It's the head of sales Those are the people that should be running the hiring processes. I don't like to outsource it to recruiters I don't like to outsource it to HR. So when you strip all of these jobs away, HR doesn't have a wall. And what is left over is the very dark part of HR in most organizations, which is the police person, the policeman, right? What is sacks called the commissar? That is why everybody hates HR. I have never met a company where that is a successful role over long periods of time. They are this conflict creating entity inside of an organization that slows organizations down.

33:14So That allows me to empower individuals to actually design the benefits that they want, to hire the team that they want, and I let them understand the P &L in a very clear, transparent way, and the results are what the results are. You want more bonuses, hire better people. And then what I do is at the end of every year, I talk about this distribution of talent, and I make sure we are identifying the bottom five or 10 percent. They need to be managed up, or they must be fired. every year. And it does not matter how big the company is, you must manage up or out the bottom five to 10%. And seeing some cases I'm talking about one person because it's a small company.

33:56And in other cases, I'm talking about 30 or 40 people. So just hire the best person for the job. No, you eliminate HR. Yeah. You empower the team, make that make allow them to make their own decisions. Measure it, hold them accountable. Right. So if you have a sales person, Who just hires there, I don't know, 15 sorority sisters or fraternity brothers, whatever it is and it just becomes not a diverse group. Hold on, it is what it is. That's still maybe diverse. This is my point. The thing is that there's different ways to sell. There's different sales motions. There's the elephant hunting kind of sales model.

34:33There's the dialing for dollars thing. So even those 15 sorority sisters, the way you describe it, could actually be diverse. My point is that kind of superficial marking based on the mutable traits will not yield the great organization. Instead it's your empowered to hire whomever you want. Just know that at the end of the year we're going to measure them, your bonus, their bonus, the company's performance. So it's just performance. Yeah. Performance. I mean Frank Sluvenin said this and he got barbecued at some point. So I don't have time to do this diversity stuff. But like in my companies, like for example, like when you do sock two compliance, you have to generate these reports, okay, especially for some of our customers, some of our companies that actually show the diversity of our team.

35:15And when we measure them on the immutable traits, whatever they represent as their gender, whatever they represent as other dimensions, we are incredibly, incredibly diverse anyways. But the way that I - You know, it's looking at value at tracks such a diverse mix of people. You know, what do we know about success factors for startups? Number one, the ones that are successful have a culture meritocracy. Number two, they're non -bureaucratic and they don't have too much GNA, basically overhead in the company. Now, all those things are contradicted by having a large HR team or especially a DEI organization, right?

36:02The ad bureaucracy, the ad overhead, and what's that? Pips. Performance agreement. They cut into... Well, Pips are great. I pip people all the time. Doesn't work. I mean, I know some people are just like these Pips don't work. If you're an unperforming member of the team and you've been identified in the bottom five or 10%, we have a responsibility as management to coach you up or to get you to an organization where you're not in the bottom five or 10%. That's the right thing to do for people. You do that by being very transparent and running it down. You are not good at these things. You're underperforming in these things, fix them or you will not be here.

36:39That's a very fair thing to tell somebody. Yeah, look, how you want to implement your own meritocracy. I think there's different ways for founders to do that. The point is you want these companies to be a meritocracy. You don't want advancement of the company based on factors other than skill, merit, hard work, things like that. Performance. We know performance. We know that's a bad, bad path to go on. I think a lot of founders don't understand that DEI is not something they have to do. They don't have to have a DEI organization. This is somehow become a thing. It's not required. And I think people are realizing like why would you do that?

37:15Why would you create this large bureaucracy in the company that undercuts the meritocracy that adds a lot of costs and that slows you down? One of those things that will help your company. What you need to have, I think, to mothlate out some really good best practices, you should have an outside law firm that I would say is, you could call it HR law, but I would just call it employment law. I would say like a non -ideological partner, an expert in employment law who sets up your company correctly and to whom you can take a complaint. If an HR complaint gets raised through the chain of your company, you do have to take it very seriously and that's a proper investigation.

37:52And that's probably best handled by an outside lawyer. So get that outside lawyer and then I find this always there's never a case where your coworker should know the intimate details of any of those and that's what also creates this horribly rotten culture in HR where these people act like gatekeepers of secret information, salary information, bonus information and then all of the other things. Oh, you know, did you know this person did this with? It's terrible to have that inside of a company. It should go to a dispassionate third party person whose job it is to maintain confidentiality and discretion while investigating the truth.

38:30Yeah. When HR is too powerful in a company, that's a red flag. At the end of the day, HR should be an administrative function. Their job should be to get people on boarded, sign their offer letter and their confidentiality and invention of assignment agreement and set them up in payroll and get them benefits and that kind of stuff. It should fundamentally be an administrative function. And if it starts getting more powerful than that, it means there's been a usurpation. You don't even need people for that. Like you have software that does that now, and it's all automated. You send a link, you go to your favorite HR site, boom, it's done.

39:05Yeah, I don't think you need a lot of people doing this. Anything you want to add to this discussion freeberg as we move on to the next topic. I think that unfortunately the term diversity, equity inclusion has been captured along, as Jamal points out, a single vector, which is this immutable trait of your racial identity or gender. And I think the more important aspect for the success of a team, for the success of an organization is to find diversity in the people that comes from different backgrounds, different experiences, different ways of thinking. And so I'm not a huge fan of race -based metrics or gender -based metrics, driving on generally more oriented around, be blind to those variables and focus much more in the variables that can actually influence the outcome of the organization.

39:57Yeah, one of the great paradoxes of this as well is we are moving to a much more multicultural mixed -race society anyway, people filling out forms a lot of our kids, you know, are could pick two or three of the different boxes on a DEI form. It's not going to make much of a difference in the coming decades. All right, issue two, Google goes splashy casheets licensing deals for training data, and it's now becoming a bit of a pattern. Google we talked about, I think just last week, had done a deal with Reddit for $60 million. That's reportedly per year. Today, stack overflow is now using its overflow API to train Gemini.

40:37No word on the contract value. I did get some back channel that it's a multi -year non -exclusive deal. According to RETS, S1, they have already closed 200 million worth of AI licensing deals over the next two to three years. So maybe it's going to be 75 million a year, 100 million a year. Who knows how big that business can get? We're going to talk about the S1 from Reddit in just a moment. And this is on top of all the other licensing deals that have occurred at the spring or an opening eye. You remember that one? And opening eyes and talks reportedly would see an infox and time to license their content that comes on the heels of that blockbuster New York Times opening eye lawsuit that we talked about, I don't know, 10 episodes ago.

41:16And opening eyes lawyers are trying to get that one just to give you a little update on it. They're trying to get that case to Smith saying that the New York Times hacked the chat GPT to get certain results and that the New York Times took tens of thousands of tries to generate the results, Yada Yada, and they said, here's the quote from the filing from OpenAI. The allegations in the Times complaint do not meet its famous, the journalists, journalists extenders both OpenAI and Gugla. And Gemini have been seriously guard railing their systems as we talked about as well to and stop copyright infringement and like trying to make pictures of Darth Vader and that kind of stuff.

41:49Gemini, you've talked a little bit about your tech 2 .0 framework, maybe you could talk about what you see happening here with all these licensing deals and what it means for or startups in the AI space? Well, just to maybe catch everybody up, tech is this thing called traffic acquisition cost and you can see it most importantly in Google's quarterly releases, which is that what they realized very early on at the beginning of the search wars in the early 2000s is that they could pay people to offer Google search, people would use it and then it would generate so much money that they could give them a huge revshare and it would still make money.

42:31So I remember Jason, when you and I were at AOL, this is the first time in Met O 'Meed, we were flying back to California. We were both in Dallas at the same time in like 2003 or four and that's when O 'Meed did the first big search deal between AOL and Google and it was, it was, I want to say hundreds of millions of dollars back then. Yeah. Where Google pays you upfront, you have to syndicate Google Search and then they clean it up on the back end with some kind of ref sure. So what's incredible is that that process has escalated to a point now where, for example, on the iPhone, it's somewhere between $18 and $20 billion a year is what now Google pays Apple.

43:12So that's the traffic acquisition cost 1 .0 rural, tack 1 .0. And I just said that we should call this tack 2 .0 except now what Google is doing is instead of paying for search, they're actually paying for your data and saying, give it to me so that I can train my models and make it better. And I think that that's an incredible thing. Both it's very smart for Google, but also it's great for these businesses because it's an extremely high margin thing to do when you have a really good corpus of data that is very unique. So in the case of Reddit, that $60 million deal, I didn't, I looked through the S1 to try to figure out whether it was a multi or deal or not.

43:51It wasn't totally clear. But the point is that, you know, Google is paying Reddit $60 million in JSON. You just said that they've done a couple more of these things. That's incredible. This tag 2 .0 thing is amazing. So if you're an entrepreneur building a website or building an app that has really unique training data or really unique data, you'll be able to license and sell that and that will be an incremental revenue stream to everything you do in the near future. That's amazing. That's what tag 2 .0 is. This is going to be incredible for the entire content and community -based industries, eating this could sustain content creation where advertising has become very difficult, sacks.

44:28I guess my question to Timoth would be, do you think this is going to be available to small websites? They'll somehow be some sort of program? Because I mean, Red is one of the biggest sources of content on the entire web, right? It's like a top five traffic site with tons and tons of user generated content. Yes. You think like a small publication would be able to to make these types of deals. Yeah, and in fact, I think like if you go back to search 1 .0, that's exactly what these small companies were able to do, which was in a more automated way. They were able to basically partner, and in that example, what they would say is, here Google, why don't you just run your ads on our page, right?

45:05And that was sort of in that Web 1 .0 world. So Google had solutions for the largest companies on the internet all the way to the smallest. And in this tack 2 .0 world, I do think that it works in that way as well. The problem in that world, if it's a small website that says, here's my training data. The question is, how do you attribute how much incremental value a model derived from it versus something else? And so I think that that part has to get figured out. And so what Google will be able to pay you will probably be pretty tremendously small if you're small right now. So to your point, if the upper bound is 60 million for Reddit, then the average website it's going to get a few hundred bucks.

45:47But that still may be a good start. And when Google figures out how to monetize the stuff or somebody else, where then they can give you back some way to make money, I think that there's a real monetization here. I really do. You took the other side of this, but now that you see the market -based solution starting to emerge, where do you think of this market -based solution? I think it's a go legs. Well, I'm not convinced that this looks like tech in the traditional sense where you're basically buying a continuous stream of traffic and then you're helping to monetize that traffic. That's effectively what Google did in the ads indication business and does today.

46:29That business makes about 10 billion a quarter at Google and they're paying call it 70 to 80 cents on every dollar back out to the owners of that traffic. The folks with that traffic is derived from. I would say that this looks a lot more like the content licensing deals to build a proprietary audience, which is effectively what Netflix did. They paid studios for content. Apple does this. They have proprietary content that they paid producers to make and they put on Apple TV, Amazon does this and so on. This is a lot more like that where there are content creators out there whether that content is proprietary like the New York Times or user generated like Reddit and What they're trying to do is acquire that content to build a better product on Google search And I'm not sure how you get paid a continuous licensing stream for that content once you've trained the model the content gets old to get stale at some point in a lot of cases like news and then eventually If you don't have a high quality continuous stream of content It's not worth this much anymore.

47:36To give you guys a sense, humans generate in total, well let me just give you some stats. There's about a million petabytes of data on the internet today. And humans are generating about 2500 petabytes of data, new data per day right now. Remember I shared a couple weeks ago, YouTube's generating about two petabytes of data per day. Half of all data generated is never used. So this is like records and files and stuff that gets put on files, log files gets stored somewhere never accessed, never used. The majority of the rest of that data is not in the public domain, it's not on the internet. So there is a lot of data out there, what some people might call dark data, to train on.

48:19And I think that as the identification of better sources of training data and the value of training data, right now we're in this kind of shotgun approach. which we're trying to blast out and, you know, source lots of content, lots of data. Just like over time, Netflix got better at figuring out what content to buy and what to pay for it. And they're the best at it. I think so too, well, Google and others figure out what data is actually particularly useful, what it's worth and what to pay for it. And so there's a lot of data out there to go and identify, to mine, to pay license fees, to get access to, whether those are continuous license fees or one time is still TBD.

48:58That's a key issue. So I think we're still a little bit early to know if this is like a continuous model, like attack type business or if these are sort of chunky type deals and we don't really know what the real value is yet and that all changes over time. And remember the rate of data generation is increasing. So while we're generating 2500 petabytes of data per day as a species on the internet, that number is going up every day. And so every year all the old data becomes worth even less. So this is all changing fairly dynamically. And I think there's a lot still to be figured out on what the monetization model will be for content creators and how that's going to change over time.

49:34Yeah. And this is really good point. Some things will be like the sopranos or Seinfeld or Simpsons where that library is where the fortune and people will pay a billion dollars, a half billion dollars. Some no one's no one's paying a lot for old NFL games, you know, Nick founded by the way reddit licensing deal was 203 million over. It says two to three years, so let's assume it's call it three just to be safe So it's about you know 60 65 million dollars a year It doesn't say whether the deal with Google is exclusive Wow, so they could do it They could do that same licensing deal multiple times.

50:04That's interesting None of these are exclusive it seems That's is what I don't understand why why don't you do head deals like with folks like Reddit where you actually do it exclusively Like it seems like it's more valuable to spend a multiple of this number for for one of the big seven and who have tens of billions of dollars of cash anyways. I'm blocked by other players. And block everybody else. That just seems so much smarter. Well, if I'm Reddit, I don't want to do that deal. You're right. I mean, I'm putting on the table. Yeah. Because then my multiple is kept. Like the way I can monetize my content is now set.

50:34And I'm done. This is why they're going to be like, Reddit investors are like, oh, you're worth five times EBITDA, you know, that's it. Reddit core stack overflow. They're going to just get taken out. I think this is, I think this is going to be the new model. Of course, it around actually didn't core raise 15, 500 recently. I think they're going to get taken out. I think these businesses will become too valuable because they do have ongoing content that just keeps getting generated. It's the run, you started web blogs, right? Yeah, I did. And I mean, like blog everything. And but think about the value of that content today, it's negligible.

51:03Like it was very valuable at the time. And as time went on, more content was being created 100 times, a thousand times, 10 ,000 times more content that started to overshadow the value of that content. At the time, the acquisition was done, it made a ton of sense. But all of a sudden, two years later, are particularly with the rate at which data is growing on the internet, it's like, does it make sense to buy any content anymore? So, you, well, on the other side of that is historical content could be worth a lot of money, especially some could be. So, if you had the Charlie Rose archive as an example, what is, you know, he's probably interview Kissinger 10 times.

51:35Any interview Kissinger for, you know, 10 hours. I've got two, almost 2 ,000 episodes of podcast I've done with startups over 13 years. Like, what is this week in this? Yeah, right. This week in startups archive is going to be worth something at some point, right? I don't think it's going to be a 60 -minute one. What are all baseball games worth, right? Like, I mean, who watches their baseball watchable? And I don't think the data from them is particularly important. So I agree on that one. But historical stuff. Yeah, we don't know. But I just question how much of Reddit's content is actually like long term valuable versus like, they're covering a topic and they're talking about interesting stuff.

52:07And then it's a really excellent point. It's a really, really excellent point. Yeah. And we'll figure that out. OK. And that's why I think it's like, it's the early days of knowing how to value all this content, particularly for LLM. So we don't really know yet. Over the next year, this will all start to become clearer. But it's a good thing. The same thing happened to music licensing. Right. But if all the content creators kind of unionize, then it might increase. Like the music industry has ASCAP and other socials. I love it. Well, I'm not advocating for this. But the point I'm making is if they can't unionize, then there's a lot.

52:43There's this a huge number of vendors of content and so Models we need to buy some but as long as they can get some they don't need to have all and therefore It's basically highly competitive among suppliers and there's a very limited number of buyers So that tends to be the news industry should have always had a federation because they could have just said to Google Hey, we're going to de -index ourselves from the Google search engine and so you won't have the New York Times Washington Post LA times you're just not gonna have any of us unless you give us x, y and z and they were just too stupid and not coordinated to do it.

53:17Music industry, the exact opposite. You try to do anything with the music industry. They're going to come down on you like a ton of bricks. To this day, I see what's going on. That's actually really interesting. Yeah, if all the old school legacy newspapers and magazines. Magazine saw it and had basically formed their own, whatever, traditionalization. Traditionalization, yeah. That would have been powerful. Yeah, I mean, that's what Murdoch wanted Murdoch. So clearly he was like, you know, Google's the enemy here. They're going to take all of our revenue and they're going to get all our customer names.

53:48And we're not going to even know the names of our customers. All right, issue three, Clona crushes customer careers with AI. You may have seen this trending on X and Twitter and in the press. If you don't know Clona, there's Swedish Mint Tech Company. They do that by now, pay later stuff. I think they were the originators of that online. And they put out a press release with some really eye -popping claims. AI assistants are now doing the work of 700 full -time agents at Kona. They moved issue resolving times from 11 minutes with humans to two minutes with AI and customer satisfaction is on par with human agents.

54:24And it said its resolutions are more accurate than humans creating a 25 % drop in repeat inquiries that tracks. And so far their AI, which they built with open AI, I has had 2 .3 million conversations accounting for two thirds of Klaner's customer support service chats. Klaner estimates its AI agent will drive, wait for it, a $40 million increase in profits this year. We can talk a little bit more about Klaner and their valuations. But Freeberg, what do you think this means if we're in year, this is the start of year two of chat GPT as like a phenomenon, let's say, what do we think year three looks like?

55:02I think the techno pessimist point of view is, oh my God, look at all these jobs that are getting lost. I think the optimistic point of view is that that company has all of that excess capital now to reinvest in doing other things. That capital doesn't just become profits that flow out the door and everyone's done with that money and that money just gets put away in a sock. That money gets reinvested and that money gets reinvested in higher order functioning work. And that's really where there's an opportunity to move the workforce overall forward, which is what I think is super exciting and I'm super positive about.

55:35We've seen this in every technological evolution that's happened in human history from the plough in agriculture to automobiles to computing and to now AI that humans moved from manual labor to knowledge work to now ideally and hopefully more creative work. And so I do think that it isn't just about eliminating jobs and making more money, but it's about enabling the creation of entirely new class of work, whether that's prompt engineering or building entirely new businesses that simply can't exist today, or perhaps even downscaling businesses where you no longer need to have a 10 ,000 person organization, smaller organizations can be stood up as startups to start to replace large functioning organizations.

56:18So I don't know, I think it's a time of great opportunity. I know that some people would view it as being highly shocking. I think it's inevitable that human knowledge labor where the job of the human is simply the ingestion of data and then communicate an output of data seems like it will eventually be replaced by computing somehow. And this is happening now in an accelerated way with these LLMs. So I think that what we should focus on and think about is what are all the new businesses, all the new jobs, all the new opportunities that are just couldn't have existed 10 years ago that are now emerging that are very exciting as the workforce transitions.

56:50Zach, you buy this techno utopian view of this, all these jobs that are going to to obviously be retired or are going to open up the opportunity for these humans to do even better work at Clona, or do you think it's just going to go straight to the bottom line? Well, it sounds like they're able to eliminate a lot of frontline customer support roles by using AI, which is what I would expect. I think this is a very natural application for AI. It was already the case that you could pretty much find answers to questions by searching the FAQ things like this. This isn't even better way of doing that.

57:28So look, I believe that this will be a big area for AI is saving on, again, I use the word front line customer support because the way that customer support is typically organized is there's level one, level two, level three. The more difficult queries or cases get escalated up the chain depending on how hard they are. And I think the AI will do a really good job eliminating level one. It'll start to eating to level two, but you're probably going to need humans to deal with the more complex cases. Now, the question is, where do those displaced humans go? I think there's going to be new jobs, new work that's always been the history of technological progress.

58:06And one of the things you're already seeing is there's a whole bunch of new AI companies that are exploiting this technology and they need to hire people. So I basically agree with Freeberg that you will elevate people's work by automating in a way the less interesting parts of people's jobs, and then creating more productivity and more opportunity. By the way, just to use your example, Sachs, so imagine if all the level one support people, some chunk of them can now do level two support. And so the customers are gonna get greater hands on care. More customers will get access to a higher level of service.

58:39The organization can afford to do that. They'll be more competitive in the marketplace because customers feel better taken care of. I just think that's how the organizations get leveled up this new technology kind of shows up like this. That's a great point. And then those folks can have a much deeper level of interaction with their customers than they are today. Just to answer a big question. It's more complex. And then people might get better at the software. And they might discover new features that you might be able to redeploy those people. If you look at coffee, like, I don't know, it was 40 years ago, you went to order a cup of coffee.

59:09It was decaf or regular coffee, milk and sugar. No, it's really like, those are your four choices. And now you go to order coffee. I don't know if you guys have used the Starbucks app or the you know, I just had the sweet green CEO on the pod and Man that you can the fidelity and the in the nuance of what you want to order is observed Chimoff, where do you think this is all heading because there is the issue of Displacement and how people how quickly people can be redeployed and if we're seeing in year two customer support and developers getting 10x what other categories do you think we're gonna see fall next?

59:43I think the truth is that But as you said, the real world applicability to AI was not last year. So I think we're really in the first five or six weeks of the first year. So you consider that year zero. That's year zero. That was sort of like the, you know, where everybody was running around building toy apps, group of concept. This is one of the first few times where you're seeing something in production where there's measurable economic value. And the important thing to note about that is that it's not just what it means for but what it means for everybody else. So if you look at everybody else, for example, here's Teleport Foremance, which is a French company that runs call centers, they lost $1 .7 billion of market cap when that week went out, and about 20 % of their market cap.

1:00:27So this is the real practical implication. Yes, Clarna replaced 700 people, and they saved 40 million of OPEX, but Teleport Foremance, while they were just doing their everyday work, lost 1 .8 billion of their market cap at the exact same moment. And so, what does it mean? I think that what Clarna should do is open source what they've built. And the reason is that you want to give companies like Teleportformants a chance to retool themselves with the best possible technology so they can actually preserve as many of the jobs as possible. Because at the limit, if every single company is able to implement something that is as economically efficient as what Clarna did, Teleperformance doesn't exist and there's $10 billion and $335 ,000 employees that will not have a job.

1:01:23And so for Clarna, the reason to open source it is twofold. One is they don't lose anything because you will still need to train it on your own data. And so there's no disadvantage that Clarna will have, right? they're just saying, look, I built this on top of GPT. Here's what it looks like. And that production code can be used by anybody else. Go for it, but it has to run on your own data. That's a very reasonable thing. So I think it has the benefit of both a setting a technical pace that can help them attract better employees and more highly qualified people who find the scope of work even more interesting.

1:01:57And b, I think it's on the right side of history with all the say -i stuff where it's allowing everybody to sort of benefit in a way that is the least destructive. But I just wanted to show you that the destruction was quite quick and it was pretty severe. And if two or three other big companies launched these kinds of tweets after real measurable results, Teleperformance will be a $1 billion company in short order. There's a third reason, I think it's a brilliant idea for Karnat to open source this tool because it's not their business, right? This is just something they did as a as a productivity improvement.

1:02:30They get the benefit it back to them of the community working to advance that technology. So they don't have to put more engineers like advancing the ball on their customer support AI. They can just re -emerge in the changes that the open source community comes up with. And since they're not in the business of selling AI directly, there's no reason not to do it. Like Jima said, so I think it's kind of brilliant. This is Metastragy by the way. I mean, so I was going to say they should be building this on Metastropon source products and Apple's open source products, right, Saks? Yeah. Well, so what what medicine was upset on the last medical is the reason we open source everything is because we don't directly sell AI.

1:03:06We create products that AI makes better. So by open sourcing this, we allow the community to advance the ball and we get to reincorporate those changes. So it's a very smart strategy for companies that aren't directly selling the AI. Now if you're like retailers new companies, Sierra, obviously you're not going to open source because your whole business model is to create a proprietary solution. Yeah, but then to Chimaltz, you know, 80, 90, whatever he was talking about with his, you know, incubator concept and, you know, these things are... It's a company. It's a company. Okay, is it 80, 90 or 90, 80?

1:03:42I'm sorry. 80, 90, 90. Is there a third word that comes off of it? You just can't call it 80, 90. Just 80. 80, 90. Got it. Okay. 80 % of the features that a 90 % is coming. So back to that, like, what does this mean? if these things are getting to freeberg your point about the pace and the pace of these things, is it going to improve 10 % a year or 10 % a month? It was a brew me 10 % a month. We're going to get to 98 % of queries done this year. If it's doing 10 % a year, okay, we're going to get to 99 or 98 % of queries in four years. In other words, this is happening, folks, and it's happening at a blistering pace.

1:04:15By the way, think of it's so not just teleperformance, which is a, it was a 10 billion dollar now is $7 .58 billion USD company. But think about Zendesk, right? Zendesk was a, I think, $8 to $10 billion. $10 billion. I went private. Yeah. Yeah. It was a $10 billion take private. In the hands of PE, the entire Zendesk workflow could be replaced by a handful of these open source agents, where all of a sudden people can eliminate a lot of op -backs. I think the thing to keep in mind here is where the world is going, has always been to try to lower cost. And the original foundational principle of SaaS was that there's these line items in on -prem software that are just extremely expensive over time, very hard to justify, right?

1:05:01And so when people moved to SaaS from on -prem, they were looking for cost savings. That was the initial thing. Now, it's actually not cheaper anymore, but it's much more feature rich. So you get a lot more value in SaaS, et cetera, et cetera. But the point of these AI agents and bots and workflows is that it'll reintroduce the concept of cost savings, of this idea that you can have cheaper, faster and better. And the more that that stuff is open source, my gosh, I think it just makes it very hard for companies that have point products to survive. Yeah, I was talking to a friend of mine, Josh Moore, who was the city head of Uber in New York and he launched his own note -taking app.

1:05:42He's writing it himself and he's obsessed with this concept of building a billion dollar, a unicorn company with one employee. And this is something that a lot of people have been talking about. My friend Phil Kaplan from District O 'Kid built a very large business and District O 'Kid, a unicorn with a very like I think low single digit number of people. This could be the future of efficiency. You could build if you catch fire with a really hot company that gets a million customers to leave the future. It's absolutely the future. And then if you think about our jobs in terms of capital allocation, well, how much capital does that founder need?

1:06:12They need to dilute 10%, 20%, 30%, they're not going to need to dilute 60%, 70%, 80%. A one person company should be able to spend less than a few hundred grand to get to product market fit in the next few years. Yeah, I mean, that's kind of what we're seeing. Just to go back to your question, Jake, where does this go next? Yeah, at least. I think it's really interesting to speculate about that. So what Clarenne has seems to be talking about are email -based customer support cases. I think where this is going to go next is to phone. 100 % and these call centers use the what are called IVRs these interactive voice response systems but they're very rigid.

1:06:49It's a lot of pre -recorded messages and it says push one if your problem is this, push two if your problem is this everyone hates those things. Yeah. I think where it goes next is you'll call the call center and you'll get a voice that sounds like a human and just talk to you. And you won't even necessarily realize that you're talking to an AI, because they're already these AI companies that can do generative voices, any language, any accent. Oh, and they're fast now. And they're fine. And that's the language. Think about that, just localizing them across the globe. You want a launch your product in Japan.

1:07:21By the way, did you guys see there is a meta demo, which I thought was really cool, which was run on Lama 70B, but it was a real -time translation tool where the person was speaking in Hokkien, Chinese, and the other person was speaking in English, and they were able to understand each other. But it's actually your point. When that person calls, for example, B of A, now Spanish is not a language. It's actually many dialects and many, many, many different accents, depending on which country you're from. Like, the accent that you hear in Spain is totally different than the accent in El Salvador or the accent in Chile or Argentina.

1:07:55And so wouldn't it be amazing where you you call your B of A app? It picks up your accent and your tonality and it responds with the person of that exact same accent and tonality That is Inferredible. Well, I'll take it to another level you call it recognizes your number It knows what you're doing in the software. It knows the problem you've had It knows the last three times you call and how long you've been using the software and it anticipates like okay I know this person has a windows machine and it's for you know still five years old and it's like, are you still using that same five -year -old Windows machine?

1:08:27Yeah, we know it's a bug with, you know, Windows, whatever. You should probably upgrade it. I mean, it's going to know the entire context of this. And so it's going to just get, it could be more efficient than a human could ever be. The best customer support interaction I had was, I called JP Morgan Chase because I had an old credit card that I had had for 20 years. And I think that they had outsourced it to somewhere in the Caribbean. And this woman picked up the phone. It was so cool. What is the problem man and I was like oh this is the best and I have this whole conversation with her for 15 20 minutes Nothing to do with the phone.

1:09:00Nothing to do with my credit card rather. It was great. She's like I mean man You want to cancel your card? I was like yeah, no, but you could do celebrities the best. I yeah, I'm sorry voices Yeah, Jake. I'll do the DJT. Okay. Let's let's world play. Okay, Donald Trump. Okay, and I am a JP Morgan Hi, Mr. President. You're huge. You've got big spending. Every time I go see Chimath, I go see Chimath, I go in amazing. Mr. President, I would like to cancel my credit card, sir. Okay, you don't want to cancel it. We've got a great APR, 3 .9%, but for Chimath, you know what? He's my Sri Lankan friend.

1:09:37How much do we love Sri Lankan? Okay. Huge. And not J .K .O .N. Nasty. Nasty man, J .K .O. Very nasty. Yeah, it's like a dog. It's a dog. Okay. She's a dog. Some people say TDS. How much do we love our sex? Sex and poo. Great. Marlago. I go to sex at his house. His house. Huge. Huge house. Almost as big as Marlago. Not quite. I got to work on it because I haven't done it for years. That's really good. It's really good. Have you seen that guy? There's a new like impressions guy who's amazing. He does. He does. He's on Howard Stern all the time, right? He does. He does. No, not Schengelist. This is another kid Matt freed friend.

1:10:22Yeah, yeah, yeah, yeah. He does Howard back to Howard. It's a circle. Yeah, that video is good too. Hold on. Let's wait. Let's wait. I want to hear Trump. I want to hear Trump's. Trump's circle. Shit. Another Trump impressions. So like this is what, Jack, there are so many people that try to do, but you see the failed Alec Baldwin. Baldwin comes out in SNL, which used to be a lot funnier. back of the day with Chevy Jones. But he's in the nose like this. He goes, we've got a great show. Boop, boop, boop, boop, boop. I don't do that. I never say boop, boop, boop. I never say that. I never say that.

1:10:54I'm just even cold bare. He comes out like, I know, da, da, da, da, da, da, da, da, da, da, da, da, da, da, a china. I don't say the da, da, da, da, da. And the last one is Jimmy Fallon. He touched my hair like a dog. And then Jimmy Fallon, he goes, okay, I look like a dog. We're rolling. Okay, I don't do these moves. They're all wrong Yeah, that's incredible Let's see him doing how we got us him do hard so it's so next level the other one he does that's incredible But subtle is Stanley Tucci. How are you by the way Robin you look beautiful, right? Right is it still F**king you up powered it's me up.

1:11:34Yeah, right because when I start talking to Robin after you leave I get crazy right. We can probably about this. We can go ahead. Right. We're not right. Right or wrong, right? Right. Right. Right. Right. How would left or right? Right. Right. Right. Right. Right. Right. Right. Right. Right. Right. Right. Right. It's so great. He is killing it. I think we have our half time acts for the all in summit 24. Oh, for sure. Oh my god. Yeah. He'd be amazing. I love Stanley Tucci, by the way. He's great. Oh, you got to see this kid Stanley Tucci. Do the Stanley Tucci. Have you guys watched the Stanley Tucci con HBO where he's cooking?

1:12:15Where he goes to Italy. It's so great. It's so great. He doesn't want to talk to you. He just randomly cooks something and he's like, I'm going to make a frittata. I have some leftover New Yorkie and I'm just going to, I do watch him on TikTok. Thanks, Givin. He's a special time. I'm in London celebrating. So today I'm making Stan's stuff and also Sugodik Marne. or as it's known, really. Now, the thing about stuffing is you might use a traditional white bread, but in my household, I use a homemade full -cut chip because I've been touting on both sides and nothing tastes better than bread with a little money not a sauce.

1:12:54It's a time for gratitude and giving thanks. Enjoy your holidays and thank you very much for listening. Good. That is really good. He's so good. He's so All right, listen, I don't know how I keep the show going here, but three, two, okay, issue four red, it's S one is kind of fun. Let's break it down everybody. 2023 revenue, 804 million up 21 % year over year. They're still losing money. Uh, net loss 91 million in 2023. They lost 159 million in 2022. So they're cutting the loss. Precash flow's negative. Here's a chart of their quarterly revenue and cash flow. So they're kind of bouncing along the break even mark.

1:13:29As you can see there in the chart, they got a wonderful gross margin. because they don't pay to produce the content unlike the New York Times or Netflix. And so an 86 % gross margin, up 2 % year over year. They're daily active, unique, 76 million, up 27 % year over year. average revenue per user is incredibly low, three bucks and 42 cents. And they're daily active, unique users. Here you can see another chart growing nicely, quarter over quarter. They got a billion, two in cash. most interesting probably and could be challenging to execute on is their direct share program. They're going to carve out a bunch of shares in the IPO to sell to their most active mods.

1:14:14Those are the moderators. The people who run the different channels or redis as are called. What could go wrong? What could go wrong? How long does this movie before? And but they're going to invite you to participate on it in a rolling basis. So unqualified retail buyer pool does not exist in the Reddit mods, except maybe the Reddit participatory bad guys, but they're doing yeah. I think they'll buy the, I think they'll buy after the lockup comes up. But let's just get started here. I think you looked at the S1 a little bit freeberg in your desk. It has been to put it on a docket because you were you were digging into it, anything stick out to you or thoughts on the business overall.

1:14:57No, I mean, I wasn't pulling. I just asked if you guys had read it. Read it. Hey, I think I made a funny joke. Read it. Get it. I see you guys going for a minute. Go ahead. Tell me when you're ready. It was a good pun. Too bad it was accidental. No, it was intentional. I'll give you credit. It was intentional, give it to you. So I think the thing about Reddit, if you could pull up the chart with the quarterly average daily active user data, this was a business that the last couple of years, everyone was like, had flatlined because it was only growing 5 % a year in terms of usage. And then all of a sudden in the last two quarters, so starting in late summer, early fall of 23, So just six months ago, the usage started to climb pretty significantly growing 15 and most in the most recent quarter, 27 % year over year.

1:15:56Absent that growth story, it's a really challenged business because a business without much growth gets value typically on a multiple of the cash flow that they're generating. And there's less upside and all this kind of optionality goes away. That's kind of a key point. I don't know. I think like for you to make an investment of a $5 billion valuation here, you've really got to believe that the growth continues at this rate, and it doesn't revert back to the mean growth rate of the last couple of years of basically 5%, which is roughly flatlined, the other challenge they have is that there are clues only in that kind of $3 range, which is like less than 10 % of where Facebook is at.

1:16:32And the data that Facebook collects on their users gives them the ability to do much better targeting on ads and therefore monetize their audience much better than Reddit has been able to do to the order of over 10X. And then if you look at the RPU number, how much they've been able to grow that metric, it's also been a little bit flat -lined. So this business, I think, is a real question mark. I mean, you could argue it's probably worth, in the best case, in the two to three billion dollar kind of valuation range. And then you have to believe the bull case that the growth continues or accelerates from here, and they have a plan to address the RPU problem.

1:17:08They have other paths for monetizing their audience than what they're kind of doing today. What do you guys think the things work? Do you buy it if it goes out at $3 billion or $5 billion? I think the first question which you nailed that a buy side investor will ask is what happened in the last two quarters that was different than the last 15 quarters? That's going to be a very important question and I think they're going to have to have a very buttoned up answer for that. And if they can point to very specific repeatable things, I think that'll be good. The thing that they, this IPO, if it goes off in the next four weeks, they won't have to wait.

1:17:52But if they doesn't get off in the next four weeks, they'll have to update the S1 probably with Q1. And so you'll see whether this thing is a trend or whether it was a one time thing. Do you know what it is? Well, the growth in the logged out is probably largely because typically if you use it on a phone, it tries to force you to use the app, right, so that you can be in this logged in experience. And if you just turn that off, you can get a lot more logged out because Reddit gets tremendous rank authority from Google. So if you just turn that off, I think that you'll have a lot of logged out customers and that will grow very quickly.

1:18:31And so maybe it's a decision that they'd rather have the top line number grow, then have logged in users grow. But the logged in user growth has still been pretty healthy. It was basically doubled in the last three years. So, but to your point, Freeberg if they said, or our business is really only these 30 odd million logged in users, it would be worth a lot less than saying 75 million. I think it's, I think you're right. It's kind of like in the mid, you know, kind of two, three, four billion dollar exchange, that the big problem is the ARPU because these are not users that represent sort of Facebook's bread and butter kind of a $40 ARPU lives in a good suburb in the United States and is monetized like crazy.

1:19:17I just don't think that's what these users are. But you can see that there's a challenge or an opportunity because if there are ARPUs only 10 % of Facebook's there's a lot of headroom there to grow it. If those users that's become economically more valuable. RPU is actually down 2 % year over year sex. The issue with this user basis are incredibly sophisticated internet users who don't click on ads and are kind of anti -ads as opposed to the general population on a Facebook originare service. And it's anonymous. So you don't know who the user is, which is how Facebook has such incredible demographic targeting capabilities.

1:19:52There's been a lot of conspiracy theories, Long Con theories that came up, Sachs, that we were talking about on Group Chat. Maybe you could summarize this long game that was played by Sam Altman and the allegedly founders of Reddit to wrestle control of Reddit back from their free wrist corporate owner, Kandanaast. Well, this was a post by Yushan who was a former CEO of Reddit. That was published back in, I think 2015 and he kind of lays out what I think happened. I mean, he says at the end just kidding, but if he's a former CEO describing these events, he must be describing something he knows about.

1:20:35I would just think. But in any event, what happened is that Reddit was sold for only about $10 million a year after it launched. So I really, really small. And I think that it kept growing and the founders realized maybe that it made a mistake or that this was actually a bigger property and so they started scheming on how to get Connie Nass to spin it back out and so you shun liaison out the steps they went through they recruited a CEO who they kind of pre -agreed on then they had that CEO demand options specifically in reddit from CondiNass which meant that CondiNass had to create a separate cap table for it and then once they had a separate cap table as a subsidiary of ContiNAS, then they could sort of pressure to have like an outside investor bought in for the expertise that just happened to be say a maltmen and his fund.

1:21:30And eventually like step by step, they worked it to the point where they got ContiNAS to spin off the company. And I guess this plan worked. Now, it should be said that the largest showholder in Reddit, according to the S1, is ContiNAS or ContiNAS parent company. So no one's gonna benefit more from this plan if you want to or scheme if you want to call it that then call He asked it was a smart thing for them to do to spin out Reddit to allow the employees to have options and then I would say to bring back the founder Steve Huffman as CEO several years ago. So yeah, he's great. It worked out for everybody You know who knows if it was all premeditated so they own 30 % and it goes out for five billion they got 1 .5 billion and they paid 10 million for it.

1:22:16So that's just like a web. This is like a web. 2 .0. 2 .0. I know it's too, it launched in 2005. Yeah, it was at 2 .0. It was the same time as like Weblogs Inc. It delicious and flicker and all that whole cohort of little web apps that used Ajax and other things to, you know, the web was just getting faster. And there were a lot of users. Well, I think it was smart for Connie Nass to do the spin out and give up 70 % in order for half 30 % of what's going to be a multi -billion dollar IPO. Great outcome for everybody. All right, issue five. Apple doesn't have a fast car project. Titan is DBA dead before a rival.

1:22:59Appalachia now has been working on an electric vehicle for a decade, self -driving as well. They have invested billions in the project, according to Bloomberg. and Apple was targeting a 100k price point, basically going after the Model S plaid with FSD, company had 2000 employees working on this project. It was called Titan, then they had designer from Austin Martin, Lamborghini, Porsche. According to the report, most of the team will be transferred to Apple's generative AI division. We talked a little bit about Maggie, their generative AI image language model. There's gonna be some layoffs, some clear how many.

1:23:34What does building a car have to do with building a Nellot? Well, they were, yeah, so they weren't just building a car. They were all in on self -driving and not having a steering wheel. So I understand I'm just saying it doesn't make a lot of sense that 2000 employees that were specialized in building a car all of a sudden now become the AI team. It would be more like the full self -driving team is probably getting those AI jobs and the rest are probably gonna lay it off with incredible packages, but what do you think sex? I was always skeptical that Apple was even working on a car. It's just a very different kind of product than anything else they make.

1:24:08And so I never really treated it that seriously that they were going to make a car. So I'm not... I'm surprised to me is not that they canceled this, but that it was even true that they're working out in the first place. Yeah, no. It was... There were reports of them having test tracks and everything. It was pretty well established. And you could see that people from Tesla and other places had... doesn't say why they actually killed it. No, this is just a report. And the speculation is that they're going all in on AI. They just see that as a much better future. Well, I think it's more core to what they do.

1:24:43I mean, the car never seemed that core. No. And there were reports and Elon's talked about a public. So we're not speaking out of school here or anything. But And that Elon and Apple had and Tim Cook reportedly had talked or there have been overtures that maybe Tesla was going to get bought and Elon's been pretty clear that during the Model 3 rollout he was considering selling it to Apple. That would have been a smart acquisition if they had done that. Can you imagine all the Apple showrooms having a Model S in it or something or a Model Y? I mean boom, there was just so many of them and having the Apple operating system on that display.

1:25:19Oh, wait, was it before the model S came out of the model three whose model three was the time I think they were talking seriously. Yeah, but remember like no one really believed in the model three till it came out and Started sewing like hot cakes like opposite. They thought it was gonna kill the company in right all right everybody four The rainman David Sacks chairman dictator Schmacht Paul Happertia and Assaulted up science David Freiberg. I am the world's greatest moderator and we'll see you next time bye -bye

1:26:13Besties are gone, go thrift. That's my dog, take it away. Wish your drive way to the sex. We're at all. Oh man, I'm a disaster, we meet the athletes. We should all just get a room and just have one big huge or two, because they're all just like this sexual tension that we just need to release them out. What your beef, what your beer or beef. Beef, what? We need to get乙. Besties are gone. I'm doing all it

1:26:46I'm doing all it