Bloomberg Businessweek Weekend - September 19th, 2025

25:02And we really are about that being that connectivity engine. So, you know, I think in many ways, our business model is, you know, somewhat protected from any potential. Before we let you go, as I mentioned, some headlines on TikTok from the Wall Street Journal, the deal would create a new U.S. entity. Oracle, Andreessen Horowitz, Silver Lake. Are you involved in this at all? Well, we partner very closely with Oracle. So it would be through that partnership that we would be supporting. So you think you will support an independent TikTok? Potentially. With Oracle. With Oracle. Yes, a very key partner.

25:36One last question. Your stock's down. Why? If it's so, I mean, I know there's also an incredible spend in what you are doing. You've got to spend in order to meet the demand. You know, and so maybe that is why there isn't some reward from some of your investors. Is it kind of a conflict? Well, we're very focused on long term value creation for our shareholders. And, you know, we announced that we are going to bring on as much capacity in the next five years as we have done in the previous 27 years of our operations. And so we're very focused on executing against our strategy. We believe in the opportunity that we see in the market and hope to deliver proof points to that to our investor community very soon.

26:18That was Adair Foxmartin, president and CEO of Aquinix. We should point out that we talked to Adair. That was ahead of President Trump's visit to the UK, where we know a lot was talked about when it came to the tech CEOs that were with him, and that also talked about investments over there in the UK when it comes to the tech world. We should also point out that it was also before we got news of NVIDIA's big investment in Intel. So I have to say when it comes to the tech world, semi-world, there's a lot going on. But nonetheless, an interesting conversation because it really plays into the bigger story, if you will, of why all of this is going on because of the AI spend and then the spend on data centers.

27:00It's all kind of connected. Yeah, to that end, Carol, something else that's connected is the news that we got on Thursday morning that Huawei has unveiled new technology from memory chips to AI accelerators, outlining publicly for the first time its multi-year plan to challenge NVIDIA's dominance in a growing market. Yeah, Huawei's approach seen as a significant milestone in China's AI chipset industry, reflecting breakthroughs in system design and interconnect technologies. And it really signals a stronger push toward self-reliance and resilience in the face of export restrictions. This, again, reporting all done by our team on the ground at Bloomberg News.

27:36But it's just, you know, this is what it's all about. It really, we go back to, I feel like, when we talk so much about the war that's out there, it's not just geopolitical. It's really a tech war, right? And tech dominance. And you're seeing China making some moves. You and I talk about the EV space and how advanced China has really become in that world and dominating, it feels like, electric vehicles. I think one thing that's important to keep in mind is where Huawei sits in the tech sphere in China and globally. It's actually China's most advanced chip designer. It's the strongest contender to build alternatives to NVIDIA's industry-leading AI hardware.

28:14And as you mentioned, Carol, it also is part of a bargaining chip when it comes to trade negotiations between the U.S. and China. And to that end, we did get news Thursday morning as well when we record when we're recording this, that the call between President Trump and Xi Jinping is set to happen at 9 a.m. on Friday. So before we put this to bed. Yeah. And what's interesting, too, I want to just say from a market perspective, Chinese tech stocks have surged in past weeks, driven by a perception that the nation's industry leaders are making steady progress in developing homegrown AI and chips.

28:48So Alibaba, Baidu are among the companies that have secured important clients for their in-house designs and others. But we've just seen kind of a big spend there. For the latest, head on over to Bloomberg.com and check out everything on the Bloomberg Terminal. Still ahead on Bloomberg Businessweek, he's a trader who helped transform the way commercial properties are financed. And now he's launched a bid to become California's next governor. Ethan Penner is next. This is Bloomberg.

29:3230. The gubernatorial race in California definitely picking up momentum just a little bit more than a year away. We featured a few possible candidates on air and our next guest launched his own bid to become California's next governor, targeting voters disillusioned with Democratic rule. But Tim, not ready to vote Republican. Our next guest launched his bid to become California's next governor. He's here in the studio with us. Ethan Penner, as we mentioned, he's 2026 candidate for governor of California, also founder and managing partner of Mosaic real estate investors. Ethan, welcome. How are you?

30:01I'm very busy. You're going to run for governor of California, but you're in New York. Why are you in New York? Because you're here. Talking to us. Well, why do you want to run? Well, I really didn't see anyone who was qualified to do the job raising their hand. And so I decided I would do it. I feel that we're in a desperate place. I think that California has been so grossly mismanaged for so long. All the statistics bear that out. The quality of life has deteriorated so amazingly over the last decade and even two. And it's time for somebody with the real qualifications to do this job, to step up.

30:39And that's what I decided I would do. What would you do differently? What don't you like? What needs to be changed that you think would change the course of California in what you would perceive as a good way? There are a number of things, but the most obvious thing, the starter, is that we've repelled people. So we've been last in net migration for five consecutive years, which means people in the United States have preferred to live anywhere but California, which is shocking considering it's California, right? It's pretty gorgeous. And I think that we need to be more welcoming and inviting to businesses.

31:15We need to grow our economy. Our economy is important for everyone. It's important to create opportunities for our young people, but it's also important so that we have the funds to make good on the retirement benefit promises that people are counting on. So I would do, the first thing I would do is change our tax policy. Well, let's talk about this because our understanding is you are releasing a tax plan that would turn California from one of the least friendly tax states to one of the top five. So what details? That's a big, broad statement. The devil's always in the details. So what specifically?

31:48So the Tax Foundation ranks all 50 states by their tax policy. We're currently ranked 49th, and pro forma my policy would move us to third, according to the Tax Foundation. How do you do that? How do you do that? Well. And what do you do specifically? Because you also talked about needing revenues for things, so I'm just curious how you do it. Yeah, so it would be, and importantly, Carol, it would be a revenue neutral to revenue growth plan. So everyone else, everyone that talks about changing our tax plan talks about cutting taxes. And I understand kind of the intuitive appeal to some people.

32:25But of course, that really doesn't, the math doesn't work. We need to actually pay for the things we need in California to support our society. So mine is a revenue neutral that will ultimately be a revenue growth idea. It's about replacing income tax with a consumption tax. Fundamentally, that's the plan. So explain the details there. We will eliminate all state income tax, both corporate and personal. Wow. Amazing. We will replace all state sales tax, including our horrible gasoline tax. And all of that will be replaced by a single 15 % consumption tax on goods and services. But does California, okay, so you're coming at this from the angle where California has been a net loss when it comes to migration.

33:10Yes. Do you want, can California handle more people? because the real estate prices there in so many places and very desirable places to live are out of control. It's a phenomenal question. But the challenge is on a local level because you have all these people that say, yes, we want more affordable housing, but do not build that multifamily house right here. Our problem has really nothing to do with having too many people. It has to do with too few housing units. So the RAND Corporation published a paper last year that showed that it costs$110 ,000 more to build an apartment unit in the state of California than in the neighboring state of Arizona or most other states.

33:52For regulatory reasons. That's all driven by regulatory red tape. That's the second thing I would have to do is really streamline our regulatory approval processes. So the tax plan is stage one. Stage two is the streamlining of regulatory processes. How do you think about it against a backdrop where climate change is certainly impacting California neighborhoods in a big way? And so the build back has also got to think about how do you make it safer? So environmental greatness is really at the foundation of California. I mean, you're from California and you know this. I take all of my vacations hiking in the nature of California.

34:29It's amazing, right? And so first trip to Yosemite a few months ago for Carol Masser. It's incredible. It's gorgeous. It's stunning. She was blown away. Everything's incredible. Blown away. Exactly right. And passing a massive wind farm to get there. So certainly embracing all the energy. So I think that we have to be as vigilant as we've ever been about protecting our natural beauty and our resources. But we don't need 19 different organizations that a developer of an apartment has to go through an approval process for? We need one, one very good one, powered by AI with great responsiveness rather than five years.

35:08How about five days to get your feedback? How about 15 minutes to get your feedback? There's no reason that we can't use technology intelligently. And there's no reason we can't have both, both the things we can have environmental beauty and environmental soundness and make it easy for people to build the units that we actually need to drop costs and make living more affordable. One of the things you're talking about too when it comes to housing, and Tim, we see it when we've been to Seattle, we live in New York City, go any place where it's warm. Where it's warm and there's a high cost of living.

35:39High cost, but the homeless populations. And I went to college here in New York many years ago and it was a homeless problem. And here we are again in 2025 and we haven't figured this out. You are looking to build some communities from my understanding in rural areas for homeless people to live in? How would you fund that? How long would you expect it to take to get that done? How do you roll that all out? So it gets back to the original question of bringing true competence, the required competence to lead the state at this moment. We need the skills that I bring to the table. We need an understanding of how to build things.

36:18We need an understanding and appreciation for how to have transparency. It's not that we don't have the money. We've spent$25 billion in the last state money in the last four years. And all that's gotten us is nothing but 25 % more homeless. So nothing's been solved. We have systems that don't work. We have a management system that's failing us. We don't know where the money is. There's no accountability. So how do you do this then? You're saying that with this consumption tax, you'll have the money to do this. And how quickly can you get it built? Well, so it's a combination of things. One is, yes, the money is there.

36:51Although we've squandered so much money already, the money is there for this. Second of all, we have to use smart building. We don't have government. We need public-private partnerships. And my government will lean very heavily on private excellence to work in tandem with public oversight to get things done fast. And I think that modular housing is definitely one of the answers. Yeah. But we have to combine competence, a commitment to safety, and a love for our fellow people. I'm proud to be in California. We care for our most vulnerable neighbors. That will never change. But we need to do it the right way.

37:33These people, unfortunately, with all the money we've spent, still sleep on the pavement. We're speaking with Ethan Penner, 2026 candidate for governor of California, also the founder and managing partner of Mosaic Real Estate Investors. on the the homelessness question it obviously has to do with housing it has to do with mental health there's no easy solution as we've we've learned um on the regular on the regulatory side of things you said for building housing you want to streamline regulations get rid of red tape but how specifically do you do that because it's an easy thing to say but as we're learning in the fires in in pacific palisades uh and the waste removal going to new calabasas and the landfill there.

38:12People are not happy about that. Like, how do you do this in a way that satisfies these constituents? Well, I think it's top down, actually. So I think we have to set a standard from the from the governor's office in Sacramento. And that standard has to be, look, if I get elected, it will be with a mandate for change. Right. I'm the consummate outsider. I don't belong to either of the main parties. I've never had a day in political office. So I'm running for a mandate for change with specific policies in mind. And I believe the people's will will be heard through me. And that will that will empower me to actually make change.

38:49But you understand. I mean, I do understand. I understand bureaucracy very well. I've worked in big companies. But I'm just thinking about Elon Musk, Doge, even in the federal government. And yes, USA dismantled other offices or other built departments dismantled. But it's not easy to kind of, you know, all of these regulatory checkpoints? I mean, how do you really do it when it gets down to it? How do you do it in, you know? I'll tell you two things. One, I am not willing to accept that it's hard or impossible to do, and I'm going to commit myself fully to doing that. And I know for sure if people like you and I don't commit ourselves to positive change, the answer is 100 % bad.

39:33So I'm going to commit myself and I'm going to do as good a job as I can. Second, I really do believe that most people in government, in state government in California, go into their jobs wanting to do the right thing for their people. I really do believe that. And I think that as a nonpartisan and a non-career politician who's not trying to advance my career at all, I think I'm going to be very uniquely well-received by the legislature because I won't be viewed as oppositional in any way. we got to talk property taxes. Do you think something has to change with property taxes in California? And the context is that somebody like my parents, who've lived in the same house since the 1990s, pay basically nothing in property taxes, thanks to the passing of a certain proposition many years ago.

40:18But if somebody were to buy that house, like the next family to own that house, the property taxes would be debilitating. And it makes it so people stay in homes for a very long time and contributes to the housing crisis, some critics say. You know what? I don't believe that's true. I don't accept that. I think that our society, our community is served well by continuity. And I think that having people be forced out of their homes because of appreciation, it denigrates our community. It denigrates the continuity of our community. So I would not try to change that policy. I think that's a wonderful policy.

40:59Got to ask you about Governor Newsom, his feud with the president, the president's attention on California, on many states. How would you posture yourself toward President Trump? Well, I think that both parties are busy fighting with each other about the president, pro or against the president. And I feel that it's a gigantic distraction from the incompetence that they've brought to the table in actually doing their job for the citizens of California. I will not be engaged in that distraction. For me, I'm laser focused on serving the needs of the people in California who would be electing me, who I care for.

41:38But what do you do, though, Ethan, if President Trump, you do a policy and you are a social media post at 7 a.m. in the morning of something he doesn't like? And he says, maybe we're going to go down to California and talk to Governor Penner. Well. What do you do? I think that every leader, Carol, has to approach their job with humility. And I don't see that as often as I would like. So Governor Penner would remember that Governor Penner is a servant for the people. And Governor Penner would understand that whatever he says or does, he has to take in mind, is this in the best interest of the people who he's serving?

42:18And fighting with the President of the United States, it's not in the best interest of the people. Okay? This is definitely not. So I would try to have a workable relationship with both the legislature that I would need to work with, but also the federal government. Because as you point out, that's a very important relationship. Whether it's this president or another president, it's not about my personality and the personality of another, which I think unfortunately we see today becoming the story. I don't need to be the story. My personality is not that important to me. My job as serving the needs of the people who elected me is the only thing I care about.

42:59Well, stay in touch as this year progresses. Love to see how things are going. Ethan, thank you so much. Thanks for having me. Yeah, I really appreciate it. Ethan Penner, 2026 candidate for governor of California, founder and managing director of Mosaic Real Estate Investors. We did not get to talk about the CMBS market, so maybe next time around. Next time. Ethan, thank you.

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45:49It's amazing. No reaching over the heat, and they installed it in no time. Host like a pro with expert advice from Grand Appliance. Shop GrandAppliance.com. You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 p.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app. Or watch us live on YouTube. Plenty ahead in our second hour of the weekend edition of Bloomberg Business Week, including how artificial intelligence is making the grade big time with the dean of the Kogod School of Business. Plus, speaking of AI, is AI helping or hurting the language learning business at Babbel?

46:31The CEO joins us later on. First up this hour, you might recall a story earlier this month from our Bloomberg News team. It was about Apollo Global Management being poised to launch a$5 billion strategy to invest in sports deals, marking another major asset manager targeting the booming sector. It's about long-term lending of strategic capital to sports leagues and clubs. Apollo's strategy is set to specialize in lending long-term strategic capital to sports leagues and clubs. It will also consider owning stakes in teams, though this wouldn't be a priority and may hire new staff. Our next guest, too, is investing in sports teams for his investors.

47:08He is indeed. Jeff Luno is CEO of Blue Crow Sports Group. He's also former Houston Astros president of baseball operations. He joined us from our Dallas News Bureau alongside Bloomberg News Texas Bureau chief Julie Fine. Well, you rightly pointed out there's a lot of interest in sports. A lot of American investors are investing in European football, etc. We started as a startup four years ago. We wanted to pick our niche. Our niche is to find, own, and operate clubs in desirable locations that have big growth opportunities. So we invested in Cancun FC in Mexico, Club Deportivo Leganes in the suburbs of Madrid, and Luav in the Normandy area of France.

47:52And those are the three teams, one in first division and two in second division. And the key for us is to operate those clubs well and allow them to make money and to win games. Jeff, you talk about the key is to operate them well and to win money in games. But really, what's the long term plan? Are you looking at other sports? Do you want to stay in the soccer world? What's next? Well, we've got a lot of work to do in football. We want Legan S to get back to first division. We want Luav to establish itself in second division. And now that promotion relegation is coming back to Mexico, we'd like Cancun FC to get into Liga MX.

48:26So I think our to-do list for the next five years is pretty busy and pretty filled. But I think over time, we will certainly look at other sports. But right now, our focus is football. I want to talk a little bit. You were with the Houston Astros. You were fired after a baseball scandal. You have denied any wrongdoing. But you are going now and asking people for money. Has there been any issue when it comes to trust? No, not at all. In fact, many of the investors in Blue Crow are people that were either investors in the Astros or knew me from that time. If anything, it's been an advantage because people knew of what happened with the Astros after we got involved in getting the World Series in 2017 and reaching it in 2019 and making money for the club and its investors.

49:10So we have a very diverse group of investors, people from private equity, entrepreneurs, technologists, et cetera. And they're all very bullish on what we're building. Does it ever come up, though? I am curious, Jeff. Like, I know we all have our pasts and histories. And I just think, you know, sometimes when it comes to money, people do at least be like, well, just let me just talk to you a little bit about this before maybe I think about investing. Well, I think a lot of people want to know about my time in baseball and what we did and how it relates to football. It's never come up as a negative.

49:43I was telling Julie earlier that in Europe, baseball is not a very big sport. So people don't even know who the Astros are or who Jose Altuve is. So they really just care about whether we're going to win on Sunday and whether we're going to get three points or one. Hey, one thing I want to ask you, too, though, Jeff, when it comes to owning a team, is it a buy and hold strategy? Or because you have investors, is it buy, hold, build up and then sell for a premium so that there are returns to your investors? I'm just curious. That's a great question. And the way to make money in football, as you noticed, is you can either hold and sell for more than you bought.

50:19But you usually have to cover losses in the meantime. But we're trying to run these clubs to win and grow revenue and eventually be profitable so that we can potentially return some money to our investors as we go along. We're not looking to buy and flip. A lot of the things that we do in our clubs require three or four years, five years for them to start working. and that's why for us we're talking about more long-term holds. Talking about long-term and working, we talked earlier about technology and analytics. What role is AI playing in all of that? Well, the world of football has lagged baseball and basketball and other major sports in terms of the use of analytics and technology, but that's changing, and part of the reason it's changing is in football you have 11 v 11, so there's a ton of data and there's a ton of games all over the world, And it's hard to analyze that with just a few data scientists.

51:12So AI allows you to analyze a much, much larger volume of data and to generate insights from it. So I think it's going to be increasingly important in our world. Jeff, we talk a lot here in the U.S. about ballooning sports team valuations. I mean, you're certainly familiar with this. We just had the deal news about the New York Giants, for example, with American football. And I'm curious if you think the growth here in the U.S. will start to slow down and the real opportunity for valuations to grow as they did here in the U.S. in the last two decades. That opportunity is outside of the U.S. now.

51:50I think that, well, first of all, I've always been skeptical about valuations of major U.S. sports, but I've always been wrong. I've been saying that things are overvalued for the last 30 years and and they keep selling for more and more down the road. So I'm not good at predicting that. I do think that buyer beware on European football because there is relegation in promotion and you have to do things well in order to increase value. And there's a lot of investors that are losing money in this sector as well. So we're hoping to be one of the winners, but we're being very cautious about what we invest in and how we do it.

52:24What makes you skeptical about U.S. team valuations? You know, it's a supply and demand question, right? Is it more complicated than that? well i think that generally the revenue is driven from tv contracts for most of the sports and i just can't see those continuing to grow at the rate that they've grown but i know it's it's happened so like i said i'm not i'm not a good predictor of that but i think ultimately everybody's going to want to consume sports on their mobile or on on their you know their handheld and that that changes the dynamic a little bit and some of these bigger contracts, you know, may not get renewed at the increases that have happened in the past.

53:03This is going to be a very big time for football coming up with the World Cup. We have here in Dallas, we have the most matches. Houston, your hometown, has a lot of matches as well. What do you think this attention on the sport in the United States will do for it overall? I think it's going to be great for all of North America, Mexico, United States and Canada. And I'm very bullish on North American football. I have been since the beginning when we invested in Cancun. And, you know, I lived through the 94 World Cup and everybody was expecting football to suddenly become one of the big four sports.

53:38I think it has grown, but I think it's poised to continue to grow. It's never going to beat NFL. It's never going to beat MLB or NBA. But I think it can continue to grow its fan base. And I think it can continue to produce good results. You know, you are now in soccer. You came from baseball. I want to know what your future is. Well, like I said, we're just at the beginning. We've been doing this for four years. We've got a lot on our to do list. I'm going to be focused on building Blue Crow for the foreseeable future. Is there an investor that you would love to have with you for the ride? Is there a team that you would love to go after?

54:14And I know who's going to talk, right? because you don't want to kick up the valuation. But I am just curious, and anything you can share on your investors or who else you'd like to have with you? Well, we have a great cap table. We've got some people that have in the NBA, in the NFL, in MLB, et cetera. I don't like to disclose who they are because that's their business. But we're well-funded. All of our investors have offered to put more money in if they need to. So really at this point, I think we have an all-star cap table We've got a great plan. And now it's just a matter of going out and continue to execute.

54:49Jeff, 20 seconds, women's sports. How does that play into it? It's kind of popular. I don't know if you've heard that really quickly. It is. And there's a lot of money going into women's sports. We have a female team in Spain. We're looking at the sector very closely and trying to figure out what our strategy is. But it's growing in the U.S. a lot. And it's growing in Europe quite a lot. And I think it's going to continue to grow. All right. Well, you're always welcome to come back and share some more. Jeff, thank you so much. Jeff Leno, CEO of Blue Crow Sports Group, along with our Bloomberg News Texas Bureau Chief, Julie Fine.

55:22This is Bloomberg Business Week Daily. This is the Bloomberg Business Week Daily podcast. Listen live each weekday starting at 2 p.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say, Alexa, play Bloomberg 1130. All right, so we've talked a bit about the resistance to artificial intelligence in classrooms here on Business Week, with some educators raising concerns on how to effectively integrate AI into their teaching practices, students overly relying on AI for homework, and of course, the effect that AI is going to have on the labor market.

55:59There's a lot at play here, Tim. Our next guest is looking to infuse more AI across the classroom by helping students collaborate with the technology. David Marchik is dean of the Kogod School of Business at American University. He also served in different capacities in the Biden and Clinton administrations, as well as spending a dozen years at the private equity giant Carlisle Group. So I'm not a techie person, but we had the president of Google, Kent Walker, who basically said that AI was going to be as profound as fire or electricity. And I said, well, that seems like a strong statement, but even if it's 0.1 % true, it's big.

56:35Then we had a fellow named Brett Wilson, who's a CEO of an AI venture capital firm. And a student raised his hand and said, am I going to be replaced by AI? And Brett said, you likely won't be replaced by AI, but you could be replaced by someone who knows AI if you don't. So at that moment, I said, we need to infuse AI into everything we do to prepare our students for an AI workforce. And we've done that over the last three years. So what does that actually look like in the classroom? So when you start at Kogod School of Business, if you're an 18-year-old, the first day of orientation, Because you do undergrad and graduate.

57:11Undergrad and grad. The first day of orientation, we tell you, you're going to use AI every day. Most students were prohibited from using AI in high school, but they did it anyway. So we want to teach students how to use it properly. We actually start by teaching what's wrong with AI before we teach them what's right with AI. And then over the four years, or if you're getting an MBA, we want them to learn how to underwrite an investment, how to do fundamental research, how to develop a marketing plan, how to learn to negotiate all using AI, because they'll be expected to use AI in the workforce.

57:46That's what we keep hearing increasingly is the people who know and understand how to use it as a tool will really do well going forward. Okay, so talk to us a little bit more, though, about, because I think one of the things that we're playing around with, David, is that we use it, too. And then it's like, okay, but then we kind of check it out because we just don't totally trust all of it. So tell us how you guys teach that aspect of it, like what to trust, what not to. How do you fact check some of this information that comes across still? So we have a professor, Ed Wassel, who teaches advanced data management, data analytics.

58:25His whole class is used to show how AI comes up with wrong answers, incorrect information. So he has students analyze data sets, come up with predictive analytics, and he shows that AI makes mistakes all the time. That's as valuable as learning what's right with AI. So AI can be a powerful tool, but you need to be skeptical. You need to test it. You need to probe. And you need to be able to shape it to produce the right answers. You know, I want to talk about your background a little bit and then talk more about AI and perhaps why you approach it this way. You have a really interesting background.

58:59A lawyer, you served in the Clinton and Biden administrations in very different capacities. You did more than a dozen years as a managing director and member of the management committee at Carlisle. You've written a book, co-authored a book on presidential transition transitions. You don't have the traditional background of a dean, like traditional academic background of a dean. I also had poor grades and was not the best student. That wasn't in the bio that I read. But I'm glad you're bringing us that color. How does that perhaps make you think differently about the workforce and what they need to be prepared to do once they leave the academic world?

59:36So I had the best boss ever who actually hosts a show at Bloomberg, David Rubenstein. David also was probably the least likely person to run a private equity firm. He had no private equity background. What I learned from David is surround yourself with people that are better and smarter than you in each of their areas and empower them and you can do anything. So what we're basically focused on is ensuring that our students are prepared for the AI workforce, the AI economy, which is changing rapidly. Stanford just put out a study that shows that AI exposed jobs for 22 to 25 year olds are shrinking between 13 and 20 percent.

1:00:17It's terrifying. It's a very hard time. My daughter graduated last year. It was very hard for her to get a job. We see it every day. And so what we're trying to do is make sure that our students have a leg up when they apply for jobs, which means you need to have the fundamentals of a business education, marketing, accounting, management, finance, etc. plus know how to use AI in everything you do. And we're also doubling down on what used to be considered soft skills, communication, teamwork, the ability to think on your feet. Those skills are more important today than in an AI economy. Look at your jobs.

1:00:57You have to think on your feet every day, react to news. Sometimes it works, sometimes it doesn't. Correct. But having an entrepreneurial mindset and being able to think and create is essential for today's economy. How do you, as an educator, but also somebody from the business world, think about how important it is, though, when somebody, their first couple of jobs or their first job out, they're learning so much. The learning curve is so much, but it teaches their brain to think in maybe different ways that they maybe didn't get when they were at university or at college. And so I'm just wondering, are we cutting that out of younger generations, that ability to mess up, learn?

1:01:37I learned so much from mistakes I made in kind of my first couple of jobs. And I'm just wondering, are we getting rid of that? So I think we are getting rid of that in some ways because AI will replace some jobs. In my view, it's incumbent on universities and educational institutions to be able to foresee that and to give students the skills that you may have learned in your first job, we're trying to give them those skills at the university through in-classroom and out-of-classroom experiences. So we have a lot of competitions for students to learn how to pitch where they have to answer questions on their feet.

1:02:14We have investment clubs where students are investing actual money and they need to present and defend and investment ideas. The ability to give a pitch, to communicate orally to work in teams is as important as ever. How do you have to think about the admissions process differently as a result of what happens now or what you want to have happen in a school right now? Traditionally, and maybe this is why I wasn't a great student, a teacher stands in front of a classroom and communicates, disseminates information, which a student absorbs. And then And the student is assessed on how good they are by how much they can retain and regurgitate.

1:02:55AI replaces all that. You can get any piece of information at your fingertips. So now the best students are going to be ones that are most curious, that have an entrepreneurial mindset. They're going to be able to take risk. They're going to be able to figure out stuff on their own. And so we're looking for that in the admissions process. You know, it's funny. mean, Carol and I talk about this a lot because one of the things that we found these LLMs are so good at is if you prompt it properly, it can essentially write you a paper to answer a question and that a teacher, I mean, I'm not giving anyone any news here that they don't already know.

1:03:27And students are way ahead of us. Students are way ahead of us here. I mean, for me, as somebody who graduated from what, like 20-ish years ago, this is like kind of crazy. But I think back to my own experience in college, I went to a liberal arts school and some of those aha moments that occurred for me were like late at night when I was trying to write a term paper or trying to write some sort of analysis of a book I read. And those are the moments that stuck with me. Those are the moments where I learned how to make those connections. Do we lose the ability to make those connections because of this technology?

1:03:57I don't think so. I think it actually aids you. So you were probably a better student than I was. But when I was writing an essay, I had a hard time figuring out topic sentences, structuring an essay, structuring an argument. AI can help you do that. It's a collaborator. And so those aha moments are still there. They're just different. Also, the ability to work in teams is going to be much more important today than it was when we were growing up. And I have students come to me all the time and say, boy, this teamwork is hard. This one student is a show off. This one doesn't do their work. This one has views that I can't understand and they don't change.

1:04:34And I'm like, Welcome to the real world. I have that every day in my job, and I've had it every day in my job for the last 40 years. So teaching students not only the fundamental basic skills that you learn, reading, writing, reasoning, plus AI skills and these soft skills, which I call power skills, that's the future of education in my view. But are we also losing, though, the ability of people kind of struggling, David, through something and like maybe having to work a little bit hard and understanding the idea that, okay, maybe spend a little bit more time with it, dig a little bit deeper, I don't know, look at some different sources and figure something out versus going, like I'm blown away by some of the stuff that you get off of ChatGPT and other chatbots, if you will.

1:05:22And I'm just kind of wondering, are we losing something maybe? They're still struggling. But let's say I were a 22-year-old and I wanted to be your research assistant. You would expect me to be able to find any piece of information at my fingertips any day and deliver it to you. You'd expect me to have much more advanced skills today than if I were applying 20 years ago, or in my case, 40 years ago. So it's just a different type of struggle, and the students today need to learn how to do the stuff that's required in an AI economy. Can I ask you about teachers? How they've had to rethink how they teach?

1:05:59Because that's something you guys have had to deal with as well? That is a great question. Faculty traditionally are very resistant to change. We have faculty that have taught the same thing over and over again. We've actually created a very entrepreneurial culture among our faculty where we started with a few early adopters. Then we had some others that we dragged along. Today, 90 % of our faculty are infusing AI into their classroom. At the end of the spring semester, it was 50. So over the summer, there was just a cultural change where everybody said, the parade's leaving, either need to get in front of it or I'm going to be left behind.

1:06:34So what do you think, David, is constructive for we as communicators and having guests? And we're talking about AI. I feel like every conversation somehow, you know, all roads lead back to AI. Are you trying to get him to give us advice about how we AI-proof ourselves? No, no. Because I would be open to that too. I'm just thinking about the smart way to deal with it because I think it's really easy to get caught up in the exuberance around it. There's so much spending that's going on And we're trying to, like we even today did kind of a reality check about where we are in AI. Like it's kind of a wild world where we're talking about$200 million salaries for people who are poached and brought to meta platforms for a specific technology.

1:07:09Just trying to understand, what do you think is constructive based on kind of the experience you have had reorienting your approaches there? So I think what we're seeing is a technology revolution in a much more abbreviated version than we've seen it before. It's the fastest technology ever to be adopted. So ChatGPT has acquired the same number of users, five times as fast as Netflix or Amazon, 20 times as fast as Facebook. So when the mobile revolution took place, which we all lived through, it took 30 years for us to really use the phone for everything. AI is changing that in a matter of months.

1:07:50So I do think this is a transformational change that we're seeing. it's going to change everything in the economy faster than any technology change that ever has happened. Do you think we know if yet it's good for the economy? I don't think we know. I think there's big pluses and I think there's big minuses. My view is that there will be winners and losers. And my focus is taking care of the students that are at my school to help them prepare. Well, let's talk a little bit about the outcomes that you've seen thus far. You're really still early into this experiment, three years ago, as Carol mentioned, was when you set out to become the first AI-first business school in the country.

1:08:26What can you tell us about graduates who are finding full-time employment on the undergrad side, then also on the MBA side? It's helping them. It's helping them have a leg up and be more competitive. One of the things I'm most excited about this year is we're offering an AI minor to non-business schools. So let's say you're a student that wants to go to med school. You've done what traditionally a student does, taken a bio degree, you have some labs, you're applying to med school. If you have an AI minor, you're going to be much more attractive because AI is going to transform healthcare more than perhaps any other field.

1:09:00If you want to be a policy major and go work for a United States senator, and that senator or the chief of staff says, okay, you're a policy major from a good school and you have an AI minor, I know you're going to be able to do research for me, for any hearing, for any questions, for anything I need to know much faster. And you're going to be able to analyze data much better than others. So I think it's a huge leg up for both business students and non-business students. Do you ever envision a class where it's just someone talking to you like ChatCPT or whatever version might ultimately come out?

1:09:34Like you just think about the, we always talk about a great conversation, how much we can learn and learning to ask the right questions, but I think about that back and forth. I think Duolingo's CEO has said that AI could replace teachers. AI could disintermediate the whole education system. And we're experimenting. I'll give you an example. We have a professor named Tommy White. He runs our entrepreneurship program. He's incredible, one of those popular professors. He created a class this year using all AI to create the class. It has no books, no reading. The only assignments are prompts. prompts plus teamwork.

1:10:12We'll see how it goes. Will it work? I don't know, but we're trying. So maybe. So maybe. I mean, we're experimenting, and that's one of the things that we've done to create this AI-first culture, is we've told our faculty it's okay to fail because nobody really knows what's going on or what we're doing because it's so new. So try something. If it doesn't work, try something else. Really interesting stuff. Hopefully, you'll find some time to come back to us and continue this conversation. Love, love, love. Maybe we talk to some students at some point. That'd be great. We have some incredible students.

1:10:44Yeah, I think that would be a lot of fun. Should we get on the road, go to DC? I'm happy to do that. Come teach a class. We could try that. Good stuff. Thank you, David. Thanks for having me. Really appreciate it. David Marchek. He is the Dean of the Kogod School of Business at American University. Really fascinating conversation. If you missed any of it, please be sure to check out our podcast. You can download it.

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1:14:21Catch us live weekday afternoons from 2 to 5 p.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube. All right. So earlier we talked about AI's role as a tool in academia and how it can help students better prepare for the future of work. On the other hand, certain AI tools can be seen as a real competitive threat to companies in the language learning space. Apple unveiled its new AirPods 3 with a live translation feature, giving us a glimpse into a future where global communication might be seamless. What does that mean, though, for the way we actually learn languages and how does AI fit into that picture?

1:14:58So to help us answer some of those questions, we were joined by the CEO of Babbel, Tim Allen. You know, language learning is the oldest software known to man, so it's not going anywhere. What I love about what Apple and Google have done is it actually generates more interest in the space. So what we find interesting, especially on our product babble is when users or learners go to take a trip or go into a foreign country they actually come back and they're more interested in learning the language so we see all of this as a tailwind because we think that ultimately you know i think the technology is really cool as well right it's so interesting put in airpods you can go from one to the other but what people will then do is adopt and go oh i really want to get into the language i really want to belong in the language that's happening right now because volume well so tim i get that that's happening right now because that technology isn't widespread but i can just imagine in a few years you know we won't even need maybe we won't even need another device we'll have it uh just it'll be a wearable and then it'll be even more seamless do you see that continuing to drive demand you know what's interesting about that is like i think short of a neural implant people are going to always be learning languages right so that at a universal language those are the two things that could disrupt the market.

1:16:10So what will end up happening is that the iPhone, when it came out, everyone declared the death of language learning, right? Because you could hold up your phone, you could do the same translation that the AirPods are offering today. Even a wearable can do it. The difference is that people actually want to live and breathe inside of the language. In fact, we just launched a part of our new technology that explores AI that brings both the pedagogy and the human learning aspect of it together with AI called Babel Speak. And what that does, it allows people to actually practice the language they're learning with with an AI coach, an AI tutor.

1:16:42So there's predefined conversations you can practice with. It does small corrections. But we see this as a complement. We see this as a way for people to actually learn and accelerate the transmission of the language. I think the new technologies are really going to allow for dabbling inside of the language. It's going to be great on the go. It's going to be great for those one-time use cases. But people will always want to learn and live inside of a language themselves. How do you view them more generally, Tim, kind of the landscape of learning apps with the introduction of GPT-5? We saw the team create a custom language learning app in minutes during the demo.

1:17:18That's cool. I mean, it's kind of amazing how quickly all this is happening and how quickly you can do things. Do you view AI products like this as a real competitive threat? And what can you do to keep your user base and sustain growth? Yeah, I watched the same demonstration. It was a cool French app that they had created. It has limitations. Was it cool? Or were you like, oh my God, this is going to be difficult for us. What was cool? No, definitely not an oh my God. It was a cool, because it was created so quickly. And what I think is so cool about it is people are starting to learn on demand.

1:17:51What the difference is though, is I think that people will want pedagogy. They'll want lessons. They'll want content. They'll want to be able to actually know that they're getting a trusted guide through the language learning process. Large language models, as you know, are good at many things. They're good everywhere. They've been declaring for now almost two years that they're going to take away all of the jobs and just really disrupt all the markets. But I think what ends up happening is when you start to get into really narrow spaces such as language learning, people want to know that they have a real lesson plan, that they have really the transmission of the language in a way that's going to adapt to them.

1:18:23And that's what we think AI is going to empower inside of Babel. We think it's really going to allow for the personalization of your individual learning plan. But with the content, the pedagogy, the transmission, so you retain, you're able to speak it, you feel fluent, and you actually feel comfortable with it. So I think from a build perspective, it's really interesting. We look at it as a tool to really help facilitate and go to market a lot faster. I think for a transmission and a trusted content, it'll actually end up being niche markets with real players such as ourselves. All right. So the truth will probably be in usage or the stickiness.

1:18:56And I'm assuming that you're signing up more and more people. You're very enthusiastic amid all of this potential competition. So give us an idea of customers, usership, people sticking to the platform. Give us some metrics. We're growing. We're going on. We have large demand. In fact, September is one of our larger months. Just give it back to school and back to office after the summertime. That and New Year's, as you can tell, the New Year's resolutions tend to be really heavy periods for us. What I could say is we have millions of subscribing customers. We're signing up thousands every single day.

1:19:29Demand has not waned on this side of the equation. We're really excited about the future. I actually get more excited about more of the players showing interest and actually saying, hey, look, this is cool. Understand the language. Play with the language. But when you want to go really learn a language, go to the providers you trust. So Tim, you say millions. It'd be great if you could. One million is a lot different than 10 million or 20 million. So just give us an idea if you could. And how much is corporate versus kind of individual? And what are folks paying for a subscription? And how long do they stay with you?

1:19:59Yeah, no problem. We have over 2 ,000 business clients, B2B clients. So I can tell you that we just signed Inter Miami Football Club. They're using it for their players, their coaches, their teams in order to teach them the languages and what they need to be. We've created custom content for them as well, which gets really exciting. But I can tell you it's millions of consumer customers. And I can tell you it's more than 1 million and it's more than 2 million and it's more than 3 million. So it goes on up from there. Yeah. So. And what do people pay? Corporate versus individuals? Yeah. Yeah. So on individuals, there's a variety of packages, as you can imagine.

1:20:30There's a variety of price points. We have a lifetime price point that we can, that users can subscribe for life and they get all of the features and all of the things that we actually upsell to. And then, you know, there's monthly plans. It is the normal subscription model for what users want from any moment in time. All right. But give me an idea. So Tim wants to learn what language? Spanish Spanish practice my Spanish better. He just wants to kind of learn Spanish so give us an idea So he signs up and what would he be paying like on a monthly basis or if you wanted the lifetime? Yes. Yeah Yeah So if Tim you came to the site and signed up and downloaded the app you could pay 199 for the lifetime and then you there's also discounts available as all good subscriptions I have But then there's the monthly fee of 29.99 that you could be paying as well.

1:21:16So okay, so I could do one 99 for life that's a lot less expensive than competitors such as Duolingo, which is that plus some, I think, per year. Wait, no catch? Come on. No catch? So Tim signs up. I mean, and that's provided you stick around. I'm not trying to say, but right, like you got to be around, right? Yeah, look, with any language learning, there has to be a real commitment to it and you have to actually practice and utilize it, right? But we see the life happens, right the families you know i have kids i'm learning german right now right i've moved to berlin for the job i knew very little german altogether but what i could tell you is i have life come up the kids have school the kids have activities i will pick up i will put down i will pick up and put down but the 199 is at life okay interesting um we i'm curious about duolingo and the competition that you see there i'm wondering if you've considered moving outside of languages is we we use duolingo at home but more so for chess and reading with our kids i don't know if it works but it's great the six-year-old has fun yeah um then we do for for spanish right now yeah yeah you hit the core market there which is the games are bright and they're great learning transmission especially for the younger audiences right now our specialty is language learning we're we're we really focus on that we focus on the transmission of language learning we want to make sure that you have the most effective means in order to go from a zero to one conversation.

1:22:44And the way we look at that is you feel confident walking into a room and being able to know that you're speaking the language in which you're looking to speak. So we focus all of our linguistics, all of our teachers, all of the human centric pieces. And then we actually use AI as the tool to facilitate that in order to help make that happen faster. So Babble Speak is a good example of that, where we continue to allow you to practice speaking, continue to allow you the conversations, but we're hyper-focused there. We really think that the games we're going to leave to other people. We're focused on the languages.

1:23:15You are. Okay. So that's a no, like moving outside of languages? Okay. Yeah. Languages are a sweet spot. When it comes to the AI spend, it's something we talk about a lot, right? I'm curious about what you guys are spending. What are you spending it on? Is it on engineering talent? Is it data centers? Is it content? Is it something else? Yeah. We've been cashflow positive since 2011. It's a private company, so we're not out there raising capital. We are well-funded. We're doing very well. Where we reinvest on our CapEx is we look for engineers. We're looking at AI talent. We're looking at the infrastructure.

1:23:47We're investing in what's going to actually transmit and actually forward the future. We actually think that this is an exciting time to be really looking at product features with our proprietary data set and our proprietary emotes that we have inside of our ecosystem. You know, we have hundreds of millions of lessons completed a year. That's very rich data to be taking into proprietary LLMs and data models and really working inside of the AI to work towards the most effective product in terms of transmitting the language. Are you at this point able to use AI to create language courses? Are you able to use AI to do what humans used to do in recent years?

1:24:25We actually marry the two. Where the real sweet spot was is not in removing people from creating the languages, it's in facilitating the people to create the languages. So we do, just to answer your question directly. We do use AI, but we use it with the human centric piece. We've always found that our linguists and also our teachers are the best to formulate all of the content so it can transmit better than anyone else and more effective. And so what we find is we marry the human with the AI tools. So we're using the blend of both roles. We haven't replaced jobs in order just to replace jobs.

1:24:57All right. I've got one really, really important last question for you, Tim, how's the German going? How's the German going? You know, I'm using my Babel every day. Very little, but I'm learning very slowly. So maybe next time he's on, we do the interview in German. We get Matt Miller in here. Matt would definitely do that really, really well. All right, Tim, thanks so much. Fun to talk with you and get some time and hear what you guys are doing, especially when it comes to AI to incorporate and get in. Tim Allen, Chief Executive Officer Babel joining us from Berlin, Germany. This is the Bloomberg Business Week Daily Podcast, available on Apple, Spotify, and anywhere else you get your podcasts.

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