Weekly Recap: Sam vs. Elon, Cluely's Crazy Ad, UFC x Paramount, Apple's AI Robot

28:55And I think it will crystallize a little bit of like what we mean when we mean like monetizing a free LLM, a free AI chat app. It doesn't necessarily mean stuffing display ads in there, just like the answer to Facebook's monetization problem was not banner ads in the right bar. It was in feed ads that look, if you're watching reels and you see a reels ad, it looks exactly like a reel. And in fact, the best performing ads on Instagram reels feel just like user generated content. They don't look like Super Bowl ads. They're additive. Yeah, they're additive and people often enjoy them. And so that will be, at least this is the semi-analysis argument that I sort of agree with, that will be the, like what we say about ads in AI, it will be more like commissions for agentic checkout, at least to start.

29:49So let's pull up the first video example right now. There's a lot of people that have Websites that monetize with referrals to Amazon. Yeah, and they're frustrated because a lot of the I mean traffic just like organic SEO Is way down. Yep, and the general read here is that Open AI will ultimately start to earn that same type of revenue that the publishers historically did. Yep, so So there was a fireside chat at Harvard Business School with Sam Altman. Let's give it up for Harvard Business School. It's the Harvard Business School. That's what they've been saying. They've been saying. So he got a question from the audience about ad monetization, and we'll hear how Sam Altman responded to it.

30:32Although fair, it could be a barrier for early stage entrepreneurs or startups or even small businesses. Given this context, do you envision OpenAI exploring alternative monetization strategy that could include free API access, perhaps supported by advertising or other methods to foster innovation in the future? I will disclose, just as a personal bias, that I hate ads. I think ads were important to give the early internet of business model. We love ads. they do somewhat fundamentally misalign a user's incentives with the company providing the service. I'm not totally against them. I'm not saying open AI never consider ads, but I don't like them in general.

31:22And I think that ads plus AI is sort of uniquely unsettling to me. You know, when I think of like GPT writing me a response, if I had to go figure out exactly how much was who paying here to influence what I'm being shown. I don't think I would like that. And as things go on, I think I would like that even less. So there's something I really like about the simplicity of our model, which is we make great AI and you pay us for it. And it's like, we're just trying to do the best we can for you. And then that has some inherent lack of access and inequality, we commit as a company to use a lot of what basically the rich people pay to give free access to the poor people or the poorer people.

32:11You see us do that today with the ChatGPT free tier. You'll see us do a lot more to make the free tier much better over time. And I'm interested in figuring out how we bring the equivalent concept to the API. But I kind of think of ads is like a last resort for us for a business model. I would do it if it meant that was the only thing. That's where he says, he says, I kind of think of ads as a last resort as a business model, but recently he dropped a new podcast. This was from, I think, a month ago, and it's from the OpenAI podcast. So you have to imagine that the run of show and the talking points in here are very carefully selected to move the narrative forward and kind of educate the community on where the company is going.

33:02And so we'll pull up Sam Altman's interview on AGI GPT-5 and what's next from the OpenAI podcast. So that brings up the other question from people who are using this or are skeptical is that OpenAI now has access to this data. And there's the concern one was about training, which OpenAI has been very clear about when or when not it's training. You have the option to turn that off. The other thing is like advertising, things like that. what's open-eyed approach towards that how are you going to handle that responsibility we haven't done any advertising product yet um i kind of i mean i'm not totally against it areas where i like ads i think ads on instagram kind of cool yes that's on instagram very cool let's go i am like i think it'd be very hard to we take a lot of care to get right i i have faith i think you can do it people have a very high degree of trust in chat gbt which is interesting because like ai who's mates it should be the tech that you don't trust that much my friends people really yeah do um but i think part of that is if you compare us to social media or you know web search or something where you can kind of tell that you are being monetized and the company is trying to like yeah you can deliver you good no doubt but also yeah you can see this is the monetized block this is the non-monetized block whatever like you know how much how much do you believe that like you're getting the thing that that company actually thinks is the best content for you versus something that's also trying to like interact with the ads i i think there's like there's a psychological thing there so for example i think if we started modifying the output like the stream that comes back from the llm in exchange for who is paying us more that would feel really bad yeah this is a great solution give you the actual answer you want but um hey these are the best headphones for you but if you want me to buy them i'm gonna have to go cook as an agent i'm doing the work and i'm gonna take a cut of that.

35:11That's amazing. I'm so down for that. The agent's like, I'm getting paid either way. Yeah, exactly. And I could say, okay, which headphones do I want? Do I want the Sony's or do I want the Apple AirPod Max's? And if I decide the Apple ones, it goes, checks out, it uses some coupon code. It gets some... Yeah, I mean, comparing this to the other ways that people discover products and services, if somebody searches is best luxury hotel in Hawaii, they're going to get ads against that. And then they're going to get organic rankings that aren't necessarily the truth, right? Because the truth is for something like best luxury hotel in Hawaii is very subjective.

35:55Yeah. Then they might go and try to get recommendations from an influencer. Yep. And hopefully the influencer is disclosed. Yes. Whether or not they're being compensated by the advertiser. Yeah. Yeah. And so if I were to ask you as an influencer, like what design software would you recommend? Like, what would you say? Just honestly, figma.com. Think bigger, build faster. Figma helps design and development teams build great products together. This is a paid disclosure. But yeah, the disclosure is super important. Exactly. And if, and if the influencers saying like, oh yeah, I love this hotel, but that hotel is giving them like, you know, two weeks free a year, then that's not a super ethical enforcement.

36:38Totally. Yeah, it needs to be disclosed. And then also the beauty of the LLM is that the recommendations are going to be able to be tailored. So best luxury hotel, well, if you really want a certain type of pillow or you really want a pool in your unit or you want it to be wheelchair accessible or you want your high ceilings or you want you know beachfront access like there's a million different parameters that could go into that and the thing that you can do all of that and then it could just and then it just saves you the time at the very last step well the thing that chat chippity needs to navigate is maintaining that trust yep right I trust that Instagram is gonna serve me ads yep that that I I trust that they're gonna try to serve me ads for things that I will want to buy yeah right sometimes they serve me an ad i'm like this is this looks garbage i'm not gonna buy it other times they serve me an ad and i'm like this looks great you're actually good good call i i am interested in this product and the thing is is like if chad chapt has to maintain that trust because if they recommend you a hotel and they're like you're gonna love this i know i know what you like you're gonna love this hotel and you go there and you spend all this money and you stay there and it's and it's terrible it's the same thing if you go to a friend for a recommendation for a hotel they recommend you a hotel, you show up there and it's like, this is terrible.

37:54Like, why did you recommend this? And if they go, oh yeah, I recommended it because I was getting like a 7 % referral fee, you're going to be like, what are you doing? Why are you monetizing me? Right. So I think like it's a very, um, uh, it's an interesting challenge that they have where they're going to be directing, already directing so much economic activity. And how do you monetize that in a sustainable, ethical way. Exclusive from the Wall Street Journal, AI startup Perplexity made an unsolicited long shot offer to buy Google's Chrome browser for$34.5 billion. This inspired me, John. Everybody needs to be making long shot offers.

38:35TBPN, let's submit an offer to buy the Golden Gate Bridge. That's a good one. We've got to be thinking bigger. What else should we buy? I don't know. It's tough. Yeah, it's really, when I saw this, it's funny to think that Sundar has to go to the board or like, probably send them an email and say like, I'm required to let you know that we've received this offer from Perplexity to buy one of the crown jewels of our product ecosystem. I wonder how real this is. like it seems like we would like the reporting is pretty loose we can read through this wall street journal article and then kind of like dig into it a little bit more so um perplexes offers significantly more than its own valuation which is estimated 18 billion has this ever been done before has any tech company been able to pull off an acquisition that's bigger than their own valuation like totally i mean so much what was the what was the slow ventures company that that at Metropolis, right?

39:42And they buy a company that was much larger, you know, basically more traditional. Kind of reverse merger almost. Yeah, exactly. Interesting. These things happen. So there's also pressure. So estimates of Chrome's enterprise value vary widely, but recent ones have ranged between 20 billion and 50 billion. I have no idea how you got that. I feel like Chrome is probably more valuable than that just on, I mean, I imagine that the default search engine in Chrome has got to be as valuable as the default search engine in iOS, Safari, right? And how much is Apple paying Google every year? 20. 20 billion?

40:19Per year. I mean, you'd pay, like, you'd pay way more than$50 billion to get$20 billion of profit every year. It's crazy. So that feels low. I don't know where those estimates came from, but they are apparently under pressure. U.S. District Judge Amit Meta is weighing whether to force Google to sell the browser as a means of weakening Google's stranglehold on web search. It's so interesting that we're having this debate now. Google's had 99 % of the web search market for two decades, and they finally have a crack in the foundation with ChatGPT actually eroding things, AI, LLM's kind of upending web search dominance.

41:04Yeah, we're having James from Profound on later today, which is built a big business very quickly because consumers are now using something besides Google search to do web searches. Yeah, this is like the last, this is like completely the wrong time to be focused on this. Like the ship has completely sailed, but that's kind of the pace that the government operates at. Yeah, the journal says perplexity offer could be an attempt to signal to the judge that there's an interested buyer should he force a sale. I think there would be a lot of interested buyers if there was a forced sale. Yeah. Who else would buy it?

41:38Apple? Meta? Microsoft? Get Bing going again? Bing. It's Bing, Bing. Bing it? I mean, Microsoft would have a wild strategy because they'd have all the code to chat GPT, all the open AI, intellectual property. Like, they could do what perplexity is thinking about, right? yeah I mean what does this say what does this say about I mean so they just launched the Perplexity Comet browser. Daniel says Chrome's worth at least 90 to 120 billy. I agree I think 20 is too low. But yeah so Perplexity just launched Comet we had Arvind on the show he said this is a big important bet for the company if you're if you just launched a browser and now you're saying that you want to buy to compete with Chrome and now you're trying to buy Chrome.

42:35What does that say about the state of your new product? Distribution is king. It's very clear that even if you built a better product, the best product is not going to win. And we see this with the LLMs. Like the leaderboards and the vibes shift constantly, but the consumer adoption is just around chat. Everyone just uses chat. That's the one that's broken through. That's the one that people are familiar with all over the United States and all over the world. And so it's very hard to break through, even if perplexity can rocket to the top of the app store in India for a little bit. It's hard to hold on to when the chat GPT snowball is just growing bigger and bigger every single day.

43:19Much like the graphite snowball. Code review for the age of AI. Graphite helps teams on GitHub ship higher quality software faster. Get started for free. graphite.dev. Um, is, is there a, is there a poly market on perplexity by the way? Can you look that up? I will. Will perplexity acquire Chrome in 2025. What's the, what's the market on it? When I posted about it earlier, it was at 12%. And it's, and I said, 12 seems quite high and it's now at 3%. It went down, even though they're in the journal saying they're going to do it. they're like well it came out the market opened at 34 % okay like 9am when the news dropped and it's now down at 3 % so wait just today it went from 34 down to 3 wow so this has basically been like debunked yeah makes sense yeah I mean there's I would I would put the odds of this deal happening closer to 0 % than 1 % that sounds fair but great way for perplexity to get yeah in the journal call me no this is great for seo it definitely puts perplexity and web browser in the same keyword perplexity was also bidding on tiktok yeah arvin loves a why a long shot bet a long shot bid i invited i invited uh i invited him on the show this morning uh he i don't think they want no he's not ready for press not ready to chat but uh we love a we love a size lord long shot offer.

44:50Keep throwing these out. More startups should do this. Google hasn't indicated a willingness to sell Chrome. In testimony this year, Pichai told the judge that forcing the company to sell it or share data with rivals would harm Google's business, deter it from investing in new technology, and potentially create security risks. Chrome has roughly three and a half billion users worldwide. It's like perplexity has probably millions of users, but it's just going to take decades, even at reasonable growth rate to hit 3 billion. It's just so many people. And accounts for more than 60 % of the global browser market.

45:26That's lower than I thought it would be. Founded in 2022, San Francisco-based Perplexity recently released its own web browser called Comet to some of its users. Tyler, you've demoed these. What are you daily driving these days in terms of the web browser? I'm using old reliable Chrome. You're using Chrome? Yeah, I don't know. none of the agent um browsers really seemed very helpful to me have you churned from clearly to yeah well i i started using that like that you know right after the show ended um i was i mean i'm not doing interviews i was thinking about like the clue what if what if what if tyler was like been using clearly every day hours a day like wait you've been interviewing with other companies Well, that's the thing is that when I was thinking about Cluely, I was actually wondering, like, if we ran the show through Cluely and we had like just this idea of like streaming audio, essentially, and streaming pixels, and then just somewhat random LLM queries firing all the time.

46:29Like, is that a good pattern versus ChatGPT where you have to decide, okay, this is the time to query it. And so when I think about like the going to you and saying like the pull the poly market up on perplexity or tell me the market share for Chrome, like if we could have something like Lulee running and it's just a big screen there that I can see and it's just pulling up answers to questions that it thinks we're about to talk about or ask or just add in context, like that actually might be kind of useful to us. But I don't know if a tool like that exists. It also just might be so sloppy and so noisy and so inference heavy that it just doesn't math out.

47:09I don't know. Are there any value or like, what's actually seeing breakout for you in terms of AI adoption? I mean, most of my time using AI tools is just like coding stuff. So it's like cloud code, cursor a little bit. Sometimes I just go raw, chatgbt.com. Oh, that's raw? Yeah, just straight prompt. like no raw text file what happened to what happened to good old-fashioned just handwritten code farm to table code apparently not yeah has to raise code but yeah i don't know i mean like clearly i'm not like doing i'm not doing like sales calls or like anything that really requires that kind of like interaction yeah yeah so not to be useful for me but yeah i wonder how the product will change because like the marketing is not going to stop like they are definitely going to keep filling that top funnel until they figure out the bottom of the funnel and the churn.

48:03But I wonder what retention's like. I mean, I imagine that, you know, you bring in such a broad top of funnel, like there's probably people that are sticking around. There's probably people that just sign up and forget their credit cards are down and they just pay for a while. Like the nature of just getting someone to convert for 20 bucks a month. They don't even have a free tier, right? Like you have to pay to like get up and running. No, they do have a free tier. They do. Okay. Okay. Yeah. Interesting. There was something. Oh yeah. Tyler, did you see vibe sort? Someone wrote a sorting algorithm.

48:35It uses LLF. You have to put in your, you have to put in your open AI API key, and then it just passes the random list or the array of numbers to chat GPT and asks chat GPT to sort it. And it just comes back with whatever it can do. And I was thinking that have you ever, did you ever, did you ever have to do Fizzbuzz back in the day? Have you ever heard of this? Yeah, I've heard of it. Yeah, we should we should definitely do vibe fizz buzz, where it it it for each for each number between one and 100. It queries the GPT five API to ask it, should it respond with the number fizz or buzz? The most the most inefficient and most inference heavy fizz buzz answer possible.

49:21Anyway, back to perplexity, Perplexity told Sundar Pichai as part of the proposed acquisition, it would maintain and support Chromium, the open source project that supports Chrome and other browsers. It also said it would continue placing Google as the default search engine within Chrome, though users could change settings. That's crazy because you would think the first thing you would do if you own Chrome would be change the browser to mine. I'm getting those ad dollars, but I don't know. Maybe it's a nice olive branch in this somewhat hype-y offer. The Justice Department filed the antitrust case against Google in 2020.

49:57And just five years later, in addition to their here, in addition to forcing a sale of Chrome, the judge is considering limiting Google's ability to pay to be the default search engine on devices and browsers and requiring it to share data with rivals, among other things, in weighing potential remedies earlier this year. Meta questioned how much new AI chatbots might be whittling away at the traditional search business of which Google has 90 % market share. So 60 % share in browser, but 90 % in search. So even for there's 30 % of people out there that are using Firefox or Brave or Edge. It's Edge, right?

50:36Is the Microsoft one? Yes. But then they use Edge, but then they still set their default to Google because Google has dominant. Or maybe they're just Google users or querying more. I'm so fascinated by perplexity yeah and I can't wait to see what it's perplexing and I can't wait to see what ultimately becomes of the business they're offering to buy tiktok they're offering to buy chrome they're rumored you know the there's a rumor mill saying that Apple's kicking the tires on it it's hard to tell if where that's coming from right is that just more marketing yeah complexity they have i think the last reported number or the alleged number is something like 30 million monthly actives which is a lot but it but they have such a tiny share of overall queries yeah that it becomes and and it's just clear that that search feels like it'll be a winner take take all market yep and it's it's they're not gonna you know two years from now if they're sitting at 30 million monthly actives or even a multiple of that it's hard to see it you know being worth uh you know significantly more than snapchat for example yeah and i think that's why you're seeing arvin talk about potentially maybe pivoting to b2b context with the bloomberg thing um it feels like if you're if you're in a winner take all market and you're in the writings on the wall that you're not going to be the winner in that market, a B2B pivot feels like a decent move.

52:15You could even put kind of anthropic in that bucket where there was a time when it was like, oh, is everyone going to switch to Claude, like the app on their phone? And then it didn't play out that way. Now they have a dominant B2B business. So you can imagine the perplexity niches down, like the perplexity interface, the perplexity ability to, you know, like answer questions, act as a search engine that feels valuable in enterprises, it feels value in finance, it feels valuable in medicine if you fine tune the service for that. But it's just a very different business. So they have to go through a little bit of a rebuild or kind of readjustment, maybe.

52:56I don't know. Yeah. We'll see. Yeah. I mean, at the end of the day, when Elon bought X, it took someone like Elon to be able to put together the amount of equity and debt to buy that business. And he had to put a lot of his own capital on the line. And in this situation, and that was buying a business that generated a lot of advertising revenue, right? It wasn't known as, it was a bit of a dog in some ways, right? Maybe never was living up to its full potential. Where in this case, if you offer to buy Chrome, And then in theory, you have to create an entire new economic model for the business because you don't have the Google ads engine built into it.

53:42It's hard to see. It feels like basically impossible to pull that amount of cap to find people. Yeah. Call me when the Morgan Stanley associates are losing sleep. Good point. Unless Morgan Stanley is burning the midnight oil, this deal probably isn't happening. I'm remembering that exchange between Ellison and Musk basically saying, how much Ellison's like, how much should I do? A billion? And Elon goes, I don't know. I think you should do like two. Yeah. It's great. Yeah. So, I mean, Arvin's got to find some Ellison. Got to get Larry. Get a few of those guys on board for sure. 34 Larrys. Well, we have some big news in the TVPN world.

54:26We are officially partnered with Waymo via Spotify. Because Spotify has a partnership with Waymo, so you can listen to TVPN and Waymo's now. No way. Yeah, this just dropped. Very cool. There's a new upgraded Spotify in Waymo launching today. Waymo put out the post two hours ago. You can connect your accounts and you can vibe. You can listen to TVPN in your Waymo, which is probably the most tech thing you could possibly do. a little birdie just told me that they spoke to a number of bankers that have not heard of the perplexity deal, which I imagine as it firms up, if it firms up, they'll certainly hear about it.

55:09UFC landed a$7.7 billion deal with Paramount after a whirlwind, 48 hours, according to TKO executives, but zoom out for me explain UFC. This is this is the punching one or the punching one and the kicking one. How does this is one of your best bits. So Sandra and I love UFC. Yep. And we'll text John and say, hey, John, do you want to watch? You want to watch come over and watch like the pay-per-view tonight? Yeah, John. Awesome. I love watching my boys. Who's playing tonight? Yeah, I mean, I'm there if the teams are good. Yeah, there's good matchup. Yeah, but it depends on who's starting. I want to know.

55:49It'll depend on the starting line. I want to know who's playing. So UFC the kicking and punching one the kicking and punching one they can do both and wrestling They can do wrestling too. And choking. Okay. Rear naked chokes. Got it. That's a popular move. Got it. Kind of a mixture of experts model in fighting sports. Yes. Got it. Yes. Multimodal. Yes, exactly. So, long relied on the pay-per-view model. Worked well before the internet and illegal streaming. And the pay-per-view model has been in decline. UFC has also struggled to surface new American superstars. A lot of the biggest stars are international, but UFC's biggest market is in the U.S.

56:34International stars have a lot of fans in the U.S., but they're not driving pay-per-views, right? People in Brazil are not paying$100 to watch a single card, right? And so the pay-per-view model has been in decline. The UFC's relationship with ESPN has been a little bit rocky. Pay-per-view model in decline, is that just because of the trends in how yappy and how popular the fighters are? Or is there something else going on at a technological level where I don't have to click any buttons to open Instagram reels or TikTok or YouTube? And with pay-per-view, it's technically difficult. It's kind of janky tech systems.

57:17Is that a real headwind or is that fake news? So there's definitely friction to buying pay-per-views. You got to like be on a traditional television. It's not like in-app purchase, like double tap and face ID, like that level. It's not that easy. I mean, I think you can go in the ESPN app and like buy the pay-per-view, but a lot of people aren't buying the pay-per-view to watch it on their phone. Sure. I think the bigger challenge and something that. And Apple would take 30 % if you paid on your phone. So even then. I don't know. I think it would because it's digital. Because it's a real world.

57:46It's digital. Oh, because it's streaming. It's for sure. It's for sure digital. But the funny thing is. It's a ton of friction. Is Dana has been in this challenge. Yeah. because he gets very frustrated about illegal streams. And every now and then he'll be like, if you're watching a stream tonight, a legal stream tonight, we're coming for you. We're coming for you. And everyone's like, okay. I don't know how you're planning to do that. But they try to take, I think that they try to DDoS the various streaming sites. Oh, interesting. You can just send a ton of traffic. And they probably have someone talking to Twitch and being like, we are going live right at this time.

58:23You need to have someone searching and taking down streams actively. Yeah, but there's plenty of other more decentralized illegal streams that are happening on random URLs. Yeah, yeah, yeah. Even just somebody spinning up their own thing. And so Dana was in a tough position because the more he talks about illegal streaming affecting the business, the more people are like, wait, I can stream it illegally. He's a little Streisand effect, yeah. And so he had been looking for a new home for UFC. People had debated, you know, would Netflix be a potential buyer there? There's a lot of potential candidates.

58:59Meta Quest. You have to buy the headset. You got to watch it in VR. I'm sure. I mean, Dana's obviously on the meta board. And I'm sure that idea got thrown around. I mean,$7.7 billion, that's one researcher. Just cut one head count from MSL and you're good. And Zuck can just own all of UFC. and be like look put on the headset or you don't get to watch yep well the deal that was reported uh we're in yahoo sports how the ufc landed a 7.7 billion dollar deal with paramount after whirlwind 48 hours according to tko execs so beginning in 2026 all ufc events will stream on paramount plus with select events also airing on cbs and uh so anyways ben folks is reporting just how big of a surprise was the UFC's bombshell$7.7 billion deal with Paramount and CBS?

59:49So big that even UFC CEO Dana White didn't see it coming. No, this is a quote. No, I didn't think this is where we'd end up. White said Monday during an appearance on the Pat McAfee show. Shout out to Pat. Let's discuss the new broadcasting rights deal. But this is sort of how it played out. I love it. These guys are obviously smart guys, very aggressive. He's talking about the team, the new team over at Paramount. So in an interview with CNBC, TKO president and CEO Mark Shapiro said he initially expected to make a deal that would bring only the UFC fight night events to Paramount. But after Skydance and fight night events have always aired on ESPN, just fully ad supported.

1:00:26Yeah, got it. But after Skydance Media completed its deal to purchase control of Paramount last week, Shapiro said the deal for the entirety of the UFC's U.S. broadcast rights came together in just 48 hours. now instead of just the 30 UFC fight night events per year paramount will feature and the fight night events were were events that wouldn't draw big pay-per-view buys those were not the numbered UFC events correct so the UFC 776 that's like pay-per-view fight nights just random on the on there's only 13 of those events okay per year 13 numbered and 30 fight nights so almost every week there's something if you're always action but you're really once a month is when you really want to tune in but for the they they sort of depend on more casual fans historically to drive pay-per-views people that are like i watch ufc when conor mcgregor's fighting right yeah that's what really spike yeah and have kind of a power outcome that people getting together being like hey we're gonna buy the pay-per-view we're gonna we're gonna watch it sure sure over that kind of So possibly the biggest news in all of this for fight fans is the end of UFC's pay-per-view era ever since the first UFC event in 1993 pay-per-view has been a vital part of the UFC strategy Remember UFC when it started airing on TV was thought to be it was so Shocking and violent to people that even politicians wanted to get it banned Wow, like they were like this should not be on television So it had to be in that bucket Oh, it had to be pay-per-view because it was like, yeah, it was like adult restricted anyway.

1:01:58Do the fighters need to sleep well before the fights? Of course. They have to be on eight sleep. Pod five. That's right. Five-year warranty, 30-night risk-free trial, free returns, free shipping. We got to make sure Bo, Nicole, friend of the show, is on an eight sleep. I'm going to message him after this. Okay, perfect. Let's figure this out. Ever since the first UFC event in 1993, pay-per-view has been a vital part of the UFC strategy. under the current deal with ESPN. Each UFC pay-per-view costs$79.99 in the U.S., plus the cost of the ESPN plus subscription on top of that. So you've got to subscribe, and then you've got to pay per event.

1:02:29With the pay-per-view revenues reportedly in decline, it makes sense for the UFC to finally ditch that model. The fact that it's doing so as part of a deal that will essentially double the roughly$550 million per year the UFC currently receives from ESPN likely only made that calculation easier. This is crazy. This is crazy. When they find out, wait, if I just sign up for Paramount Plus for$12.99 a month, I'm going to automatically get UFC's numbered fights and the rest of the portfolio. That's a message we want to amplify. That is a crazy, crazy value change. Because if you were doing all 13, if you were the hardcore UFC pay-per-view buyer, you're up at$1 ,000 a year on UFC pay-per-view, basically.

1:03:13Like$700,$800. dollars. Like that's a lot of money. And you're going from there down to$12.99 a month. That's 150 bucks basically. That is a steep, steep savings. The hardcore fans are going to be exciting. Yeah. And a lot of, a lot of, I mean, a lot of fans would, you know, somebody's hosting the pay-per-view one night. They split it or something. Yeah. It makes sense. But still, I mean, that's a big, big savings. I do wonder what the ad load will be like, because when we watched UFC that a couple months ago with David Sendra, I noticed that it felt extremely content rich and like the flow of the show was fantastic because you'd just be watching a fight and then it would cut to the commentary, the post show, the in-ring Joe Rogan's doing an interview and then pretty quickly, they start telling you who's coming up next and the actual fight, like you're only watching maybe like a half an hour of fighting over an hour or two of content but it didn't feel like oh i'm not crazy commercial break and i'm totally taken out of the stadium like even even the they did a really good job with the production to show like when they show you the stats it's virtually laid over in the stadium like you're watching a camera pan around the stadium so it actually kind of feels like you're there the whole time it was really well produced i wonder if they'll lose any of that by stuffing ads all over the place yeah we'll see i mean and you compare that to nfl yeah NFL is like roughly, I think, 25 % of the time allotted to NFL is advertising.

1:04:46Yeah. And that hasn't been the case for pay-per-views. Yeah. And it certainly feels like it's a shift in the type of content. Yeah. They just got to work on making seamless transitions to advertisements like we do here with Fin.AI. Of course. The number one AI agent for customer service. Number one in performance benchmarks. Number one in competitive bake-offs. Number one ranking on G2. You can get started at fin.ai. And anyway, so Paramount is or Skydance young Allison Is all is just getting aggressive across the board, right? He's there's been rumors of this free press acquisition That I'm sure is still in the works, but it had been reported It was quarter billion dollars for the free press yeah from our sense.

1:05:28They have about a million A million people subscribed to their newsletter most of which, vast majority of which are non-paid. And so that just says that Paramount sees, and CBS, Paramount, you know, the combined, and Skydance, sort of this combined entity, just see the free press and as highly, and Barry Weiss specifically is just highly strategic. Right. And then CBS also cut the Late Show, which is losing 40 million a year. So they're really like kind of, really like shuffling the chips around, on like really restructuring the organization. Like what does CBS actually do? Well, now it's potentially UFC and Barry Weiss as opposed to Stephen Colbert, I guess, in terms of like headline stuff.

1:06:15I love this, I love this article. Back in 2009, Dana White swore that if UFC 100 did a million pay-per-view buys, he'd bungee jump off the Mandalay Bay. It did, he didn't. when UFC 151 was canceled after John Jones refused an appointment an opponent switch White called Jones's coach Greg Jackson a sport killer he left a crater in the UFC schedule that only MMA fans could fully appreciate a few years later when Conor McGregor and Nate Diaz shattered the pay-per-view world record at UFC 196 it was a testament to how big the sport had become we cared about those numbers as much as we did the outcome since UFC won when people paid out Out of morbid curiosity, this is what you were talking about earlier, pay-per-views have been a vital part of the identity of the sport.

1:07:04It's hard to get nostalgic over being gouged. But what follows here shouldn't be mistaken as such. But Monday's news of UFC coming$7.7 billion. Partnership with Paramount came with a small pang of sadness upon realizing the pay-per-view model will soon belong to a bodyguard. Yeah, I'm interested to see how this impacts the fighters because early in their UFC careers, they don't get any exposure to pay-per-view points, which is like a percentage of pay-per-view sales that top fighters would earn. So if you were a rising fighter and you got on a pay-per-view card, you weren't necessarily getting cut into that revenue.

1:07:41But if you were Conor McGregor or a true superstar, you were actually getting some percentage of the sales, right? They call these pay-per-view points. And so now that that model is going away, I mean, I'm sure the number one thing on the fighter's mind with this new deal is how are we going to actually, you know, basically get cut into the to this new structure, right? Because historically, a lot of fighters have critiqued the way that UFC fighters are comped. But this is such a funny nostalgic article. This writer clearly really loves UFC. Back in the mid-aughts, the UFC combined the tuxedo affairs of 1990s boxing with the vibes of an underground temptation.

1:08:25From there, it slowly stockpiled its greatest passions behind the paywall. Remember how red Dana's face would turn as he tried to sell the pay-per-view at the end of the televised portion of the card? Remember the names? He goes through. BJ Penn, Matt Hughes, Chuck Liddell, Tito Ortiz, Randy Couture, Conor McGregor, Ronda Rousey. go through the posters of the past and they were special. They were the special attractions. The names on the marquee for the numbered events. Those were some good parties we shelled out for. As MMA fans, they were ours. Well, end of an era. Yeah. And TKO Holdings, the company that of course owns WWE and the UFC, is a$36.8 billion company as of today.

1:09:11It's up 11. Let's take it over to Mark Gurman himself. Mark Gurman. He has some new reporting. Apple plots expansion into AI robots, home security, and smart displays. Apple Inc. is plotting its artificial intelligence comeback. Don't call it a comeback. Actually, you can call it a comeback. I mean, it makes sense. They've gotten a lot of hate over the last few years for the rollout, just particularly the rollout of Apple intelligence. Very hyped. a lot of features on display at WWDC that didn't ship when the new iPhone launched. They sold the new iPhone against it. Yeah, exactly. And so I think that there were high expectations because of Apple's position with on-device inference being very cool.

1:09:57Tim Cook, I gave you Genmoji. Are you not entertained? They shipped a few things. I think that I would love to see the Genmoji actual usage data because I feel like even even though it's not popular in Teapot and on X and in the Technorati, it might actually be seeing like decent adoption and joy. I mean, I've seen people share generative imagery from Microsoft Copilot, which I had no idea was a popular image generation platform whatsoever. Facebook crowd. Exactly, exactly. So I wouldn't be so sure that Genmoji is producing zero value, but at the same time, It's clearly been a tumultuous time for the company.

1:10:38They've been kind of on defense in terms of public relations. But Mark Gurman is still scooping every single day. Apple is plotting its AI comeback with an ambitious slate of new devices, including robots, a lifelike version of Siri, a smart speaker with a display and home security cameras. A tabletop robot that serves as a virtual companion targeted for 2027 is the centerpiece of the AI strategy, according to people with knowledge of the matter. the smart speaker with a display meanwhile slated to arrive next year part of a push into entry level smart home products table top robot that's a virtual companion yep that's big a lot of a lot of software they got a right to make that work they got to get on graphite.dev code review for the age of ai graphite helps teams on shit and github ship higher quality software faster tim cook if you're listening get on get on graphite so this is big too home security is seen as another big growth opportunity.

1:11:29New cameras will anchor an Apple security system that can automate household functions. The approach should help make Apple's product ecosystem stickier with consumers to the people who ask not to be identified because the initiatives haven't been announced. I mean, this seems like something that they could knock out of the park, like just the smart thermostat, like these, these patterns have been defined for a decade. And that's like the sweet spot for Apple to come in and like the Sonos home speaker, where we were saying like it, they're just like the speak. Everyone knows what they want out of a connected speaker system.

1:12:00They just want it at the level of Apple execution. It doesn't require going zero to one in some new territory. And so I feel like they could be very successful in the home video monitoring, home thermostat, home speaker. So I think I like this overall. The robot is where it gets funny because this feels crazy, but I'll let you keep going. Yeah, going into companionship feels interesting. I don't think it's a companionship. I don't think of it like that at all. A tabletop robot that serves as a virtual companion is the centerpiece of the AI strategy. I mean, so let's read what the actual report is on this robot.

1:12:38The tabletop robot resembles an iPad mounted on a movable limb that can swivel and reposition itself to follow users in a room like a human head. It can turn toward a person who is speaking or summoning it and even seek to draw the attention of someone not facing it. The hope is to bring AI into life. I don't think of this as like companion necessarily. This could just be Jarvis. Yeah, Jarvis. Feels like Jarvis. I mean, I guess Jarvis isn't a companion, but companion has a bad flavor to it right now, a bad vibe because people are saying like, I married my companion and that feels very Black Mirror.

1:13:15I do think that there's a serious Black Mirror risk, but I'll go into that in a second. But what were you about to say? Yeah, I'm not going out and saying this feels like a competitor to friend.com or any other players that are actually focused on companionship. But this does feel like giving Siri a presence in the home. Like an always-on presence in the home. It will be interesting to see how they solve it. A partnership with OpenAI or Anthropic seems logical, but Apple's Siri partnership with OpenAI Anthropic before September on Polymark is a 6 % chance. By December, it's at a 44 % chance though.

1:13:53So, but this is a very low volume market, but still it feels like we haven't seen a lot of messaging from Tim Cook that they're going to be building a huge data center, going to be training a foundation model. It feels like they're going to need to partner on some of the underlying infrastructure for that, because I would not, I would not want Siri hanging out in my kitchen talking to me. Like Siri is just not reliable enough, but I would welcome Claude or ChatGPT into my house. But I would treat it specifically as a, like an Alexa, what's the weather like? What's on my calendar? Look up the history of the Roman Empire.

1:14:34I would ask it questions like that and I would use it as a knowledge retrieval tool. I might start to trust it in some agentic contexts. And the question is, do we want a robot iPad with an arm swinging around your kitchen and so and and hopefully when you want to know the weather it's you're you're within earshot I think I think this could be really cool I think it could be really cool I mean they say FaceTime is funny because you're competing they're still competing with their own yeah but if you're ever in the kitchen like this is an example so FaceTime calls will be a key function of the device during video conferencing the display will able will be able to shift to lock onto people around a room.

1:15:15And so as you're walking around, the FaceTime is just following you. That actually feels more social. I remember during COVID, I bought Facebook's camera. They had some sort of device that you would mount on your TV and it would act as a video conferencing system. And I used it a few times. I ultimately churned, but it had a really wide angle lens and it would like zoom in on the people. It had really good face detection. and so it would center you no matter where you were in the room but as soon as you walked to the other side of the room it wouldn't be able to follow you because it didn't have any motors in it um and i feel like we pull up the link in the chat this all reminds me of the meta portal yeah that's the one i'm talking about the portal yeah basically i didn't market it as a robot but it would sit on a table and it would sort of follow you around the room and meta is no longer selling meta portal uh i guess they wound it down so anyways uh tim cook told employees i gifted some of these and they were pretty well received uh most of them wound up being used as uh like uh digital digital photo frames though yeah and they weren't actually used that often for calls i don't know if putting it on a robotic arm is enough to make it useful i think you do have to nail the underlying speech recognition and in the conversational nature.

1:16:41Like it has to be powered by a Frontier LLM. You know what's funny? What? Is I feel like the product, I could imagine them having a mood board internally with the Pixar lamp hopping around. That's literally listed here as like one of their inspirations apparently. So Tim Cook told employees in an all hands meeting this month that Apple must win an AI and hinted at the upcoming devices the quote the product pipeline which i can't talk about thankfully mark german has his moles and apple that are talking tim cook says it's amazing guys it's amazing some of it you'll see soon some of it will come later but there's a lot to see yeah so apple obviously always is cooking on moonshots very little of it surfaces to mark german and even less actually services you know, publicly via Apple's own channels.

1:17:28Mark Gurman, if you have a little extra time, you should leak Julius's user numbers because Julius has over 2 million users now. They're trusted by folks at Princeton, BCG, Zapier. What analysis do you want to run? It's the AI data analyst that works for you. Connect your data, ask questions in plain English and get insights in seconds. No crowding required. We need to get our logo up there. Yeah. The fourth logo. For sure. There's a lot more. So Apple is planning to put Siri at the center of the device operating system and give it a visual personality to make it feel lifelike. The approach, dubbed Bubbles, is vaguely reminiscent of Clippy, which we are super bullish on.

1:18:05And we think Microsoft should totally bring back Clippy, an animated paperclip from the 90s that served as a virtual assistant in Microsoft Office. Apple has tested making Siri look like an animated version of the Finder logo, the iconic smiley face representing the Mac's file management system. The final decision on its appearance hasn't been made, with designers considering ideas that veer closer to Memoji, the playful characters that represent Apple user accounts. Device prototypes use a roughly seven-inch horizontal display approaching the size of an iPad mini. The motorized arm can extend the display away from the base roughly half a foot in any direction.

1:18:41So that's not going to snap out seven feet across the room. It reaches across and pins you against the fridge. Yeah, I think Apple should be able to nail delivering this in a way that doesn't feel black mirror and dystopia. Oh, that's funny. Sorry. So I actually didn't see this, but there's a quote in here. Some people familiar with the product call it the Pixar lamp. Yep, exactly. I think it could work really, really well. Now they have to be cognizant of the black mirror vibes. That would be very cool. If it could hop off my kitchen table. It can definitely hop around. That's Nat Friedman core.

1:19:15This is doable with modern technology. But the risk is that they they botched it because Apple's had a rough go with the recent marketing and they've had a couple real like backlashes. They had that one where they smashed all the pianos in the press. Do you remember this? So they had a huge hydraulic press and they pressed like an easel with paints and a bunch of paint buckets and pianos and violins and all this stuff. They got a ton of blowback from this. We can try and pull it up. Do you remember this? Yeah, I remember that. People were saying that they're like destroying these timeless pieces.

1:19:54Yeah. And it's just like the thing that I, instruments and stuff like that. Yeah. The thing that I love, you're literally, you're destroying it for this particular, um, shots fired. Bill Bishop from the sub stack stream. You need better guests to talk about China and chips, not just Nvidia partners who are regurgitating Nvidia's talking points. Bill Bishop, get on the stream, call in. We'd love to have you. Bill, Bill, you're welcome. Hop on. Of course. Aaron is riding with Jensen. Yeah. He is a Jensen surrogate. He's a surrogate for Jensen the juggler. The other ad that didn't go as viral and result in major backlash was the launch of the Apple Vision Pro.

1:20:29So when the Apple Vision Pro launched, one of the videos that they showed was of a middle-aged man looking at VR video of his kids. But he was alone in a dark room. And Ben Thompson was like, it feels like he's divorced or something. Or maybe like the kids died. It felt like Minority Report, which is a movie I know you haven't seen. But in Minority Report, Tom Cruise's son goes missing from the pool one day. And he has a virtual 3D video that he plays back and gets very emotional about. And the imagery was very similar in the Apple Vision Pro. But it wasn't an optimistic scenario. It was like, yeah, I guess if my son passed away or got kidnapped, I would want to relive that.

1:21:15but that's not like going to inspire me to buy an Apple Vision Pro. And so with this like Pixar lamp, this robot in your kitchen or in your house, like they really, I think they have to lean into light mode, not dark mode. They have to really be aware and reality check themselves on the black mirror effect because the idea of someone hanging out in their kitchen, being lonely and having this be the only companion that they ever talked to that's a lot less fun than hey we're all cooking together in the kitchen and this is helping us keep track of the ingredients or uh my idea was uh teach it to uh teach it to pour some beers and get it at the fraternity this thing needs to be tending bar at a frat house and inspiring dancing silhouettes like the original ipod commercial in order to be successful get the irobot a stack of red solo cups ASAP.

1:22:14Apple's canceled for fraternity coded marketing. I think, I think that would be amazing if this thing could, if this thing could pour a beer without, without foam, I think they got a winner. Um, because it needs to inject itself into social, even the iPod, like, yes, you could put in the headphones and you could, and you could tune out the world and be that dancing silhouette during the iPod commercial. Um, but also you could say, pass me the aux cord. I want to play a song for my iPod that everyone can enjoy and it's a social experience And so it's important to show both of those sides now more than ever and in in chat gpt demos and any ai product demo There's always going to be the user who who uses the product to be more isolating But the marketing should always be aspirational and pro social just like social media social media It's at its best when we're highlighting the fact that like I have so many friends that just send me a random instagram reel every single day and like that's our interaction and it's and for me it's a way to like check in with a friend and and like share a laugh and share a laugh and and it's a heart and it's a i can i can imagine the ad creative for the apple pixar lamp you know it's sitting on the center of a kitchen island the family's hanging out and they're facetiming somebody exactly yeah uh so one of the family members i can actually imagine us having a pixar lamp here on the table really really it's like yeah it's like you want to be connecting two families or two two two sides of the family the east coast side of the family the west coast side of the family they're both having thanksgiving and they're able to connect but there's everyone's being extremely social do not film this thing uh with the lonely the lonely person uh you know having the pixar lamp be the only thing to keep it company anyway that's my advice uh what else the projects coded linwood in Glenwood.

1:24:01Core to the new home devices and current products like iPhones and iPads is an overhaul to the underpinnings of Siri. Engineers are working on a version code named Linwood with an entirely new brain built around LLMs, the foundation of Gen AI. The goal is to tap into personal data to fulfill queries, an ability that was delayed due to hiccups with the current version. It should be able to do it. They should have a moonshot division just trying to solve iMessage search. They could probably start there. Every tech company is that Amazon search is rough. Google Gmail search is rough. Their search has gotten so like dominated.

1:24:42There's a billion dollar business in figuring out search. I mean, that would be the killer. That might be a killer app for Comet and some of the browsers is just like actually being able to search my Gmail inbox better. That would be pretty fantastic. I feel like it should be at the app layer. Anyway, whatever they're building, they're building products they got to get on linear linear is a purpose-built tool for planning and building products meet the system for modern software development streamline issues projects and product roadmaps open ai is on linear let's get apple on linear let's get the siri team on linear they very well might be already so uh somebody uh craig uh federighi uh who you all know says the work we've done on this end-to-end revamp of siri has given us the result we need it He added that this has put us in a position to not just deliver what we announced, but to deliver a much bigger upgrade than we envisioned.

1:25:34He said there is no project people are taking more seriously. So that is very positive. A final decision hasn't been made on which models will be used, but Apple has been testing Anthropic PBC's Claude for this purpose. Mike Rockwell, the former Vision Pro chief who was put in charge of Siri earlier this year, is overseeing both the Linwood and Glenwood efforts. Hmm. Apparently, so during the development of the tabletop robot, Apple engineers have made heavy use of ChatGPT and Google Gemini to build and test features within Apple AI and Siri teams as a whole. Software developers are increasingly using third party systems as part of their development process.

1:26:14Getting into a ring competitor here. Apple is working on a camera codename J450 designed for home security, detecting people and automating tasks. The device will be battery powered and could last for several months to a year on a single charge. That's interesting. If they can do this for a random home security camera, they can't do it for you. You're telling me they have the capability to have an always on camera. I have the tinfoil hat on. We need the tinfoil hat. The device has facial recognition and infrared sensors to determine who is in a room. Apple believes users will replace cameras throughout their home to help with automation.

1:26:53That could mean turning lights off when someone leaves a room or automatically playing music. So Apple, you're telling me that you can make a home security camera, of which I will purchase multiple and put them around my house, and it will be able to have a single battery that could last for several months to a year on a single charge? And you can't make an iPhone? It's a little bit different. The screen's pretty bright. The screen's bright. But an always on camera? How long do you think your phone battery would last if you just constantly had the camera? I actually think running the camera sensor is a lot less power intensive than running a screen.

1:27:34For sure. And obviously a bunch of different applications. But still, pretty powerful, pretty exciting stuff. I don't think people want an always on iPhone. They want the thrill of charging the iPhone every night. If you're an adrenaline junkie, there's nothing like being on 1 % trying to fire off that last iMessage. You know, I actually had a moment yesterday. My one-year-old is starting to walk. And I had this moment yesterday where I had filmed a video of her walking for about 10 seconds. Everyone in the house is laughing, enjoying the moment. And then my battery died and completely lost the video.

1:28:13because I didn't hit, I didn't hit like end the video. So the battery died right in the middle of this, memory gone forever. There is actually, that has something to do with the encoder. There is a certain file type that you can use when you're filming on one of these cameras that if the battery dies, it will actually save the last of the file. But there's certain, there's certain codecs where if you don't hit finish recording, the whole thing will be corrupted. It's very annoying. We have the debate of the century, the debate of the year, a showdown between former Founders Fund colleagues. Friends turned foes.

1:28:49Friends turned rivals. Everett Randall, he's been on the show before. Delian Asperuhov, he's also been on the show before. They haven't been mincing words, John. They haven't. They have been throwing shots. Yes. Back and forth. Every TBPN appearance. Yes. They're calling the other one out. Yes. And so they will be debating investing strategies. We're going to settle it today on the stream. The Slop vs Steel debate. Which is better, high margin software or CapEx intensive reindustrialization efforts? We will bring in Delian and Everett into the studio. Welcome to the stream. How are you guys doing?

1:29:26I like that background. Very good. Energized. Here we go. We're going to be breaking it down live here. Yeah, we're going to be breaking it down live. Every time one of you gets a point, I'll put a little point. If things get out of hand, we'll be banging the gong and bringing order. like it's a gavel, but I'm sure everyone will be civil. Oh, I'm sure. Keep the name calling to a minimum. Good to have you both. Thanks so much for being here. Let's kick it off. Let's start off. What's your least favorite thing about the other person? You can kick it off with the original story. Like, how did this all start?

1:30:02Yes. Give us some backstory. Yeah. You want to give it? Yep. I'm happy to. So we were back at Founders Fund. we were starting to beef up our like CRM and data science efforts. And so we were integrating some external data into our CRM, figuring out how we could filter opportunities better to each of the investment team professionals. And we were looking and we were looking at the different data. I was like, ah, it'd be really nice if we could filter this by gross margin so that all of the negative gross margin companies that come into our CRM, we could give them all the Dellian because it seems like those are the types of companies that he loves to invest in.

1:30:46The rivalry between the low gross margin side of the house and the high gross margin side of the house was born then. Okay. And Delian, justify why do you like these businesses? What drew you in? Is that even a fair characterization? Fair characterization. I think my sort of one line would be, I'm not sure that gross margin is actually the right thing to focus on in a business, especially early on. What you want to be thinking about is obviously EBITDA margin, in particular terminal EBITDA margin. And so when I think about the founders-found ethos to investing, we think that that terminal EBITDA margin mostly is determined by ultimately how much of a monopoly your company can be in the long term.

1:31:27And so if you look at sort of MAG7 today, obviously there's a decent chunk of them that have some phenomenal gross margins and those tend to be the ones that are a little more software-oriented. If you look at the one that is at the biggest scale and has the best E-Modot margins, it's the one that is the most basically hardware-oriented. For sure, some of it propped up by like CUDA and they're like sort of software side of the house. But like NVIDIA is the one that is performing the best of all of those. And then even if you study within those, which of those companies on the hardware side have monopolies versus sort of not, you see it's the one that with the monopoly clearly outperform the ones that don't, right?

1:31:59So Tesla obviously in that sort of Mag7, but a part of why they suffer much worse margins than an Apple or Nvidia is because they actually do have competition. And so my general characterization of SaaS is people always study their original gross margin, but weren't burdening in the cost of sales, marketing, etc. And because you just have much less of a monopoly typically in SaaS, that ends up totally hurting your EBITDA margin profile. So take the favorite terminal scale thought of as a monopoly SaaS company that, you know, Ev, I'm sure, loves, Salesforce, their market share and all things CRM is 25%.

1:32:36And so that's why you end up seeing, like, yeah, gross margin profiles only burdened by, like, you know, cloud, you know, sort of cost. But their EBITDA margin profile that is, like, you know, sort of 40%. And so, you know, the reason that I like these negative gross margin businesses is, yes, they're, like, tougher to start. They may be more equity intensive at the beginning, but end up with way better, you know, sort of terminal margin profiles versus, you know, Ev loves to, you know, invest in the, you know, AI slopcos that might have early gross margins in revenues, but what's the bull case for for software what's the bull case for sass what's the bull case for ai slopcos look so to to quote the godfather neil neil meta himself the laws of great businesses are the laws of great businesses the job of a business

1:33:20to maximize and find the efficiency frontier for three things roic aka return on invested capital the amount of capital you can actually deploy, and how long you can deploy that amount of capital at and above market ROIC. There's a lot of different framings for the paths to do this and how companies can actually do this. The one that people like in tech circles is Hamilton Hemler's Seven Powers. A company accumulates power in the form of scale economies, network effects, whatever power you want to take, and then uses that power to produce above market ROICs for as long as possible and with as much capital invested in the business as possible.

1:33:56There are great atoms-based businesses that do this. There are terrible atom-based businesses that don't do this. There are great digital businesses that do this. There's terrible digital businesses that don't do this. I mean, you want to hear about great atoms-based business that does this, listen to the acquired pod on Costco. It's certainly not like a atoms versus SaaS thing necessarily. The advantage that digital businesses have is that in this process of producing above market ROIC for a long time is that their product form factor and the way that they distribute their product lends itself more to the process of creating power, I'd argue, than most Atoms-based businesses.

1:34:33So if you think about network effects, the best place to create network effects is in a digital marketplace like an Uber, an Airbnb, or a DoorDash. And so there's a lot of these forms of power that naturally lend themselves to digital products, and the scalability of digital products tends to be a lot greater than physical products. And so you can see these rapid growth trajectories like we're seeing from OpenAI, Anthropic, and many others. When did you guys find common ground? Was it in the e-scooter era, the sort of 15-minute delivery era? Were you ever able to kind of come together and say, like, yeah, we can both agree that this is not it?

1:35:11Or good. I mean, to be fair, Kleiner Perkins, Founders Fund have both invested in Figma, Stripe, Airbnb. There is some portfolio overlap. Rippling, too, right? Rippling as well. There's a couple of Modern Health, I believe, as well. There's a few others. But yeah, to Jordi's point, where else is the common ground and where else is the divide? Or the consensus in the disagreement? I was going to say, I were texting before this of like, what are two companies that I think both of us were enthusiastic about in 2021? That actually both have trended well, but are counterpoints to our two arguments.

1:35:47And the ones that we kind of came up with were, In 2021, I was really high conviction on Hadrian. In 2021, I was super high conviction on Rippling. Both those investments have performed quite well over the last couple of years, but look wildly different in terms of profile. Rippling, like many other SaaS companies, does end up having an initial very high gross margin, but does still have to spend a lot on sales and marketing to bring in net new customers. Hadrian, on the flip side, deeply negative gross margin to start, but now as they've gotten to scale, they actually have like super limited, you know, sort of sales and marketing spend because there's only like, you know, 10, 15 customers that matter.

1:36:24And the moment that you're delivering for them, they just proactively start, you know, sort of throwing revenue, you know, at you. And so, you know, I think there are times where, you know, both of our, you know, stories obviously, you can play out. The thing that I'd be curious to hear from, you know, sort of average is to actually like compare and contrast, you know, you're bringing up, you know, some of these digital businesses, you know, that end up having these, you know, network effects. I would kind of argue that like, you know, the like 2010s negative gross margin businesses, like, you know, the like Uber, DoorDash, you know, you know, types I think of as more as like, you know, Adams businesses.

1:36:53But there was a whole set of investors in like the mid 2010s that were generally unwilling to approach both Adams based businesses that started with negative gross margin, but even some of these local marketplaces that started with negative gross margin that they swore off of the Ubers, the DoorDashes, etc. You know, it's very clear that Uber, DoorDash through, you know, lots of investment through building out these local, you know, certain networks of, you know, both supply and demand were able to and, you know, drivers were able to eventually get to a point where now they actually have very attractive sort of financial profiles.

1:37:22Today, the equivalent of that is like there's all these investors that back in the 2010s would have refused to invest into any company that had negative gross margin and are all now pouring cash into both the like AI application layer companies and the like, you know, foundation models that all have like ridiculously, I mean, I forget, I think it's girly is nonstop, you know, not my favorite person in the world, but girly is nonstop talking about like, you know, what is going on here? They're selling a buck for 90 cents. So I think I think it's an important example because you had that, you know, plenty of examples of these chained losses during that that era where a restaurant was selling something below cost to a platform that was selling something below cost to a logistics provider, an individual contractor that like maybe wasn't actually making money if you factored in depreciation and fuel costs of their vehicle.

1:38:07And that ultimately worked out, right? DoorDash is a massive, fantastic business based on the power of the American consumer. But when you compare that to today, where a lot of the conversation on the timeline this week has been the margin profile of this new generation of software companies that has to pay a lot for sales and marketing, but also inference. And so I think like the debate should really be, you know, continue to be around just how quickly will the cost per token fall. And I think a lot of people have a lot of confidence around that. But I think that that is the key thing that Everett's sort of like broad investment thesis right now is dependent on.

1:38:53Yeah, do you think there's going to be that same path of like Uber for a while had a bunch of negative gross margin people going into it? like, do you actually think that it could win? I want to pull this post up. Everett actually posted this in January 31 of 2024. So over 18 months ago, he said, I'm making a real effort to not take for granted the$3 Uber across town era of AI. And I hope you are too. And so I guess the question is, and it's funny because then a bunch of people, I thought it was a good point. I thought it was a hot take then. And I think then, you know, a bunch of people kind of parroted that take all over the timeline.

1:39:28Stole your whole flow, as you like to say. But I guess the question is, are we in some sort of different regime right now where the traditional gravity and fundamentals of software investing have changed because we are out of the zero marginal cost era? And does that impose risks to the strategy that you've sort of employed or we're kind of putting you in this box? But if the fundamental structure of zero marginal cost era is going away, that presumably forces like a rewrite of your logic around investing, I would imagine. Yeah, I think that the biggest variable that's changed from the 2010s SaaS era to today is that in the 2010s, and you basically made this point without making it, Delian, though, is that the thing that was missing from your talk track is that the competitive intensity of SaaS during the 2010s was much, much, much lower than it is today.

1:40:25Yeah. Like during the 2010s, there was an entire crop of companies in the 2000s. But then especially in the 2010s, you could basically pick either a vertical segment, you know, like HVAC or car dealerships, or you could do a horizontal function like the CRM or, you know, some very niche workflow for like the finance team. you could build a software product around that workflow, around that vertical, and you really only had to deal with typically like two to three competitors. Like there really wasn't that much competition relative to what there is today. And there was less just like general pricing pressure, competitive pressure, just the general pressure that you actually had a lot with some of the digital marketplaces early on.

1:41:07And so like I think there was a whole crop of investors then, and like the SaaS investors then, were like, well, we don't need a bunch of cash burn. And it's actually, it's a really unhealthy indicator if these SaaS companies are producing a bunch of burn because they're not competing with anybody. So if they can't like sell their product for good unit economics on day one, when the competitive intensity isn't very high, then they're probably not a very good business. I think the thing that's changed now is one, you have the change from zero marginal cost to actual meaningful marginal cost in the form of inference.

1:41:37And it's also just a hell of a lot more competitive than it used to be. And so you are. And by the way, there's an immense, it was probably 10x more capital than there was 15 years ago to go into these companies. And so like every single category now has become like mini ride share or like mini Uber market where it's like, hey, there's probably a really big pot of gold at the end of the tunnel. And we need to be the ones that get first to scale. And in a lot of these categories, the ones that have gotten first to scale have gotten a lot of brand equity out of it and have gotten a pretty resounding lead.

1:42:09I think the only other piece I would say, I lost my train of thought. So yeah, yeah. But it's going to be basically it's going to be like a capital fight now on the on the SaaS side. I wonder if if if the contrarian trade around hard tech is is is entering a similar era where it's become consensus. And so we're going to see more capital fights. And when a founder goes out and says, yeah, I'm going to do something crazy, but I need to spend a billion dollars of CapEx. People are just like, yeah, this could be the next base. It made sense to have a capital war in rideshare. But now we have a capital war in like this niche agentic workflow in some industry that most people have never heard of.

1:42:46And then also a capital war for military boats and UAS and UAP. All these different sub segments are going to wind up. If capital wars start popping up there, that could potentially be a headwind to Dellian's model. Is that roughly correct? How would you fight back against that? Look, I think it's always important to talk about specifics here. One of EVE's major investments in the last year is this company called Captions that basically does AI captioning of various videos on social media. When I think about handing two Stanford grads and$100 million to go try and replicate that, yeah, it feels like they could go do something like that.

1:43:27There's clear voice recognition models. They can go pay on ads on TikTok, et cetera, and you could probably go and replicate that. And so our one-liner at Founders Fund is competition is for losers. And so I think I was a loser for investing in people. The shower thing wasn't spicy enough, and you just delivered, Delia, so thank you. Now, if you take two Stanford grads and$200 million and tell them, hey, I need you to go replicate this manufacturing facility and go start building a bunch of satellites, reentry vehicles, bioreactors that can actually survive the environment of space. Most Stanford grads can't go ask ChatGPT how to go do that.

1:44:07Yet. Yet. But I haven't really faced significant competition irrespective of the fact that all things space factories are thought to be sort of the hot new thing. To be clear, we use captions here on Clips. We enjoy the captions app. We thank Ev for making it possible and subsidizing our tokens. And there is a Varda-esque YC company. So they're coming for you. Indian Varda, I think, will be a little bit less competitive than Indian captions. Also, if you're the captions CEO and Founders Fund is trying to invest in your next round, please still let us do that. That's a helpful counterpoint for me.

1:44:42Delian, you were correct that it was getting too friendly of a debate. I did want to make sure I could pin this one on you. If you can recite the equation for a return on invested capital, I will say victory to you and I will donate$5 ,000 to a charity of your choice. Whoa, let's go. Hopefully he's got Cluelay running. Yeah, you have Cluelay running. Exactly. My equivalent for Everett will be if you can explain basically why you can't create microgravity down here on Earth, I will also donate$5 ,000 to a charity of your choice. But I may not have the basic understanding of business physics, but you don't have to make this understanding of physics, and one's more important about understanding the universe around you.

1:45:20I mean, I'm pretty fixated on the 2035 Midas list. That's really kind of the final. That's this. Have you been on the brink yet, or I forget whether or not you've made it up there. Oh, taking shots. Not even on the brink yet. Lee Marie joins KP after you, and she beats you. He's laughing me. It's okay. It's okay. Eventually, we're going to bring back the extra names in Kleiner Perkins. It used to be Kleiner Perkins, Caulfield, Byers. It's going to be Kleiner Perkins, Randall Braswell eventually. We're working on it. We're working on it. We're pitching it. Where should we go next, Jordy? I guess, Everett, how much should people be fixated on the cost per token with these frontier models over the next six months?

1:46:10Like how long can can venture capital sort of like backstop these chain losses? Yeah, I think that the way to delineate the whole. So obviously, like I think there was this kind of consensus narrative that like every, you know, 12 to 18 months token costs were going down in order of magnitude. And I think that did hold for a while. I think what you've seen now is like actually for frontier models that started to peter out a bit and like pricing has actually started. It's still going down. It's not going down nearly as much as it used to when we were kind of in the meat of the curve of capability improvements on Frontier LLMs in terms of pricing curve.

1:46:50So I think that the way that you want to delineate it is like there's a certain like what I always tell everyone is that like there hasn't been a chat GPT query since GPT-4 that like my mom hasn't been able to ask and have it answered by the model. So there's like the mom test of models where like there's a growing subset of tasks like economic or knowledge tasks that the models are tasked to do that no longer need frontier intelligence. And when you're not on the frontier, either through open source or just like the cheapening and distilling of older models, like the price still falls off a cliff.

1:47:23There's going to be a very, very large set of tasks that models do that are not on the frontier and those are going to continue to get dirt cheap. I actually think that at the frontier you're probably going to see continued price decreases on a per token basis, but nowhere near what you saw before, which was like this order of magnitude decrease on a very regular cadence. And so I think for like depending on the company, it's going to depend on one, if you've actually built a company that has enough power where you have pricing power where you can price above the kind of marginal token price from the actual model providers.

1:47:55And then two, like how much of your inference actually needs to be at the frontier? Like how much of your inference can be an older model that's much, much cheaper versus how much do you need to do on the actual frontier? I think that's what you're seeing. Like, you know, everyone loves to talk about Cursor and Chris Peck over at Pace Capital had this really great kind of like mini essay. I think only like last night or a couple of nights ago. And he talked about like no one knows if Cursor has power yet because, you know, coders and developers, they're very, very like they're tastemakers. They're very good at understanding the quality of the models and how much inference they're getting.

1:48:26And there's a lot of price sensitivity for them because they have a really good understanding of how much inference they're getting. And so no one really knows. I think no one can definitively say whether a lot of those types of companies have actual power with their users or if they're just drawn to an interface for frontier models or not. And so I think that's what everyone needs to be looking out for is those two things. Like, do you actually have power? Like, will people give you margin above the marginal cost of tokens? And then two, like, do you even need the frontier inference for the vast majority of your product?

1:48:54or is there a lot that you can offload to cheaper models? Yeah, I mean, I guess your counter, you said there, Everett, is that a majority of what the foundation models are providing in terms of the value to their own users is starting to be obviated by the historical generation, even some of the ones that are open source. So it seemed to imply that where value is accruing and where you'd expect the highest revenue growth wouldn't necessarily be at the foundation layer, but you'd see it more at the application layer since those folks can swap models out. But like in reality, that's like literally just not what actually is happening.

1:49:26Like if you look at which companies are sort of fastest on user revenue growth, user growth, et cetera, it is the foundation model companies. It seems like a part of it is that they also have sort of the most pricing power where, yes, your mom uses GPT-4. But like she's not the one that's necessarily paying like$100,$1 ,000,$10 ,000 per month versus the true frontier capabilities on like AI coding, the pro users, the one that actually do care about. maybe your mom is fine with 115 IQ model and that's fine for the rest of her life because she's just not asking it that difficult of questions versus the people that actually are willing to pay are the ones that actually do care about the 140, 160, 180 IQ.

1:50:04Again, maybe at some point that gets commoditized as well. But my counter to you would be, you've made this argument that it seems to imply, hey, things will accrue to the AI application layer, which if I understand your guys' portfolio is largely where you guys invested. But in reality, that's not what's played out. The places that have captured the most revenue growth, the most market share have been the ones that are actually pushing the true frontier of the technology forward. And so, so far, at least in the last 18 months, your thesis is not playing out at all. Well, to be clear, isn't it somewhat widely understood that Anthropic has negative gross margins as well?

1:50:39So it's not like they're doing... Like Ev's point was that you want to invest in these companies that have the seven powers and in the days of Uber, DoorDash, et cetera, that did end up user translating. It seems like NVIDIA has the most power, then the foundation, ModelLabs, maybe then the application layer. We'll see how much power develops in the application layer, but we'll let you respond. Oh, yeah, I was going to say that basically what Delian said was just wrong because even though it is, even though like if you think about, okay, like let's take like whatever OpenAI and Anthropics recently reported revenue run rate is, the majority of all of that, or at least the plurality of all of that is ChatGPT.

1:51:15And ChatGPT, even though it is served by a foundation model company, is an application. It is a consumer subscription that has an immense amount of power. It has an immense amount of branding. It is the first billion-plus user consumer application that's been developed by a new company in a really long time. And so I think that you could put whatever models you wanted through ChatGPT at this point, and it would not knock it off of its perch. I think that is power. Like you could run Cloud3 Sonnet through ChatGPT and I guarantee people, like the average user wouldn't actually know the difference.

1:51:48And that to me is power. And just because the foundation model companies are producing apps themselves doesn't mean that it's not the application layer that is accruing the value. Okay, then my question is, you know, you've got opening eye with the best possible consumer application layer. You've got Anthropic that like shifted over to positive gross margins and those margins are expanding. And yet, Clienter is not investing into either of those foundation model companies. Why? I cannot comment on our current investment activities. Okay. Switching gears. Switch to my talent. I mean, look, do you like making money or do you like, you know, all the competition.

1:52:24Can you comment on Donald Boat? Have either of you bought anything for Donald Boat, the notorious e-beggar on X.com, the everything app? Like my little brother, you know, played the Uno reverse card and tried to get Donald Boat to buy him something. Smart. Yeah, you know, let's talk about revenue quality, because I think that you guys run into this in your respective domains every single day. Just like in AI, you can have low quality revenue like that might be the explosion of like consumer prompt to app activity, you know, might not be the highest quality revenue. revenue. Meanwhile, on the hard tech side, if somebody gets like a random, like Sibber or like experimental gets like experimental budget from some branch of the military, and it's like a fine, you know, fixed length contract, it's not necessarily the right strategy to slap like a 50x revenue multiple on it.

1:53:20So like, what's your view on both of those? And then I want to talk about if we should get into if accounting rules even matter. Yeah, for sure. Yeah, I mean, in hardware land, we think about this all the time of like, there's clear differences in quality of revenue, everything from like, you know, defense, you know, program of record, you have to value that very differently than even like a$50 million, you know, SBIR. And so it has been interesting to see a bunch of investors coming into this field where I think there's a lot of pre existing 10 years of rules around software of like, what, you know, healthy revenue looks like rule 40, there's all these things that like, you know, even if you're somewhat unsophisticated, infinite blog posts, when you look at that in the world of like hardware and defense, you know, sort of investing or aerospace, there aren't like infinite blog posts for people to study.

1:54:03And so I admit that I'm sometimes amazed when I watch people come in, even for, I should never, you know, sort of trash my own portfolio, but sometimes even my own portfolio companies, I watch people invest in them. And I'm like, wow, like you just have a deep underappreciation for just like how long this company has until gross margin flips to like positive, how long it's going to be until they're actually, you know, sort of ready to, you know, go scale revenue, even if it on the back end, it might be attractive. It may be years and years for them to, you know, sort of get there. And so, yeah, I see huge variation on that.

1:54:30And then mostly what I end up seeing is people just come in and slap a 10. I even saw 100x rev rate multiple on this hardware company recently. And I was like, holy shit. Wow. People not having IRR for a long time. Yeah, I think so Delian's hero and close mentor, Bill Gurley, had an essay a long time ago called the 10x Revenue Club. And I think it's like a good abstraction for kind of like tech revenue quality and like what makes up revenue quality. And it's things like, you know, how durable is the revenue? Like if you sign a customer, are they going to stay for a year or 20 years? You know, how much contribution profit is going to come off of that revenue stream over time?

1:55:10All the basics. And I think you can like take those same building blocks and apply it to AI. I think there's several things that are worse for AI than at least than relative to SaaS for now. So generally gross, like gross margins are lower, which means contribution profit coming off is lower. Or I actually think that depending on the category, you could have customers that are more sticky or less sticky. I know the meme is that everything's experimental run rate and none of these customers are actually sticky. I think we see something very, very different among our group of portfolio companies.

1:55:38I think that the biggest lever that didn't exist in SaaS, that exists in AI, that could be a huge call option boon for the revenue quality of AI, is the actual contract sizes as people start to eat into potential labor budgets. I know this is still kind of like inning one and inning two, and it's also like a little bit of a meme where everyone's like, oh, it's going to replace labor, and labor's 10 times SaaS, and it hasn't really happened yet. But I think if you look at some of these coding tools and you look at something like CloudCode, that is the first place where you can really actually say, no, this is replacing the labor that a developer would do, and it is paid for on a metered consumption basis.

1:56:11and the monetization numbers we're hearing around developers using cloud code are pretty crazy in terms of like wow that's like you're paying like one tenth of like a developer's full-end cost to a company on an annualized basis for this product and so i think that the like the the thing to watch is like durability of revenue plus the amount of actual revenue that a customer can give you and i think that you're going to end up or the amount of gross profit that a customer can contribute over time and i do think as some customers crack these agentic products that look and monetize more like labor, AI revenue could actually exceed the quality of SaaS revenue just because you're getting so much more gross profit per customer or customer relationship than you would on the SaaS side, even though there are clearly things that are worse about AI revenue at this current point in time than there are about SaaS revenue.

1:56:55Dillian, how do you think about the moral imperative of a venture capitalist to invest in positive sum versus zero sum markets? It's this idea that you're re-industrializing America. You're saving the West versus moving chips around the poker table, taking from some legacy Web 1.0 company and putting it into an AI company. What's your thinking and argument there? Is a market-beating ROIC all that you need? Yeah, I think Peter always reminds us our number one job is to deliver returns for our LPs. And so I actually tend to not try to, you know, sort of overly moralize when like analyzing the things that I want to invest into.

1:57:43For sure, when it comes into like policy and I'm in D.C. and I like need to, you know, sort of report to, you know, the Security Council that, you know, Bill Gurley is a sort of Chinese spy. And like the investments that he's making should probably be banned from the United States. Yeah, for sure there I have sort of moral imperatives and things that influence that may end up, you know, shifting ROIC, right? But when it comes to which literal investments are we making, I think of it as just like, yeah, you just have to make the best possible investments irrespective of moral imperatives. But in some ways, I tend to think it turns out actually if you go too immoral, then that ends up affecting ROIC.

1:58:19So the last thing that I would at least sort of close on for my question for Everett is one of the upsides of Founders Fund is we're very sort of, let's say, non -centralized, distributed, not many sort of rules, which Everett for some reason chose to leave. And so I know nowadays everything that he says publicly, probably five comms people and five compliance people that need to sort of approve it. And so my only request to you is to blink twice if somebody's got a gun behind the camera. Threatening to shoot you if you never say anything that goes through off script. That's all you got to tell us, brother.

1:58:58Let us know. Hey, our wonderful marketing partner, Allie, is behind the camera with a green and red paddle. And she hasn't raised the red paddle yet. That's great. Well, thank you both for joining us. Last question. Are you worried about Uncle Sam potentially having sharp elbows now that we're hearing about the federal government? taking a stake in Intel? Any concerns about him going down the stack into the early stage game competing for those seed and Series A allocations? Look, if Trump Capital wants to mark up some of the re-industrialization companies, I'm all for it, baby. Cheap cost of capital.

1:59:34You're all for it. I'll say two things. I'd say, one, I think that the EV, like the enterprise value of Founders Fund, probably 3x the night that Trump got elected. So I don't think Delian would complain about that. And then two, as a parting gift, Delian, you know I think this conversation's been great and it's made me realize why you want to build factories in space because your math on earth doesn't make any sense well thank you both for joining this is fantastic you're both good sports we'll have to do this again I think it might be a draw we'll have to have you both back soon thanks so much for hopping on great stuff we'll see you guys later cheers