Tencent

We close out Season 3 and our China mini-series with a monster episode on Tencent, the Shenzhen-based social networking and entertainment powerhouse. We dive deep into the story of Pony Ma and his cofounders’ incredible journey from making software for pagers(!) to QQ, WeChat, League of Legends, Fortnite, Snapchat and even Tesla. This is one finale you don’t want to miss! Sponsors: Vanta: https://bit.ly/acquiredvantaServiceNow: https://bit.ly/acquiredservicenow26Legora: https://bit.ly/acquiredlegoraStatsig: https://bit.ly/acquiredstatsig26 More Acquired! Get email updates https://www.acquired.fm/email with hints on next episode and follow-ups from recent episodesJoin the Slack http://acquired.fm/slackSubscribe to ACQ2 https://pod.link/acquiredlpMerch Store https://www.acquired.fm/store! © Copyright 2015-2026 ACQ, LLC Carve Outs: Ben: President Obama’s OG podcast! https://bit.ly/2BqXxHJDavid: Kara Swisher’s interview with the Google Walkout organizers: https://bit.ly/2RwuskZDavid (bonus!): Allen Iverson on the Players’ Tribune: https://bit.ly/2EkrRHQ

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Ben Gilbert?

  Also, I did have Tesla that they invested in Tesla and I have one other that is kind of surprising that they own a good bit of or owned a good bit of.

• 0:10David Rosenthal?

  Excellent.

• 0:11Ben Gilbert?

  Do you know that one?

• 0:13David Rosenthal?

  Snap?

• 0:14Ben Gilbert?

  Snap.

• 0:15David Rosenthal?

  Yeah, oh yeah, there's.

• 0:17Ben Gilbert?

  Tencent is everywhere.

• 0:30Ben Gilbert?

  Welcome to season three, episode 10 of Acquired, the show about technology acquisitions and IPOs. I'm Ben Gilbert.

• 0:38David Rosenthal?

  I'm David Rosenthal.

• 0:40Ben Gilbert?

  And we are your hosts. Today, we are covering a company that Wikipedia describes as a Chinese multinational investment holding conglomerate founded in 1998. Of course, this is Tencent.

• 0:52David Rosenthal?

  All of that and so much more. All that and a bag of chips.

• 0:56Ben Gilbert?

  And a bag of chips.

• 0:57David Rosenthal?

  And a 12% steak in Snap.

• 1:00Ben Gilbert?

  David.

• 1:00David Rosenthal?

  We'll get to that later.

• 1:01Ben Gilbert?

  Spoilers. Well, so what is Tencent besides that very long definition that feels conglomerate? Well, first off, they're notoriously bad at PR and they actually talk about this as a company. You probably don't have them in your mind as one of the world's most important companies unless you're in gaming or maybe social media. So, starting off with that first, Tencent is the world's largest gaming company. They're a game publisher and they take most of their money from games. It's where they make most money as a company, but they certainly didn't start this way and we'll dig into that in a minute. Tencent rivals Facebook for the world's largest social networking company by market cap. It is

• 1:40Ben Gilbert?

  the world's largest music service that actually IPO'd this week with over 800 million monthly active users. That music company that just IPO'd on the New York Stock Exchange on its own has a $21 billion market cap, of which Tencent owns most of it. I think they raised like $1.1 billion in their IPO. So, you know, just a little blip on the radar of all that is Tencent. Last year, at one point before their stock fell, it had a market cap of half a trillion US dollars. In this year's WPP brand rankings, it has the fifth largest brand in the world, even ahead of Facebook, David.

• 2:21David Rosenthal?

  Well, the brand stock in one of those is falling right now. The other is, I don't know if it's rising, but it's not falling as much. But this company is a juggernaut and I could think of no better way to to wrap up not only our China mini series, but all of season three. There's going to be so much back and forth through this episode between Alibaba and its founder Jack Ma and here now Tencent and its founder Pony Ma. They're they're very different, as are their companies, as we shall see.

• 2:51Ben Gilbert?

  Well, listeners, we wanted to let you all know about our latest limited partner bonus show topic. So last week on the LP show, the topic was the art of pitching your company for investment and how to craft the narrative. So we had a blast doing this. We got to share a bunch of personal experiences. Super fun, David, to be able to kind of branch off of the the standard format and dive into topics like this. If you want to listen, you can become a limited partner by clicking the link in the show notes or going to kimberlite.fm/ acquired, which is of course also on our website, acquired.fm, along with our Slack.

• 3:26David Rosenthal?

  We we're turning into Tencent. We have a we are a media empire of properties here.

• 3:32Ben Gilbert?

  My gosh, I know. I know we got us, we got to start sub brands. We need a WeChat to our QQ.

• 3:38David Rosenthal?

  Yeah. Or maybe a Penguin mascot. All right.

• 3:44Ben Gilbert?

  All right, listeners, now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture. It used to be that you proved that you were secure once a year on audit or a static PDF, then everyone would nod and you're done. But in an AI-first world, that doesn't hold up anymore.

• 4:03David Rosenthal?

  Yep. Your risk surface changes every week now. A vendor turns on an AI feature or someone writes in a new model without telling IT and your posture is different than it was last week, let alone at your last audit. Vanta's own research found that around 70% of companies have this quote unquote shadow AI running with no security review at all.

• 4:24Ben Gilbert?

  Right. And that's where Vanta comes in. They're the leading agentic trust platform, meaning they've built the thing that closes the gap. And the way that they close that gap is Vanta Agent. Think of it as a GRC engineer, that's governance, risk and compliance, except that it's software and it doesn't sleep. It finds the issues, drafts the fixes and cuts the time that you'd spend on vendor assessments in half.

• 4:45David Rosenthal?

  In half. Which is exactly why more than 16,000 companies today run on Vanta. Companies like Ramp, Cursor and Snowflake all stay audit ready and catch the risks that crop up between audits across every vendor, every AI tool, the whole environment.

• 5:04Ben Gilbert?

  And that's the real value. Trust has to be continuous now, which is why Vanta automates your security, your compliance and the work to earn and prove trust. We're huge fans of Vanta over here and literally hundreds of acquired listeners have become Vanta customers at their companies over the years. So you can get $1,000 off Vanta at vanta.com/acquired. That's V A N T A dot com slash acquired for $1,000 off and just tell them that Ben and David sent you. Well, before we dive in, David, I think we have a little bit of follow up from the Netflix episode.

• 5:36David Rosenthal?

  Do we have a glaring omission from our Netflix two parter?

• 5:42Ben Gilbert?

  So do you, do you want to do it?

• 5:45David Rosenthal?

  We're keeping everybody in suspense here. One of the coolest things about our, our little mini Netflix series was learning about the, the spin outs from, from the company, of course, of Redbox and, and Roku. And several listeners wrote us after they listened to part two and said, guys, I was waiting for the third spin out, quote unquote, quasi spin out, and, and it never came.

• 6:11Ben Gilbert?

  Not, not in the shareholder perspective, but in the people that left and were instrumental in building Netflix and now we're building something else.

• 6:18David Rosenthal?

  And building something else. And of course, we were totally remiss. MoviePass, how could we have missed it? Only like the, the meme, the company everybody loved to love and hate on in 2018 was founded and is run by Mitch Lowe, who

• 6:35Ben Gilbert?

  The one and only.

• 6:36David Rosenthal?

  The one and only, not only original Netflix executive, but then Redbox president and now CEO and founder of MoviePass, embattled MoviePass.

• 6:46Ben Gilbert?

  His founding just keep getting worse and worse. So I'm thinking maybe this, this should be the last one.

• 6:54David Rosenthal?

  Hey, products market fit. I mean, customer demand is there.

• 6:58Ben Gilbert?

  Yes, yes. Boy, you can sell dimes for nickels at insane rates.

• 7:06David Rosenthal?

  Insane rates, insane rates. So we apologize for leaving that fun bit out of the history and facts for Netflix, but I wanted to make sure to include it in the follow-up.

• 7:16Ben Gilbert?

  All right. So is it time?

• 7:18David Rosenthal?

  I think it's time. Let's get into Tencent.

• 7:23Ben Gilbert?

  Yeah, I think, starting with a couple of thank yous to really great sources that we found for the episode and actually some from listeners.

• 7:30David Rosenthal?

  I have three thank yous in particular I want to throw out. First to Bernard Liang in the Slack, in the acquired Slack, who is the host of the Analyze Asia podcast. Also a great show, recommend, especially if you've enjoyed our China mini-series, that you go listen to it. So he wrote us after we said, and we released an episode of our LP show last week, and in it, we said we were going to be covering Tencent today. And he said, you really gave us a couple podcasts to listen to. Also said the canonical book on Tencent is called Tencent Story. It's by Xiaobo Wu. Unfortunately, it's only in Chinese, but fortunately,

• 8:12David Rosenthal?

  we were able to find an English language summary on Medium by Julia Wu. So huge thank you to Bernard, to Xiaobo for writing the book, and then to Julia for writing a really excellent English language summary, which we will link to in the show notes.

• 8:28Ben Gilbert?

  Then lastly, on my end, the China Econ Talk podcast had a great episode with Matt Brennan, who's a WeChat expert and analyst. He was a guest on the show and just gave an unbelievable sort of blow-by-blow history of the development of WeChat, which contributed to the research for today. And lastly, friend of the show Brad Stone did an awesome piece in Bloomberg Business Week on Tencent this past June. We gotta, we have Brad back on for another show at some point, David, because he's A+.

• 8:56David Rosenthal?

  He is a plus. All right. So with all that, let's dive in. So before we get to Tencent and its founder Pony Ma, I think it helps a little bit like Netflix to talk about the geographical place where Tencent is located, and that is the city of Shenzhen, which is probably familiar to, I would assume, all listeners of the show at this point, the quote unquote Silicon Valley of China.

• 9:26Ben Gilbert?

  Yeah, anyone who's had an iPhone shipped to them have probably seen this on their tracking.

• 9:33David Rosenthal?

  So in the China mini-series this season, we covered Xiaomi, which is based in Beijing. Baidu is based in Beijing. We haven't covered Baidu yet. We covered Alibaba, which is based in Hangzhou. But this is our first Shenzhen company. So what's so special about Shenzhen? And why is it the Silicon Valley of China? So it's in the south of China. It's a very southern part of the country. It's part of the Pearl River Delta region, named Regional Economic Zone. It is located right across the Bay of Shenzhen from Hong Kong. So this is super important. The history is really interesting. So before the post-Mao reforms in China and the kind of opening up of China and introduction of the capitalist market

• 10:16David Rosenthal?

  system, the legend is that Shenzhen was just a fishing village. It was a little more than that. It was a market town, but it was very small and fishing was one of the main industries there. The city itself had about 30,000 people. And during the Cultural Revolution, when things were really bad in China, people would go out to fish and they would just keep going in their boats and they'd go right across the bay to Hong Kong, which of course was a British protectorate at the time and never come back. Some people would even jump in the bay and physically swim across. It was right on the border of kind of like the east and west and capitalist and Chinese Communist Party in the 60s and 70s. But after Mao, during the reforms, of course, Deng Xiaoping takes over the party and he starts, you know, this is...

• 11:01David Rosenthal?

  Probably the most radical transformation in world history, introducing capitalism to China. He calls it socialism with Chinese characteristics. You could argue this leads directly to a choir doing this mini series, which is the most important outcome of all. Of course, we jest. So Deng, when he wants to introduce capitalism, he wants to do it very, very slowly and in specific areas. And he picks Shenzhen as the first area where capitalism is going to be introduced in China.

• 11:31Ben Gilbert?

  This is so special. Like, think about if we tried to do that in the United States, like, well, we're going to change the economic structure, but we're only going to do it in this state.

• 11:40David Rosenthal?

  In one city. It is only going to happen in San Jose or Bellevue. Like, that is the equivalent here.

• 11:48Ben Gilbert?

  It's pretty crazy.

• 11:49David Rosenthal?

  Yeah, I mean, it literally is like, if you're familiar with the Seattle area geography, it's like Bellevue, right? Like, there was Seattle, Hong Kong, and then across, you know, a body of water, there is Shenzhen. And so it becomes the first special economic zone where capitalism and the free market is not only allowed, but encouraged now by the government. And Deng has this famous quote about this, where his concept is, let some people get rich first. And that will kind of draw the rest of the country along. And that's what starts Shenzhen on the path from a 30,000 person kind of market and fishing village to, you know, people start flocking there from all over the country. First, importing and exporting becomes a huge business there from Hong Kong and across the bay. It's now one of the busiest container ports in the world.

• 12:34David Rosenthal?

  Then manufacturing, obviously, which lots of people know about. And of course, now, high tech. So today, there are over 12 million people that live in Shenzhen proper. And then the Pearl River Delta region, which I think has about nine cities around it, it's all one continuous urban area, has 60 million people. It's the largest continuous urban region in the world, which is nuts. It's like if you took all of California and you condensed it into like the Bay Area, or maybe the Los Angeles area is probably more comparable. It's great. So this is the soil that Tencent gets planted in. So in 19- Seventy one, a boy named Ma Hua Ten is born in a small city in the province of Hainan,

• 13:19David Rosenthal?

  which is an island south of Shenzhen in Hong Kong. It is the southernmost Chinese province. He eventually adopts the English name Pony, uh, which is a reference to his last name Ma, which means horse. So he is Pony Horse. And when he's 13, uh, in 1984, his father gets a job as part of this great, you know, uh, rise of Shenzhen, gets a job as a port manager, uh, at a shipping facility in Shenzhen, and they move there. Now Ma is super precocious. He's like a great student, totally excels at everything. He graduates from high school in 1989. He does knocks it out of the park like for, I don't know if he was technically first in his class, but like top of his class in his college entrance exams.

• 14:02David Rosenthal?

  He could go wherever he wants, but he and his parents choose for him to stay at home and go to Shenzhen University instead of going elsewhere to better schools in the country. Um, because this is 1989 and if you know your Chinese history, there's something else going on in 1989, which is the student protests and unrests. And, um, they decided it's better for him to stay at home and stay in the special economic zone. So he goes to Shenzhen University, but again, he's super precocious. He, he majors in computer science. Uh, apparently he originally wanted to be an astronomer, um, but that wasn't offered at Shenzhen. So, uh, everybody, uh, the, the sort of talk of the town is that, uh, just like Jeff Bezos and Elon Musk, we might see Pony as he moves into the kind of second phase of his life,

• 14:45David Rosenthal?

  get into, um, space and rockets and, uh, be a Chinese, uh, uh, version of these, uh, US tech billionaires that get into space.

• 14:55Ben Gilbert?

  Wouldn't surprise me. He's already, he's moved million or I think billions of dollars into his, uh, private philanthropic work, so.

• 15:02David Rosenthal?

  Yeah. So instead, he studies computer science. And while he's in school, he develops a little app. And this company that he's interning for, Li Ming, ends up buying this side project of his for 50,000 RMB, which is like three or four years' worth of salary of a new college grad at the time.

• 15:22Ben Gilbert?

  Not a bad way to enter the workforce.

• 15:24David Rosenthal?

  Contrast him already with Jack Ma, who's like, doesn't do well at math. There was nothing about technology and can't code and is like making a living as an English teacher. He's already sold his first company. He's still in college.

• 15:38Ben Gilbert?

  And Jack Ma, I don't think he'd already done this by this point. But another interesting contrast is was obsessed with Western society and ended up spending a lot of time in the United States. Pony Ma does none of this. I don't think he'd ever visited the US or gone to Europe. Doesn't speak English.

• 15:56David Rosenthal?

  So he graduates, a bunch of his friends who are also at the top of his class kind of want to stay and go on to graduate degrees. But Pony is like, no, I want to get out into the working world. I've already sold, you know, kind of my first project. I want to go make an impact and build things that people use. So he goes and he works for a company called Shenzhen Runshen Communications. I may be butchering that, but that's his first job. And he works in R and D and they're sort of like a telecom company. And so he's working in all sorts of advanced tech. One of the main things that they do is they make technology for pagers. Pagers are like really big in China at this point in time. They're big everywhere, but especially in China where like PCs aren't really a thing yet.

• 16:39David Rosenthal?

  Like lots of people are using pagers to communicate. And so that's kind of his first taste of like communications tech. Again, remember, Jack Ma, he has to like go on this crazy trip to the US to get exposed to the internet. Pony is getting exposed to it through his work. So he's one of the very, very few people in China that like, even though the internet is a thing, let alone have access to it. So he gets really deep in the early BBSs on the internet, like the bulletin board systems. And amazingly, a whole bunch of Chinese entrepreneurs come Out of this. So like, again, the only people who have access here are like people who are super geeks working at tech and communications companies in China. So Lei Jun, the founder

• 17:23David Rosenthal?

  who of Xiaomi and the previous CEO of Kingsoft, who we discussed in our Xiaomi episode, he's on there on the bulletin board systems. Pony's hanging out with him. Also Ding Lei, who would go on to start NetEase, which is another huge Chinese portal that we've talked about on the Alibaba episode. He's there as well. And so all these guys, they're all like, starting companies as they see the internet company.

• 17:45Ben Gilbert?

  Is there like a future billionaires BBS that they all sort of hang out on?

• 17:49David Rosenthal?

  Totally. Talking about what planes they're gonna buy, you know, how many rockets they're gonna build.

• 17:55Ben Gilbert?

  19,000 square foot homes.

• 17:57David Rosenthal?

  Yeah. Which I think you're referring to Pony has a

• 18:02Ben Gilbert?

  Current, very private secluded mansion.

• 18:05David Rosenthal?

  In Hong Kong, yes. Ma is like, super inspired. He sees Ding start NetEase and like, he's like, man, I gotta get in this game. So 1998, remember, he graduated in 93. So he's five years out of college. He reunites with his old college friends who had stayed and done graduate degrees. And they're finished showing up their studies and he's like, guys, we gotta, we gotta do this. The time is now. We gotta start a company. And the initial idea that he pitches them on, remember, he's working on pager technology. Well, he's like, we're gonna develop internet services for pagers. So like, all these people in China, they have pagers. We're gonna provide like, a better like, mobile internet on pagers. Ben,

• 18:48David Rosenthal?

  I don't know if you remember in the early days of like, quote unquote, smartphones, before, you know, before BlackBerry, before the iPhone in, in the US, like, there was this mobile internet.

• 18:58Ben Gilbert?

  Oh, yeah.

• 18:58David Rosenthal?

  That all the carriers had. Yeah, WAP, exactly. So I think this is what the idea is.

• 19:03Ben Gilbert?

  WAP's required sort of like a, I guess not necessarily a color screen, but some kind of like, actual dot matrix thing that you could display almost HTML on, right? It was like, some janky images and really low quality GIFs and text that you could scroll. So I think like, it's, it's like a slightly more primitive precursor to WAP.

• 19:24David Rosenthal?

  So they start the company, they need to choose a name and they come up with Tengxun, I believe is how it's pronounced, Tengxun, Tengxun, which literally in Chinese means galloping message. Of course, his name is Pony, Pony, Pony Ma.

• 19:40Ben Gilbert?

  That's amazing. I didn't catch that.

• 19:42David Rosenthal?

  Yeah. And I was doing all this research. I was like, where does Tencent come from?

• 19:47Ben Gilbert?

  And I've always wondered that.

• 19:48David Rosenthal?

  It is the westernized version of Tengxun.

• 19:51Ben Gilbert?

  Wow.

• 19:52David Rosenthal?

  Galloping message. There you go.

• 19:54Ben Gilbert?

  Dude, we should, I'll send you a galloping message after the show. We can talk about how we thought it went.

• 20:00David Rosenthal?

  Yeah, on, on our many communications platforms. You can, you can page me.

• 20:07Ben Gilbert?

  Perfect. Well, two other things about the incorporation of galloping message. One, Pony Ma was 26 at this time. So multi hundred billion dollar company founded by, by 26 year old. Not exactly the sort of Mark Zuckerberg or Evan Spiegel, you know, crazy early, but still pretty, pretty, pretty young dude.

• 20:25David Rosenthal?

  He's still pretty young. And his co-founders, of course, had just finished their, you know, grad degrees.

• 20:29Ben Gilbert?

  Right, right. The other interesting thing that I caught was it was incorporated in the Cayman Islands. I don't know if this is exactly the same structure, but if you remember from the Alibaba episode, Yahoo couldn't invest in a Chinese company. I think it was that the Chinese company couldn't have a major international shareholders. So there was a Cayman entity set up for Yahoo to invest in that then had a contractual relationship with the actual entity of Alibaba in China. It's interesting to see, probably a slightly different thing since they actually started it as a Cayman entity, but sort of interesting to see that structure here.

• 21:07David Rosenthal?

  I assume they did this because they intended on raising venture capital?

• 21:11Ben Gilbert?

  It's kind of like how you and I always start these Delaware Corps.

• 21:14David Rosenthal?

  Yeah, exactly. It's the Delaware Corporation of, the Cayman Islands is the Delaware of.

• 21:21Ben Gilbert?

  We'll just call our registered agent down there and have them spin something up.

• 21:24David Rosenthal?

  Yeah. So they do this, they're working on the pager software. Meanwhile, this is 1998, late 1998, going into early 1999. What's going on in the rest of the world on the internet? It's like the first wave of real consumer internet and social, quote unquote, although people didn't call it yet that, is blowing up. So you've got Napster in the US and of course you've got AOL and then MSN and all sorts of other kind of portals and early instant messengers are popping up. And so the first, the first instant messenger was this company called ICQ.

• 22:01Ben Gilbert?

  Israeli company. Oh, man, I used to live in ICQ.

• 22:05David Rosenthal?

  And that was, that was the first PC-based instant messaging client. Ends up getting acquired by AOL in 1998. So right before Tencent is started and, and really starts taking off. Entrepreneurs see the power of the, the network effect in these communications businesses. And now there's an exit in ICQ and they're like, okay, great. We're going to start building these things. So it's like, you know, the first example of what we would see later, you know, with messaging apps on, on mobile and ride sharing. It's like you have, they start popping up all over the world. And so Pony and his co-founders see this and they're like, okay, forget this pager software thing. We're going to go clone.

• 22:44Ben Gilbert?

  Send the galloping messages over instant message.

• 22:46David Rosenthal?

  Yes, on a computer. And again, to be fair, like the pager thing wasn't totally crazy because people had them. And what people did not have in China were their own, you know, personal computers. But what was starting to emerge now was internet cafes. And people would go and spend tons of time in internet cafes on PCs there. And so they realized we can still get distribution into consumers' hands, even though they don't personally own PCs. We just get it into these internet cafes. People install our version of ICQ, which they call Open ICQ, very creatively. OICQ on the internet cafe PCs and, and we're going to access a huge amount of the Chinese market, which they do.

• 23:30Ben Gilbert?

  Just to drive this point home about like, when we say people in China didn't really have PCs at home, so in 1998. 1999, there were 50 desktop computers for every 100 people in the United States. It's about, you know, half people, as you would sort of expect if you rewinded to 1999 and you think about that, you know, what you were observing around you. Well, in China at that same time, it was one home computer for every 100 people. The internet and, you know, even computing really hadn't come to China yet, particularly at home.

• 23:59David Rosenthal?

  But these internet cafes had, and it works. And people start spending a ton of time. I remember reading about this at the time, thinking like, this is crazy. Like, I use the computer in my house, but in not just China, but Korea. And I don't, I don't think it was as much in Japan, but definitely in Korea. This whole internet cafe thing became a huge meme.

• 24:20Ben Gilbert?

  The birth of the PC bang.

• 24:21David Rosenthal?

  I've been to one. Have you been to one?

• 24:22Ben Gilbert?

  No, I haven't. I've read way too many articles to have not been to one.

• 24:26David Rosenthal?

  It's cool. Depressing, but cool. When I was at Stanford in business school, we did a, um, everyone has to do like a international trip experience. And mine was to South Korea. And it was funny, PC bang was not on the official itinerary. So it was like, one evening when we were free, I was like, I cannot not go to a PC bang. So I just wandered off by myself and like,

• 24:47Ben Gilbert?

  Is it like just everybody playing Starcraft?

• 24:50David Rosenthal?

  Yes. That is exactly what it was.

• 24:56David Rosenthal?

  So within nine months of this pivot to OICQ to copying, and it wasn't just copying. And Ponyman, actually, he talks about this because Tencent has a reputation for copying others' ideas, as we will see multiple times throughout this episode. But he's like, it's not just copying. You had to adapt it to the Chinese market. Like ICQ wasn't gonna work or any of the competitors in China. A, because it wasn't, you know, in Chinese, but also B, like the, the, the way that like the, the market operated was different. Again, people didn't have PCs. They went to internet cafes. And so you just had to do a bunch of stuff in the, with the product to adapt it to the local market.

• 25:35Ben Gilbert?

  You couldn't make assumptions around this user is always logged in and stuff like that.

• 25:39David Rosenthal?

  Well, stuff like mailing a CD to your house, you know, that AOL, of course, so famously used for distribution.

• 25:45Ben Gilbert?

  Distribution was different. Yeah, makes sense.

• 25:47David Rosenthal?

  Yeah, like, that's not gonna work. So within nine months of the pivot, they have a million users, which obviously is a drop in the bucket compared to the whole population in China, but still like huge and huge enough that AOL notices them and notices this open ICQ that is taking off in China that they do not own when they thought they owned ICQ. So they serve them a lawsuit and demand that they take down the service or at least change their name. So now they're, they're kind of up a creek without a paddle. They, they have no business model. They're giving away all this for free. They're presumably having to pay something or at least, you know, employ

• 26:28David Rosenthal?

  a lot of people to go get this service installed in internet cafes around the country. They have ballooning server costs.

• 26:34Ben Gilbert?

  Yeah. I was gonna say, you actually have to build data centers and buy servers and rack them and have IT people that are, you know, maintaining all that.

• 26:41David Rosenthal?

  All this stuff. So they're like, okay, we're going to do a dual track process. We're going to try to sell the company. We're going to be, you know, we're the ICQ of China or we're going to raise venture capital and we'll, we'll see what happens.

• 26:53Ben Gilbert?

  This, this flexibility was shocking to me. The fact that Pony Ma is like, look, I have a clear vision. We're going to bring messaging to China and like, it's not as important to me to do it in a way where I, you know, maintain control of the whole company. And like, I just want to see my mission through. And of course, I'm, I'm sure everyone had a profit motive there, but like, it was really about like, we have an opportunity that makes this, this thing huge and I'm open to whatever process gets us there.

• 27:16David Rosenthal?

  Just like Netflix, right? Like, you know, they tried to sell Netflix, I think, what? Three times?

• 27:21Ben Gilbert?

  Yeah. Once to Blockbuster for $200 million or something.

• 27:25David Rosenthal?

  Yeah. Well, first to Amazon and it was like, I think Bezos offered like nine million or something like that and it was too low. Anyway.

• 27:32Ben Gilbert?

  Listeners, it's amazing how quickly David and I have about a nine hour span where we can actually do an episode where we have enough of the information in our heads and like the notes collated in such a way where we can actually do the episode and then it all just like jumbles after that. So it's good that we get them out when we do.

• 27:47David Rosenthal?

  Yeah, totally. It's the problem with getting old. So, nobody wants to buy the company. But in 2000, they do have two people who are interested in investing. So, one is IDG Venture Capital, which is one of the most prolific, at least kind of first-wave VCs in China. It was a US VC. I believe IDG, I believe it's a publishing group. I think it was like a... They did a lot of the early trade shows and kind of like computer trade shows in sort of like Internet 1.0. And they had a venture arm that was very successful in China. So, IDG wants to invest.

• 28:26Ben Gilbert?

  And this particular fund, I believe, was quite small. Think about it like a much, much smaller than you would think about a seed fund today, which will be important in a moment.

• 28:35David Rosenthal?

  Which is probably why they need to bring in extra capital. So, they bring in one of the companies owned by Li Kaixing, the very famous Hong Kong-based billionaire investor, telecom investor. So, the two of them, as a syndicate, are willing to invest, and they are willing to invest 2.2 million USD for 40% of the company. So, $5.5 million post-money valuation for a business that has a million users, and a million users back then.

• 29:06Ben Gilbert?

  They're harsh terms, man. That's a lot of the company to give up.

• 29:09David Rosenthal?

  I know, I know. Well, you know, the VCs, they want their 20%, and in this case, they both want their 20%. Yeah. But Pony and Tencent, they kind of have no choice. They take the money. They sell the 40% of the company. Immediately afterwards, they lose the judgment in the matter with AOL. I don't know exactly what jurisdiction it was in. It was international law, but they're ordered to stop using the Open ICQ name. And the story is, so they're trying to figure out, like, how can we rebrand this thing? Supposedly, a Tencent employee is on the bus one day in Shenzhen, and he hears a couple of users who use the service just talking about it on the bus.

• 29:47David Rosenthal?

  And they're referring to it as QQ, as like a cute kind of diminutive of OICQ, as QQ. And he's like, "Hey, we need..." Something.

• 29:57Ben Gilbert?

  A star is born.

• 29:59David Rosenthal?

  A star is born. So not only do they rebrand OICQ to QQ, they fully embrace the cuteness and they design and adopt the cute little cuddly penguin that if you're familiar with with Tencent and with QQ, you probably know of as their mascot.

• 30:17Ben Gilbert?

  Which I didn't know about till doing this research. And thank God I did because then I got your penguin jokes earlier.

• 30:23David Rosenthal?

  Well, and I think that means probably most of our listeners didn't get the penguin jokes, but now you get the penguin jokes.

• 30:30David Rosenthal?

  Now, I think I wasn't totally able to confirm this because like, you know, the Internet Wayback Machine doesn't really, you know, work in China. But I believe not only before this switch over were they using ICQ as their name and ripping off of that. I believe the default avatar images for users on the service before were straight up ripped Disney characters like Mickey Mouse and Donald Duck.

• 30:56Ben Gilbert?

  It's like, wait, wait, we should get away from this trademark infringement with ICQ. So bring in Mickey Mouse. I hear they're not litigious.

• 31:03David Rosenthal?

  No, that was that was before. I think now they're afraid of international litigations. Like, we got to clean up everything. So I think this is also where the Penguin comes from is we got to replace Mickey Mouse and Donald Duck. Let's use, let's design our own cute furry little animal.

• 31:19Ben Gilbert?

  Phenomenal. It is worth noting at this time. So doing a little bit of research on IDG. So I thought I knew the name from somewhere. They they run Macworld. So they own Macworld, Computer World, PC World, all those things. They also, they're really old. They were started in 1964. Like, this has been a publishing group for a long, long time. And they, you know, run all these expos and skipping ahead to tech themes, but how often we see these, you know, immensely successful sort of spin off funds of companies such as SoftBank or IDG getting in on the ground floor of something huge.

• 31:56David Rosenthal?

  Like, this is the global instantiation of our theme from, I forget what episode, it was probably a year or two ago now about like, how at this point in time in tech and on the internet, there were like 11 people in the whole world marking on it.

• 32:10David Rosenthal?

  It's crazy, you know, and a bunch of characters who we have seen before are going to pop up as well as some new ones as we go along here.

• 32:19Ben Gilbert?

  All right, listeners. Now is a great time to thank our longtime friend of the show, ServiceNow. If you are running a large enterprise, AI agents are likely spread across every team, and deploying them is no longer the hard part.

• 32:33David Rosenthal?

  Yeah, the hard part is knowing what permissions they have, what employees are using them for, or what decisions AI is making. AI security for an enterprise at scale is not a small concern. Like, the risks are real.

• 32:47Ben Gilbert?

  Exactly. And the challenge with AI is governing it, securing it, measuring it, and making sure that it actually delivers value. That is why ServiceNow built the AI Control Tower.

• 32:57David Rosenthal?

  Yep. AI Control Tower gives enterprises a single place to see, manage, govern, and optimize AI across the entire business. And it works with any AI, not just theirs. Every device on your network, every permission across every system, every AI agent, visible and secure in one place.

• 33:15Ben Gilbert?

  And ServiceNow can do this because they've spent more than 20 years building the operational backbone of the enterprise: the workflows, governance, approvals, security controls, and institutional knowledge that power how work actually gets done across IT, HR, customer service, finance, and security.

• 33:31David Rosenthal?

  ServiceNow already runs more than 100 billion workflows annually, and trillions of transactions for more than 85% of the Fortune 500. So when companies need a place to govern AI at enterprise scale, they're building on a platform at the center of how their business already operates.

• 33:48Ben Gilbert?

  And in a future that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is, who's managing them all?

• 33:57David Rosenthal?

  So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely, at scale, go check out servicenow.com/acquired and tell them that Ben and David sent you. Okay, so they raised the money, they changed the name to QQ, they've settled the lawsuit, but they still have a problem, which is that they don't really have a business model. They're giving away the software for free. They're making some revenue from telecom carriers for delivering QQ messengers to pagers. So like the pager thing is still part of the company. Which actually makes sense. You know, you're not in an internet cafe, somebody sends you a message, you want to know about it, you get it through the pager, like, okay, I get it.

• 34:37David Rosenthal?

  The other thing that happens in 2001, of course, is the dot com crash happens in the US, and that cools, you know, the venture financing market globally. The company's still growing like a weed. They're adding 500,000 users a day. In 2001, they surged past 100 million users. Like, this is crazy. And again, remember, internet cafes, like, nuts. They're beating the bushes, though. They're, they're, they're, they're still trying to sell the company because they're like, okay, great, we've got 100 million users, we're super valuable to somebody. You know, we've cleaned up all these legal issues. Somebody's gonna have to want to buy us.

• 35:13Ben Gilbert?

  And from a shareholder's perspective, IDG doesn't have any ability to do follow-on capital because they're in that kind of very small fund. They syndicated just that $2.2 million round. And IDG is starting to feel like, you know, this company that we have that is growing, that's great, but we're a little skittish post-dot-com bubble. Like, let's, let's liquidate some stuff.

• 35:34David Rosenthal?

  As is Lee Ka Ching. Now, I don't know, I didn't do enough research to know here for sure, but my understanding of Lee Ka Ching is his, he made his fortune in the telecom industry. And the one industry that was hurt harder than tech and the internet in the dot com bubble bursting was, of course, telecom. He's probably hurting and needs liquidity. So he's looking to get out of his investment as well. So they meet throughout this process, the Tencent and Pony meet, and Pony is co-founders, meet the most incredibly random group you could even think of. They meet the investment arm of NASPERS, which is a big South African media conglomerate. This is like the, like the News Corp of, of South Africa. So like, there is...

• 36:17David Rosenthal?

  You know, a Shenzhen based Chinese company that stole their original name and product from an Israeli company that's being affected by the US.com crash. Sure, South African media company, why not?

• 36:31Ben Gilbert?

  And there are people out there who are listening who have definitely heard of Naspers. In this day, like in 1999, when this is all happening, you would not have heard of Naspers. Like, it's not something where you're like, oh, yeah, no, I don't know much about it. But it's kind of this big international thing, not a big international thing yet.

• 36:47David Rosenthal?

  No, no. And yeah, now, well-known tech investor because of what they're about to do here. So they say, look, we don't want to buy your company, but we've got capital. We're looking to diversify out of the media, I believe, I believe mostly print media business in South Africa. We will invest and not only we want to invest, but we want to invest. We want a meaningful ownership stake. We're willing to buy out your existing investors. So like echoes of the Alibaba episode here.

• 37:16Ben Gilbert?

  We'll take that 40%.

• 37:18David Rosenthal?

  The Goldman investment that gets bought out. Yeah. So not only are they willing to buy out existing investors, they're willing to do so at a $60 million valuation. So remember, just a few months ago, this company was valued at $5.5 million post-money. The existing investors, they're trying to get liquidity. They're like, great, 11x, $60 million? I'll hit that bid.

• 37:40Ben Gilbert?

  We'll take that. I mean, gosh, a couple of years, that feels really good to me. Let's do it.

• 37:45David Rosenthal?

  Yeah, let's do it. 10x'er, 10x returns. Oh, boy. Oh, boy. So Lee Keshing sells his entire 20% stake. Fortunately for IDG, they sell only 12.8% of their stake. So they retain 7.2% of ownership in Tencent. Naspers acquires 32.8% of Tencent in total, just under a third, for $20 million.

• 38:12David Rosenthal?

  We're going to get to grading in a little bit and well, this will come back up. But this was to say this was prescient would be the understatement of the century.

• 38:22Ben Gilbert?

  Yeah. And listeners, just to plant the seed now, we're not going to be grading like we called this episode Tencent like we called Tesla Tesla or like Alibaba Alibaba. This, this isn't really going to be about sort of the Tencent IPO because it's part of a much longer journey, but this is acquired and we have to grade stuff. So we're going to end up grading this particular investment against other sort of very successful investments.

• 38:45David Rosenthal?

  You might imagine which ones. Okay. Meanwhile, though, the company is still not really making any money.

• 38:50Ben Gilbert?

  Yeah, but David, they have a lot of eyeballs. So I mean,

• 38:53David Rosenthal?

  They have a lot of eyeballs. Exactly. And not only that, but this transaction that happened, the company didn't get any money. Like the investors just cashed out.

• 39:03Ben Gilbert?

  Funny thing about secondary sales.

• 39:04David Rosenthal?

  Yeah. Funny thing. So they got to figure out a way, you know, to survive here. In 2002, a PM who's working at the company hears about this Korean company that is selling quote unquote, digital goods for their users to customize their, you know, avatars on this, you know, digital service. And yeah, people are like laughing about it. But people aren't even laughing about it in the world. People don't even know about this yet, but apparently it's doing pretty well. And so Tencent's like, well, we got to do something. Let's try that. So they, once again, copy this business model and they launch what's called, they call QQ

• 39:44David Rosenthal?

  Show as part of the QQ platform. And it's basically a customization for your avatar on QQ. You can buy digital articles of clothing, digital avatars, hair, you know, all sorts of stuff to make you have a different appearance and it takes off like wildfire. So within six months, they have over 5 million users on the QQ platform that are paying an average of five RMB a month. So that works out to a 300 million RMB annual run rate. So that's about $50 million in USD within six months. And this is 2002 in the like, you know, the nuclear winter of the internet.

• 40:26Ben Gilbert?

  Yeah. And so fascinatingly, I mean, American companies won't catch up to sort of microtransactions for, you know, a while. There's Portal Games like on MSN and AOL, which we use it a little bit, but it's not really till you get into sort of the Facebook and Zynga world and then really the mobile world and sort of 2008 to 2012.

• 40:45David Rosenthal?

  Mobile and Riot Games and League of Legends, which we're going to come back to in a little bit.

• 40:50Ben Gilbert?

  But here Tencent is understanding the power of this super early. They're not a gaming company yet, but they understand the power of of microtransactions and of virtual goods. And it's 2002. And I want to just flash forward to something that I read today is a Wall Street Journal piece about the Tencent Music IPO. And they they mentioned the sort of differences between Spotify and Tencent Music. And they say Tencent Music's main revenue source isn't actually music streaming. Instead, it generates billions of dollars from selling virtual GIFs with which users can tip entertainers who stream live performances in its apps. And so Tencent, like, this is a completely formative moment for the company that will dictate future business models across verticals.

• 41:33David Rosenthal?

  Totally. And this is the business model of Tencent. As we'll see, Tencent grows into having so many different products and portfolio of things that they're in. But this is the common thread that they've figured out and they know more than than anyone. And I didn't have time to actually read the full Wall Street Journal article, but my, from what I did read, I think they were sort of dismissive of this as like, oh, well, Tencent Music isn't as, you know, isn't as good as Spotify because people don't actually pay. It's this. And it's like, it's like, no, come on, like, this is a better business model. Like, have you guys heard of Twitch? Like, you know, have you seen Tencent? Like, this is how it works. You know, it's a better business model.

• 42:08Ben Gilbert?

  It's at least, it's at least different and powerful and could could be better for different. Yeah.

• 42:13David Rosenthal?

  You know, this isn't as egregious, but this is reminds me of, you know, the 7-Eleven blockbuster CEO coming in and be like, I don't believe in internet businesses. Like, I don't believe in microtransaction. But no, like, yeah, they work. Have you played Fortnite?

• 42:25Ben Gilbert?

  Fortnite, which somebody might own most of.

• 42:28David Rosenthal?

  Oh, who would that be? Spoiler, it's Tencent. Everybody around the table is like high fiving now, and especially Naspers. Lee Cushing is not high fiving.

• 42:40Ben Gilbert?

  11x, baby. What do you want?

• 42:42David Rosenthal?

  Yeah. Naspris pays $20 million and then within like a matter of months, they own 32, 33% in a company that is at a $50 million revenue run rate and growing like gangbusters. And not just $50 million revenue run rate, like think about the margins on this. Like there's no cost of goods sold when you are selling digital goods.

• 43:02Ben Gilbert?

  Pretty good business model.

• 43:04David Rosenthal?

  Okay. 2003, the next year, they do over 100 million USD in revenue. They start thinking about two things. One, going public and two, what else they can apply this new business model that they've figured out of freemium goods and digital goods and microtransactions, what else they can apply this to around their core kind of communications and IM platform that they own with QQ.

• 43:31Ben Gilbert?

  And before they're, they take the plunge into doing what, what I think you're about to say, they really enter the portal market. Like if you look at what AOL was doing, what MSN was doing, Yahoo is doing, you know, there, there's all this content that flows through them. Like they get to own distribution to customers and QQ has blown up to the point now where they say, you know what? We're now a portal too, and we're China's portal.

• 43:50David Rosenthal?

  Mm hmm. Yep. They're thinking about a portal. They're thinking about what else can we add to the QQ platform? And they're, one thing that the company is really good at to this day is like, they are a very, very good product organization. And so they go and they spend time with people who are using QQ with users and they realize that this segment of people are using QQ to chat with each other in these internet cafes while they are playing games on the PCs, playing online games of all types. And they're like, that's interesting. What if we added games to our platform, to our portal? It's kind of like, you know, Discord, like, like finally figures this out. Well, Discord figured out

• 44:35David Rosenthal?

  like this product insight, you know, many, many years later in the US. Like it's amazing how far behind we are here. Like this is the Tencent business model. And they're like, games. Okay. They start adding games to the platform. They go out, they start acquiring some games. They start studios in-house, developing their own games, adding them to the QQ platform. Within the year, it adds another $50 million of revenue to the company. So huge success and not just success, like the core virtual goods business on QQ is growing like crazy. Now they have an even faster growing games business that's also part of the portal that they've added. So in the process of realizing all this, they're like, okay, a couple of things. One, we got to get public because this is like a great business.

• 45:20David Rosenthal?

  Two, you know, all the founders are computer scientists. There's one founder who had some sales expertise, but it was kind of from the telecom world. They're like, we need some like real, you know, business folks and Pony like is great. He's a total visionary, product visionary, but like, as you said, Ben, he's fairly reclusive. He doesn't speak English very well. They realize now they need to be going out, doing deals around the world, acquiring these games, bringing them to China. They need their equivalent of Alibaba's Joe Tsai.

• 45:47Ben Gilbert?

  I mean, in addition to sort of the business development skills, you really need someone here who's a great capital allocator, who sort of understands like, because by putting all these games on their platforms, some they're buying, some they're investing in. Like they're already sort of starting to take a conglomerate form, though all of the things do feed into this portal they've created.

• 46:05David Rosenthal?

  So they look around and they're like, well, we kind of have somebody who fits that bill, who's been hanging out with us a lot, and that's our banker from Goldman Sachs, who's working on taking us public, whose name is Martin Lau. Martin is, is super interesting, just like Joe Tsai in Alibaba. He's a TMT banker at Goldman in Hong Kong. His parents are Chinese, but he was educated in the US. He went to Michigan for undergrad, studied engineering, got an engineering masters from Stanford, did an MBA at Kellogg, then worked at McKinsey and then moved to Goldman over in Hong Kong. And so Pony is like, dude, Martin, you gotta like, forget this banking thing. Like this is where the, this is where the future is. You gotta come work with us.

• 46:47David Rosenthal?

  Martin declines at first. It's sort of similar to, you know, it reminded me of when Joe Tsai, you know, declined the first offer from Alibaba and is like, I gotta have my wife come over and meet you guys. Very similar. He declines. He's like, this is kind of a conflict of interest. Like I'm your banker. I'm working on taking you public. He's like, let's get the IPO done first. They get the IPO done in June of 2004. They go public on the Hong Kong Stock Exchange. They raise $180 million. And pretty shortly afterwards, Lau is like, okay, this is a really special company. I'm gonna, I'm gonna leave Goldman and I'm gonna join. So he becomes the chief strategy officer in charge of investor relations and importantly,

• 47:27David Rosenthal?

  M&A, which is like, kind of a, like, there are not many Chinese internet executives that are in charge of M&A at this point. Lau is really like blazing a trail. He does really well, totally gels with the team. 2006, he gets promoted to president of the company. And he's really the one who starts driving this idea that like Tencent is now this platform and Tencent is this business model that can go around and bring all of these types of, various types of content and experiences into the, both the QQ platform and, and use this business model to create, you know, amazing businesses. So they launch Qzone, which is a kind of a more, even more full-fledged social network.

• 48:09David Rosenthal?

  By 2011, so a few years later, Tencent now operates four of the five top games in China. And they do a pretty important thing that we will come back to in 2011 deal. They acquire a majority stake in Riot Games, based in LA, maker of League of Legends.

• 48:29Ben Gilbert?

  Little, little game in the esports world.

• 48:31David Rosenthal?

  But not super well-known in 2011 in the West, but enormous in China. And, I mean, big around the world.

• 48:40Ben Gilbert?

  I think Tencent was their publisher in China, where they were able to, Riot didn't really have the capacity to reach customers in China, though the game was going to be beloved, so partnered with Tencent to be the publisher there.

• 48:51David Rosenthal?

  Yep, so they're the publisher already in China. They're seeing, and of course, for listeners who aren't familiar, League of Legends was natively built with the, with the Tencent business model. So it's free to play, costs nothing, anybody can, anybody can play. And the way the game monetizes is through people buying digital goods for their characters, both characters and then goods to put on the characters that have no effect, impact on gameplay, so the playing field is level for everyone. But people just want to customize their their characters and it works amazingly well in China.

• 49:27Ben Gilbert?

  Just a couple of days ago, Riot released the 2018 League of Legends esports by the numbers. They had 99.6 million unique viewers just watching the Worlds finals, the World Championship finals. I mean, this is 44 million viewers tuned in concurrently at peak. Like, this is one of these really insane global phenomena that was not quite like this when when Tencent bought them. I mean, this is, we may be foreshadowing that it'd be fun to do an episode on this at some point. And Dave and I are smiling at each other.

• 50:03David Rosenthal?

  Nodding in agreement.

• 50:04Ben Gilbert?

  Yeah, most of the growth of League of Legends has happened in China and under Tencent's watch. And so they're really sort of to credit for the the growth of this global phenomenon.

• 50:13David Rosenthal?

  I think we will have much more to say on a future episode about this, but I believe they paid $300 million, is that right?

• 50:19Ben Gilbert?

  Three or four, yeah.

• 50:20David Rosenthal?

  Three or $400 million for like a 90% ish stake in Riot Games, the maker of League at this point. Absolutely crazy, crazy pressure and investment. The other thing they do the next year in 2012, and then we're going to take a step back from the gaming part of Tencent for a minute. This is going to come up. They acquire a 40% staker in North Carolina-based Epic Games.

• 50:44Ben Gilbert?

  Which made this like unreal tournament, which was beloved by a small group of people. The unreal engine, which was used by a bunch more people, but it's not not a global phenomenon.

• 50:55David Rosenthal?

  It was more of like a more of like an infrastructure play and like, who knows what they were thinking? But they were like, maybe this is a way that like we can start to compete with Valve and Steam. Anyway, let's park that to the side for a minute. The other thing, let's let's move back to the core Tencent platform and QQ and kind of the engine that makes all this possible is all the attention and communication and network effect that they have of their users.

• 51:19Ben Gilbert?

  Yeah, because remember Tencent is a social media company or a social networking company that started with the messaging platform QQ. And of course, their their most profitable area is gaming, which we've sort of caught up on. But there's a thing that happens at Tencent in the social networking world and the communication world that really dominates them today that we haven't talked about.

• 51:40David Rosenthal?

  Well, so IPO happens in 2004. Basically, from 2004 till 2010, 2011, like, growth is rampant. QQ is dominant. They're like unassailable, growing to hundreds and hundreds of millions of users throughout China. But as 20, you know, we get to this timeframe, there's this thing called mobile that's happening. And people are starting to realize, this is not just like the next big wave in tech globally, but like particularly in China. We talked about this a bunch on the Xiaomi episode. And remember, Lei Jun, the founder of Xiaomi, is Pony Mazel, buddy from the bulletin board days. Xiaomi's already started at this point.

• 52:20David Rosenthal?

  Lei Jun sees like, he realizes that mobile, like China internet users are going to jump directly from using PCs in internet cafes and not owning PCs to owning mobile phones. And this is going to be a complete product and business model paradigm shift for the way Chinese users interact with the internet and their, their personal relationship to it.

• 52:42Ben Gilbert?

  As you'll remember on other episodes of Acquired, such as the Facebook IPO, there were companies that had an existential moment where they either missed mobile or almost missed mobile, and it was company defining. And for Facebook, it was actually sort of behemoth creating. And so Tencent is about to hit this very same cliff where they have their moment where they go, oh, we need something on mobile because QQ, you know, for all of its greatness, it's, for those of you who are big on AOL Instant Messenger, do you remember when the AIM app came to the phone and how it was kind of garbage and how it wasn't made for the phone and native to that platform? Well, they need an answer to that.

• 53:19David Rosenthal?

  This is happening. And they realized this two years ahead of when Facebook realizes this. So they do, they have the whole management team at Tencent, they, they, they know they have to deal with this. They, they call a big offsite strategy retreat for the top management. They call it the conference of the gods. Unclear if they call it this themselves or if the other employees of the company call this the conference of the gods. They come out of it, they decide that like, yep, this is wartime. We got to go all in on mobile. We have to solve this problem. Like, we need our equivalent of what Facebook two years later would get with Instagram. So what do they, what do they look at? What do they decide to do? What's the landscape here?

• 53:57David Rosenthal?

  If we rewind a little bit, in summer 2009, at WWDC, Apple launches push messaging. And this is what the moment that really enables this. So like, before this, you could have apps on the phone, but like, there was no way to know, like, that something happened in the app. So a messenger app was useless. I'd have no way to know that, you know, somebody had sent me a message. With push messaging, now you get the little red, you know, notification badge. And I know, like, oh, there's something here waiting for me to check. So, a group of students in Canada, at the University of Waterloo, they see this and they're like, oh, cool. We'll build a mobile messenger app. And they call it KIK. K-I-K. Still around today, raises a Series A from Fred Wilson at Union Square Ventures, gets a bunch of traction, starts adding users like crazy.

• 54:43Ben Gilbert?

  I want to take a pause, just because one of the things that's heralded is added users like crazy. It's, you know, it's almost like virtuous how fast they grew and how this great product market fit. Do you remember the first time you installed KIK on your phone? What happened, David? Like, did you ever go through this, this user experience?

• 55:01David Rosenthal?

  I remember being a total early adopter, loving it. It was so much better than text messaging and getting all my friends and family to sign up for it.

• 55:08Ben Gilbert?

  Well, that's the thing, is I didn't intentionally get all my friends and family to sign up for it. They, like, far worse than LinkedIn.

• 55:15David Rosenthal?

  Oh, no, they did the LinkedIn!

• 55:17Ben Gilbert?

  Like, way worse with your phone book for the first time before Apple had requesting permissions. And I remember this thing where I sent a, an invite unknowingly to every single member of my contact list, inviting them to KIK. Like, they, they were the, the champions of the sort of exploit and abuse and then apologize later strategy.

• 55:36David Rosenthal?

  All your professors at OSU are getting KIK invites.

• 55:39Ben Gilbert?

  But the good news was, there were several other people that, like, like, I got that same spam from lots of people. So I was like, ah, I see what's going on here, but.

• 55:47David Rosenthal?

  Oh, man, I. I forgot about that. Shoot, actually, maybe I never knew. Maybe I spammed a bunch of people and never knew it.

• 55:54Ben Gilbert?

  David alone invited millions of people to Kik and it grew at an unprecedented rate.

• 56:00David Rosenthal?

  Well, unfortunately for Kik, they basically become the ICQ of the of the mobile messenger market. Again, they're still around, they're doing, but they're they don't win because a lot of other people around the world see that like this is the future. Kik has shown us, you know, the blueprint of step one and we're just going to go do the same thing for our local market.

• 56:21Ben Gilbert?

  And this is this is like the heyday of Chinese cloning era. The theme on acquired this season is very much about sort of like how a lot of these companies innovate in their own way. And how the these Chinese companies are created sort of China native and have a different strategy. But famously, like this was not yet the case.

• 56:39David Rosenthal?

  No, this was a straight up clone. But as we'll see, as you know, as the pony ma quote from earlier in the episode, like it's cloning, but it's also like cloning in a way. Like if Kik had just come to China, like it would not have worked. So Tencent realizes they need to hop on the bandwagon that they're going to build a Kik clone as well. They have the perfect person to do it. So back in 2005, Tencent had acquired a product called Foxmail. And Foxmail was this product in China created by this incredible, incredible engineer called Alan Zhang. Is a super visionary, fantastic engineer, like I said, in Foxmail, it was a webmail client.

• 57:19David Rosenthal?

  And like one of the biggest in China and at the time, even like Hotmail and Yahoo Mail and the US internet portals. They were copying a lot of their feature roadmap from what Foxmail was doing in China. Tencent acquires this thing late 2010. Now, as this, you know, kind of like we're at war, we're shifting to mobile is going on. Alan is still working at Tencent and he emails Pony and he's like, let me, let me handle this. Like this is like, you're like, you know, most like your most trusted lieutenant is like volunteering to like go to battle here.

• 57:55Ben Gilbert?

  I don't know where in the timeline this happened, but wasn't there a competing group within Tencent also looking at mobile messaging?

• 58:02David Rosenthal?

  Yes, I believe, I don't know all the details, but what I believe is that, yes, they're coming out of this like Conference of the Gods, there was like a task force, you know, working on this. And, and I believe, I could be wrong here, listeners, correct us if you know otherwise, Alan is, he just emails Pony one night and he's like, let me do this.

• 58:20Ben Gilbert?

  Give me the resources.

• 58:22David Rosenthal?

  Give me, yes. Give me the power. And apparently, Ma likes to stay up really late at night, and he sees the email, he writes back right away, and he's like, do it.

• 58:34David Rosenthal?

  And so supposedly, Alan takes a small team, they go lock themselves away in, I think Pony refers to it as like a black room, it's like a room with like blackboards and like no light, and like, they work for two months straight, and they build an app, and then they take it out and they show it to Pony and to Martin Lau, and they say they're gonna call it WeChat, which in English translates to WeChat.

• 59:01Ben Gilbert?

  And they're not the only ones doing this. I mean, we mentioned the cloning, there's also debuting right around this time is Meetalk from Xiaomi, which is before Xiaomi made phones, which is the craziest thing. Remember when we were saying they were doing all this research by doing mobile software and an OS before they, they built Meetalk? So WeChat has a billion users, that's, that's a huge lock-in component for Tencent, that could also be Xiaomi's, but that's not how history played out.

• 59:28David Rosenthal?

  And Meetalk's adding a ton of users, like, they've got a head start, like, they're off to a really good start in the market, they're like, lots of people are going after the Chinese kick opportunity. Another company that's doing this is a Hong Kong-based startup right across the bay called Talkbox, that's gonna come back in in a minute. So, they release WeChat, and it does well, they import the social graph from QQ, so that's like, you know, major leg of cheating.

• 59:56David Rosenthal?

  It's like, oh, you know, Meetalk, that's nice. You have these like, you know, bulletin board internet forums with your early adopters. We have 900 million QQ users that we're just going to import here. But like, it does well. That's a huge advantage, but it doesn't do that well. Like, the other apps are still in the mix here, including Talkbox. Alan and team, they go back to the drawing board. They're like, okay, what's not working here? They realize that there's, there's one thing that Talkbox is doing, and that I think Meetalk has copied at this point, too. That's pretty important. The reason it's called Talkbox is in addition to text messaging, they also have a walkie talkie feature. So like, you can record a short voice message. Like, Apple's been trying to add this to iMessage for years.

• 1:00:38Ben Gilbert?

  Adding it in strange ways in the UI that nobody really wants to.

• 1:00:41David Rosenthal?

  Super strange ways. But again, to like localization for the, your market, you know, in Chinese, the characters are like, really complicated. There are a lot of them. Sometimes it's harder to express yourself with typing quickly when you just want to send a short message. Much easier to just say something. That's why talking and this walkie talkie feature becomes like, really important for this class of apps. And again, you don't have a keyboard like you would have with instant messaging.

• 1:01:09Ben Gilbert?

  This is like the next telephones from the 90s that like, had that first. And I think even, there was a product called Viber that did this for a while.

• 1:01:18David Rosenthal?

  Yes. And Voxer, I think, too?

• 1:01:21Ben Gilbert?

  Yeah, yeah, yeah. I think that, maybe that's actually the one.

• 1:01:23David Rosenthal?

  Viber, I think, was based in Israel, I want to say.

• 1:01:27Ben Gilbert?

  I don't know.

• 1:01:27David Rosenthal?

  And I think it was based either in Israel or Asia, something like that.

• 1:01:30Ben Gilbert?

  This is before the great messaging wars were settled.

• 1:01:32David Rosenthal?

  Oh, the other thing we should point out, this is a key, becomes really key in the messaging wars everywhere. There's, the mobile operating system wars are also going on at this point in time. There's iOS and Android. Everybody's duking it out. One of the really key things about a messaging platform that people start to realize is you have to be able to work seamlessly between iOS and Android. And this is a key thing that Meetalk falls down on. They don't have an iOS app for a long time. They only have the, on the Meos, like, remember, the whole thing is to be building the MiPhone and building Xiaomi. So this is part of what helps Tencent catch and WeChat catch up as well, is they come out with an iOS app first,

• 1:02:14David Rosenthal?

  and then an Android app. So they add the walkie talkie feature. That helps a bunch. The other thing they add in this spring V2 update in 2011.

• 1:02:25David Rosenthal?

  Is this innocuously named feature called Friends Nearby? That also, you know, sounds like that thing that Apple's been trying to add to your phone. You know, find my friends.

• 1:02:35Ben Gilbert?

  It sounds like that, but.

• 1:02:37David Rosenthal?

  It sounds like that, but it's not that.

• 1:02:39Ben Gilbert?

  It's not friends in the sense of like friends who are already in my contact book. It's more like friends in the sense of people that I might be interested in meeting for a variety of reasons.

• 1:02:48David Rosenthal?

  Yeah, maybe, maybe people who you could with certain characteristics that you could filter for.

• 1:02:53Ben Gilbert?

  Like gender.

• 1:02:54David Rosenthal?

  You might be interested in, yeah, like gender or, you know, other things that you might be interested in meeting. And they might be interested in meeting you in the right circumstance.

• 1:03:05Ben Gilbert?

  So Tencent invents Tinder.

• 1:03:07David Rosenthal?

  Yes.

• 1:03:11David Rosenthal?

  Basically, that is the moral of the story.

• 1:03:14Ben Gilbert?

  And this is 2011?

• 1:03:15David Rosenthal?

  2011, yep.

• 1:03:17Ben Gilbert?

  So do you know one other fact about Pony Ma that may or may not have inspired this?

• 1:03:22David Rosenthal?

  I don't. Go for it.

• 1:03:23Ben Gilbert?

  Can you think of anything? So I don't, I don't know, I don't have any facts that this, this inspired this, but Pony in 98, 99, somewhere in there. He met his wife on QQ and they corresponded for three months on QQ before meeting in person.

• 1:03:43David Rosenthal?

  I did not know this.

• 1:03:44Ben Gilbert?

  Yeah.

• 1:03:45David Rosenthal?

  Wow, man, talk about like intimate, you know, solving your own problem with a product. So the spring 2011 update to WeChat has both of these features. It has walkie talkie and it has Tinder. It just is like pushes it above everyone else in the market. They start like zooming past everyone by early 2012. WeChat now has 100 million active users. By the end of 2012, they have 300 million active users. Today they have just under a billion, so like basically every single person in China. Well, I can't say that for sure. Listeners may like correct us.

• 1:04:24David Rosenthal?

  I'm sure there are parts of China that don't use WeChat yet, but like essentially the entire population of China is on WeChat at this point. That's crazy in and of itself. This is even crazier. So. The average time spent for the average user, this is average, averaged across the entire user base of WeChat. Average time spent on WeChat is four hours a day. That is more than every single social app in the US combined. Facebook, Instagram, Twitter, Snapchat, everything. Vastly more.

• 1:04:57Ben Gilbert?

  Interestingly, it's more time than I spend on my phone per day. So I think that speaks to two things. One, it speaks to, of course, I'm not a zeroeth. It speaks to I'm not the average of the United States. But people in China, that's their computing device. And I think my laptop is my computing device primarily. And I think my phone time is somewhere between like two and three and a half hours, depending on whatever. You also start to get the foreshadowing here that messaging isn't just messaging. Messaging is more like the way we think of the operating system. The WeChat app is actually the platform upon which other things can be built. And you don't actually need to spend much time outside WeChat. This is sort of foreshadowing the launch of WeChat official accounts.

• 1:05:37David Rosenthal?

  Yeah, it is. Well, well, there's two things here. One, one is that, which we're going to get into right now. But before we do, the other important thing here, and like, and again, this gets back to like the local, having the product right for your user base in your market. Email never really became a thing in China. Like Foxmail like was big and Tencent acquired it. And like Hotmail and Yahoo Mail ripped off a bunch of its features. But like, people didn't have, like, they have email accounts, but they don't really use email, even in work settings. That's very different than the US. What WeChat has become, like, it's the communication platform for, like, imagine your iMessage or, you know, whatever your, your messaging app, WhatsApp, whatever you use, that plus

• 1:06:20David Rosenthal?

  your email, plus your Slack for work, like, it's all, it's all there. So like, all of your communication is going through this platform. And again, because of that, all your communication's going through. And here's where Alan, Alan Zhang is, is like such a huge product visionary. And he starts to separate WeChat from all the other messengers around the world, not just in China. They launch this concept of official accounts. So what are official accounts? Official accounts are a lightweight way for a business or an entity, not a person, to interact with users who want to interact with them on the platform. Sounds, you know, simple enough, but this becomes enormous.

• 1:06:58Ben Gilbert?

  It's kind of like a souped up Facebook page, right?

• 1:07:00David Rosenthal?

  It's, that's exactly what it is. But it allows like the account that the, the business or whatever entity controls to message and interact with, with lots and lots of users. So people start buying stuff through this. So like it becomes a commerce platform. And of course, you know, Tencent is already very adept at e-commerce through all of the microtransactions that they had done through QQ. They build WeChat Pay, WePay into, into the platform. Not just e-commerce, ride sharing, like Didi basically gets built on WeChat. Meal ordering and meal delivery. Meituan Dianping gets built on WeChat.

• 1:07:36Ben Gilbert?

  They also introduce in conjunction, I think shortly thereafter with official accounts is the Moments News Feed. And this is something that's, it's really, you know, we know this in, in Facebook. It's really a publishing system for, for content, but it's also importantly, they do a really aggressive push to force users to use this in a way that is decentralized among smaller groups. And so you can easily sort of share things from your Moments News Feed into groups. Publishers or individuals who are publishing can publish to smaller groups. It becomes the largest content ecosystem in China. And as you're alluding to David, you can buy or book things on, on the official accounts sort of through the Moments News Feed. And, and another sort of important thing to know about the Moments News Feed is, you

• 1:08:20Ben Gilbert?

  know, we keep talking about Tencent as a business that makes money on microtransactions and gaming, but is a social network. And in the US, social network is synonymous with advertising company. Well, there's not actually a lot of ads in the Moments News Feed and they wait a very long time before introducing them. And even then they, they do it in a very lightweight way. And so, you know, it's really all about sort of the facilitating the attention there, but the business model ends up being way different.

• 1:08:47David Rosenthal?

  You know, we talked about on the Alibaba episode that Alibaba is like Amazon plus Google together. You know, in this way, Tencent becomes like Facebook plus Amazon or Facebook plus Uber, you know, Facebook plus Uber plus Airbnb plus all of these commerce platforms, you know, all together. And this totally plays to the company's strengths product wise, but also executive wise. Remember Martin Lau, you know, he's been, he was the banker from Goldman. He brings on a few other folks, James Mitchell, notably from Goldman, also was a tech banker, I believe also in Hong Kong. I believe he doesn't even speak Mandarin. He comes and he joins as chief strategy officer. And what they do is they realize all these companies

• 1:09:29David Rosenthal?

  are getting built on the WeChat platform. Let's start investing in them and like helping them succeed on the platform. So they do. So Tencent is a major investor in Didi, in Meituan Jiangping, in Pinduoduo. All of these huge, you know, now current generation Chinese companies that are all built on the WeChat platform, they're not just built on the platform. Tencent owns a meaningful stake in these businesses. And so they're benefiting from that too. And then the other thing, and this is just, just happened, recently happened, but is now in the news. So the official accounts thing, it's very basic, like very, very basic, very lightweight. In early 2017, they essentially turn official accounts into

• 1:10:12David Rosenthal?

  this slightly more advanced thing called mini programs.

• 1:10:16Ben Gilbert?

  Which, which were mini apps, but Apple didn't like that. So now there are many

• 1:10:19David Rosenthal?

  Apple didn't like that. Exactly. Exactly. And supposedly, I don't know what the Chinese words are, but mini program sounds better in Chinese than it does in English. So it's not as weird. But this now unlocks actual like more functionality from like programmatic, like actually, you know, building a tech-enabled experience for companies.

• 1:10:42Ben Gilbert?

  Think about it like if you were looking to book a flight through Expedia and you were previously trying to do it on Expedia's Facebook page, that would be super difficult. But if then Facebook launched the way to have native apps inside of Facebook, just like native apps exist on iOS, then it's like, oh, I see there, there's full rich functionality in order for me to do whatever here.

• 1:10:59David Rosenthal?

  You know, this might sound like a just basic product evolution and it is, but it enables a whole new class of businesses to get built on the platform. And this is what enables Pinduoduo. So, you know, the company that just went public here in the US, it's like two years old is, you know, I forget what the market cap, we'll have to cover it next season. Like, you know, 30 billion plus market cap, I believe.

• 1:11:20Ben Gilbert?

  And David, what does Pinduoduo do?

• 1:11:22David Rosenthal?

  It is a mini, it's a mini program. It's a shopping experience. I've seen videos, I haven't, I haven't actually done it, but, uh, so I may be butchering this, listeners, correct us if, if we are, but it's a sort of like gamified shopping experience that is all conducted through a mini program on, on WeChat. And what's great about that is like the friction, the distribution friction to get this in front of people is zero, you know? And, and that's important because like this, the, the target market for Pinduoduo is people in third and fourth tier Chinese cities who are not already well-served by Alibaba, by JD, by all the existing commerce players, but they have WeChat accounts and like they can interact.

• 1:12:05David Rosenthal?

  So they don't, they don't have, you know, JD accounts, but they can interact super seamlessly just through the Moments News feed and a mini program with Pinduoduo.

• 1:12:14Ben Gilbert?

  Makes a lot of sense. All right, listeners, now is a great time to talk about a new partner of ours here on Acquired, Logora, the agentic operating system that is redefining how the world's best legal teams work.

• 1:12:29David Rosenthal?

  Yep, it's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Logora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

• 1:12:45Ben Gilbert?

  So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done.

• 1:13:00David Rosenthal?

  And that's how you get features that customers love like tabular review, where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Legora's bet here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time.

• 1:13:24Ben Gilbert?

  And they recently launched Legora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required.

• 1:13:43David Rosenthal?

  And Legora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Legora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Legora now has over 100,000 lawyers on the platform from 1,200 legal teams in 50 countries. And crazily, they went from 1 million to 100 million in ARR in about 18 months.

• 1:14:13Ben Gilbert?

  Truly insane numbers. And that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at legora.com/acquired and just tell them that Ben and David sent you. There's a couple of things I want to revisit in this sort of evolution of WeChat that I think are interesting and important. Do you know about QQ Pay? And sort of what that was before WeChat Pay?

• 1:14:51David Rosenthal?

  Not in any depth.

• 1:14:52Ben Gilbert?

  So apparently, and I didn't realize this, so early on Tencent sort of thought about doing this transaction platform on QQ before they had done WeChat, which started to pick up steam, but people started using QQ Pay as a replacement for the RMB. And the Chinese government freaked out. This is like before Bitcoin and decided, no, no, no, no, no. And they shut it down. So it's interesting that when the time was finally right for WeChat Pay. I mean, I'm sure they had sort of worked it out with the government where it made a lot of sense for them to do that. And wouldn't get shut down like the previous time. But they were actually well ahead of the curve in sort of establishing that digital wallet, which makes a lot of sense as you sort of evolve from microtransactions as your roots

• 1:15:37Ben Gilbert?

  to then thinking about peer-to-peer payments instead of just buying virtual goods on your platform. Another thing that came out of this, did you see anything about Lucky Money?

• 1:15:48David Rosenthal?

  Oh, yeah. Oh, man, this is a rabbit hole I didn't go too far down, but.

• 1:15:52Ben Gilbert?

  So I'm not going to go into the whole thing. It was kind of like a fun game where you could win money, which we won't dive too deep into. But you could win Lucky Money without ever connecting a bank account. And so what was happening is people were winning.

• 1:16:07David Rosenthal?

  And this seeded people's accounts, right?

• 1:16:08Ben Gilbert?

  Exactly. And so they ended up with just little bits of money in their account, but not necessarily needing to ever send it out anywhere. And so the thing that bootstrapped their WeChat payment platform was that street vendors and other people started accepting your sort of winnings from Lucky Money as a way to pay for stuff in the real world. And then suddenly that was, once you get sort of merchants then on the network, then there's sort of this like, oh, I should connect it to my bank account so that I can use this thing to pay. It's a brilliant strategy.

• 1:16:37David Rosenthal?

  Well, of course, this is all tied into the Chinese custom, I believe around the new year of red envelopes and gift giving and giving money. And we've already talked about Deng Xiaoping and the Cultural Revolution here. So we're not going to go too that much farther deep into history and Chinese history and culture, but.

• 1:16:56Ben Gilbert?

  I don't think we should, but there is one other thing that I do want to talk about in WeChat Pay before going back to gaming, I think is where we're going to go next. So this one relates to the Venmo episode. One thing that we determined on the Venmo episode was the real business in what Venmo is doing and where peer-to-peer payments companies like PayPal end up going is in paying merchants.

• 1:17:20Ben Gilbert?

  Because peer-to-peer payments have no fees because people don't expect that when you and I are just giving each other digital cash, we should have to have fees associated with that. In the US, if you can win over Visa's business, like if you can get merchants to accept Venmo, then you get to play in that sort of 3% interchange world where you get to make 3% on every transaction. That's hugely profitable business. So of course Venmo is going there with Pay with Venmo. Of course PayPal went there. In China, WeChat Pay is actually not very profitable because instead of a culturally accepted 2% to 3% interchange fee, it's like 0.6%. And so WeChat Pay isn't really the golden goose that you would think it would be.

• 1:18:04Ben Gilbert?

  That's really just about sort of additional lock-in and additional sort of loyalty to the platform so that they can make money in other ways.

• 1:18:12David Rosenthal?

  It's the glue that, or the connective tissue that enables the whole ecosystem of businesses, yeah, to get built on, on WeChat. Interesting. Okay. So that's WeChat. A few kind of miscellaneous fun things along the way to catch us up to today that also happened at Tencent corporate. In 2013, right around the time that Facebook was trying to buy Snapchat, Tencent desperately wants to either buy or make a strategic investment in Snapchat. Remember, like, they've figured, like, this 2013, two years earlier, they had, they're already on the road. They've figured out like how messaging can build an amazing, huge business around it.

• 1:18:57David Rosenthal?

  They view Snapchat as an opportunity to do that in the US. They think they have the right playbook. They can bring it to Snap and do it here. They're in talks to do a big strategic investment in the company. Instead, Evan Spiegel rejects it, decides to pursue his own kind of, you know, vision for the company as a camera company, not a commerce and business empire, platform empire. And the deal does not happen. We covered that on our Snap IPO episode. But what has happened since then is after the Snap IPO, Tencent has started buying up shares on the open market. So they now own 12% of Snap. Very interesting.

• 1:19:41David Rosenthal?

  Apparently, according to all parties involved, there's a good, good relationship, mutually beneficial relationship. What's interesting about that, though, if you remember from our long ago Snap IPO episode, Snap IPO'd with a very interesting governance structure.

• 1:19:59Ben Gilbert?

  By interesting, you mean multiple classes?

• 1:20:01David Rosenthal?

  No governance structure. You know, there's multiple share classes in public US tech companies is not new. Facebook has it with, you know, super voting shares that the founders control. I think.

• 1:20:15Ben Gilbert?

  Did Google pioneer it or did?

• 1:20:17David Rosenthal?

  Google pioneered it, I believe. It was a media company thing, actually, from back in the day.

• 1:20:20Ben Gilbert?

  The New York Times has it because the family votes differently than.

• 1:20:24David Rosenthal?

  Yeah, the argument was that media companies needed independence from the political and economic, you know, landscape because they needed to cover these companies. And so thus, if there were a mechanism that somebody could buy up voting control of a media company, then it would be like, you know, bad for democracy. Anyway, tech has kind of perverted this.

• 1:20:44Ben Gilbert?

  Well, as we know, since Facebook is not a media company, I mean, they don't.

• 1:20:50David Rosenthal?

  Right, right. Anyway, Evan Spiegel takes this to a whole new level of not only just getting super voting shares that he and his co-founders are going to keep. The, the shares they sell to the public get no votes, zero. So if you own Snap shares, you have zero voting control. So, you know, Tencent can buy as much of Snap as it wants. There's no actual teeth that it has in doing anything with that, which is interesting.

• 1:21:18Ben Gilbert?

  We should make up like a best of when David says things are interesting and he means terrible.

• 1:21:26David Rosenthal?

  Well, it depends, you know, what side you're on, terrible or great. That's what makes it interesting.

• 1:21:30Ben Gilbert?

  Well, look, even if you have all the voting shares, you still want the stock price to be a lot higher than it is right now. So.

• 1:21:36David Rosenthal?

  Right, right. So interests are aligned on that front. Other very interesting acquired related trivia here. In early 2014, Tencent starts talks to acquire WhatsApp. And apparently they're in pretty deep talks and the price tag was kind of somewhere around 10 billion. I think less than 10 billion.

• 1:21:58Ben Gilbert?

  Which, which would have been crazy, like that would have been a crazy high price for that time. Like we, the world went nuts with Instagram going for a billion. Like this would have been a bananas number.

• 1:22:09David Rosenthal?

  Totally. And the, the, the Facebook, the rumored Facebook offer for Snapchat was 3 billion. So this is crazy. But again, you know, Tencent recognizes the power of WhatsApp. And they see like, man, this is our gateway to Europe of doing, running the same playbook there. Progress on the deal though, apparently gets delayed because Pony Ma has to have back surgery. And so he's kind of out of the game and like, there were supposed to be meetings that were going to happen in California. He had to delay them. In the interim, while he's having back surgery, Facebook swoops in. Zuckerberg sweeps in, buys the company for $19 billion, you know, in a weekend. And you cannot, I don't know, I wasn't there for the, we weren't there for the conversation, but I have to imagine that the,

• 1:22:50David Rosenthal?

  the prospect of Tencent owning WhatsApp had a lot to do with both the speed and price that that deal got done at. Other couple of interesting things. Shortly after that, in kind of late 2014, early 2015, Tencent asks Riot to make a mobile version of League of Legends. And Riot, they're like purists. They're like, no, we can't do that. Like, you know, League only works, you know, on desktop. We can't make a mobile version. Tencent's like, all right, fine. We'll just do it ourselves.

• 1:23:18Ben Gilbert?

  Tencent decides that we will do this in one of our internal studios. And they agree on some kind of revenue share with League of Legends because they, if I remember right, they, they hadn't agreed on a rev share yet. So they have their studio start going and building, what is it, effectively a clone of League of Legends, which they own, but don't have enough sort of power and coercion over Riot to get them to do this thing.

• 1:23:43David Rosenthal?

  They own like 93%, I think, of the company and the Riot founders have, have retained a small stake. And, but they, but they have control of the company. They, operating control.

• 1:23:54Ben Gilbert?

  Interesting. So they start working on Honor of Kings internally and they end up releasing it and it's it's all Riot IP. Like Riot goes to them and they're like, you you have all of our champions in here.

• 1:24:06David Rosenthal?

  I believe I read that Honor of Kings does 2 billion annual revenue in China.

• 1:24:12Ben Gilbert?

  It's crazy. I mean, it's the most popular mobile game in China, maybe the most popular mobile game in in the world.

• 1:24:20David Rosenthal?

  I think it is the most popular mobile game in the world, has 200 million monthly active users, almost all of which are in China. So basically, one fifth of the country plays plays Honor of Kings. Think about that. Like, that's crazy.

• 1:24:35Ben Gilbert?

  Totally nuts. And as you can sort of read between the lines here, the relationship between Tencent and Riot is a little strained.

• 1:24:41David Rosenthal?

  Well, especially because Riot's like, oh, they'll never work on mobile. The other thing, they do a couple of other things in the gaming world. In 2016, they buy Supercell, the Finnish maker of Clash of Clans. So for $8.6 billion, they now have the largest mobile game in China. They have the largest mobile game in Europe, and of course, is also huge in in North America, too. They don't yet have like the the crown jewel in in North America yet. I mean, they have Riot, but Lee is is not on mobile. Well, fast forward to recent times. When did PUBG come out? 2017 or 16?

• 1:25:26Ben Gilbert?

  I'm not sure, but last few years.

• 1:25:28David Rosenthal?

  Last few years, PUBG, this Korean game maker, Blue Hole.

• 1:25:33Ben Gilbert?

  Player Unknown Battlegrounds.

• 1:25:35David Rosenthal?

  Player Unknown Battlegrounds releases a beta version of a game called PUBG Player Unknown Battlegrounds with this concept of battle royale. And it takes the world by storm, particularly North America, but the but the whole world. Tencent, of course, negotiates for the rights to publish PUBG in China, which they do, and they get a small equity stake in the company. Now, meantime, remember, an hour ago, we talked about Tencent acquiring a 40% stake in a You know, well-known in the gaming industry, but not well-known outside the gaming industry. Well, a company in North Carolina called Epic Games.

• 1:26:14Ben Gilbert?

  And Epic, of course, the maker of Fortnite, had Fortnite out at this time when PUBG is taking the world by storm, but did not have the Battle Royale mode. So it was just a sort of regular, sort of spacey fantasy first-person shooter. They did have all of the Battle Royale stuff in development, so it's not like they just saw PUBG and were like, "Build that."

• 1:26:34David Rosenthal?

  This is gonna merit its own episode at some point for some excuse to do an episode. We all know what happens. Fortnite pivots and becomes all about Battle Royale and is now, I believe, by far the largest game and mobile game in North America. And so now Tencent controls the largest mobile games in basically every, you know, major mobile internet-using continent in the world.

• 1:27:02Ben Gilbert?

  Yeah.

• 1:27:03David Rosenthal?

  Incredible.

• 1:27:03Ben Gilbert?

  It's the biggest company, the most important company that's not a household name.

• 1:27:07David Rosenthal?

  On the non-gaming side of the house, they're up to plenty of interesting things there, too. In 2017, they acquire a 5% stake in Tesla. Now, I'm not exactly sure how this came about, but Tencent is, I believe, now the third or fourth-largest shareholder in Tesla. Super interesting, especially given Tencent, as we talked about at the top of the episode, located in Shenzhen, which now, thanks to Tencent, is really Silicon Valley in the modern Silicon Valley sense of all things tech, but of course, has its roots in hardware and manufacturing. And there are a number of electric vehicle startups and established companies in Shenzhen.

• 1:27:47David Rosenthal?

  And of course, rumors are out there that Tencent may be interested in getting in to that game themselves. And then, of course, there was yesterday's, this week's event of the Tencent Music IPO, which happens, and they float Tencent Music publicly, has a $21 billion market cap. I believe Tencent still owns like 95% of the company. As we were doing the research, like, some people out there are starting to refer to Tencent and its management. Team as like the Berkshire Hathaway of tech, not just like Asian tech, but like tech period. Like, these guys are so prescient.

• 1:28:25Ben Gilbert?

  Yep. And before we drift too close into tech themes here, it is worth pointing out the very recent things that have happened with the company. So last year, 2017 was an insane year for Tencent from a finance perspective. Their stock started the year at $25 USD and ended the year at $60 USD. Like, this is a company that went from, I think it was like a quarter trillion dollars to a half trillion dollars in market cap in one year. In the last few episodes, we've really talked about sort of value creative companies. Enormous company doubling in size, more than doubling in size, wild. 2018, the exact opposite story. They've wiped out almost their entire run-up from 2017. And there's been a couple of interesting things that I think, are you ready to call it tech themes?

• 1:29:10Ben Gilbert?

  That, mention them and go into tech themes a little bit?

• 1:29:13David Rosenthal?

  I, let's do it with the one, I was thinking about what to do and what would have happened otherwise. I think we basically covered it. The most interesting thing to me is like, what if Xiaomi had built WeChat, if MeChat had succeeded. But again, I don't think it could have because of like the iOS, Android, like the cross-platform, you know, aspect.

• 1:29:32Ben Gilbert?

  And the network graft.

• 1:29:34David Rosenthal?

  Yeah, and the network graft. I like that, I like that.

• 1:29:39Ben Gilbert?

  Spell that however you want. 2018, you know, the stock is sliding. What's going on? There's a couple of interesting things. One is people are very worried about some gaming regulation that China has right now, where, we're not going to get fully into it, but people are worried about, right now China has an approval process for being allowed to release and distribute games. And so there's a big holdup on, on popular titles that Tencent can't release right now. And then secondarily, on top of that, there's also a restriction on what you're allowed to monetize. So people are worried, wow, Tencent may, may in fact, get to have their games out there, but they won't be able to monetize them. And before getting into sort of the second competitive thing here, I just want to point out, and other very smart people have pointed this out.

• 1:30:23Ben Gilbert?

  Ben Thompson has pointed this out, and Matt Brennan has pointed this out. That if this regulation is sort of here to stay, it tends to protect the incumbents. And so there's a lot going on right now where people are really worried about, gosh, Tencent's business is really going to be hurt by this. Probably not, like Tencent's probably the one that's going to be able to sort of have their moat solidified by all this regulation that comes in and prevents due to sort of distribution and pure expense of going through the regulatory process, future startups from succeeding in gaming. And so

• 1:30:55David Rosenthal?

  Not just future startups, but again, think about how global this business has become. Who else but Tencent could bring non-Chinese developed properties to China now? If like, there's a ton of, like, you think, you think Epic is gonna like, do that directly with the Chinese government? Like, no way.

• 1:31:13Ben Gilbert?

  Yeah, you don't, you don't get to enter China without a partner like Tencent. The other company that I think we should talk about is ByteDance. And David, what is ByteDance?

• 1:31:25David Rosenthal?

  Oh, man. What is ByteDance? Well, okay, so ByteDance is probably the, we've painted a picture, I think very justifiably so, of a very rosy picture for Tencent. They've accomplished incredible things. They look like they are unassailable in China or really anywhere else.

• 1:31:45Ben Gilbert?

  And they, they own entertainment, right? They own entertainment in China on the game side and on the social networking side.

• 1:31:52David Rosenthal?

  Yep. ByteDance is the biggest threat to Tencent out there right now. And it is a very, very real threat. It's so interesting, like, you know, the tech theme we've talked about a number of times about things. I think this is originally a Paul Graham idea of like, things looking like toys when they start and then becoming much more than toys. So ByteDance started a couple of years ago. I believe it was a news aggregator app, Totiao to start, of aggregating content and news into a reader on, you know, on, on mobile devices, has morphed and changed into that plus video aggregation and, and micro video production. They acquired Musically, which was, folks in the US probably remember,

• 1:32:37David Rosenthal?

  was a big kind of music video lip syncing sing along app, co-developed here and in China. That became part of ByteDance. With that, all that has gotten merged into TikTok.

• 1:32:48Ben Gilbert?

  Which is crazy if you haven't tried it. Like, you guys all need to download TikTok and, and be prepared to be confused and have your mind blown.

• 1:32:56David Rosenthal?

  And, um, you know, has kind of become like, I don't know what the, what's the best way to describe it? Like, kind of like YouTube, right? Like all types of video algorithmically surfaced for you based on what you love, both from your friends and official accounts.

• 1:33:10Ben Gilbert?

  It's very synchronized to music. Yeah. I don't know. I don't know why the content is so different, but they're really wacky videos and they're short form and they're all sort of synchronized to music.

• 1:33:20David Rosenthal?

  I don't think we've ever sounded like

• 1:33:22Ben Gilbert?

  We are actual grandpas.

• 1:33:25David Rosenthal?

  Then at this moment on the podcast, but take our word for it. From a business model perspective, this is a huge threat to Tencent, which the, the key to making all of this work is the four hours a day that people are spending on WeChat and Tencent properties. If that starts getting eaten away by something else, then the opportunity for building the ecosystem and serving them goes to where those eyeballs are.

• 1:33:50Ben Gilbert?

  And that is why ByteDance, a company founded, David, I think he said a couple of years ago, just raised capital at a valuation of $75 billion.

• 1:34:00David Rosenthal?

  Yes. And I believe that makes it officially the world's most valuable private startup. Cause I believe Uber still held at 70 or slightly below.

• 1:34:09Ben Gilbert?

  Yeah. And their last share tender was in the 50s or 60s. So what? Like, okay.

• 1:34:18David Rosenthal?

  Incredible.

• 1:34:20Ben Gilbert?

  So, uh, count that as the, the sort of major credible threat if there, if ByteDance is able to sort of turn into a platform company, the way that Tencent had.

• 1:34:29David Rosenthal?

  Yeah. Well, I think for me, I mean, I guess I already said it, but what that highlights for me in, in tech themes is the, the, the power of, of the business model that Tencent pioneered of this, this freemium microtransaction business model. Like this is a huge like development for business period and tech-enabled business globally. Like think about things like Kimberly, like, you know, our LP program. It's a direct result of this. Like, you know, uh, in the old world, like podcasting is a perfect example. People have been trying to make advertising and the traditional, you know, US-centric way. You know, ad-supported content work and it hasn't worked and it hasn't worked and it hasn't worked.

• 1:35:10David Rosenthal?

  This other approach has built like so much, has worked at least equally well for Tencent and we're starting to see it elsewhere. And it'll be very interesting to see how ByteDance starts to build their monetization and business model around what they're doing.

• 1:35:26Ben Gilbert?

  So Tencent's core products do well in China. And to the extent that they aren't doing well in China, or they're doing well outside of China, it's with either sort of expats or people that do business with Chinese, but like, I don't use WeChat.

• 1:35:41David Rosenthal?

  You mean like the core?

• 1:35:43Ben Gilbert?

  Not their investments, the things that they've actually, yeah, like those things do well in China. The way that they've gone to the rest of the world is through investments. And I'm sort of wondering, like, do you think their future is really more as an investment company than, I mean, you alluded to the Berkshire Hathaway thing. I'll go out on a limb and say Tencent's core products or copies of things that were doing well elsewhere, sort of fitted to make sense in China and nail the timing and the, the distribution in China. And then they were able to grow tremendously by investing in companies elsewhere. Are they an innovative company?

• 1:36:21Ben Gilbert?

  Or are they sort of a very good, sort of ruthless, cutthroat investment and, and copying company?

• 1:36:32David Rosenthal?

  Both, of course. So, okay, this was my other tech team too. This is such a great question. I'm so glad you asked it and, and that it's come out in this episode. This is a core question that people have asked for years about Tencent, like, don't they just copy everything? And I think we've tried to paint the picture throughout this episode of, you know, going back to that Pony Mock, one of his few, you know, public quotes of like, yes, you know, like, he starts it with like, we, we stood with the Isaac Newton quote of like, we stand on this, we see so far, because we stand on the shoulders of giants, i.e. we copy things. But like, it's not just the copying, like, you have to adapt it in the right way for the right local market. And I think that's the nuance here. And that's why WeChat is so powerful in China, has never worked anywhere else. That's why.

• 1:37:16David Rosenthal?

  WhatsApp is so powerful in Europe and is doesn't really work, you know, in the US and and you know, all the things that work here like they're just these element like, take the US for example, iMessage is, the market is so fragmented because iMessage is so baked so deeply into iOS and iOS was the first smartphone, you know, available here in the US and has a toehold, an unassailable toehold on at least the high end part of the market. Thus, something always needs to be like, there's enough of a network there among iMessage that it's viable, you know, those dynamics are not the same in other markets. What's interesting is, as you think about network effects and, you know, monopolies, like, everybody's always asking,

• 1:38:00David Rosenthal?

  when is Tencent going global? Why aren't Tencent's products working, you know, elsewhere around the world? And this is it, is that like, they can't, you know, like, there are elements of these markets that you can have a monopoly in the local market and the local markets can be enormous. They can be the size of China, or the size of Europe, or the size of North America. But like, what is the right thing to unlock? That market is not necessarily the right thing to unlock another market. You see this in ride sharing too. Like, the way Didi works is super different than the way Uber works in the US, is different than the way the Indian ride sharing companies work. Like, you need to accept cash in India. Like, you would never use cash with Uber in the US. Sometimes a company can like, see around corners enough to, or be visionary

• 1:38:44David Rosenthal?

  enough to serve, create different versions of the product to serve those different markets, but it's really hard. And that's why I think more often than not, you get these local monopolies.

• 1:38:53Ben Gilbert?

  Hmm. So you're asserting that for many of these products, it's actually not a global market, that it's addressable to them. That's that it's it's a conglomeration of local markets, some of which are going to be very dominant, others you're going to be fighting for scraps, and then others, you're going to have nothing.

• 1:39:09David Rosenthal?

  Yeah, I mean, I think that the one example I can think of that is very, very clearly an exception to this is Airbnb.

• 1:39:17Ben Gilbert?

  Because there's such significant cross-market network effects. Like you travel to another place and need to have that platform there.

• 1:39:24David Rosenthal?

  Like, I don't really care that Europe is, is like, based on WhatsApp if for messaging and that China's based on WeChat. Like, and when I need to interact with, you know, people that are in those networks, I just download that app. Like, that's fine, but I'm not going to use it day to day. Whereas like, the whole value prop of Airbnb is like, I'm traveling there, you know? So I want one global network that like, everything, and I think this is why Airbnb is, is, I believe, is succeeding to a greater extent than other Western companies in China, because of this pressure to like, make it all one, one network.

• 1:39:56Ben Gilbert?

  Well, speaking of networks, my last, I think we touched on this a lot, but my last real theme to think about here is, when you are already a power, having the hundreds of millions of users that they had on QQ, if you have the product right, or even if you have the product, you know, within spitting range of the, the market leader, you really can just kind of go win in that category too, the way that they encouraged aggressively all the QQ users to become WeChat users. And you just see it time and time again with Facebook today. I mean, they, they could have bought any number of the Instagram-like services and probably promoted it to the point where it became the winner. Instagram was definitely the best product and definitely had, you know, the most users and the most growth at that time.

• 1:40:39Ben Gilbert?

  But there's a pretty interesting thing going on now with, with these like, social networks where, you know, you really can sort of promote something to the point of being successful, if you're able to successfully move users over. And I think shy of the platforms changing that in a big way, like making it so that you could imagine like, a way that Apple or Google could make it impossible for Facebook to so aggressively leverage your use of the Facebook app to get you to download Messenger and become the dominant messaging app in the US. I don't exactly know how that would work, but shy of something big in the product at the platform level changing like that, we're going to continue to see this where, since

• 1:41:20Ben Gilbert?

  the, when the platform wars were sort of settled in a market by market basis, that's who gets to decide what the next product on that platform is.

• 1:41:30David Rosenthal?

  Part of the core of what Ben Thompson has talked about for years now, that Facebook should never have been allowed to buy Instagram, because that's like now in retrospect, such a clear example of basically anti-competitive warping of a market. That is clear that that is what happened from a business stance, but legally, like, you know, the laws aren't, you know, set up yet to address such a situation.

• 1:41:58Ben Gilbert?

  All right. Well, we're setting records here on the episode length. Do we want to go to grading?

• 1:42:03David Rosenthal?

  Yeah, let's do it.

• 1:42:04Ben Gilbert?

  All right. So the way that we decided to grade this one is to do the big reveal on what Naspers' investment in Tencent turned into, and then talk about it in the context of other potential candidates for the best investment of all time. So here it is by the numbers. 2001, Naspers invest $32 million. In March of 2018, when they still owned 33% of the company, that was worth $175 billion. They sold 2% to get liquid on that 2%. And also, March of 2018, pretty good time to sell some Tencent stock. At that time, it

• 1:42:44Ben Gilbert?

  represents a 5,500x from the $32 million to their $175 billion of shares in Tencent.

• 1:42:56David Rosenthal?

  I'll take it. Was it 32 million they invested initially, or was it 20 million? They owned a 32.8% stake, but I think they initially purchased it for 20 million.

• 1:43:09Ben Gilbert?

  Maybe they did another round or something, because at some point here, I have a $32 million investment for roughly 47% of the company, and then they got diluted down to owning about a third of the company. So I think they may have done another.

• 1:43:21David Rosenthal?

  Maybe they bought more ahead of the IPO to avoid dilution in the IPO. Well, anyway, whatever. At this point, talk about rounding errors.

• 1:43:30Ben Gilbert?

  Yeah. And one other note on that, which is just interesting and very reminiscent of the Yahoo episode with Al Tabba, that investment makes Nasper's the most valuable company in Africa. But so remember, I just said that in March, it represented $175 billion of market cap. Nasper's itself is actually valued at $122 billion, significantly less than their share in Tencent, which not only does two things, basically assigns no value to anything else that Nasper's does, but also, of course, it has that discount because there's uncertainty in the ability to get liquid on that. While Nasper still owns 31.2% of Tencent, their

• 1:44:12Ben Gilbert?

  investors do not look at anything they do other than that ownership as valuable.

• 1:44:17David Rosenthal?

  Sort of like Al Tabba, like, and we talked about in the Alibaba episode, there are two ways that you can invest in Tencent. Like, you can go buy Tencent stock on the Hong Kong Stock Exchange, or you could go buy Nasper's stock. Like, they still own 32% of the company.

• 1:44:33Ben Gilbert?

  So David, what else is a candidate here?

• 1:44:36David Rosenthal?

  Well, I think the most direct candidate, and this is perfect for acquired and closing out season three here, is the SoftBank investment in Alibaba of 20 million for 20% of Alibaba. Certainly, there are, you know, other candidates are Excel's investment in Facebook, which was, gosh, what was it? It was like 10 million for just under 10% of the company, or even Peter Thiel's angel investment before that. Of course, great investments. What I think is interesting here, and my grading criteria is going to be heavily influenced by holding times and exiting the investment, because SoftBank, I believe, thinking back to the

• 1:45:19David Rosenthal?

  Alibaba episode, they start exiting some of the Alibaba stock, right, along the way. And certainly Yahoo, when they had come in and invested $1 billion for 40% of the company, they exited along the way. What's interesting is like Nasper's, you know, still owns 32% of the company. And Excel, of course, because, you know, they had to, this is the way VC funds work. When Facebook went public, of course, they distributed the shares.

• 1:45:45Ben Gilbert?

  The fact that this may be the greatest deal of all time is also an artifact of the fact that, you know, Nasper's is not set up as a fund. So they don't have to distribute the shares.

• 1:45:55David Rosenthal?

  It's an A. It's an A plus. The question is whether it is the single greatest investment of all time. I don't know. I think there's a very strong argument here. I'm probably biased because we've just finished two hours of talking about Tencent. But, uh, but this is incredible. I think I'm gonna go with this as number one.

• 1:46:15Ben Gilbert?

  Please drop it in the Slack or hit us up [email protected] if, uh, if you have other opinions, but I, it's hard to imagine, hard to imagine a better investment.

• 1:46:23David Rosenthal?

  I don't know what Nasdaq's governance structure is, but like, that they've held it for so long and still do, like, what, uh, like, that's amazing. Like, any other, you know, type of governance structure or organizational dynamics, along the way, of course, people would be like, we gotta like, at least take some money off the table here, you know?

• 1:46:45Ben Gilbert?

  A plus, but weird criteria. I think it's the best of all time. I do think so, yeah.

• 1:46:50David Rosenthal?

  Yeah, yeah, I think so. All right. Carve outs?

• 1:46:54Ben Gilbert?

  Yeah, so mine is President Barack Obama as one of the first podcasters ever. So there was an amazing, uh, I can't even remember where I found this, maybe Reddit, on Barack Obama's US Senator for Illinois page that was hosted on, I think it's senate.gov, obama.senate.gov, which of course doesn't exist anymore. He produced an RSS feed that had a bunch of MP3 files in it, starting in September of 2005, which is three months after podcasting launched on iTunes, and submitted it. The amazing thing is that the Wayback Machine preserved it. So we'll put the link in the show notes here to click through and look at it. But

• 1:47:39Ben Gilbert?

  there is a, uh, there's a page that, uh, has, I don't know, 20 or so episodes of Obama just kinda checking in with the, the, the good people of Illinois. And he's, uh, you know, "Hey, I want to talk to you today about Hurricane Katrina relief efforts. Hey, you know, I, I talked to some people recently about avian flu preparedness. I want to spread that information to you." It is so interesting to get sort of a look at, number one, what he was sort of- Thinking in 05, you know, three years before he became president. And also sort of him honing his voice a little bit. He wasn't quite as presidential. And also, like, what he was doing is just very innovative. I mean, there were so few podcasters then. If you look at the growth over time, of course, there's 600,000 podcasts now. The growth has been exponential.

• 1:48:24Ben Gilbert?

  And so over those first few years, it was just a dribble of people here and there. It was a klugey thing to do. You know, you make this weird RSS feed thing. I guess it's still a klugey thing to do.

• 1:48:33David Rosenthal?

  Still, you make a weird RSS thing.

• 1:48:35Ben Gilbert?

  And nothing has changed. And if you look over on the right sidebar, it says subscribe for free. You can click this button that says Podcast RSS, which I think just literally takes you to an XML file. And then there's a third button called Odeo.

• 1:48:50David Rosenthal?

  Oh, no way. Oh, my God, I hadn't seen that.

• 1:48:53Ben Gilbert?

  Super awesome.

• 1:48:54David Rosenthal?

  Incredible. That's incredible. Well, you know what company we still haven't covered?

• 1:48:59Ben Gilbert?

  Twitter.

• 1:49:00David Rosenthal?

  On this show? Odeo.

• 1:49:06David Rosenthal?

  That's what we should do. We should, we should, we should title the episode Odeo. Be a little in-joke. All right. My carve-outs, I have two, which I know is against the rules. But A, we skipped carve-outs a couple of times this season. But B, because this is the last episode of the season, I have good reason here. The first is timely, so it has to be now. It may already be a little past, but, but let's revive it. Go listen to Kara Swisher's interview with the Google walkout organizers.

• 1:49:36Ben Gilbert?

  Friend of the show, Kara Swisher.

• 1:49:37David Rosenthal?

  Friend of the show, Kara Swisher. Incredible. Everything, you know, that is great about Kara is on display there. So important, you know, as in the moment we are in here at the end of 2018 and tech and everything going on. Just really, really great. In true style, you know, she is of course opinionated, but she brings out like from six people all at once. I can't imagine interviewing six people remote, some in-person, some, you know, remote. Brings out their stories and the purpose of the Google walkout and, and everything behind it. In a way that like is just masterful. So everyone should go listen to that. On a lighter note, since this is the end of the year and the season finale,

• 1:50:17David Rosenthal?

  and people have holiday travel coming up, an incredible, one of the best long read articles I have read in the past few years that came to me as I was just browsing Twitter. Sometimes, every now and then, I'm like, Twitter, like, this is just like a cesspool. I'm ready to give it up. And then like, they hit you with the gem.

• 1:50:38David Rosenthal?

  Allen Iverson wrote-

• 1:50:40Ben Gilbert?

  This is your gem?

• 1:50:41David Rosenthal?

  A really amazing- This is my gem, Allen Iverson. It's a gem. I'm not kidding. This is like, an incredible gem. Allen Iverson, writing for the Players Tribune, writes an incredibly long piece just about him and his story. And like, it's so cool. I grew up in Philadelphia, like, watching Allen Iverson, you know, play. And like, everything, of course, the basketball player, Allen Iverson, he changed so many things. Like, there would be no, you know, everything about what the NBA is today comes from Allen Iverson. And like, in some way, it's so different from what he was. But like, he makes the point in this, in this piece, which is so good on so many levels, that like, everybody called him a thug, everybody called him like, whatever, you know, all the stuff. But it was like, he was being him, you know? And like, that was the thing, that like,

• 1:51:26David Rosenthal?

  he wanted to be an amazing athlete. And like, he was so intense and such a, so dedicated to the game, despite the whole practice thing. He didn't wanna like, not be him. You know, now, all these NBA players are empowered, like LeBron is being LeBron, you know? And Steph is being Steph. Like, it's so good. Can't recommend it enough. Even if you're not like, a huge basketball fan, like, it's just so cool to see somebody who like, was so important to their industry, in a way that like, was misunderstood in so many ways at the time. Then, 10, 20 years later, come back and like, be able to write about it, and hear it from his perspective.

• 1:52:03Ben Gilbert?

  Awesome. Well, adding to my Instapaper.

• 1:52:08David Rosenthal?

  All right. All right, listeners. Now is a great time to talk about one of our favorite companies, Statsig.

• 1:52:16Ben Gilbert?

  Yes, there is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale.

• 1:52:27David Rosenthal?

  Yep. In the crazy speed of today's AI world, shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn what changes actually created value for customers and how fast you can use that signal to guide what you ship next.

• 1:52:48Ben Gilbert?

  This is where Statsig comes in. It brings experimentation, feature flags, and product analytics into one unified system so teams can ship safely, test rigorously, and directly link what they changed to how users actually behaved.

• 1:53:00David Rosenthal?

  So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statsig.com/acquired to get started.

• 1:53:11Ben Gilbert?

  All right, well, listeners, if we don't talk to you again, have an excellent, excellent holiday season. Thank you for being with us on this journey in season three. If you weren't subscribed and want to hear more, you can subscribe from probably wherever you're listening to this. If you like the show and you want more, you should totally become a limited partner. We would love your support. We're stoked that the program's going well and that it's making sort of a meaningful impact on Acquired and what we're able to do as far as like travel to guests and being able to promote the show more, bring on more listeners. And really, it's kind of funny. Like, we cover all these companies. Capital can sort of equal quality. And so it sort of justifies us being able to go above and beyond

• 1:53:55Ben Gilbert?

  and make the show better in a bunch of different ways. So click the link in the show notes, join and become a limited partner. We seriously appreciate it. And we hope you get a ton of value out of the bonus shows that we're doing. I know we have a bunch of fun doing it, so.

• 1:54:09David Rosenthal?

  Indeed, indeed. Well, thank you all, as always. Happy holidays.

• 1:54:13Ben Gilbert?

  We'll see you in season four.

• 1:54:15David Rosenthal?

  Yeah.