Capitalism Needs Empathy

Nick Molnar, the co-founder and CEO of Afterpay, joins Scott to discuss the company’s ‘buy now, take now, pay later’ business model, how millennials' spending habits are changing, and Nick’s experience as an entrepreneur. Nick also compares and contrasts running a startup in San Francisco vs. Sydney. (7:48) Scott opens with his thoughts on the acceleration of e-commerce. This week’s Office Hours: Airbnb and tax regulations, deciding whether to get an M. B. A, and why experiential retail can’t save every retailer. (30:54) Algebra of Happiness: the vulnerability of capitalism. (41:24) Learn more about your ad choices. Visit podcastchoices.com/adchoices

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

• 0:00Scott Galloway?

  Episode 38, the atomic number of strontium, also the brand name of the testosterone. I'm on, why am I on testosterone? Because I am ego testicle. Go, go, go.

• 0:20Scott Galloway?

  Welcome to the 38th episode of the Prob G Show. In today's episode, we speak with Nick Molnar, the co-founder and CEO of Afterpay, the Australian fintech company you've probably seen while online shopping. Nick is a serial entrepreneur with extensive experience in online retail, and Afterpay is arguably one of the fastest growing fintech companies in the world. We discuss the business model, competition, and Nick's experience as an entrepreneur. By the way, this company, $27 billion market cap, hit a low of $9 and is now up towards 100. Two words, first cuss, second ching. Okay, what's happening? Let's get back to the world of e-commerce. All of the numbers are coming in regarding Black Friday and Cyber Monday, which took place this past week.

• 1:02Scott Galloway?

  According to Adobe Analytics, consumers spent $9 billion on US retail sites on Black Friday. That's up 22% from the record set in 2019 of 7.4 billion. Adobe Analytics also reported that consumers spent around $11 billion on Cyber Monday. That's up 15% year-on-year. Over in the land of Shopify, or the land of Nice, i.e. Canada, the company hit a record $2.5 billion in Black Friday sales globally. That's an increase of 75% from sales in 2019. What does all this mean? You already know what I'm about to say. COVID-19 is an accelerant. Online sales grew as much in eight weeks as they had in the decade before the pandemic. And of all the companies, which company seems to have been built for a pandemic?

• 1:45Scott Galloway?

  You guessed it, the Seattle behemoth, Amazon. Karen West of the New York Times wrote a piece detailing how the company's hiring spree is equal to wartime-like hiring. The e-commerce firm employs 1.2 million people. I think that's the second biggest employer in the world, just behind Walmart, or substantially behind Walmart, I should say. And by the way, it took them 25 years to get to half a million employees, and then just a year to get to a million, hiring about 1,400 people a day. What else is causing the acceleration of e-commerce? Your mobile device. Another key finding from Adobe is that shopping via smartphones has skyrocketed. 28 billion more than last year will be spent using smartphones, and 42% of online shopping this holiday season. Will be done from a mobile.

• 2:28Scott Galloway?

  That's up 55% and going back to Shopify, back to Shopify, back to Canada, back to the the nice people. The company reported that mobile sales on Black Friday were 67% compared to 33% of sales made on the desktop. Think about that. Two thirds on mobile, one third on desktop. Mind blown. We've seen a few developments in the smartphone online shopping space. Instagram announced shops back in May where users can browse a company's products and make purchases. More recently, just in the past few weeks, Instagram redesigned its homepage and replaced the activity tab with shops. Now, who owns Instagram? You guys did Facebook. Let's see what's happening over there. The Wall Street Journal reported that Facebook is acquiring Customer, with a K, a customer

• 3:12Scott Galloway?

  relationship management startup for $1 billion. This is an effort to improve customer support done through Facebook's messaging services like WhatsApp and Messenger. By the way, what did they also acquire for $1 billion? Instagram, which by most measures is probably worth about $100 billion, if not more. The company said more than 175 million people contact businesses using WhatsApp every day. That's right. That's right. 175 million people contacting businesses via WhatsApp. Facebook made this announcement despite the fact that the FTC, the Federal Trade Commission, is likely to sue the company for anti-competitive behavior with its acquisition of Instagram or because of its acquisition of Instagram and WhatsApp. Facebook's market cap is around $820 billion and has a history of dominating the space it occupies through acquisitions. So what's going on here? How do we wrap this?

• 3:57Scott Galloway?

  How do we put a, how do we put a dog bow on this? How do we put a collar around this bitch we're calling e-commerce? What is going on here? The way to think about it, the way to break it down, the way to get the 411, the way to distill it down to, I don't know, strontium, is to think about it through the lens of one word. We've been talking about acceleration. Okay. You can wrap your heads around the concept that we're pulling the future forward. Take every trend in your professional and your personal life, take the slope of that curve about 10 years and ask yourself, are you there now? And how would that impact your behavior investments? The other key word that helps encapsulate our thinking, helps us figure out how to allocate our most precious capital, that is our human capital, our time. Dispersion. Simply put, if you think about

• 4:39Scott Galloway?

  mobile phones, what we have done is we have dispersed data, we've dispersed media, we have dispersed movies and content to our mobile phone and to a lesser extent to our TV screen because of Netflix. We have dispersed retail to first our desktops and now our mobile to the fact that we dispersed two thirds of online retail to our mobile phones. First, it was dispersed from the store to maybe home delivery or click and collect. Then it was dispersed to the desktop and now to mobile. What's next? Probably a form of AI where you don't even, it kind of skips all of that and just disperses right to a fulfillment center. What else? What else is happening under the great dispersion? We are going to disperse, if you will, $3 trillion in healthcare. We're going to disperse

• 5:23Scott Galloway?

  $750 billion in education. Think about the biggest sectors in the world. And what we see through the pandemic is a level of centrifugal force that is taking the way we register and create value and shareholder value, and it's being spun out closer to the consumer or specifically, specifically, we're taking value add in businesses and we're dispersing them to the home, whether it's someone showing up at my house every Thursday morning and putting a cotton swab in my nose in my kitchen, or the fact that I'm about to see Wonder Woman 1984 on December 24th, as it's been dispersed from the movie theater to HBO Max. Think about your business. Think about the traditional channels of distribution. Think about the traditional channels and venues where that value is

• 6:07Scott Galloway?

  recognized and then spin the center such that the centrifugal force takes the value add of your core business, of your core product, and spins it closer to the ultimate end user. Dispersion.

• 6:24Scott Galloway?

  Stay with us. We'll be right back for our conversation with Nick Molnar from Afterpay.

• 6:31Scott Galloway?

  Support for the show comes from Superhuman. The pace of modern work can be relentless. You're getting a constant influx of messages from a ton of different apps. You haven't closed all your browser tabs in a year. Everything seems urgent and staying on top of it all feels like an impossible task. Superhuman Go is an AI chat that's always there when you need it, already aware of what you're doing and doesn't ask you to start from zero. Superhuman Go, from the makers of Grammarly, help you be the best version of yourself at work. It handles the repetitive stuff so you can focus on the work that only you can do. Whether you need to summarize an endless email thread or prep for a meeting that's happening in five minutes, Superhuman Go works inside the tools and sites you already use, your browser, inbox, docs, and your project tools. And its AI chat is available on the side of your browser and it's always ready.

• 7:16Scott Galloway?

  No new tabs, no switching apps, no losing your place. This is AI that works with you, not on top of you, so that you have the time and brain space to solve the problems that matter. Check it out, find out more at superhuman.com.

• 7:49Scott Galloway?

  Welcome back. Here's our conversation with Nick Molnar, the co-founder and CEO of Afterpay. Nick, where does this podcast find you?

• 7:58Speaker 01

  I am in Sydney, Australia, right near Bondi Beach at the moment.

• 8:02Scott Galloway?

  Oh, gosh, sucks to be you. Congratulations on your good judgment and being the CEO and founder of a company that has a $27 billion market capitalization. If I'm reading this correctly, it's gone from $8 a share to about 95 in the last 12 months. So anyways, very good to be Nick. Can you, let's kick it out. What is Afterpay? What is the service it provides?

• 8:25Speaker 01

  Yeah, so, um, you know, Afterpay allows primarily the next generation of consumers, you know, preference being the millennial and Gen Z cohort that has found a very deep love for our service to, for round numbers. If you're buying a product for a hundred dollars, the customer pays for payments of twenty five dollars every two weeks. We pay the retailer the next day and then we assume all of the risk. Uh, you know, really stemmed as a result of the two thousand and eight financial crisis, which was the start of the millennial cohort preferring to spend their own money, you know, preferring to spend money on a debit card over a credit card. And the pandemic has very much accelerated that debit preference.

• 9:08Speaker 01

  Um, but, you know, in a, in, in, in broad strokes, that, that's, that's what Afterpay's about.

• 9:14Scott Galloway?

  Okay, so someone goes up to a cash register and the retailer says, you have the opportunity to pay with Afterpay, or are they already signed up?

• 9:24Speaker 01

  Um, a, a, a bit of both. Um, so, you know, the lion's share of our, of our transactions now that take place with, um, new retailers will be existing Afterpay customers. So, you know, we, in the last couple of weeks, we've gone live with Gap Inc., Lululemon, Ugg, um, Adidas, et cetera. And they'd be very much north of fifty percent new to file customers that we can drive to these retail partners. So, you know, we're, we're providing the retailer a tool to serve this next generation that's spending money differently. Um, but we're also, um, becoming a, a, a key source of marketing and new customer acquisition for, for these partners. If you look at, you know, many of the, the public, um, similar webs

• 10:09Speaker 01

  or otherwise, we would be the biggest referrer of traffic to the, the vast majority of our retail partners now.

• 10:15Scott Galloway?

  So there's always an argument over who has the power and who gets custody of the consumer data. So when people make purchases at Lululemon, if they're a first-time user and they go onto the Afterpay platform, do both parties share the data? Does one party have restrictions over accessing the data? Explain to me the dynamics between the two entities, Afterpay and the retailer.

• 10:40Speaker 01

  Yeah, so both parties share the data from the perspective of, using the example of Lululemon, Lululemon get the exact same information that they would normally get when they make a transaction. And most importantly, even when a customer goes to our Apple website to start their shopping journey, the transaction's still taking place on lululemon.com. So we're driving traffic out to those retail partners and the relationship sits then between the retailer and that consumer.

• 11:11Scott Galloway?

  You tapped into something in terms of behavioral change. You don't just build a $27 billion fintech company by doing something a little bit better. What has changed about? What did you recognize in terms of consumer behavior that was changing among this core target that other fintech companies or credit card companies hadn't figured out?

• 11:31Speaker 01

  Yeah, I mean, look, it was a really interesting journey and I think my upbringing also kind of led me to this position in a way. So I sold the most jewelry online out of my bedroom at university. My family was in jewelry. I then was fortunate to grow up during the 2008 financial crisis and saw this trend where millennials just said, you know what, like, I want to spend my own money. I want to spend money on a debit card, not a credit card. And when you think about...

• 12:07Speaker 01

  Why that's the case, if a hundred percent of people pay back a credit card on time, the industry simply doesn't work, it doesn't exist, incentives are completely misaligned. So um saw this trend unfolding, but it was never very prominent in the overall market because disposable income earned by millennials was still relatively small. Now that's starting to obviously get bigger. In, you know, five years' time millennials will earn half of all disposable income in the economy and and as such, we're moving from a credit economy to a debit economy. You know, ninety percent of after base customers use a debit card, not a credit card.

• 12:47Speaker 01

  Um if you look at Visa's latest numbers in May, um credit card spend was down negative twenty one percent year on year growth, but debit card spend was up positive twelve percent year on year growth. Now, this is a systemic change now beyond the millennial and Gen Z cohort, moving from a credit economy to a debit economy. And, you know, to be able to build a brand that can, um as a result of the core product you offer, say to that consumer, that next generation consumer, like, I I get you, I understand your preferences and I'm always there to be to be a win win for you and to be in your favor. You know, that that's been called a way we've built the brand. I think this, you know, viral customer unlock that's taken taken place.

• 13:33Scott Galloway?

  So it's, i- it is, you're, the mechanism is a debit card that it comes right, the money comes right out of the account, but to a certain extent, it's not credit, it's a payment plan, right? So while the payment comes out of there, directly out of their bank account, they're saying, but give me four weeks and four payments to pay this back. Is that accurate?

• 13:50Speaker 01

  Yeah, exactly. So our customers will use a debit card because they want, you know, the transaction to be linked into their existing bank balance, they're buy buying to smooth out their cash flow, they're aligning it to their pay cycle. Um but to be able to do that in a way where, you know, the moment someone goes late on one installment payment, we disable their account. We say you can't keep shopping. You know, on the reverse, the moment someone goes late on a credit card, their incentive is to keep you outstanding for as long as possible.

• 14:19Scott Galloway?

  Yeah.

• 14:20Speaker 01

  So our incentives have been the opposite, you know, which led us, you know, we built a loyalty program called Pulse that rewards responsible spending. You know, the more consecutive payments you make on time, the more loyalty you unlock. So when you have a set of principles that are truly built on a win-win, that aren't the credit-driven economy principles, they're the debit-driven economy principles. That's built on frequency, repeat purchase rates, you know, that high-velocity transaction that builds that relationship. You know, we're just lucky that we have different motivations and drivers of our business that allow us to make those types of decisions.

• 15:00Scott Galloway?

  Well, to a certain extent, you've you've said that the customer is the retailer, not not the late payer, right? The retailer gets gets a construct where it increases their basket size, which they're willing to give you a portion of that increased basket size. It sounds like they like having a new customer. And I can see the network effect, it's all, you know, becoming clear now, and I wish this had become clear about, I don't know, $25 billion of market capitalization increase ago, but you you're you now have 40 million people on the platform, how many people on the platform?

• 15:35Speaker 01

  Got 11 million people.

• 15:36Scott Galloway?

  11, sorry, congratulations, 40 cents. You heard it here first, I'm projecting 40. Yeah, that's going to be a pretty fat house in on Bondi. Anyways, the and then you can go to bigger and bigger retailers and say, I can push some portion of that 11 million people to you on this platform. Is that kind of the new business proposal is I'm going to send an email saying Home Depot is now on Afterpay? Is that kind of the the new business process?

• 16:04Speaker 01

  You know, if you if you look at our home market in Australia, where you know, we started four or five years ago, we now process 15% of all online retail in Australia. And that, you know, is largely the blueprint that gives the market and also a lot of our retail partners the context of kind of where we are today and where we're going. But, you know, in Australia, we're the second-largest traffic driver for the vast majority of our retail partners behind Google. Customers are coming to our app or Afterpay.com to start shopping. So then to be able to translate that to the North American market, to Canada, UK,

• 16:45Speaker 01

  soon to be Europe, and build a real global platform that stands for the next generation, you know, can be a source of traffic to unlock that consumer. It's top of mind for every retailer, you know, not just because they want to increase conversion rates and average order value, but you know, they're kind of looking down the barrel of saying in 10 years' time, millennial and Gen Z will be 48% of all retail spend in the economy, but it's a fraction of my current customer base. So if I don't unlock that customer today and say, I deeply understand you, you have all these influencer brands that are building, you know, big businesses in these niche categories,

• 17:26Speaker 01

  but now, you know, taking mass away from a lot of the retail market and, you know, the traditional retail is leaning into this hard right now.

• 17:35Scott Galloway?

  So, all right, so what is it about you think this generation doesn't want credit? They're more comfortable with installment payments, but they don't, is it they don't like, because to a certain extent, it is a form, I know you don't like the word credit, but it is a form of credit. You're saying, okay, pay over time, you pay us back at some other point, but we're imposing the charges on the retailer, not on you. So I guess it's a transfer, if you will, of expense, which is, but you think there's a different mindset. Say more about that.

• 18:07Speaker 01

  If I just look back nine months, you know, the pandemic started to unfold. I wish I could say it was my foresight, Scott, that brought me to Australia, but my wife was four months pregnant and we said, you know what, let's be in your family. And the stock price went from $40 to $8. But there are a whole lot of structural shifts that are being spoken about. Um, you know, there's this offline to online shift that's being spoken about. There's home learning. Uh, there's a, a range that have have been widely uh articulated. But what I'm the most surprised about is that this fundamental shift from credit to debit is, you know, shift from the credit economy to the debit economy is the most undertalked

• 18:51Speaker 01

  about element, you know, that this is a structural shift that might take ten years to play out because it's directly correlated with disposable income growth. And as people earn more money and their careers develop, they become a greater source of income and spend in the economy. But the shifts now are no longer just a millennial and or Gen Z thing. This is the, the world saying, you know, I want to be more responsible. Traditional credit pr- products are not in my favor. Their incentive is for me to be outstanding for as long as possible rather than to pay back on time as quickly as possible. And, you know, it's that dynamic that has put us in a, you know, what, what is a, a really privileged position. Um, you know, and it's up to us to now build that relationship and go from here.

• 19:36Speaker 01

  Uh, but it, there, there's a, there's a fundamental change right now unfolding across the whole world.

• 19:42Scott Galloway?

  So let's talk about that privileged position, which always attracts competitors. You've got a twenty seven billion dollar market cap. You're growing. You've established this relationship with eleven million consumers who are in not only valuable, but increasingly valuable to, to corporations and retailers, et cetera. What are the moats is it around your business? Is it technology? Is it the relationship with the consumer? Is it you're sort of this Peloton kind of meets Zoom meets Netflix, Netflix kind of hip younger brand? What, when you think about the moats you're building around your business, what are they?

• 20:15Speaker 01

  Yeah, I mean, look, there's, um, you know, there's a couple of different components that, that are unique to our business. So firstly, we have, you know, a, a really strong, deep relationship with the retailer. And that is about providing them a payment product, but that is also about. How can we be core to their marketing strategy? How can we be a customer acquisition channel? I mean, arguably, if we charge an affiliate fee for the leads that we drive our retail partners, we'd actually make more money than our payment processing costs. So it's about how you build, you know, an all encompassing value proposition to that retailer. But on the other side, the most logical competitors, and you know, we saw this in the early days in Australia.

• 20:59Speaker 01

  We're now seeing this start to unfold in North America, just at a bigger scale. You know, these are credit driven products, businesses that started life as a finance company, where their incentives are fundamentally different and they're making a lot of income from revolving credit books.

• 21:18Scott Galloway?

  So who is that? Is that Square? Is that PayPal? Who is that? Who?

• 21:21Speaker 01

  Yeah, I mean, if you look at both of those examples, you know, their, their products in our world have always been credit led solutions. They've always been APR, interest bearing led products. And it's very difficult, particularly for the next generation that wants something that's truly in their favor, to be credit on one side and, and not credit on another side. So you've kind of got this hybrid world where you have competitors trying to produce an afterpay like product as a customer acquisition channel to cross sell them credit. Cause that's the high margin solution. And you know, that, that, that I, I think is where people that did start life doing credit checks,

• 22:04Speaker 01

  hitting people, like hitting people's credit file, they, they just create a very different relationship with, with the customer and, and their existing business models make it difficult to, in a pure way, come into our market.

• 22:17Scott Galloway?

  So let's talk a little bit about Nick. So you are an entrepreneur. You're sort of, you started ICE.com. I remember that. That was Diamonds and Jewelry Online, right?

• 22:28Speaker 01

  Yeah.

• 22:29Scott Galloway?

  And then you did this. So how old were you when you started ICE? I mean, that's been around a while, hasn't it?

• 22:34Speaker 01

  Yeah, so I, um, I sold the most jewelry. I started by selling the most jewelry on eBay out of my bedroom in Australia. I then reached out to the guys at ICE.com in North America and I launched them into Australia. So that kind of taught me online retail. And then to cut a really long story short, my neighbor at my parents' place approached me one day and he said, I don't mean to pry, but I see your light on every night. And the next day I see you take parcels to the post office with your mother. What do you do? Um, and I think the, the mother being involved in the parcel delivery, um, made him feel like I wasn't doing anything notorious. But, you know, that, that led, that led us to, um, to talk about, you know, this, this

• 23:17Speaker 01

  shift, but sta- starting life as a retailer, you know, building DNA within the business that, you know, came from a retail background, um, that wasn't out to build a finance business. Uh, I just think has been, you know, core to, you know, the path that we've taken and, and, and the track that we're on, we're on right now.

• 23:39Scott Galloway?

  And have you lived outside of Australia? Were you with ICE? Were you in the US?

• 23:43Speaker 01

  Yeah, I mean, I was back and forward in, um, from the US. I'm normally in San Francisco. So if I wasn't, um, having our second child, I'm, I've been in, in North America for a couple of years and, um, as soon as my son is ready to fly, we'll be, we'll be back over.

• 23:57Scott Galloway?

  Oh, Nick, Nick, you gotta learn the first lesson of being a successful entrepreneur. You sacrifice all relationships. If you have healthy relationships, that means your stock's going down. So compare, how would you compare and contrast the, the business culture, the society? San Francisco is sort of the helm of the bobsled for innovation in the US, and they would argue in the world. And then Sydney, my sense is that's kind of Sydney and Melbourne are kind of where the rubber meets the road in, in innovation or tech at least in, in Australia. Compare and contrast the two.

• 24:32Speaker 01

  Uh, Australians as a, um, the culture, the culture and society of Australia is definitely about giving things a go. So supporting the underdog, um, trusting in kind of new. And I just think that the embracing by retailers in Australia was, um, a lot easier to unlock than, than what we did in the US. Uh, and, you know, if I look then into moving to San Francisco and building a team in San Francisco, you know, um, you've got to understand, like, we, we've never been in TechCrunch. You know, like, we don't, we don't, that's not what our business is about. You know, we work with

• 25:16Speaker 01

  women's wear daily and business of fashion and, you know, we are where our retailers sit. And so, you know, we got to the, you know, tech epicenter of the world and we had to find the people that were the right blend of science and art. And retail is art, you know, why does someone buy a beauty kit? Or a pair of jeans?

• 25:38Scott Galloway?

  Mm hmm.

• 25:40Speaker 01

  There's a lot of psychology that goes into into that decision. So, you know, we hired slowly in San Francisco and, you know, we've now a team of about two hundred on the ground in SF within two and a half years of being there. Um, but I'd like to to think that we've built, you know, as much of a culture that is similar to what we have in Australia. Um. In in North America, but, you know, we're not, we we we've tried to steer away from, you know, standing for tech crunch, standing for, you know, we don't talk it ourselves really as like in tech, we we're we're sitting in different parts of the retail ecosystem that unlock this um, this opportunity.

• 26:18Scott Galloway?

  And if you were gonna start, if you were telling someone, if someone, you know, had affinity and lifestyle being equal and someone was starting a company, would you think that the US or Australia is a better place to start a company?

• 26:32Speaker 01

  Well, I think there's a lot less competition and a and a more willing to embrace culture in Australia, but the economy is still small. I mean, Australia is twenty five million people. Um, so, you know, when when I'm speaking to Australian entrepreneurs, it has to be about Australians going global to really create that opportunity. But it, you know, the top ten companies listed on Australia on the Australian Stock Exchange are the exact same top ten companies that were there thirty years ago. It's banks, mining companies, property companies. And so that speaks to actually a lack of entrepreneurship.

• 27:10Speaker 01

  Um, but it also speaks to the size of the market and how, you know, you have Atlassian, you have Canva, you have some amazing Australian entrepreneurs now starting to go um offshore. And, you know, when we first announced that we were gonna go from Australia into the US, our our our stock went down. You know, people, oh, here's another Australian organization trying to go global. Um, and then when we landed in the US, it was kind of like, well, you know, you weren't, you weren't founded here. Can you succeed? And, you know, both those things were really interesting to go through and to unlock.

• 27:43Scott Galloway?

  And I always ask as a last question, advice to your younger self, but I'm going to ask it differently because your advice to your younger self would be do everything exactly the same. Advice to, what advice would you give to a 25 year old, say, just out of college, maybe first job they don't love, say they're at a venture capital firm and they think this isn't it for me. What advice would you give that young man or woman?

• 28:05Speaker 01

  Look, there's a lot of young entrepreneurs that are in a job and have a side hustle. You know, you read all these reports that say Gen Z has a side hustle, they're all about side hustle. I think it's very difficult to have a side hustle. And it's very difficult to rip the Band-Aid off and to do something full time, but you have to draw the line where you say, this is real and I have achieved, you know, product market fit and I have the confidence to give it a go. And that sometimes feels far away and you always push, you always delay it. You've always got an excuse that now's not the right time or actually I need to, I need to see this, more of this to unfold before I have the confidence.

• 28:49Speaker 01

  And, you know, if there are more millennial and Gen Z entrepreneurs in the world, I think, I think that's a very good thing.

• 28:55Scott Galloway?

  Nick Molinar is the co-founder and CEO of Afterpay, one of Australia's fastest growing fintech companies and arguably its most successful export. I mean, what you have accomplished here at the age of 30 is sort of, it's not remarkable is the wrong word. It's really, really inspiring. Nick is a serial entrepreneur. He's got extensive experience in online retail. He's got two children under the age of two. He calls in from, or joins us, I should say, today from Sydney, Australia. Nick, congratulations on all your success and stay safe.

• 29:28Speaker 01

  Thanks, Scott.

• 29:38Scott Galloway?

  Support for the show comes from Upwork. Trying to scale your business? At some point, you're probably going to hit a point where you need some help. Sometimes, the best way to break through that is bringing in the right talent at the right time. Upwork can help. Upwork is a one-stop platform where you can find, hire, and pay expert freelancers across more than 125 categories. Whether you need specialized skills for a single project or extra support to keep up with demand, it's easy to connect with experienced professionals, review their work, and find the right fit. You can move faster without taking on the commitment of full-time hires. And for businesses that need the very best talent, Upwork Business Plus provides access to the top 1% of freelancers on the platform. AI-powered matching connects you with qualified candidates in under six hours, cutting down the time spent searching.

• 30:21Scott Galloway?

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• 30:59Scott Galloway?

  Welcome back. Let's bust into Office Hours, a part of the show where we answer your questions about the business world, big tech, higher education, whatever else is on your mind. If you'd like to submit a question, please email a voice recording to [email protected]. Question numero uno.

• 31:14Speaker 02

  Hey, Scott. This is Jonah from New York City. I know how much you love Airbnb, but I wanted to know what you thought about the laws many big cities are passing restricting the use of Airbnbs. How do you think this will affect the business, if at all? My other question is, do you think taxes will be significantly increased for Airbnb, similarly to how hotels have high taxes from local governments trying to capitalize on tourism in their city? And if so, what will be taxed? The hosts, the guests, or the company itself?

• 31:49Scott Galloway?

  Thanks, Jonah. That's a, that's a great question. So in sum, Airbnb is guilty of the same blitzscaling and ignoring traditional norms around being a good corporate citizen, and that is they don't file for business licenses, as Uber did in Argentina, although I do think Airbnb actually does that. But the hotel industry, which is obviously very threatened by Airbnb, as they have to actually go out and borrow tens of millions of dollars to build a hotel versus the asset light model of Airbnb, is going after Airbnb and sees them as an existential threat, as they should. And one of the areas they're attempting to attack them and say, look, this is bad for the world, is that they don't pay their fair share of taxes. Well, and actually, some markets, I don't know if it's all, but Airbnb has in fact started paying similar taxes or taxes now.

• 32:33Scott Galloway?

  Whether, whether it ultimately gets passed on to the end consumer, the renter, or the host, I don't know. But at the end of the day, Airbnb, I believe, should pay the same taxes a hotel pays, unless there is some excuse around infrastructure, or perhaps you could make an excuse that they are already, have already paid for that infrastructure vis a vis the taxes that the owner pays. That would, that is the argument I would make if I, if I were Airbnb. But I think ultimately, they should be subject to the same good behavior as any other organization, and the same taxes that any other organization is paying. This reminds me of the evolution of Amazon and state sales tax. And Amazon would say, we're located in DC, we're headquartered there, and if we don't

• 33:16Scott Galloway?

  have a distribution center or headquarters in New Mexico, we don't have to pay state taxes because we're not actually operating in New Mexico, we're just delivering things there. So if you're a New Mexico resident, you could order on Amazon and not pay state sales tax, which obviously gave Amazon an edge. Over local retailers that had operations in New Mexico. But over time, Amazon threw in the towel and said, okay, we're just going to start paying state sales taxes. And I think that's what's going to happen here. If you think about Airbnb and where they have come under fire, the argument is it goes from individual hosts who are leasing out their apartment to make some extra cabbage. And by the way, about 70% of Airbnb hosts, or 70% of the 7 million properties listed

• 33:59Scott Galloway?

  on the platform are single properties. In other words, the whole institutional notion of Airbnb is a bit overstated. About 30% is institutional, meaning that it's controlled or owned by someone, or leased by someone who has more than one property. And the average age is somewhere in the 30s and it's a woman. And she's typically making a decent amount of money here. It's not like Uber where they're literally creating a permanent underclass and using software to create a payday loan against your car. Anyway, in exchange for flexibility, which some drivers like. But anyway, what you effectively have here with Airbnb is that people are saying, okay, taking housing stock off the market ultimately increases rents in that neighborhood. There's some truth to that.

• 34:41Scott Galloway?

  I think it's hard to argue that if people were coming in and buying or leasing properties for the sole purposes of turning them into Airbnbs, that would decrease the supply. Rents go up. But what it's also doing is making it less expensive to travel. You get a one-bedroom or a two-bedroom apartment in a nice area for a lot less than what it costs to rent a hotel. And perhaps you can take your kids with you. If you're married and you have two kids, two or three rooms, you start talking about serious, almost prohibitive costs to travel. So Airbnb has kind of unlocked travel for a lot of families, I would argue. So what's going on here? I would argue that it's really just a transfer of value, if you will, from renters, who will

• 35:23Scott Galloway?

  likely in some regions have to pay more in rent because the housing stock is decreasing, to travelers who don't have to pay as much or will have more options as the supply and the choice will go up, creating greater competition. But net-net, I think we're winners here. I think this is innovation. Thank you very much for the question, Jonah. Next question.

• 35:42Speaker 03

  Hey, Scott. Elliot from Manhattan Beach. Love the podcast. Keep up the great work. You've mentioned in the past that going forward, we will see big tech partner with universities to help validate the higher price tag at the undergraduate level. How do you see the MBA landscape changing going forward? Moreover, given the cost of an MBA, you had started at Haas's MBA program today. Do you think it'd still be worth it? Thanks.

• 36:05Scott Galloway?

  Elliot, thanks for this. I get asked this a lot, so it's situational. Okay, so first thing you gotta ask yourself is what are your opportunity costs? In other words, what are you doing right now? When I applied to business school, I had just left Morgan Stanley and I was living at home with my mom and not doing, what was I doing? Not a lot, not a lot. I wasn't doing a lot. So my opportunity costs were pretty low. If you're making $150,000 a year at a good company, you're at AT&T and they like you and you have senior level sponsorship and you're getting options and you can see a path to the next position. Okay, that's high opportunity cost. If you're killing it somewhere, you may not want to leave. The primary value of an MBA, the primary value of an MBA is the certification or the additional bump you get in your currency in the marketplace and the subsequent earnings you will register

• 36:49Scott Galloway?

  over the course of your lifetime. So there's a big difference between going to Wharton and going to Joey Bagadonuts MBA program. So, one, did you get into a top 20 program? Two, two, what is your opportunity cost? Three, do you really want to go back to business school? Do you love learning? Do you like education? And then, and then finally, finally, what is your financial situation? If your parents are putting you through business school, if you have a full ride scholarship somewhere, then yeah, it's not a bad place to hang out. Two years goes fast. A lot of people, one of the things I wouldn't think about too much is, well, do I really want to spend two years doing it? 24 months is a blink of an eye, my brother, a blink of an eye. So it's situational. The quality of the program, your opportunity costs, your financial situation and what's

• 37:34Scott Galloway?

  happening at your current company. Thanks so much for the question. Next question.

• 37:39Speaker 04

  Hi Scott, this is Matt in Madison, Wisconsin. If you ever find yourself in Madison after the coronavirus is over and want to enjoy one of the truly great college town experiences of all time, I would gladly buy you a pint on the Memorial Union Terrace. Anyway, on to my question, which is to ask, do you think that stores like Macy's and Nordstrom's, other high-end brick and mortar retailers, after the coronavirus is over, have an opportunity to market themselves and position themselves as a fun place to shop? Shopping on Amazon is expedient, it is convenient, but it is not fun.

• 38:23Speaker 04

  And so I'm just curious if you think that as the coronavirus ends and people are aching to get out and do things, that that might be a great opportunity for them to expand their brand after a decade of getting beat up by Amazon and other online commerce companies?

• 38:37Scott Galloway?

  Thanks very much, Matt from Wisconsin. By the way, by the way, I almost was very interested in the University of Wisconsin at Madison, but made the mistake of driving through there in February and thought, "There's no fucking way I'm going here." It was freezing, Matt, it was freezing. See if you can get on that, or maybe we're getting on that with all our carbon emissions and global warming. Anyway, anyway. By the way, I'm probably going there next summer. I was planning to go there in August for the CrossFit Games. I am an old man who does CrossFit, and I just invested, believe it or not, in CrossFit. And so I'm excited to go to the Games, in large part because I want to check out Madison. So by all means, I will likely not call you, but the thought is there, Matt, the thought is there. The gesture, the intention, the good intention.

• 39:20Scott Galloway?

  You should receive gestures with the intention that they are given. And my intention to call you, even though I won't, that intention is there. Anyway, anyway. I'm fairly bearish on Macy's and Nordstrom. I don't think, your concept is the right one, but you picked the wrong venues. Experiential, there's basically two reasons people are going to still go to brick and mortar. They're not going to go for products, they're going to go for people, they're going to go for service. But here's the thing, the Macy's beauty counter used to be an experience, but now Sephora is a better experience. The place you got sunglasses and eyeglasses at a Nordstrom used to be a great experience. But you know what's better? What's better, Warby Parker, and it's easier. It's so much easier to do a surgical strike and go 20 feet into a specialty retail store in Soho

• 40:04Scott Galloway?

  than to navigate your way into Herald Square and spend 10 minutes to get to your destination. I believe, I believe that millennials and Gen Z will not shop in any store long-term that has an escalator, or you're incurring a 15 or 20 minute tax on your time to kind of get in and get out. Does anyone else, has anyone else been scarred by your mother losing you in Bullock's in Westwood or JCPenney's in Culver City? I was, and trying to figure out what doors you came through to get to the parking lot. So I just don't think that format works for very much longer. I think they'll milk those companies. Macy's has a really interesting tourism business. Nordstrom are some of the best operators in retail.

• 40:44Scott Galloway?

  But I think saying it's going to be an opportunity in terms of experiential shopping, unless they come up with something really interesting, maybe they could have kind of instead of store-in-store, like pop-up in-store kind of applications, like the Froze Mansion or the Museum of Ice Cream. But they're going to have to do something because that format is really challenged. And I don't know if it's fair to say or realistic to say that their experiential attributes are going to save them. But I will see you in Madison, my brother. Thanks again for your questions. Again, if you'd like to submit one, please email a voice recording to [email protected].

• 41:27Scott Galloway?

  Algebra of happiness. I don't believe capitalism is going to survive in the current format. I think our current approach to the novel coronavirus illuminates the vulnerability of capitalism. The greatest economic construct in history that has created more prosperity than any other construct in history is not offering progress. What do I mean by that? We've had incredible productivity at the employee level. We've had incredible shareholder gains, and we have wages that are flat, and we have wealth amongst 2/3 of Americans that has not increased because we figured out a way to crowd all of the wealth and all of the prosperity into not only the top 3, but the top 10 and sometimes the top 1%. And what have we done? What have we figured out a way to do with this pandemic? We have

• 42:12Scott Galloway?

  figured out a way, fiscally, to play this pandemic like a goddamn Stradivarius violin, and figure out a way to get wealthy people wealthier. The two biggest asset classes are residential real estate and stocks. And guess what? They're both at record highs. And who owns 80 to 90% of that? Essentially, college-educated white people in the top 10%. So even when we have a pandemic, we find that we have figured out a way to reward the already powerful, the already rich. Do you think that's an accident? It's not an accident. What's happening here? Patriotism used to be sacrifice, not stimulus. Crises used to be seen as a time when we pulled together all under the flag, grabbed each other's hands, and helped the

• 42:57Scott Galloway?

  neediest. World War II, right? We were looking for a technological solution, so we went about trying to find how to split the atom and end the war. But we didn't stop converting companies. We converted a Chrysler factory in Michigan from producing cars to producing tanks. And that factory produced more tanks than the entire Third Reich produced during World War II. We planted victory gardens. We put 5,000 people in jail for avoiding the draft. That couldn't have been easy. It wasn't like everybody just said, "Sure." We demanded more of people. Now we're afraid to ask people to put on fucking masks. What has happened to us? Capitalism doesn't work. If it doesn't sit on a pillar, if it doesn't sit on a foundation...

• 43:42Scott Galloway?

  Of empathy. What does that mean? It means wealthy people don't take stimulus. It means wealthy people don't apply for a PPP loan. It means all of us put on a mask. People in World War II slowed down. They self-limited their driving speed because they heard that rubber was in short supply. My mother, my mother slept in a makeshift bomb shelter that was the London Tube, and they passed out gas masks in the shape of Disney characters, such that they wouldn't be afraid to put them on. They couldn't even imagine somebody saying that they wouldn't put on a mask because it threatened their liberty or tyranny. If we don't grab each other's hand, if we don't show greater empathy, if we don't start protecting people, not companies, capitalism implodes, it collapses on itself.

• 44:26Scott Galloway?

  Capitalism is not an organic state. It's not an organic state. It has to sit on a pull of empathy. We have to have progressive policies, meaning that the top 0.1% shouldn't pay a lower tax rate than the rest of us. If you're lucky enough to be in the 0.1%, what kind of humanity does that show? When you tolerate a system, and let's be honest, the 0.1% elect probably 50% of the 100 senators. Money is just a transfer of wealth and time, and we've decided that we want to transfer time and work from our kids and grandkids, such that we can ensure that wealthy people do not pay their fair share of taxes, and we still issue reckless spending in the form of stimulus to a lot of people who, quite frankly, don't need it. See above greatest savings rates in history.

• 45:11Scott Galloway?

  When do we start caring more about each other? When are we willing to say, yeah, I don't need stimulus? Yeah, I am going to wear a mask. Yeah, I am going to reach out to people I don't know and try and help. And they are out there, but we haven't institutionalized it. We've elected leaders that have decided that our sole goal as a nation is to turn the 1% into billionaires instead of giving the other 99% a chance to be in the 1%. What is empathy? First and foremost, it's taking care of yourself. You can't, you have to put on your oxygen mask first. You can't help other people. You then make sure your family and your friends are okay. You show generosity, you show grace, you show forgiveness. And then the gangster move, the gangster move,

• 45:54Scott Galloway?

  is you commit to helping, whether it's through time, treasure, or talent, people who you will never meet and who will never thank you. We will be judged by our Creator, our friends, and society.

• 46:06Scott Galloway?

  By the actions we took or didn't take during a crisis, we are in that crisis. How empathetic are we? How loving are we? Capitalism can't survive unless it sits on a base of empathy, regard, and a comity of men, and we have demonstrated very little.

• 46:26Scott Galloway?

  Our producers are Caroline Chagrin and Drew Burrows. If you like what you heard, please follow, download, and subscribe. Thanks for listening. We'll catch you next week with another episode of The Prof G Show from Section 4 and the Westwood One Podcast Network.

• 46:48Scott Galloway?

  You're 33, is that right?

• 46:50Speaker 01

  I'm 30, yeah.

• 46:51Scott Galloway?

  Oh, fuck you. Seriously, man. Seriously, that's awful. That is, that's unforgivable. Oh, my God, if I had your hair, your wealth, and your accent, I would be general consulate of the world. I would literally be running most of Southeast Asia by now. Anyway, okay, so...

• 47:11Speaker 01

  There's a lot of gray hair here, Scott.

• 47:12Scott Galloway?

  So, yeah, cry me a river.