Chris Dixon – The Future of Tech - [Invest Like the Best, EP.69]

My guest this week is Chris Dixon, who has written some of my favorite essays on technology and venture investing. Chris is a prolific investor and thinker, having been an entrepreneur, angel investor, and now partner at the well-known venture capital firm Andreessen Horowitz. Our conversation focuses on major trends in technology, including cryptocurrencies and the future of autonomous vehicles and drones. Chris has a rule of thumb for technology trends: find out what smart people are working on during the weekend, and you’ll know what other will be doing years in the future. After surveying his old essays, it’s clear you use Chris’s writings as a similar litmus test. Hash Power is presented by Fidelity Investments Please enjoy this great conversation with Chris Dixon on the future of tech. For more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub. Follow Patrick on Twitter at @patrick_oshag Books Referenced Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages Who Controls the Internet?: Illusions of a Borderless World Links Referenced Douglas Hofstadter Daniel Dennett How Aristotle Created the Computer New Yorker Cover on automation The World of Numbers website Jerry Neumann podcast episode David Tisch podcast ERC-20 Token Standard Eleven Reasons To Be Excited About The Future of Technology Show Notes 2:04 (First Question) – Why did Chris choose to study philosophy 2:23 – Douglas Hofstadter 2:24 – Daniel Dennett 3:20 – How Aristotle Created the Computer 3:35 – Where has his thinking and viewpoints changed the most having been in the real world 4:42 – What is the real driving force behind all of the technology that we are creating and will automation kill all of the jobs 6:16 – New Yorker Cover on automation 6:57 – The World of Numbers website 8:36 – A look at his history in networks and network design 11:03 – Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages 11:07 – Jerry Neumann podcast episode 12:32 – Who Controls the Internet?: Illusions of a Borderless World 13:06 – What are the market and technological forces that make it difficult to regulate software hardware companies 14:39 – The best features of proprietary centralized networks and open networks 16:40 – What things are better centralized vs decentralized 22:30 – David Tisch podcast 23:03 – When it comes to cryptocurrencies, what are the concerns that the protocols themselves hold value and could this lead to centralization of the system problems 24:02 – Block size debate (topic) 26:40 – ERC-20 Token Standard 27:23 – Is the blockchain the answer to the stagnation of the big tech players 34:39 - How does Chris think about the dichotomy of investing in people vs technologies 34:59 – Eleven Reasons To Be Excited About The Future of Technology 37:45 – What organizational structures of companies are most compelling 41:50 – Any major trends in technology a cause for concern for Chris 44:09 – What major trends is Chris passionately pursuing 51:15 – If everyone agrees on a future trend of technology, can you still make money investing in them 52:20 – How do you encourage younger people to approach the world and a career differently in this ever-changing world 57:39 – Kindest thing anyone has done for Chris Learn More For more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub Follow Patrick on twitter at @patrick_oshag

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

• 0:00Patrick O'Shaughnessy?

  I know firsthand how complex the tech stack is for asset management firms. And seemingly every new tool and data source makes the problem even worse, adding more complexity, more headcount and more risk. RidgeLine offers a better way forward. One unified platform that automates away the complexity across portfolio accounting, reconciliation, reporting, trading, compliance and more, all at scale. RidgeLine is revolutionizing investment management, helping ambitious firms scale faster, operate smarter and stay ahead of the curve. See what RidgeLine can unlock for your firm. Schedule a demo at ridgeline.ai.

• 0:36Patrick O'Shaughnessy?

  Hello and welcome, everyone. I'm Patrick O'Neal and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, methods, stories and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com.

• 0:57Speaker 02

  Patrick O'Neal is a principal and portfolio manager at O'Neal Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Neal Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Neal Asset Management may maintain positions in the securities discussed in this podcast.

• 1:29Patrick O'Shaughnessy?

  My guest this week is Chris Dixon, who has written some of my favorite essays on technology and venture investing. Chris is a prolific investor and thinker, having been an entrepreneur, angel investor and now partner at the well-known venture capital firm Andreessen Horowitz. Our conversation focuses on major trends in technology, including cryptocurrencies and the future of autonomous vehicles and drones. Chris has a rule of thumb for technology trends. Find out what smart people are working on during the weekends and you'll know what others will be doing years down the road. After surveying his old essays, it's clear you could use Chris's writings as a similar litmus test. Like the Hash Power Documentary, this episode and other Hash Power Singles are brought to you by Fidelity Investments, a company that is constantly researching and experimenting with emerging technologies like crypto assets and blockchain to improve

• 2:13Patrick O'Shaughnessy?

  the lives of their customers. Fidelity provides a comprehensive set of products and services to individual investors, employers, and financial advisory firms. For more information, please visit fidelity.com. Please enjoy this wide-ranging and great conversation with Chris Dixon on the future of tech.

• 2:37Patrick O'Shaughnessy?

  So Chris, it's not often that I come across a fellow philosophy major on this podcast, so I have to start there. We'll go all the way back to college and ask why that was what you decided to study.

• 2:49Speaker 03

  Great question. So I had been interested in computers my whole life, like as a kid growing up and programmed computers. And then I read a series of books, Douglas Hofstadter, Daniel Dennett, these kind of, I don't know, people that know will know and people that don't know, I may not know, but sort of AI, cognitive science, philosophy of mind, logic. And I just thought it was like, kind of, to me, it was this really interesting intersection of like, all of these technical things I was interested in, but then kind of these almost science fiction-y futures of like, artificial intelligence. And then you kind of naturally, as you follow that path, you're like, well, what is artificial intelligence? What does it mean to have consciousness? What does it mean? So that's kind of the rabbit hole I started down. And then I ended up kind of focusing on sort of philosophy of mind, logic, philosophy of language, kind of very analytic philosophy. So, you know,

• 3:34Speaker 03

  philosophy is kind of divided between continental, as you know, probably, but continental analytic philosophy. And so I was very much in that side. And I had a wonderful experience. It was a great, it was a great thing to study. It turned out that the job market in technology was probably a more attractive job market than the philosophy job market. So I, so I ended up switching at some point. But, but I still go back and read it. I actually recently wrote a piece, an article for The Atlantic, which

• 3:55Patrick O'Shaughnessy?

  Oh, really?

• 3:55Speaker 03

  Yeah, which was on sort of the history of Logic and computers. And so I still read a lot of this stuff. I'm interested in it, but I'm like, I realize at some point, I'm never going to be anything more than a mediocre philosopher. So I'll try my hand at something else.

• 4:09Patrick O'Shaughnessy?

  How much has your, or maybe where has your view changed the most since kind of that early reading to now, having done a lot in the real world and business and investing?

• 4:18Speaker 03

  In terms of philosophy interests?

• 4:19Patrick O'Shaughnessy?

  Yeah.

• 4:19Speaker 03

  That's a, that's an interesting question. It's interesting because like I go back and I try to catch up on what's going on in philosophy. And it turns out it doesn't change that much. It's a relatively slow moving field, but that's a great question. I mean, I think the stuff I did was, you know, I don't know, I just think as you get older or something, you get more interested in, in other questions. So analytic philosophy is very, the stuff I did at least, was very narrowly focused on things like logic and philosophy of language. And it's kind of technical. And I think just as I've kind of gone on, I've gotten more interested in questions of kind of really going back to the Greeks. If you go back and read Plato and Socrates, like the questions they ask, what does it mean to lead a good life? What is to be a good person? What is it? What is the nature of reality? I don't know, these kinds of more almost like religious metaphysical questions to me, just person, I don't know, it's maybe just time goes on and you sort of start thinking about these things or something.

• 5:01Speaker 03

  And so if I were to do it again, I'd probably be have maybe a broader view and, and, and think about more kind of fundamental questions of living and life or something as opposed to something so technical. So that, you know, but at the time that would seem really interesting, the kind of technical stuff.

• 5:15Patrick O'Shaughnessy?

  How about tying that into technology? This is something I think a lot about, working with a lot of data on my side. I know that the things that you pick to optimize for determine a lot about kind of what gets built. And I'm curious, if you think philosophically about technology, what it is that all the things you write about, think about, invest in are optimizing for? Is it human growth? Is it happiness? Is it wellbeing? Is it laziness? How do you think about kind of what is, what is effectively, if you back to talking about the Greeks, like Aristotle's prime mover, like what, what is pulling us and driving the technology that we create?

• 5:50Speaker 03

  So I think it's, you know, the, I mean, the actual motives are very different, right? I think there's a certain, there's a certain set of people who are sort of engineers, who have engineering mindset, who get a great kind of delight out of the kind of creative act of building something. I used to be like this when I could program. I know that feeling. It's this sort of feeling of deep satisfaction that you, you know, had an idea, went and, and worked on it and then saw something that was actually built. I think if you talk to most engineers, like computer programmers, so much of what they do is about seeing something being used in the world and going from kind of an idea to something that, that actually affects people. Right? So I think there's the engineer's perspective. Which I think a lot of people in Silicon Valley, you know, were once engineers and see that as, like I see what I do as sort of an extension of that, which is we, you know, we help to sort of allocate capital to people on those projects and in some ways sort of

• 6:34Speaker 03

  decide, you know, help decide what projects make sense and connect to the kind of broader world. If you look at it from a societal point of view, I mean, you know, this is very controversial these days and you just showed me a New Yorker cover picture, which, you know, was talking about sort of the coming automation and the various threats. And there's all these, you know, discussions going on in the news today, you know, in the sort of news and Twitter and Facebook, et cetera, about our autonomous car is going to take away jobs and AI is going to displace people and things like this, which, you know, I think there's a real important conversation to be had there. And I think sometimes it's clear that technology does have that impact. I think if you, you know, my own view is that if you look at the history of technology,

• 7:17Speaker 03

  that it has caused some short-term displacement, but over time has created more jobs and has improved the overall quality of life. And so like if you look at, there's a great website, I think it's the World in Numbers, I think, I believe it's called, you know, where they kind of go through, like if you look at like all these, any metrics, sort of like GDP, you know, infant mortality, just sort of, you know, overall like percentage of the world population in poverty, like everything, I mean, just objectively, everything has gotten much, much better in the last 200 years. And I just fundamentally believe that will be the case and will continue to be the case. And I forgot which economist said, you know, human needs and wants are unbounded, like the idea that, the idea that this is, as they call it, like the lump of labor fallacy, that like, once you automate a few jobs, that there won't be new jobs created. I don't believe that's true.

• 7:59Speaker 03

  I think what, there's a fundamental asymmetry in, it's very easy to imagine with new technologies, it's very easy to imagine the jobs that will go away. It's very hard to imagine the new jobs created because by definition, they don't exist yet. So 20 years ago, you would have said, okay, the Photoshop is going to ruin print graphic design, but you didn't imagine it would create, you know, web developers and mobile app designers and all these other things. In fact, there's a great chart somewhere where they show that actually like the number of total net jobs created went up in those design fields. And so, you know, who would have imagined today Uber driver and, you know, and mobile app designer and social media manager and all these kinds of jobs that that actually do exist would have seemed, you know, would have been very hard to predict. However, you could have predicted that people that print newspapers and all sorts of other things would go away with with the Internet.

• 8:42Speaker 03

  So, you know, so to answer your question, I think that there's a kind of a local motivation, which is to build things that sort of core human need to create things, which I believe is a core need and core of, you know, kind of a core drive that brings people happiness. And then I think there's a broader societal goal, which I think is to just, you know, increase well-being and welfare. And I do believe that technology does that in general.

• 9:05Patrick O'Shaughnessy?

  One of the the things, the common themes of all my conversations recently has been the power of kind of compound knowledge over time, a lot of it driven by technology, and a lot of the discovery that's been a result of networks, both open and closed. So I'd love to spend a decent amount of time on on network design, features of networks, both open and proprietary. Maybe you could begin by your own history with exploring networks. I know it's become a key part of your thinking from an investing standpoint, and maybe a technology standpoint, too. So a clean way to do it would just be to describe how how you got interested in networks, network design, and we'll talk about where that where that's all going.

• 9:42Speaker 03

  Big topic. So I have this joke, it's not a very funny joke, but it's a joke that, you know, computer science was was was sort of mistitled, and it should have been called algorithms and network design. Because if you really look at what people do in computer science, it's generally those two things. As opposed to, you know, you can actually do computer science. Most of what computer scientists do actually don't require computers. You know, when you do algorithms, network design is really a much more of an abstract mathematical thing. And it's, as they say, substrate neutral. Like, you don't actually need to like embody it on silicon to have it be this, you know, it's and in that sense, is a true, I think, theoretical academic subject or something. But it's that important, right? It's like half of computer sciences, like they call distributed systems or networks, you know, but like, it's so important. Obviously, the Internet is, you know, kind of the base layer of the Internet. I think of the Internet as, and I know we're going to talk about cryptocurrencies in a minute, but I think of the Internet

• 10:26Speaker 03

  as kind of what we have today as kind of the first couple of layers. Layers of what the internet could be and it's I think it's only at its very early stage of its Twenty five years old. Of its potential. Yeah, it's twenty five years old and well and there's two ways to look at that. There's the kind of Carlotta Perez framework, if you're familiar with that, which is, you know. Deployment age. You have these technology cycles. So like one way to look at is it's sort of like it's similar to the automobile, which is yeah, the automobile gets invented, you know, nineteen hundred ish. You have a, you know, you have a bubble as she describes. In that case, it was in Detroit and you had, you know, whatever it was, thousands of car companies. And then there was a crash and out of that, you know, Ford and GM and a few others emerged. And then you had this long period of kind of what she calls the deployment phase, right? Which is you have cars and they get better, but they're, you know, they're still cars fundamentally. Like they haven't, they don't change that much.

• 11:10Speaker 03

  But what does change is all the applications for the cars, right? So you build the highway system and trucking and fast food restaurants and big box retail and suburbs. And like all these things that couldn't have existed before you had cars. And so those are sort of the apps, if you will, of the car era, right? But that's kind of how it plays out and she goes through and it's a fascinating book and it's, and I highly recommend if people haven't read it, it's the history of financial cycles. I forgot exactly. I spent a long time talking to Jerry Neumann about this. He's written some really good blog posts about it. And so her view is sort of, you have this, and actually the Gartner hype cycle, if you're familiar with that, that actually should be called the Perez cycle. It came from her work. You always see this stuff plotted. Yeah. So it's sort of this initial period where everyone gets really excited and probably maybe overexcited. And there's a crash, it's very much like the dot com thing, and then there's just a long kind of rebuilding. Okay, now I think there's a really interesting question as to whether that

• 11:56Speaker 03

  that cycle is applies to software the same way it does to hardware. So with cars, it's fundamentally like, once you invent the combustible engine, like, yeah, you can do an electric car. You can do ride sharing, things like this. It's a hundred years later and we're now working on these things for real, right? But, you know, software, I think of software as fundamentally different than hardware and that software is literally the encode, going back to philosophy a little bit here, but it's like the encoding of human ideas. If you can think of it, you can write software that embodies it. And so I think of the internet as, and this is, I think this will touch on some important issues. I think of it as a much more kind of plastic, malleable form of media than television, radio kind of things. I mean, fundamentally, like you look at like television, it was a hardware based network, right? I mean, it was like you had certain RF signals and things like, there's only so much that you could send pictures on. That's it. And then at that point, it's just like different content and maybe upgrade. From black and white to color, but that's about it.

• 12:40Speaker 03

  Here on the internet, you can literally through software. You know, the way the internet's architecture is right is you have these relatively simple base protocols. And on top of that, you can re-architect almost anything. And so this is completely malleable and can reinvent itself. And I think this is very important because if you're familiar with Tim Wu has a book. It's a great, great book, very interesting thinker. I'm a big fan, but fundamentally says, you know, like what's happened is, you know, with the kind of big four internet companies today. We're seeing the same kind of centralization that we saw with TV and radio and everything else. And, and I think his conclusion is the only kind of real answer to that is regulation. And if you believe that the internet and software is just like hardware, then that's sort of the inevitable conclusion. I actually believe something else, which is I think software is much more, can change and is much more malleable.

• 13:24Speaker 03

  And that there are potentially technological and market forces that can correct the centralization.

• 13:30Patrick O'Shaughnessy?

  What are the features that make that true? So I guess maybe the one I would think of first is just physical limitations for hardware. You know, there's a limit to how many transistors you can jam on a certain amount of space. And software maybe can iterate or, or go through stages of evolution, generations faster. Is that the primary driver of why that you think that's true? What are the, what are the reasons behind that?

• 13:49Speaker 03

  Why software's different than hardware?

• 13:50Patrick O'Shaughnessy?

  Yeah.

• 13:50Speaker 03

  Yeah. Um, you know, it's a.

• 13:53Patrick O'Shaughnessy?

  Or why those other models might, the Perez.

• 13:55Speaker 03

  It's the, it's the degrees of freedom. So we know like software, like to be a Turing complete computer is to be a computer that, you know, can embody anything, any, any logical. Like it's mathematically provable, it goes back to philosophy and logic, that, that any algorithm that can ever be invented can be embodied on any Turing complete computer, right? So it comes down to the degrees of freedom, essentially, right? Was it hardware, like you're fundamentally limited by the physics and by everything else. Whereas software, we know sort of mathematically, the degrees of freedom are literally the, the limits of human thought. There's some debates, like if you read books, you know, where they talk about Gödel's incompleteness theorem and whether that means. Yeah, yeah, this kind of stuff. But like, for the most part, there's, we know that like the degrees of freedom are almost unlimited, which is by the way, why? It affects the business cycle too, which why software companies are commoditized much more slowly than hardware companies.

• 14:40Speaker 03

  I think it was Larry Page who said, you expect all hardware to eventually be the cost of the commodity inputs, the silicon and everything else. Like it eventually just goes down because in the end you just, once you've built, there's only so many ways. To put together a semiconductor or something, right? Whereas there's just like an infinite ways to put together a set of cryptocurrencies. It's just, there's simply no limit. It's like, it's literally like you can have a new idea and you can invent a new way to do it. It's an unbounded design space.

• 15:01Patrick O'Shaughnessy?

  So you mentioned that, you know, the internet's 25 years old. Maybe we're just in the early stages of seeing, obviously, we've seen a big suite of apps be built on top of that and capture an enormous amount of value. Maybe you have this over-concentration of power or centralization on top of a very decentralized, open network. So maybe talk about what you view as the best features of both proprietary, maybe proprietary centralized networks, if there are positive features, and open networks. And that will be an interesting way to get into crypto.

• 15:28Speaker 03

  So talking about centralized, so by that, like, or centralized platforms, let's say, which is the obvious big ones are Google, Apple, Facebook, Amazon. I mean, the benefits are immense, which is like, I have this magical supercomputer in my pocket that has access to all the human information and I pay, you know, I pay for the phone and everything else is free. I mean, it's unbelievable, right? Like I have, someone, someone, some tweeted, you know, you have more information than the President of the United States did 15 years ago. I mean, it's unbelievable. 3 billion people have smartphones and like, it's a miracle. By the way, you go back and you read science fiction, interesting fact of science fiction, no one predicted the internet. They predicted like flying cars and robots and, you know, all sorts of like Tesla coils and things that fire lasers and everything else. And no one predicted you'd have like a supercomputer in your pocket with access to all the information. And by the way, I can instantly, like, you know, my partner, Mark Andreessen always jokes, like, of course, people are looking at their phone. Like, you've got 3 billion people and like this filter of like the smartest, most interesting things in the world.

• 16:13Speaker 03

  Why, why would you look at the person next to you and you can look at like, you know, this, this like-

• 16:17Patrick O'Shaughnessy?

  Best of the best.

• 16:18Speaker 03

  The best of the best, right? I mean, like, it is amazing. I mean, he's sort of kidding, like, we all, we actually do believe you should go outside and, and interact with humans. So, you know, what we're, it's said a little bit tongue in cheek, but like, it is an unbelievable thing. You know, and look, Facebook is free, Google, I mean, Google's a miracle. Like, it's, it's a true miracle. And I don't think, I think if you described it in a science fiction novel 30 years ago, it would have, it would have just sounded like a preposterous thing in the world, that you can just literally type any word or anything you think of and autocomplete and think for yourself. And, you know, and you'll have this magical crowdsourced encyclopedia that, I mean, it sounds ridiculous, but it's what we live every day and everyone just expects it, you know, thinks it's normal. So, I mean, look, it's an incre- I mean, yeah, and they put ads on there, but it's actually, the ads are pretty good. And like, they aren't that annoying and they don't like have big pop-ups and- Things and like, it's amazing, right? It's amazing.

• 17:01Patrick O'Shaughnessy?

  Interesting distinction would be between Wikipedia and Google. Obviously, Google is far more ubiquitous and people use Google constantly. I probably use Wikipedia as much or more than I use Google. And that is a nonsense. That's a very decentralized, open, network-based thing. So I'm trying to really understand, I've really struggled with this, honestly. How, like, what the litmus tests may be for whether or not something is better off as we see this proliferation of token-based open networks. Whether or not something is better centralized or decentralized. Do you have thoughts on kind of the criteria?

• 17:35Speaker 03

  I mean, I'll just briefly touch on Wikipedia. Wikipedia is kind of a miracle. You know, thankfully, the creators of Wikipedia, Jimmy Wales, they decided to make it a nonprofit. It does have certain technical features that lend itself. They do have to every year, and you'll see it, I think, the banner up today. They're asking for money every year. But the hosting costs are relatively light. It's hosting, you know, cacheable, static webpages. It's very unlikely you could run like the operating expenses of a search engine or something in that model. So some of it happens to be just, the operating model is relatively inexpensive. It's a nonprofit. It's worked, you know, like that. So, but it's also just frankly, I think, an accident, a wonderful accident in history that the founders decided to make this thing a nonprofit. And so that's great. I don't think, you know, if we look going forward, the reality is that that the vast majority of investment today on the internet

• 18:19Speaker 03

  is made by, you know, the very large incumbent companies. And they're trying to build products that reinforce their platform dominance. And so, you know, you'll see it happening, you know, where now they're all kind of doing everything, right? So they're all building kind of Google Alexa-style, Google Home, like, voice things you talk to in your home. They're building, you know, they all have Yeah, they all have their Apple TV. They're all doing kind of phones. They're all doing, right? I mean, so sort of everyone's doing everything. Everyone's got a voice assistant. Amazon's now moving in, you know, they all have AWS, Google Cloud, Microsoft Azure. Like, they're all now, you know, eventually they're all going to have business apps. You know, they all want to kind of do everything as you'd expect a for-profit business to do, right? They take, they're profitable. They reinvest the profits in new things that kind of expand their, their dominion. And so you asked me, so the benefits of centralization, there's lots of benefits, like, technical benefits of centralization.

• 19:03Speaker 03

  So performance is a huge one. So, you know, having, just from a design point of view, if you want to build something like A search engine, there's all sorts of benefits to having all of that kind of web traffic flow through some central point. Now, interestingly, behind the scenes at Google, it's actually a very decentralized systems and they're and they've actually famously gotten very good at built. So if you look behind the scenes at like Google's data centers and things, they are commodity, you know, Linux boxes running these very distributed algorithms. So it actually is very decentralized behind the scenes. But but there's all sorts of things you can do performance wise. And when we, you know, talk more about cryptocurrencies, we could talk about that's one of the big challenges in decentralized world decentralized systems. And so the internet was one. And by the way, a very interesting case study is the internet versus AOL. I think people today forget that AOL was a very powerful incumbent

• 19:45Speaker 03

  at the time and seemed and the internet was a scrappy underdog. You know, the benefits of decentralization, sometimes people talk about this, and we talk about Bitcoin and Ethereum and systems like this, they talk about things like censorship resistance, which is one of them, which is sort of the ability for, you know, the ability to withstand a government attempt to shut them down. I don't think that's a particularly interesting feature of decentralized systems. I think a very important feature of decentralized systems is the ability for users and developers and people participating on that platform to feel like they can build on that platform and not have the rules of the game change later on. Like, to me, that is the key feature of decentralized systems. And so, and I think, I think to understand that, you have to look at like, why did the internet beat AOL? The internet beat AOL, like, the simple way I think about it is there are a few million

• 20:30Speaker 03

  at the time, now probably 20 million great software developers in the world. And, you know, Bill Joy's family, he said, no matter how many smart people you have working for you, the smartest people don't work for you. Right? Smart people work for somebody else. And so that regardless of your Facebook or Google, I don't know how many engineers those companies, they have in tens of thousands, right? I mean, doesn't tens of thousands out of 20 million, right? So they have a tiny drop in the bucket of the great engineers, right? So the system, in my view of the world, the systems that will ultimately win and the reason the internet beat AOL was that they captured the hearts and the minds of that massive kind of developer community. And why did they capture their hearts and minds? Because you knew if you were Larry Page, and when they started 1996, I think, 97, you knew if you built a search engine on the web, that the web wasn't going to go

• 21:15Speaker 03

  say, oh, thank you for doing that. I'm going to now change the rules and charge you money. You know, like Apple charges you 30% and Google charges you 30% on their phones. Or, you know, famously like Facebook and Twitter like had a bunch of people build apps like Zynga and things on top of them and they changed the rules on them. Like, they knew they could build that thing. And if it worked, it worked. And why? Because the internet was a set of decentralized protocols. And like, there was, there were some committees and things that decided, but they were, you know, committees whose charter, they were nonprofits, whose charter was to, you know, to encourage innovation, not to take profits away from companies. And so it was like, the highway system, it was like a public infrastructure that you knew you could build on. And if you built this awesome trucking company on the highway system, the highway system wasn't going to come along and take it from you, right? Would you want to make that kind of investment on a private highway system? You probably wouldn't, right?

• 22:00Speaker 03

  And in fact, the history of technology has shown that if you did, it's a very dangerous game to play. And investors have learned that lesson and don't invest in things like that. And so ultimately, and then, you know, Mark Zuckerberg started Facebook in a Harvard dorm room again, on the open web. I worry that today, it's not clear to me that you could, that you could be a Sergey and Larry in a Menlo Park garage, or a Mark Zuckerberg in a dorm room and start an internet company and actually have a credible shot at creating a massive new company because of the, the degree to which these things have become centralized. So just a simple example is everyone uses their phone. That's the vast majority of computer usage today. And most people find apps by going to the app store. And those app stores are controlled by, you know, Google and Apple, right? And so

• 22:38Patrick O'Shaughnessy?

  Very small bottleneck.

• 22:39Speaker 03

  And in fact, we haven't seen, I think if you look at the top 10, even 20 apps on the, on the iOS app store at least, I don't think a single one was created post 2012.

• 22:48Patrick O'Shaughnessy?

  Yep. Talking to Dave Tish in New York about this, and he asked the question, he's like, when's the last time you downloaded an app that like you actually use with any frequency? And it's been a long time.

• 22:55Speaker 03

  Probably games. I mean, that's the one thing, but they, there's like a short, you know, you, you play for a couple of weeks or whatever. And like, but that's it, right? There's not, yeah, that's right. The, the kind of home screen, everyday stuff hasn't changed and you just look at the app store. And so that worries me for, I mean, one, I guess the selfish reason, we invest in startups. So you could say, I'm just talking my book here. But like, I think it also, I think you could make a strong case, this is a side, this is an issue for society because you want People to be able to start something in a garage that becomes a big deal because that's how real innovation happens.

• 23:21Patrick O'Shaughnessy?

  So let's move to some of these same issues through the lens of some of the major cryptocurrencies. So one of the things that in my investigation I found so appealing about this whole space philosophically is that they are these open networks. But one of the things I'm struggling most with is the tendency for concentration in this case. So with TCP IP, there's no value that can be within the protocol layer that can be accrued to whomever. Whereas with Bitcoin, you see, if you look at like a Gini coefficient, the concentration of ownership, the concentration of hash power, hierarchies just tend to emerge in these things when there's value or wealth associated with it. So is that a concern for you? I know, obviously, the potential upsides of having these be more open networks for exchanging value versus information.

• 24:06Patrick O'Shaughnessy?

  But what do you think about that idea that just the fact that they do hold value, kind of the fat protocol idea, could just lead to all the same centralization problems?

• 24:16Speaker 03

  I mean, look, as your listeners may know, there's been a big debate going on in Bitcoin for a long time over the, you know, sort of what's called the block size debate.

• 24:23Patrick O'Shaughnessy?

  Could you just highlight that a little bit?

• 24:25Speaker 03

  Yeah, so basically, maybe if it's okay, step back a bit. So cryptocurrency really started in 2009 with the publication of the Bitcoin paper by pseudonyminous author Satoshi Nakamoto. And then that sort of kicked off. At first, it was sort of people kind of playing around with it and experimenting, but then the price started going up and miners came in. So miners are basically people that provide the service side. They're kind of the AWS, they keep the ledger, they're sort of the service providers of the network. And then some users came on and people started building wallets and then some companies got started. And then it really kind of rose in public consciousness in 2013 when the price started going up. And then it kind of crashed and then there's this debate going on, which was among the core developers of the Bitcoin protocol over what's called the block size, which essentially

• 25:09Speaker 03

  is how much memory to allocate to each block, which basically reduces to how powerful computer do you have to have to be a Bitcoin node. And so one school of thought is this should be something that's highly decentralized and that anyone with like a kind of low-powered laptop should be able to participate in the network and be a node. And be part of the governance of the network. And the other school of thought is no, we need to increase this over time so that we could, the system can scale and we can lower transaction costs. And there's a whole bunch of, so there's, and it's, it became this very contentious thing and it still is very contentious. But what happened in the meantime is a certain set of developers said, you know what, they want to try a different path. And they, and, and they created other protocols that were sort of inspired by Bitcoin, took a lot of the ideas of it, but changed it and expanded on it. And the most, the most notable of those is Ethereum.

• 25:54Speaker 03

  So this was Vitalik Buterin and a group of, I think there's like 20 kind of core Ethereum developers, who, who created something like Bitcoin. It's a sort of decentralized system that uses a blockchain. A blockchain is the kind of the security mechanism. It's what they call the consensus mechanism. It's where like a whole bunch of different sort of network participants called miners come together to kind of every X minutes, depending on the system, vote on the state of the network. Who owns what basically. Yeah. And so Ethereum was kind of a generalization of Bitcoin, which was to say that instead of just keeping kind of the state of a ledger of like currency, we're going to add a whole computing platform on it. So they have, it has a language called solidity, which is very similar to JavaScript. It's a very powerful kind of general purpose computing language.

• 26:33Speaker 03

  And so in addition to, on Ethereum, in addition to transferring money, you can also write arbitrary computer code that they call smart contracts that can do all sorts of anything you can think of. And one of the examples they had on their homepage when they launched of like the 10 cool things you can do was crowdfunding. And fast forward to today, you hear, you may hear about ICOs. That's, that's literally that code almost, you know, slightly changed that they showed on their, on their homepage. Yeah. This is a crowdfunding thing which turned into, people sort of said, hey, let's do this crowd. So you send us money and we'll send you back this digital good called a token. And this will be a new way to raise money and develop protocols. And then that kind of kicked off a whole nother wave. And now we have, it's really exciting. We, you know, I mean, there are thousands now of these projects.

• 27:16Speaker 03

  And, you know, there are unfortunately, as with anything involving, you know, large amounts of money, there's a lot of bad projects. There's some outright scams, but there's a lot of good stuff too. And there's just, you know, I probably see a few interesting, like per week, I would say, you know, these days, you know, I see a few very, very interesting and, you know, talented teams. Working on new sort of protocol ideas inspired by this kind of, you know, these ideas of Bitcoin and Ethereum.

• 27:41Patrick O'Shaughnessy?

  Do you think that that is the answer to that prior concern of kind of stagnation of the big tech players kind of all having secured their network effects? And potentially this is a way, both through fundraising, but also through, you know, if the internet gave birth to everything we see, that this is a new layer of protocols. You mentioned that we might just be at the beginning. Maybe this is just step two of 10 of what the internet could become.

• 28:04Speaker 03

  I think it's very early. And so, so, okay, so one, I want to caveat a couple of things. So one is, nothing I say here is like investing advice.

• 28:12Patrick O'Shaughnessy?

  We're disclaimed very well on this podcast.

• 28:14Speaker 03

  Nothing here is investment advice. I do not think anyone should go out and buy cryptocurrency unless you're like spending a ton of time researching it and everything else. And every prediction I make will be over a five to 10 year horizon, not a one to two year horizon because I've made predictions in the past and then on Twitter they'll get a tax for saying like the stock went down today, you know? So anyway, so this is all a very long-term horizon and I'm not making any, and I don't, I think you should only put a tiny portion of it. If you do any investments, there's going to be a tiny portion of your savings. So, okay. But, and I also think, by the way, that it's very likely that the cryptocurrency prices have gotten indeed ahead of the actual progress. And there very well could be kind of some kind of correction in the next 12. I wouldn't be surprised at all because there's a lot of limitations. That said, it's an incredibly, I think it's an incredibly exciting and powerful technology.

• 28:56Speaker 03

  And I think we are in kind of what I would describe as the infrastructure phase where it's actually very similar to how the web was developed. You know, in 1990s, you had, if you wanted to build a website, you had to go and like literally go and get a data center and put servers up and everything else. And then things like AWS and all these kinds of things happen where two people could just toss, you know, some code on a server and you could, you know, compete with bigger companies and things. And so we're still building infrastructure. So, you know, Ethereum supports like 10 transactions a second. You asked earlier about the advantage, the disadvantage decentralized platforms. That's a big disadvantage. The performance is not as good. Now there's a million, there's, there's, there's five to 10 interesting paths by which that performance will get improved. And there's very specific proposals and all sorts of projects being worked on, including by the core Ethereum developers and things like this. So I'm very optimistic it will be, but, but that's just the state of it today, right?

• 29:41Speaker 03

  So the state of it today is even if somebody came up with something that was like a social network using cryptocurrency. Which people have come up with and I think will come up with. It just simply won't scale from a technical point of view to the scale you'd need to really challenge the Facebooks and Googles of the world. Now, that said, there's a ton of interesting stuff happening. There's a lot of money flowing in. There's a lot of smart people. Every day, it's hard for me to keep up on the number of interesting new projects. There's just so much, the speed of development is so rapid, which is, I, to the time it reminds me of the most, you know, I was, I was an entrepreneur then was sort of 2000, I would say three to five, which was people call the web 2.0 era, kind of 2003 to nine or something, which is when you had the early social networks. You know, you had Friendster, you had Flickr and all these other really cool things.

• 30:24Speaker 03

  And you just had this, this feeling that there were all these, every day, there was a new project and how can you keep up? I remember YouTube coming out and then I remember like, one point it was like, maybe I don't, whenever TechCrunch launched, maybe like, I want to say like 2004, because I remember very vividly, we were all talking about it and having meetups and emailing each other. You see this project, this is really cool. And like, oh, this new idea of like tagging and like, it was all these friend lists and following. I mean, that's Twitter invented the first time they did this with asymmetric friend of following, or maybe Tumblr did that first. But anyway, I remember like the first time TechCrunch came out, I was like, oh wow, there's finally a website that's going to aggregate all these projects. And it was funny too, I remember this too, is that you'd go to work, like in the tech business and people would say, they would say, well, that's not, you know, that's a toy, it's, it's social networks. Like, let's do the real stuff, which is like enterprise software and selling boxes of,

• 31:09Speaker 03

  you know, security soft, security boxes and like, there was a dot com crash and like, people were like, you know, this, this internet thing is an awesome thing for humanity. You know, let's be serious and make real businesses, not these toys. But then all the, all the people I knew who were like entrepreneurs and engineers and things, they would, they would do that during the day because that's where your paycheck came from. And then at night, you'd go and you'd talk about all the cool stuff happening in the web 2.0 world, right? And so, I remember that very vividly because it was always sort of just, you know, and of course, fast forward, the, the stuff you talked about in the nights and weekends turned out to, to be, you know, The real opportunity. The real opportunity. And so, I, I think that's a, that's a historical pattern that just repeated itself over and over. And there's a reason why so many things in the history of computing have started in garages and in hobbyist kind of things.

• 31:51Speaker 03

  Because, because the hobbyists and, you know, the hobbyists and nights and weekends, Those people are thinking on like a five to 10 year horizon, right? By definition. So you think about like the average really smart engineer. You go to work and your boss is sort of thinking on a one to two year horizon and giving you your assignments. Right? You go, you have nights and weekends and you're thinking about your, you're thinking about the really cool futuristic 10 year stuff. And in some ways you can think of it as somebody kind of voting with their time. And if really smart engineers are all voting with their time to work on, you know, VR and drones and cryptocurrency and all these other biohacking and all these other cool things. To me, that's, it's been a very interesting indicator of the future. And that, and that's what today cryptocurrencies and that, I just, you know, meet engineers every day who are at companies like Google and Facebook. And all they want to talk about is cryptocurrencies. During the day, they're working on ad targeting or something, right?

• 32:35Speaker 03

  I mean, you can imagine like that because that's what makes them money today, right? Like, it's like, you know, Patty, make this ad like slightly convert slightly better or whatever. And then they go home and they want to, they're reading about like Ethereum and stuff, right? And actually more and more of them, it's, I'm seeing it really a change lately are leaving those companies and starting cryptocurrency. And I've seen, you know, a couple this week from Facebook and Google.

• 32:53Patrick O'Shaughnessy?

  Do you think about individual called tokens as analogous from a vent, from your venture capital seat? To making seed investments in companies, meaning obviously there are companies that will be built, traditional, you know, C corp LLCs on top of crypto tokens. But from purely your seat, thinking about, you know, obviously wanting to invest in something that has the potential to get very big. Is that, do I have that, am I thinking about that right? That it's, it's almost like maybe Coinbase is an exception, it's done really well. But that the better or more interesting thing from your seat is looking at Ethereum or Tezos or something like that.

• 33:27Speaker 03

  I'll just say my own path. So, you know, Bitcoin came out and we, we, so we like, we invested, for example, in Coinbase in 2013 and had looked at a bunch of other things. And at the time of the sort of that era, 2013 to 15, anyone, not anyone, but a lot of people who were doing kind of things around cryptocurrency would come to venture capitalists like us and raise money. And then I remember Ethereum happening, I think it was, you know, Augur did the sort of ICO and a few other kind of ICO type thing. They called them token sales back then. And then I remember just like not getting any phone calls, right? As a VC and I was like, what's going on? And it's because they didn't need VCs anymore. They were all raising money from like, from the crowd, which is kind of awesome. And so then I, at least my own, I'll tell you my own personal process. I was like, okay, well, this is interesting and my. Job, you know, you could look at VC's job on the one hand is to invest in, you know,

• 34:09Speaker 03

  Delaware C corps or something. On the other hand, I think our job really kind of more broadly is to try to invest in great technologists and to do that regardless of what the actual mechanism by which you do it is. So we then co-led the first investment in a crypto hedge fund called Polychain. And then that was about a year ago. And then since then have started making direct investments in these protocols. So what that means is we actually buy, you know, they have a certain, like each of these protocols will have a certain number of tokens issued at the time and maybe some schedule for issuing them over time. And we will just buy some portion of them.

• 34:44Patrick O'Shaughnessy?

  How do you think about the dichotomy between, one of the questions in venture capital that I find so interesting is betting on founders versus betting on market. And so you've, you mentioned you bet on technologists, but maybe also technology. How do you think about that blend or that mix? Is there one that's more important than the other? I read the, this morning on the plane, I read, I read your write-up on the 11 exciting trends in technology. It wasn't the 11 exciting technologists. So I'm curious how you think about that.

• 35:11Speaker 03

  How do you think about the trade-off to markets and people?

• 35:12Patrick O'Shaughnessy?

  Yeah.

• 35:13Speaker 03

  I think it's very stage dependent. I think the criteria by which you evaluate a venture capital investment depends a lot on the stage, let me put it that way. And so, you know, at the earliest stages, so at seed and kind of series A's we call it, which is generally really early, you don't generally, you basically have a team then and some, yeah, you have a market, but often it's like a general idea. You don't really know how to, it's not a market in the way you'd think of it in kind of a business school sense of like there's existing demand and like people are clamoring for, you know, everyone wants a lawnmower or something and they need one and you're now satisfying that demand. You know, who knows if there's going to be a market for, you know, we invested in Coinbase in 2013, there's going to be a market for wallets and exchanges for cryptocurrency, you know. So you're speculating on the market. It certainly matters a lot, like getting the trends right matter a lot. But my experience has been the actual product,

• 35:57Speaker 03

  and even to some extent the market tends to change over time. And so you just, the only thing that really remains a constant is the people you invest in. And so the people at the early stage investments have to be kind of at the core of it. I think the general direction matters a lot. Like are you, and it's specifically like, are you on, do you sort of have headwinds or tailwinds of technology? Like when you have things like all of the innovation happening in cryptocurrency, when you have things like more, the classic thing in technology has been Moore's Law, which is, you know, the fact that semiconductors get cheaper and more performant every year, every year, you know, and basically every 18 months or whatever double. You know, you have these kinds of tailwinds that make everything better. You know, social networks that have kind of network effects, the more people to get on it, the more useful the network gets, like having those kinds of dynamics are very important as well.

• 36:41Speaker 03

  But, you know, at later stages, there's venture capital and private investment, investors who do later stage investments. And a lot of these later stage investments, you know, like if you look at what SoftBank is doing today or something, it looks a lot, you know, the type of analysis you would expect them to be doing would be much more like what a hedge fund would be doing. You're looking at, you know, margins and growth rates and, you know, it's, it's very similar to kind of you'd see in a typical Wall Street analyst report, right? So it varies wildly. And so, you know, with these crypto protocols, you know, it depends on, I mean, in an ideal world, we'd love to see the network launch and we'd love to see some kind of usage statistics and other kinds of things.

• 37:13Patrick O'Shaughnessy?

  Right, KPIs.

• 37:14Speaker 03

  Yeah, so that, you know, that's not the current investment climate today. Today, there are people basically with a team and they call a white paper, which is like a protocol specification will generally like come and raise money. And sometimes they have like code written and things. And frankly, like we have to decide yes or no, if we want to invest in that. And we can't just say come back in 12 months when you've written it, because by that point they'll have launched and the token will be traded publicly and it may be too late for us to invest. So that's kind of how it works now and that may change, you know, if the market changes and, and the, and the kind of standards change, so.

• 37:46Patrick O'Shaughnessy?

  How do you think about, again, this, this dichotomy of kind of hierarchies versus more open networks or decentralized networks within firms themselves, so within the Delaware C Corps? I'm curious, as you make early stage investments and then obviously are there to foster growth in those companies, and obviously you're, you're incented to do so, what observations you've had as an investor over the last decade or however long about how organizations are organized? Because you see interesting write-ups about companies like Valve, for example, that are very flat where-

• 38:17Speaker 03

  It's a bureaucracy concept.

• 38:18Patrick O'Shaughnessy?

  Exactly, yeah. And, and I'm fascinated by this and I, I'm curious if you've learned lessons about whether or not you see, see things changing, like we- Talked about earlier how hierarchies just tend to emerge, but then in hierarchies, very often the bottom of the pyramid is just there to serve the top and the top doesn't get real good information and there's this stagnation.

• 38:36Speaker 03

  I'll tell you, if you go, you know, if you go back and you look at sort of predictions from 10 or 20 years ago, let's say where people talked about what the internet's, how the internet's going to change organizations. You know, there's this idea of like kind of Coase's theorem. So Coase's theorem, you know, famous economist who talked about kind of why you have a firm and the, and the idea of like transaction costs and external, I don't know, there's a whole idea. It's sort of a economic foundation for why there's a firm, why there are firms at all. Why isn't everything just done in kind of a marketplace? I think you would have expected that, you know, 20 years ago, that, that the internet and having all these kinds of new kinds of networks that we have on top of the internet, social networks and marketplaces and other things would have had a much bigger impact on organizational structure than it actually has.

• 39:15Speaker 03

  So as an example, if you go read S1, so those are the, those are the filings that tech company, you know, companies make, but look, go read tech S1. So tech companies file, you know, they file these, when they go public, they file these financial statements. A huge portion of tech company costs are very traditional kind of sales and marketing groups. And so like a lot of these, for example, enterprise software companies, it'll be, you know, maybe half or more of the costs are giant sales teams. And, you know, I think 20 years ago, you might've thought, okay, in the year 2017, you won't need a person to get on a plane and fly across the country and, you know, and, and like convince somebody to buy some software.

• 39:54Speaker 03

  They'll go to the internet and they'll do some research and they'll buy it. It hasn't really changed. The way that big corporations buy software really hasn't changed. You still need like a, a massive commission based sales force. And that might've been surprising 20 years ago. I think one thing you've seen though, is, you know, you have seen these examples, like WhatsApp was one where I believe there are 50 people when they were bought by Facebook for whatever.

• 40:14Patrick O'Shaughnessy?

  26 billion.

• 40:14Speaker 03

  Yeah, 20, depending on the Facebook price, 20 plus billion, right? 50 people, right? I mean, because what they were able to do is they were able to outsource so much of their technology to things like Amazon Web Services and other things, right? And just have a small team that's doing design and engineering on the app itself. And I think Instagram might've been, I think.

• 40:31Patrick O'Shaughnessy?

  Something similar.

• 40:32Speaker 03

  Yeah, I mean, or even smaller. I don't, and so now, now that said, you could, you could. Or you can say, well, they hadn't really gotten to, they hadn't gone and built an ad sales team. You know, they were just a product company. But I, but I do think, you know, potentially what we're seeing in the cryptocurrency world is, you know, you're seeing like Ethereum, there's no company. It's a foundation, it's a nonprofit foundation that oversees it, that's like the development team. Bitcoin literally is nobody. I mean, it was this, you know, pseudonymous person that created it and, uh, and now there's various groups.

• 40:59Patrick O'Shaughnessy?

  Factions.

• 41:00Speaker 03

  Factions fighting on GitHub for like, you know, who has administrator access. That's like literally, that's, that's the, there's no, you know.

• 41:06Patrick O'Shaughnessy?

  It's amazing.

• 41:07Speaker 03

  You know, and it's this thing that's whatever the current market cap is, I haven't checked, but like, you know, it's.

• 41:11Patrick O'Shaughnessy?

  Hundred billion.

• 41:11Speaker 03

  Yeah, something like this. Um, and, uh, and there's, there's just no organization behind it, right? So I, I kind of, I've always hoped that the internet would let you kind of have more sort of freedom to, you know, have these kind of loose pieces, loose pieces, you know, uh, sort of small pieces loosely joined, as they say, like have these sort of like small pods that like I'm focusing on design and you're focusing on engineering and you're doing your podcast and someone else doing this. And like, you would all kind of interact through computer networks and other kinds of, you know, market-based mechanisms or network-based mechanisms or something like this. I always thought that was a promise of the internet and it never, I feel like it under, under-delivered on that promise. And I'm kind of cautiously optimistic that maybe we're going to see that in the next phase of the internet.

• 41:51Patrick O'Shaughnessy?

  What has you, it doesn't seem like you have a Luddite bone in your body, but if there are things that have you concerned over the major trends that you see in technology, what are those, if any?

• 42:01Speaker 03

  Well, we talked a little bit earlier. I think it's, I don't, I don't, this is not the, the centralized, that sort of four companies controlling the internet was not the internet I wanted. And I don't think it's good for, I think it's not good for a bunch of reasons. You see the tension in like politics now with like these debates over.

• 42:15Patrick O'Shaughnessy?

  All of a sudden, like everywhere.

• 42:16Speaker 03

  Fake news and, you know, who controls these things and these have become such influential and important kind of public resources that, you know, I think you're going to see more. I think that my guess is that those, those debates are going to become only more intense. But I think also this, just from my lens of kind of innovation, like I think it's just not good to have so much power concentrated in those companies.

• 42:35Patrick O'Shaughnessy?

  Are there means other than, obviously we talked about the token model, it's maybe like a shortcut around this problem. Are there other strategies that you're either directly funding or, or seeing pursued by founders that are trying to change or disrupt this concentration of power? Are there things that are working or is it really difficult to break?

• 42:52Speaker 03

  I think a lot of it's just people aiming for different things. So you go and you verticalize, so you do, uh, you know, healthcare, you, you take AI and you apply it to healthcare or something where you just know the big four aren't going or.

• 43:04Patrick O'Shaughnessy?

  Like niche verticals seems.

• 43:05Speaker 03

  Yeah, I mean, you know, you could argue they're not, I mean, you know, like healthcare, education. Yeah, so I mean, whether niche or not, but yeah, but it's sort of verticalized, like sort of go and be more applied than they are. What else? You know, there are certain areas like selling to Fortune 500, like applications to Fortune 500, like Microsoft does that, obviously with like Microsoft Office, but generally like, you know, Google has Docs, but Amazon's got a few things they're sort of trying. Facebook has Facebook Work, but for the most part, like that area is pretty, you know, you'll see a lot of venture capital investment in what they call like enterprise SaaS. And that's been relatively, Salesforce and some other big companies, but they just frankly aren't as powerful as the big four. And so that area is, you know, there's, there's like pockets like that where there's still white space and not, but you know, like social, I mean, this is last

• 43:47Speaker 03

  week, was it TBH, Facebook bought, you know, it was sort of the first app to pop up in the top 10 list in a while, and they just reportedly for a hundred million, just bought them off, you know, which is, which is great. I mean, it's great for the founders. I'm sure it's a good financial outcome, but it's not, you know, this is not how we're going to get challengers to the incumbents, right? Is if everyone gets snapped up. I mean, one possibility is, is, you know, that they, that regulators kind of come in, there's talk of this. I don't know if that will happen, but.

• 44:10Patrick O'Shaughnessy?

  What, using your framework of nights and weekends, cryptocurrency is accepted because we've talked a lot about that. What are you spending your nights and weekends reading about and investigating right now? What, what major trend or two?

• 44:22Speaker 03

  Well, I mean, there's all sorts of interesting things happening. So besides cryptocurrency, and I'll just, you know, I mean, and this is not, this is not news to anyone, but I think it's real is like artificial intelligence and stuff happening now. Artificial intelligence is a field that since, you know, that was sort of pioneered in the 1940s really, and has had all of these sort of various ups and downs, and they call them kind of AI winters, and you know, and then periods where people thought they were making great progress. But, but you know, in the end, I mean, there were some great successes like beating, you know, Big Blue, winning chess and other things. But for the most part, you know, a lot of the promises of like revolutionizing the workplace and thinking machines and things like this have kind of underdelivered. It may be, you know, it may be different now, like the, the stuff going on with deep neural networks, like the results, you can just look at it through

• 45:04Speaker 03

  these various charts. So for example, there's a, there's a very famous, Stanford has a very famous contest every year called ImageNet, which is basically a contest where people submit their algorithms and. The contest is to correctly classify what's in a set of images like 10,000, I think it's 10,000 or 100, I don't know the numbers. Some large collection of images and you know, you'd say it's a dog, it's a cat, et cetera. And the error rate, so how often it was wrong, was essentially like, you know, 20 to 30% or something for decades. And then since the advent of deep neural networks has gone now down below human levels, which means it's better than humans, right? And so, you know, what it turned out, it's very, it's a very interesting story. I don't think it's, it's been written about a little bit, but I think not enough. It was these, it was a few set of, a small set of researchers, mostly based in Canada.

• 45:47Speaker 03

  Geoffrey Hinton, Yoshua Benjo, Yann Le Cun, who were kind of these eccentrics in the field, who still believed in neural networks, you know, in the 90s and the early 2000s. And they were eccentrics because they just didn't work very well. And so, but they, but they believed in them because they believed that they were the artificial intelligence kind of methods that were most similar to the human brain. And since the human brain is obviously works, they thought these would eventually work. And it turned out they were right. Once you had enough computing power, once Moore's law delivered processors that could compute enough and you had enough data and you had enough storage and all the other kind of computing resources. It turned out to be like shockingly right. And now Geoffrey Hinton is the head of AI Google and Yann Le Cun's the head of AI Facebook. And Yoshua Benjo is the holdout who's still at University of Toronto.

• 46:30Speaker 03

  And so it was just, you know, and it was like funded by like some random, you know, Canadian grants because everyone in the US was so sure it wasn't going to work. And so like, you know, it's a great story. I mean, I'm looking forward to the definitive book on it someday. But, um, but you know, just if you just sort of graph out the results, so there's a lot of hype around it, but the results are really, really promising. And so, and the big question is, you know, will it continue at the same pace? And if it does, I think you'll see a lot of, lot of, you know, it'll also have all these secondary effects. So, you know, there's sort of the core AI research and there's all the things you can do with it. You know, we're seeing all this great stuff happening in healthcare where you combine, for example, AI with the fact that you now have this explosion of data in healthcare. You can like do gene sequencing and all sorts of other, you know, things with images and other things. And you combine the two and you have like these incredible diagnostic tools and, you know,

• 47:13Speaker 03

  incredible like ways to do like real engineering instead of kind of random drug discovery of trial and error. You can now like do real kind of biological engineering. And so, you know, there's, there's all sorts of really interesting implications. So that's a very interesting area. What about in the physical realm? So everything we talked about is very ethereal.

• 47:30Speaker 03

  Yeah, I mean, so, well, I mean, I was gonna say, the third thing I was gonna say is sort of what I call new computing platforms. I don't know if that's physical. In that category, I put autonomous cars, drones, augmented reality, virtual reality. I think this is the other kind of obvious mega trend, which is just you're taking computers and you're putting them in all sorts of different places, right? So like, what comes after a computer in everybody? It's a, you know, it's 10 computers per person instead of one, you know, they're all over the place in different forms. I don't know if that's physical enough. Yeah, sure. Let's keep going down that path, because I really never. I mean, that's the other really interesting, and by the way, all of these things, I think are all intersect. AI intersects, cryptocurrency intersects. I think these are all the three kind of things, in the same way that mobile amplified the internet. I think all of these three will amplify each other, and these are the three.

• 48:12Speaker 03

  I believe these are the three important things happening over the next 10 years in technology, in at least the kind of information technology that I work in. And so, yeah, specifically the kind of new computing platform. So, and by the way, these things are, they go through the same, you know, we talked about earlier, the Perez hype cycle, you know? So like, you know, Facebook bought Oculus, and there was all this hype around VR, and then, you know, now everyone's saying it's over and it'll never happen. Of course, it's going to happen, and it's just a matter of time. And if you just track out like how good the headsets are, they've gotten, you know, I'd say like 2 to 3X better year over year on a price to quality basis. Like, they're just getting better and better, better, they're gonna get smaller and cheaper and higher quality. And I just think it's gonna be a no brainer. Like, you're a 15-year-old in 2030, you're going, you know, you're gonna play. Ready Player One.

• 48:56Speaker 03

  You're gonna put on your VR headset, and it's gonna be this light, beautiful thing that costs, you know, a hundred bucks, and you're gonna like, you're gonna, you know, go into the metaverse, and you're gonna like, play, you know, whatever. League of Legends version 12, or whatever the things that that's popular in 2030, you know, and you're gonna have this. Of course you are. You know, do you wanna be, do you wanna like, you know, stand across staring at a rectangle? Or do you wanna be like fully immersed in this virtual world? Of course it's gonna happen, I think. And so, and then augmented reality is a version of virtual reality, which is, you still see some of the real world, and you overlay a virtual world on top of it. Which I think, you know, again, is gonna be, I personally am a little bit more bullish on VR, because I think people just are gonna wanna go all the way, and like be in there, and like have the full immersion, and. But AR is also very exciting. You see it now, actually on phones now, there's in the new iPhone,

• 49:38Speaker 03

  and people will experience this thing called AR kit, which you'll see like, you know, you've seen these demos, maybe where you can like, put your phone up and see like, the virtual Ikea chair pop up and things. So this will be kind of a stepping stone drug into the full AR experience. Eventually you're gonna say, "Oh, that's cool. Now I want to have it all the time." And you want a headset and you want to... But like, that AR probably will hit next year with like, Android's got their equivalent called AR Core. And so that will probably happen next year, and that'll be exciting. I mean, on the phones. And then there'll be headsets. And AR, you know, I've already seen demos, and this is working. It's just too expensive and not quite there yet. But like, I've seen demos where you're like, "Okay, you just had your drone fly over a building, and now you're sitting in this table, like this conference room like we're in right now, and we all see the building projected onto the..." You know, it's just like Iron Man. You know, you sell the latest Iron Man, it's awesome.

• 50:23Speaker 03

  Like, you know, you take out the phone and you're like, moving it around. It's exactly that. I mean, and it's coming. And of course, you're gonna do it. And of course, it's a better way to experience it. And so, yeah, I think it's very exciting. That's super exciting. The self-driving car is super exciting. There's been a lot of talk about it. I'm sure everyone's heard about it. And I think it's very real. I think, you know, by the way, all these things, I think they're all gonna, they're definitely all gonna happen. There's a lot of questions around the timing. And it could be anywhere from, in many of these cases, you know, three years to 20 years. You go back in VR as an example, people were thinking that might happen like, the 1990s. And of course, it was way too early. If you go back in mobile phones, by the way, there was like, a whole series of Silicon Valley startups trying to do basically the iPhone in the early 90s. I mean, there was, besides the Apple Newton, there was General Magic, and I forget the other ones. Anyway, so, there's always huge questions around timing, but this will happen.

• 51:07Speaker 03

  I've ridden in autonomous cars, like, it's real.

• 51:10Patrick O'Shaughnessy?

  How do you think about that from an investing standpoint, where I always try to remind myself of Andy Radcliffe's kind of two-by-two matrix of, "You need to be right and non-consensus." So a lot of what you're talking about is, the big topics everyone's talking about, maybe consensus that these things will happen. Can you still make money investing in these trends if everyone else agrees?

• 51:28Speaker 03

  Yeah, I agree. So, and we invested in Oculus, for example, in 2013, when it was, I think it was contrarian then. And then they got acquired by Facebook. And then I think VR became kind of non-contrarian. And we did, we've done a few...

• 51:41Patrick O'Shaughnessy?

  We've done.

• 51:42Speaker 03

  Yeah, we've done a few small... No longer in the headsets, we instead invested in kind of the app layer. But yeah, that did, you're right, like that did move it to a different quadrant. And I think, you know, what happened in self-driving cars, it really, the acquisition of Cruise, Jambo Cruise for, I don't know, it's like towards us, I think north of, I mean, it was up to a billion dollars or something. And that kind of changed the venture dynamics in that space. And suddenly all the valuations went up 5X and everything else. But I think like, for example, VR is now, people are down on it and everyone's talking about AR. So it's probably a good time to invest in VR, probably, I don't know. Self-driving cars, it's a little harder, like there's, the other weird thing with self-driving cars is it's very different than the computing markets in that there's basically a hundred kind of large car OEMs or tier one suppliers who are, who are significant companies. And just like yesterday, Delphi bought a company.

• 52:25Speaker 03

  And so there's just a lot of money and other kinds of competition going on there. It's a great question, though. I think, I mean, one of the beautiful things from an investment point of view about cryptocurrency is that there's just simply, you know, I mean, then there's no, none of the big companies have any, as far as I know, any projects on it. And in terms of the big tech companies and, you know, Wall Street doesn't think it's interesting. You hear like Jamie Dimon and other people talk about it, they don't think it's interesting, so.

• 52:47Patrick O'Shaughnessy?

  It's changing now.

• 52:48Speaker 03

  It's maybe, maybe, right now.

• 52:49Patrick O'Shaughnessy?

  Winds are changing.

• 52:51Speaker 03

  Right now, at least it feels like a wonderful thing and that they all think it's ridiculous. So maybe that will change, but so far it feels, still feels like, feels nice in that way. But um, no, it's a great question, though, because it, you're right, you have to be both contrary and right. And, and sometimes we're very often, we'll just end up sitting out of a market because it's sort of, everyone else is excited and the cat's out of the bag, you know?

• 53:10Patrick O'Shaughnessy?

  Coming full circle to the funny New Yorker cartoon that we started the conversation with, which basically is a bunch of robots like walking their dogs and throwing some change at the human, you know, panhandling on the ground. Self-driving cars and all, all these big trends that are changing, I guess, taking over repeatable tasks from us. How do you think about if you are talking to a 10-year-old or your father or your uncle or something? And encouraging younger people to maybe approach the world differently, approach a career differently than they would in the past when repeatable tasks could be a great way of building a career? How do you think about that? You mentioned that, you know, these will be new jobs that we can't maybe envision, and maybe that's the only answer. But I'm curious if you push people more towards, say, creative work.

• 53:53Patrick O'Shaughnessy?

  Versus repeatable work, how you think about kind of the future of work?

• 53:56Speaker 03

  One thing I think, for example, there's a whole bunch of jobs which are actually are growing areas, which are kind of more, I don't know, call them kind of a more emotional kind of work. And healthcare is an example, right, where there's always going to be like, there's simply, I think there's never going to be, or you know, maybe in education, other, I mean, maybe you'll have the, you know, a MOOC, like a video lecture, but I think you're always going to want a TA to go and like grade the papers and talk about it. And it's just like, at least, you know, for a long period, that's the model that seems to work, right? Like to have humans involved, I think with like medical care. And there's all sorts of things where you want to go and you want to understand something, you want to ask questions. I don't know, I think those jobs are relatively immune from automation. I think what, if you look at the history of, of jobs, what's tended to happen is, you know, automation on the farm didn't end farming, it meant farming was a different activity.

• 54:41Speaker 03

  You were driving around a tractor and planning out crop, you know, rotations and doing other, all sorts of other things, instead of, you know, physical labor, you know, so I tend to think that sort of these things will change. People sort of move up the stack sort of, and you kind of do higher level jobs. And then there's sort of other kinds of jobs, you know, more that require kind of more of a human touch. But, you know, I don't know, I don't know, I, you know, I think obviously things like having some kind of knowledge of how to do engineering and things like this, I don't know, I think that's probably always going to be highly valued. But, you know, I go back to the earlier, I mean, I don't have a great answer to this because, and I think, I think it's almost impossible. I think if you go back and you look at the history of these things, it was almost, it was very difficult to predict. I mean, who 20 years ago would have said, social media manager, you know, Uber driver? Like it just would have sounded absurd, right?

• 55:26Speaker 03

  So I don't know what it looked like, but there's going to be all sorts of things that I think you need to have happen.

• 55:30Patrick O'Shaughnessy?

  With this UBI discussion and I always remind myself of the Milton Friedman idea that, you know, if you want more jobs, like give the guys spoons instead of shovels.

• 55:39Speaker 03

  Yeah, yeah.

• 55:39Patrick O'Shaughnessy?

  And that like technology is, is effectively just a lever for doing more with less. And we've always kind of figured out new frontiers and that maybe that's some faith in that, but.

• 55:50Speaker 03

  I mean, the idea that there won't be jobs is, it's like this mental model that there's a fixed, there's like sort of a fixed set of, of demand. And once you supply that, like people want, you know, whatever, a TV and a. And like food and shelter and healthcare. And then, once you supply those things, that's it. They won't buy other things, right? Which just has not been the case in history.

• 56:09Patrick O'Shaughnessy?

  But we started with like, demands are boundless, right?

• 56:11Speaker 03

  And like, for example, like, maybe there's gonna be, you know, an explosion of more like creative activities. Maybe people have more free time and they watch more movies and they read more and there's just more people writing and there's more. I would, I would think, you know, you, you have now three billion people with smartphones. You have the internet. I, I think it's just a matter of time before we figure out better business models for how, for example, writers get paid. And I think this is, you know, something I think about a lot. And like, I, I think that, that there's a version of the future I would like to see where you have creative people kind of rewarded, you know, paid much better and reach much broader audiences through the internet. So, you know, so, I don't know, I'm optimistic about it. I don't know the answer, but I think, I, I just, it hasn't happened. I mean, there's been no, if you go back in history, you see all of these cases where people say, oh, this is the

• 56:53Patrick O'Shaughnessy?

  It's like the mouth is arguing.

• 56:54Speaker 03

  Yeah, yeah. And it just never happened. And I just don't see why now it's different. So I'm optimistic about it. But, and look, I also, this is, this is a competitive aspect. So are we gonna, is America gonna stop doing AI research? And then is the rest of the world gonna stop? Are we gonna try to have some like agreement with China to stop? China's doing as much AI stuff as we are. I mean, so, you know, we're gonna let them kind of capture all the productivity benefits of self-driving car, you know? So there's another, right? I mean, sort of this coordination problem too, even if you were gonna hold back on these things.

• 57:19Patrick O'Shaughnessy?

  Last question that I ask every, every guest, because it's a fun place to close, is for the kindest thing that anyone's ever done for you?

• 57:26Speaker 03

  So, I think it would be a series of things, which I would say, which is the people that have helped sort of teach me and mentor me. And I'm, who I'm very grateful for, going, you know, to my parents, who of course, you know, were always, they're English professors and always kind of reading books to me and making me read books and do things like that. And then, all the great teachers I had and people I worked with. And I remember I had, just in the philosophy department at my university, you know, these teachers that would spend hours after class talking about any, like, random questions.

• 57:57Patrick O'Shaughnessy?

  Deep rabbit hole logic though.

• 57:59Speaker 03

  Rabbit holes and sort of things like that. So I don't know, I feel like I've been very fortunate to have all these sorts of really interesting, helpful people along the way.

• 58:04Patrick O'Shaughnessy?

  Fantastic. Well, this has been, man, we have covered a lot of ground. This has been a lot of fun. I really appreciate all your time. We'll have to do a round two, check in all these trends in three or four years.

• 58:15Speaker 03

  All right, awesome. Thank you for having me.

• 58:16Patrick O'Shaughnessy?

  Thanks, Chris.

• 58:19Patrick O'Shaughnessy?

  Hey everyone, Patrick here again. To find more episodes of Invest Like the Best, go to investorfieldguide.com/podcast. If you're a book lover, you can also sign up for my book club at investorfieldguide.com/bookclub. After you sign up, you'll receive a full investor curriculum right away, and then three to four suggestions of new books every month. You can also follow me on Twitter @Patrick_OShag. If you enjoy the show, please leave a quick review for us on iTunes, which will help more people discover Invest Like the Best. Thanks so much for listening. [music]