Spotify’s Direct Listing

Acquired wraps up a big few weeks of coverage with not an IPO or an M&A or a fundraising round, but what’s still the largest tech exit in recent memory: Spotify’s $30B direct public listing. We dive into what it all means and how we got here: from Napster to iTunes to Facebook (and even some Justin Timberlake thrown in for good measure). Acquired FM is on the scene and spinning all the hits from this new wave music industry titan! Note: We incorrectly described Spotify CEO Daniel Ek’s ownership stake in Spotify as 25%+; that is actually his voting control. His economic ownership is 9.3%, and cofounder Martin Lorentzon’s is 12.4%. We apologize for the error! Sponsors: Vanta: https://bit.ly/acquiredvantaServiceNow: https://bit.ly/acquiredservicenow26Legora: https://bit.ly/acquiredlegoraStatsig: https://bit.ly/acquiredstatsig26 More Acquired! Get email updates https://www.acquired.fm/email with hints on next episode and follow-ups from recent episodesJoin the Slack http://acquired.fm/slackSubscribe to ACQ2 https://pod.link/acquiredlpMerch Store https://www.acquired.fm/store! © Copyright 2015-2026 ACQ, LLC Links: Internet History Podcast on the Napster Story with Jordan Ritter http://www.internethistorypodcast.com/2017/04/the-napster-story-with-jordan-ritter/Sean Parker’s email to Daniel Ek https://www.scribd.com/doc/67465758/Sean-Parker-s-Email-to-Spotify-s-Daniel-EkCarve Outs: Ben: Black Panther http://www.imdb.com/title/tt1825683/ (and soundtrack on Spotify https://open.spotify.com/user/g0u1d1e1/playlist/4Vaus6GcI1TAMGmepUK3WO!)David: “Silicon Ballet” panel at San Francisco Ballet on Saturday, April 28 https://www.sfballet.org/boundless

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

• 0:00Ben Gilbert?

  Did you read the mission statement on Spotify's F1?

• 0:05David Rosenthal?

  No.

• 0:07Ben Gilbert?

  So whereas last week Dropbox's mission is to unleash the world's creative energy, Spotify's is to unlock the potential of human creativity.

• 0:16David Rosenthal?

  You definitely should get some digs in on them.

• 0:20Ben Gilbert?

  It's an unrestrained hippie world out there.

• 0:35Ben Gilbert?

  Welcome to season two, episode six of Acquired, the podcast about technology acquisitions and IPOs. I'm Ben Gilbert.

• 0:43David Rosenthal?

  I'm David Rosenthal.

• 0:44Ben Gilbert?

  And we are your hosts. Today, we are covering a company making history, the week it makes history, Spotify and their direct listing, which is not an IPO.

• 0:56David Rosenthal?

  But if it were an IPO, this would be the largest IPO listing, whatever you want to call it, from Europe ever, and the seventh biggest of all time, debuting at about roughly

• 1:10Ben Gilbert?

  Wow.

• 1:10David Rosenthal?

  $30 billion market cap.

• 1:13Ben Gilbert?

  Wow. And almost a billion dollars worth of shares on the first day traded.

• 1:19David Rosenthal?

  Yeah, trading hands.

• 1:21Ben Gilbert?

  Big company, big shakeup in the industry over the last few years with the rise of streaming, and a big change to the way that the companies go public. So David, I'm excited to dig in and help understand myself exactly why they did a direct listing, what a direct listing is, and probably more importantly, excited to hear from you more about the history of the company itself.

• 1:46David Rosenthal?

  There's always a story, Ben.

• 1:49Ben Gilbert?

  All right, if you are new to the show, you should join us in our Slack at acquired.fm. There's over 1,200 people talking about acquisitions, IPOs, tech news as it comes, and helping us do research for the show, and thanks to listeners who were throwing in some interesting stuff about Spotify as David and I were researching. All right, listeners. Now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture. It used to be that you proved that you were secure once a year on audit or a static PDF, then everyone would nod and you're done. But in an AI-first world, that doesn't hold up anymore.

• 2:29David Rosenthal?

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

• 2:50Ben Gilbert?

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

• 3:11David Rosenthal?

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

• 3:30Ben Gilbert?

  And that's the real value. Trust has to be continuous now, which is why Vanta automates your security, your compliance, and the work to earn and prove trust. We're huge fans of Vanta over here, and literally hundreds of Acquired listeners have become Vanta customers at their companies over the years. So you can get $1,000 off Vanta at vanta.com/acquired. That's V-A-N-T-A dot com slash acquired for $1,000 off, and just tell them that Ben and David sent you. Well, David, before we dig in, I spent a bunch of time, I think, as the news started to trickle out that Spotify was doing a direct listing, not an IPO, several months ago, before they priced, before they had a date, before they had an F1, not an S1, to announce-

• 4:15David Rosenthal?

  As a foreign company issuer.

• 4:16Ben Gilbert?

  Oh, I didn't realize that the F1 is because they were not a US-based company.

• 4:22David Rosenthal?

  Not because of the direct listing, but because they are a foreign issuer.

• 4:25Ben Gilbert?

  Yep. Ah, that makes sense. Before we dig in, some things that you need to know about what is a direct listing or a direct public offering, which is not an initial public offering. The biggest difference is the company doesn't take any dilution. So if you're thinking about, you know, what does a company normally do in the IPO? There's two big reasons. One, they create liquidity for existing shareholders. So everybody who's got stock sometime after that has the opportunity to sell that stock and get some liquidity on that. The other is that the company actually creates new shares. So all the previous shares get diluted, but the company gets to raise money. So they sell the new shares that they've created.

• 5:07Ben Gilbert?

  They raise millions and millions of dollars to have money in their coffers. With a DPO, a company doesn't take any dilution and they don't raise any money. So Spotify doesn't have a dollar more in the bank account yesterday from selling shares that they do today. I guess flip that.

• 5:25David Rosenthal?

  Don't create any new shares. It's literally just, hey, anybody who is a current shareholder can now sell. There's no lockup. It's just...

• 5:36Ben Gilbert?

  It's theoretically less expensive of a process because you don't have to go do the whole roadshow and hire bankers and all that, which we will get into also. But one thing that was interesting that I was sort of thinking through is one disadvantage is that if you are a buyer of this stock, you have to consider the fact that an insider, somebody who previously had information rights to the company or might be an employee of the company, is selling. So you actually have a counterparty who's probably more informed than you on every single transaction of shares in these early days of trading.

• 6:12David Rosenthal?

  Yep, very true. On the other hand, you know, Spotify is a 12-year-old company. Certainly the founders and employees, early investors, they want liquidity. And also, you know, we'll also talk about this, but there's been a robust private market for Spotify shares for many years. So trading has been happening.

• 6:33Ben Gilbert?

  There has. Well, before we go into the history and facts, I found one fun bit of trivia. David, there's a very famous company that did a DPO in the 80s that sort of popularized this. Do you know who it is?

• 6:47David Rosenthal?

  I do not know.

• 6:49Ben Gilbert?

  So in 1984, Ben Cohen and Jerry Greenfield needed funds for their ice cream business. They advertised ownership stakes through local newspapers for $10.50 per share with a minimum number of 12 shares per investor and their Vermont loyal fan base ended up funding Ben and Jerry's ice cream in a DPO for its first way to raise capital, raising only $750,000 from 1,800 ice cream-loving Vermonters.

• 7:20David Rosenthal?

  Oh my goodness. Talk about an addictive product.

• 7:24Ben Gilbert?

  I know.

• 7:24David Rosenthal?

  Addictive and viral, as we will get into.

• 7:29Ben Gilbert?

  That's right. And interesting to know, we'll come back to this later, they then did a $5.8 million IPO the following year. So they actually did issue new shares once they were, they're public. So tuck that one away and let's dig in.

• 7:43David Rosenthal?

  All right. Well, history and facts. So as probably a lot of people know, Spotify is a Swedish company or founded in Sweden, not Switzerland, as the New York Stock Exchange learned this week, unfortunately. Sweden is a different country.

• 8:02Ben Gilbert?

  For those who didn't see the news, there's a, there's a chance that a Swiss flag got raised at the New York Stock Exchange.

• 8:09David Rosenthal?

  Somebody, somebody was in hot water. We'll come back to that at the end of the show. But it was started in Sweden by two co-founders, Daniel Ek and Martin Lorentzon, started in 2006. Daniel Ek, the CEO, who's still the CEO, was kind of like a wonderkin of the Swedish tech scene. He started his first company when he was in school at age 13, hired all his classmates. A lot of fun history, which we'll get into. But to really understand Spotify, you have to go even farther back and start with another company that we've also discussed on this show a little bit, a interesting footnote of history called Napster.

• 8:56Ben Gilbert?

  Yeah, yeah. Who, I mean, uh, who, who would have thought that, uh, the very thing that, you know, that destroyed the music industry and, uh, brought the, the record labels to their knees could possibly have a hand in saving them?

• 9:13David Rosenthal?

  Well, uh, unfortunately, it was the record labels that brought Napster to its knees. Uh, but as we shall see, there is a very direct and straight line from Napster to Spotify to today. So Napster, uh, founded in 1999 by the Shans, Sean Fanning and Sean Parker. Uh, Sean Parker is S E A N, Sean Fanning is S H A W N. And then also a third co-founder, uh, who doesn't get talked about as much, but is friend of the show, Jordan Ritter, uh, who's based in Seattle now. Um, and there's a really, really good internet history podcast episode with Jordan about the founding and early days of Napster, all the way through the lawsuits with the record labels and shutting down and the aftermath.

• 9:58David Rosenthal?

  Uh, highly recommend that, uh, if you want more detail than the couple of minutes we're going to spend here on Napster, um, go listen to that episode on, over on IHP. Um, so Sean Fanning, uh, started Napster originally. He was a college student at, uh, Northeastern University in Boston. Um, and he and his friends, uh, well, he was really into hacking computers. This was like the late 90s, kind of ended 98, beginning in 99. Um, really into hacking. He was really active on IRC and in a bunch of communities and forums, um, sort of trading programs on the internet and, um, and especially on broadband. So these

• 10:40David Rosenthal?

  were the days, most people at home had dial up, uh, but colleges all had broadband. And so, you know, having, I was, I was sort of on the tail end of this, but you know, I remember, you know, the biggest, uh, attraction to going to college, you know, there was the education and all that, but there was getting broadband internet and then stealing files on the, on the internet.

• 10:59Ben Gilbert?

  Yeah, I remember evaluating colleges based on that. Like they thought it was the most ridiculous thing, but you know, nerdy kid going into computer science. Uh, I remember asking like on tour guides, like what's the bandwidth in the dorms?

• 11:15David Rosenthal?

  And there was the whole, um, remember the internet two that was like a separate backbone that only college universities had that was like a faster private internet linking universities? Anyway, this all plays into Napster. So Sean is, he's on, active in all these online forums. Uh, he's trading files, but the, including MP3s, which people are ripping from CDs. You know, this is big. This is the iMac, you know, and all this is happening.

• 11:43Ben Gilbert?

  Rip, mix, burn.

• 11:44David Rosenthal?

  Rip, mix, burn.

• 11:44Ben Gilbert?

  Except wait, I mean, don't rip because that would be illegal.

• 11:48David Rosenthal?

  Uh, yeah, don't burn. Use iTunes. Buy your music. Um, so he realizes there's no good like front end to this stuff. So he's like, okay, I'm, well, I'm, you know, I'm a CS major. I'm gonna, I'm gonna start coding up a front end client, um, for trading files peer to peer on the internet. He decides to call it Napster. Um, he releases the first version of it and it basically just takes off like wildfire. Uh, first at Northeastern, uh, you know, a college in Boston. This will, we will revisit social apps, uh, on the internet, starting at colleges in Boston and taking off like wildfire. Uh, spreads to lots of other colleges all around the country. Um, he brings on two folks. One is Jordan Ritter, who's also

• 12:30David Rosenthal?

  based in Boston. Uh, he takes over backend programming. Um, and another friend that he has from, uh, from the IRC internet relay chat community, a guy named Sean Parker. And Sean joins and he's basically kind of the business head of Napster. Um, and, and Parker was, you know, he was kind of like a hacker hustler guy. He had a whole bunch of internet businesses that he started in high school. He decided not to go to college. Um, apparently he was making like 80K a year while he was in high school, just from internet businesses. Um, so they, uh, the three of them get going. They raise $50,000 from Fanning's uncle and they move out to Silicon Valley. Uh, and kind of the rest is history. Again, you can listen

• 13:15David Rosenthal?

  to the IHP podcast, but basically within a span of two years from 99 to 2001, Napster goes from being like the killer app for broadband. I mean, this was the reason I pressured my parents to get broadband at my house when I was growing up so I could use Napster, uh, or use it better than, than dial-up. Um, you know, they get sued by all the music labels, uh, and the company shuts down and kind of flames out in a blaze of glory, uh, all within about two year period. So.

• 13:42Ben Gilbert?

  Wow, was that it?

• 13:44David Rosenthal?

  Well, the ashes of Napster kind of live on. It gets resurrected as...

• 13:48Ben Gilbert?

  Well, no, but I mean, I'm thinking about the time in my life where I was actually using like Napster Napster and I had a zip disk that I would store my music on when I would download it and I would like, you know, those are only 100 megs, so I'd like delete the old music that I didn't want anymore so that I could get the new songs off Napster. But the, uh, um, I can't believe that was only a two-year period.

• 14:10David Rosenthal?

  I know. It was crazy. Well, because the, the labels sued Napster. Um, they couldn't work out settlements. They sued, they sued Napster. They sued all of the individuals who are working at Napster, all the founders, all the investors, the LPs of all the venture funds. Like, they just went nuts.

• 14:25Ben Gilbert?

  Oh, my God.

• 14:27David Rosenthal?

  And, and so quickly, and what happens, you know, I remember this, I'm sure you do too, is Napster gets shut down, but then, you know, a million flowers bloom in its place.

• 14:36Ben Gilbert?

  LimeWire and...

• 14:37David Rosenthal?

  Cause, uh, all this stuff. Uh, Cause, uh, leads to Skype, um, which also will influence Spotify, uh, which we'll come back to. Anyway, Sean Parker, though, he exits Napster after all this is happening in 2001. But he doesn't, you know, he does, he's not one to rest on his laurels. Uh, he founds a company called Plaxo, which we've also discussed on this show, out in Silicon Valley. They're all out, uh, in California now. 2002, starts Plaxo, uh, gets backed by Sequoia, raises money, um, from Sequoia. I believe Mike Moritz is on the board. And, uh, uh, but Sean's still a kid, um, and he's running this now sort of enterprise-y email, um, you know,

• 15:20David Rosenthal?

  identity company. Um, he ends up getting pushed out after the downturn in 2004. Sequoia and the other board members push him out of the company, leads to a whole lot of animosity, ultimately leads to the infamous Facebook pajama pitch to Sequoia, uh, that is covered in the social network, um, which we'll get to too. Uh, so Parker's done with it.

• 15:43Ben Gilbert?

  And real briefly for anyone who doesn't, uh, um, who doesn't have the, the time to go check that out. Basically, uh, Sean Parker swore that when he was getting involved with Facebook, they would never go and, and give Sequoia a piece of this. And finally, uh, Mark Zuckerberg, um, is, is persuaded to go and pitch Sequoia and shows up in his pajamas as a show of true respect.

• 16:06David Rosenthal?

  Yes, true, true respect. Now infamous in Silicon Valley lore.

• 16:13David Rosenthal?

  So Parker's pushed out of Plaxo, doesn't sit still for long again. He supposedly, his roommate at the time, is dating a girl who's a student at Stanford, an undergrad at Stanford. And Parker sees on her computer one day, a site called thefacebook.com. And this gets dramatized in the movie The Social Network, where Parker is played by Justin Timberlake of all people. And it's So good. A girl, he's, he's, he has a tryst with a, with a girl on the Stanford campus and then sees it on her computer the next morning. Supposedly, it was actually his roommate's

• 16:53David Rosenthal?

  girlfriend. But anyway, next thing you know, Parker basically hustles his way into meeting with Mark Zuckerberg and then Facebook co-founder Eduardo Severin, because Facebook is still back on the Harvard campus in Boston. He goes to New York, he arranges a meeting with, with the two of them. This is all documented in The Social Network, the company's a few months old. And he basically talks his way into joining the company as its president. And Parker has also become close with Peter Thiel at this point. Founder's Fund doesn't exist yet, but PayPal has already exited eBay. And Peter is now investing in the PayPal mafia and other folks. And Peter ends up leading the first true investment in Facebook,

• 17:38David Rosenthal?

  buys 10% of Facebook for $500,000. A quite prescient move. And then we all know what happens after that. But I think, yeah, I think Facebook, I think it worked. That'll be a story, actually, that we have already told. You can go listen to our episode on the Facebook IPO. But I think everyone knows what happened. But for Parker, though, in the next year, in 2005, you know, remember, he's still super young. He's got to be like, I don't know, 24, 25 at this point. He has a party at his vacation home in California, ends up getting busted by the police. They find a bunch of drugs at

• 18:22David Rosenthal?

  the party. And as a result, he gets ousted from his role as president of Facebook. Again, all this is in the movie, in The Social Network.

• 18:31David Rosenthal?

  So that was

• 18:32Ben Gilbert?

  Sean Parker, Sean Parker was born in 79. So that would mean all this is going down in what? 2005? So he's probably 26.

• 18:40David Rosenthal?

  Yeah.

• 18:42Ben Gilbert?

  Yeah. 27 somewhere.

• 18:43David Rosenthal?

  20, somewhere between 25 and 27. So he's like the adult supervision at Facebook.

• 18:51David Rosenthal?

  It's kind of a miracle that Facebook survived all of this because we'll get into some more stuff here.

• 18:58David Rosenthal?

  So, you know, Parker, again, doesn't sit still for very long. He joins up with Peter Thiel, who had just, at this point, started Founders Fund, the VC firm that Peter started. And after the Facebook investment, Parker joins in 2006, but he still has music and Napster kind of on his mind. And if you remember, Facebook, in the original early days, Facebook was actually the Trojan horse to realize what supposedly was Mark Zuckerberg's true vision.

• 19:31Ben Gilbert?

  Wirehog.

• 19:32David Rosenthal?

  Which was Wirehog.

• 19:34Ben Gilbert?

  Yeah, that's right. They were co-developing. It's, I think, when they were, when they were working on, they were even doing this in California, I think, after they had moved out. They were working on both Facebook, the social network, and Wirehog, the music sharing network. And we're going to deploy Wirehog to everyone who had, had signed up for Facebook to be sort of the, the, exactly, David, the Trojan horse, the way that you, you bring P to P to the masses.

• 19:57David Rosenthal?

  Yep, exactly. And remember, Facebook was only at colleges at this point in time. It wasn't open to the whole public. And, and so Wirehog was essentially Napster 2.0. It was file sharing, but mostly primarily music. And then, and then video file sharing had become big at this point. BitTorrent and other applications were, were, were very popular. And so actually, that pitch to Sequoia, the infamous pajama pitch that Mark Zuckerberg and Facebook did, supposedly, they primarily pitched Wirehog, not Facebook.

• 20:32Ben Gilbert?

  Wow.

• 20:34David Rosenthal?

  But Parker, you know, he's lived through all of this. He's been sued by the music industry, by all the labels, had Napster killed. He kind of says like, look, guys, like, now is not the time. Someday, Wirehog, Napster, it'll all come back. But, you know, the industry has not changed enough. We're going to get sued. The Facebook is working. Let's do that. Let's kill Wirehog. So supposedly Parker was the one responsible for either before or after he left. He stays really involved in the company even after he stopped being president. He's the one who kills Wirehog within Facebook.

• 21:10Ben Gilbert?

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

• 21:24David Rosenthal?

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

• 21:38Ben Gilbert?

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

• 21:48David Rosenthal?

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

• 22:05Ben Gilbert?

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

• 22:22David Rosenthal?

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

• 22:38Ben Gilbert?

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

• 22:47David Rosenthal?

  So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely, at scale, go check out servicenow.com/acquired and tell them that Ben and David sent you.

• 22:58Ben Gilbert?

  All right, so Chapter 1.

• 23:02Ben Gilbert?

  Sean Parker starts Napster and that gets brutally murdered by the music industry. Chapter two, Facebook in its own success becomes the dominant thing and there's, there's no reason to focus on Wirehog there.

• 23:17David Rosenthal?

  Yep.

• 23:18Ben Gilbert?

  Wither chapter three.

• 23:20David Rosenthal?

  So for chapter three, we come back to Sweden now and to Daniel Ek, the CEO of Spotify. So Daniel, as we said, he started his first company in 1996 at the age of 13. He was in school. It was a website, web developer for clients, sort of like

• 23:45David Rosenthal?

  Tony Hsieh and the Zappos guys when they moved out to California.

• 23:50Ben Gilbert?

  Yeah, man, that was, that was the thing to do in, in high school. Like that was, you could make way more money than anybody else because it's this highly valued skill. It was, the work didn't have to be good. Like there was no good, I mean, there's no like modern frameworks for doing any web development then. So you just throw something together and, and adults are amazed that their business is on the internet.

• 24:13David Rosenthal?

  There's no Squarespace at this point in time.

• 24:15Ben Gilbert?

  No.

• 24:16David Rosenthal?

  So after a couple of years, Daniel's making like $50,000 a month and has 25 employees. He's still a early teenager. He ends up, he does go to college briefly. He goes to the KTH Royal Institute of Technology, which is the top engineering school in Sweden. But he drops out. He wants to focus on, on startups. He joins one startup called Tridera and ends up getting acquired by eBay. Then he becomes the CTO of a virtual world game called Stardoll. Remember when virtual worlds were a big thing? Yeah.

• 24:50Ben Gilbert?

  I don't know about you, but I still spend most of my time in Second Life, David.

• 24:56David Rosenthal?

  Yeah, you might be just about the only person left who does that.

• 25:01David Rosenthal?

  Then after that, he starts an online ad company called Ed Vertigo, gets acquired by a company called Trade Doubler, which is also a Swedish company that is sort of like the PayPal mafia, or I would, we at Wave would say the Airbnb mafia of Sweden.

• 25:22David Rosenthal?

  And then after that, finally, Trade Doubler will come back in a second, but after that, finally, Daniel becomes the CEO of a company called UTorrent, and UTorrent is a BitTorrent client. So now BitTorrent is basically, it's a peer-to-peer file sharing protocol that is the spiritual successor to Napster, to Kazaa, to LimeWire, to sort of the first generation of file sharing companies. And BitTorrent is, I don't know fully the technical details, but essentially it shards files, makes it a lot easier to transfer very large files between users. So people are using it for music, but now people are also using it for video, movies, television shows, and the like.

• 26:06Ben Gilbert?

  Yeah, it has the major benefit of you being able to concurrently download multiple pieces of a file from different sources. So rather than David me taking up, you know, the hogging the entire way to download that one file that you have, I can split it into 100 pieces and grab 100 pieces concurrently from different people. So the more people that are hosting the file, the more people that can can share to the network.

• 26:31David Rosenthal?

  Yep.

• 26:31Ben Gilbert?

  The faster it all moves.

• 26:32David Rosenthal?

  And so this is UTorrent's based in Sweden. Later that year, this is 2006, after Daniel becomes the CEO, it ends up getting acquired by BitTorrent.

• 26:44David Rosenthal?

  And, and this is like piracy, you know, which started with Napster, has now reached like a fever pitch. There's actually, I had forgotten about this, there's a political party in Sweden that has formed, a legitimate political party called the Pirate Party.

• 27:00Ben Gilbert?

  Oh, I do remember that.

• 27:02David Rosenthal?

  Their platform is like eliminating intellect- Intellectual property rights from the law, period, globally. And like, there are a lot of people that support this. Apparently, in the national elections at the time, they get about 7% of all votes in the country. It's crazy. And so, like, you know, everybody, this is, the music industry has been decimated at this point. You know, people are worried Netflix has transitioned into, is starting the transition into video streaming. People are worried, you know, BitTorrent's out there, people are pirating movies, you know, what's next? Basically, there's no, there's no hope in sight for intellectual property on the internet.

• 27:44Ben Gilbert?

  So, so has Apple ridden in on their, their white knight horse yet?

• 27:50David Rosenthal?

  Oh, yeah, totally.

• 27:50Ben Gilbert?

  99 cent downloads?

• 27:52David Rosenthal?

  99 cent downloads. So iTunes, you know, is hailed as the savior of the music industry, but-

• 27:57Ben Gilbert?

  Easy beats free, the classic Steve Jobs-ism.

• 28:00David Rosenthal?

  Yep. But iTunes is still, and until the Beats acquisition, which we covered, it's still in the purchasing music paradigm, where you're paying money per file, and then you can play that file anywhere, but it's only one song or one album. It's not like the best experience. And this is where Daniel-

• 28:21Ben Gilbert?

  You actually can't play it anywhere. It's like, I mean, until they switched to the DRM free for the $1.29 instead of the 99 cent stuff, it was still restricted to five devices that had to be authorized in kind of a kludgy way. You literally had to transfer the MP3 around because the cloud hadn't really blossomed yet, and certainly not streaming. So, you know, there, if you think about sort of step functions to the user experience, I'd say, you know, that iTunes was like 20% better because I didn't have to go into shady parts of the internet to try and find this music that fell off the back of a truck. It was like right in my music player, which is great, but-

• 29:01David Rosenthal?

  And you knew it was the right song, you know, the true-

• 29:03Ben Gilbert?

  Right, right.

• 29:04David Rosenthal?

  Where's remember all the crappy files you'd get from Napster and, you know, Kazaa and the-

• 29:07Ben Gilbert?

  It's like, it's like somebody like playing, like, playing something out of their computer speakers and then re-recording it onto a separate thing. So you have this weird like hiss in the background. It was great.

• 29:18David Rosenthal?

  The Wild West, totally.

• 29:20Ben Gilbert?

  But, but it really wasn't, you know, it wasn't a whole step function better. It was, you know, easy, sure, it beat free, but it wasn't a paradigm shift. It was still like- The same way that I'm, all the same downsides of transferring an MP3 around, but with the new downsides where it also costs money.

• 29:37David Rosenthal?

  Remember organizing your iTunes file library?

• 29:41Ben Gilbert?

  I want my life back. I want all those hours back. I meticulously cared about this. I like, I, for a while, tried to get some of those software, some of the programs, I think, something about a brain, like brain, sound brains or something that would go through and like, help you by recognizing the audio signature and filling it in, but even that was wrong. And I'm like so obnoxious and meticulous about keeping that stuff accurate that like, I, I have, I've spent weeks, like cumulative weeks of my life.

• 30:12David Rosenthal?

  I think this was probably like the biggest, you know, wound inflicted on our generation was that like, you know, all this product, potentially productive time that we could have been spending playing video games, you know, which we were doing the rest of the time, we were organizing our iTunes file library.

• 30:28Ben Gilbert?

  Well, and I, I thought I was going to have that with me for life. Like, I remember, you know, you look at your dad's record collection, or you know, my, my parents also had this like rich CD collection. And I'm like, this is the way, like, this is my music collection that I'm going to carry with me forever. And I remember, I mean, we're, I'm jumping a little bit ahead, but I remember this moment a few years ago where like, I got a new computer and I didn't transfer my iTunes library over. I just like have it on an external hard drive somewhere around my house. And it was like this painful, incredible illustration of sunk cost fallacy where I, I just, I like, I'm like mourning the fact that there's these hundreds and hundreds of gigabytes that I'm just not, not bringing with

• 31:08Ben Gilbert?

  me into the next chapter of my life. And, and, and did anything bad happen from it? Like, no. I, I have access to basically, I think, all of that music, except for sort of some, you know, live stuff here and there and some covers and all that. But like, you know, I hadn't, I hadn't opened iTunes and listened to any of that in years.

• 31:29David Rosenthal?

  Yep. Yep. So this is really the insight that Daniel Ek has, which is, which is two-pronged.

• 31:37David Rosenthal?

  It's that the user experience for music is not just that the industry is broken, but the user experience is broken. And iTunes is not great for all the reasons we talked about. But piracy isn't great either. You know, BitTorrent and all the spiritual successors of Napster, you still have the same problem. You got to manage the files. You don't know what you're getting. It's really, it feels like, you know, all of this feels like technology that's not like productized. And so he has the vision that there's a better way. There's actually a better way to consume music that is better than pirating, better than iTunes, and that is what becomes Spotify.

• 32:20David Rosenthal?

  So he decides, you know, yeah, the music industry is hard, but I'm just going to go for it. He teams up with Martin Lawrence, his co-founder, who was one of the Trade Doubler co-founders. Remember Trade Doubler had acquired Daniel's last company before he joined UTorrent.

• 32:38David Rosenthal?

  They fund the company themselves. They figure they can raise venture capital. And, you know, they'll do some deals with record labels, get launched. They have this new, you know, new paradigm for consuming music. Of course, everybody's going to see how much better it is. And it turns out it's quite a slog to get the record labels on board.

• 32:57Ben Gilbert?

  Shocking.

• 32:58David Rosenthal?

  Yeah, shocking. So this was 2006 when they start the company. Apparently the name Spotify comes from, they're in Daniel's apartment, they're brainstorming names for the company, they're sitting in different rooms and they're shouting back and forth. And with suggestions, Martin shouts something and Daniel mishears it as Spotify.

• 33:19David Rosenthal?

  Immediately Googles it, realizes that the domain name is available and thus Spotify.

• 33:25Ben Gilbert?

  I love these stories of how these things come to be.

• 33:29David Rosenthal?

  They later, they later try and justify it as like, well, it's a mashup of spot and identify. But no, that's, that's not what happened.

• 33:36Ben Gilbert?

  It's like, it's like Pierre Omidyar, when asked at an all hands meeting after the eBay IPO, what does eBay stand for? He was like, well, I was gonna, I've been trying to tell people that it's like electronic bay, but I just thought eBay sounded cool.

• 33:52David Rosenthal?

  Totally. So they build, they build the product, they're working with the labels, but it takes, as I said, forever to get any deals done. And the labels in particular don't want to go anywhere near giving the rights to streaming to the US. So it's actually really fortunate that the company starts in Sweden, because eventually, after basically two years, they're able to convince the record labels to let them experiment with this new paradigm of streaming. Remember, Netflix is already around at this point, like the model is proven, but only in Sweden.

• 34:31David Rosenthal?

  They won't let them do it in any other companies. So finally, finally, in October 2008, so almost two years after they start the company, they launch in Sweden with free accounts available by invitation to everyone. So they use the invitation, you know, growth hacking method for free accounts. But if you want to pay to subscribe, anybody can come in and pay to subscribe. So it's like, you gotta be part of the club to get in for free, but you can bypass the line if you pay 10 euros a month to subscribe.

• 35:02Ben Gilbert?

  That's a great, that's so interesting, because it does, I mean, it hits that critical mass, where if you're using a viral invite system like that, it's not hard to find someone with 50 invites to Gmail anymore. But at the beginning, it's so coveted if you care about being on it and that social, I mean, that's, it's so clearly not going to be a long-term revenue strategy, but it's like, hey, if people will pay for this, now we may as well do it.

• 35:23David Rosenthal?

  Great way to start, great way to start. Shortly thereafter, in February 2009, they launch in the UK, and then they slowly kind of roll out in Europe after that. But it's, it's really working, and it's growing.

• 35:40Ben Gilbert?

  As a personal aside here, I did a summer internship with Exact Target's UK subsidiary in the summer of 2009. And I remember reading all these articles in TechCrunch in 08 and 09 about Spotify and what a disruptive, innovative thing this was, and sitting in my dorm room in Ohio State, being like, I have, I feel so disconnected, like. Okay, you know, I'm here manually curating my iTunes library and like I keep hearing about the streaming music thing. And it was like the most awesome experience to go and do that internship in London and get to use Spotify. But then when I came back in what September of 2009 to get plunged into the dark ages back into the US again. It was this really weird experience.

• 36:24David Rosenthal?

  Yeah, totally. Well, so summer 2009, this is when Sean Parker comes back into the story. Rises from the dead yet again, or rides back in from the sunset on his horse. So Spotify is growing across Europe. Their labels are slowly letting them go into more and more countries. And towards the end of the summer, they end up raising $50 million in what was their series B at that point. From Wellington Partners, the hedge fund, and Lee Cashing, the wealthy Hong Kong based, either Hong Kong or Taiwan. I believe Hong Kong based billionaire.

• 37:05David Rosenthal?

  But Sean Parker, so at some point, at some point, Daniel comes to Silicon Valley, comes to the US. And he meets with Mark Zuckerberg and Facebook and apparently Sean Parker's there too. And he's like, this is it. This is Napster 2.0. This is the way to do it. And but they just closed this round, this $50 million round. Sean, this time had joined up with Peter Thiel as a partner at Founders Fund. And so Sean writes Daniel this email and we'll link to it.

• 37:38Ben Gilbert?

  I believe he hadn't met him because in this email, he says, I look forward to meeting you in person. Like Zuck really liked this, but I look forward to meeting you. I see all these. Anyway.

• 37:47David Rosenthal?

  So maybe it was that Daniel met with Zuck and Zuck told Sean Parker about it.

• 37:54David Rosenthal?

  Whatever.

• 37:55Ben Gilbert?

  And then Sean Parker went crazy.

• 37:57David Rosenthal?

  Sean Parker goes crazy.

• 37:58Ben Gilbert?

  Fell in love with this thing.

• 37:59David Rosenthal?

  Totally falls in love with it. And so he writes this email, which is online on the internet, published for posterity. We'll link to it. It's amazing. And so I'm just gonna, I'm just gonna quote liberally from this email here. It starts off with, you know, "I've been playing around with Spotify. You've built an amazing experience. As you saw, Zuck really likes it too. I've been trying to get him to understand your model for a while now, but I think he just needed to see it for himself. Facebook has been in partnership discussions with various companies to fully integrate music download with the Facebook profile. Most of these deals would have resulted in the wrong user experience, and I've done my best to stop them where they didn't make sense." Remember, Parker has no formal involvement with Facebook at this point in time.

• 38:44David Rosenthal?

  "In particular, there's no way that iTunes could enable the right experience on Facebook." And, and he continues, he says, "Ever since Napster, I've dreamt of building a product similar to Spotify." What's clear-

• 38:56Ben Gilbert?

  If-

• 38:57David Rosenthal?

  Oh, good.

• 38:57Ben Gilbert?

  Go for it.

• 38:59David Rosenthal?

  "What's clear is that the labels never quite understood the way people really consume, share, consume, share and experience digital music, and they couldn't admit to themselves that this behavior pattern wasn't changing anytime soon. Rather, they'd have to change their, the way they did business essentially to make it work."

• 39:14Ben Gilbert?

  And, and these are so clearly two kindred spirits, like the way that Sean Parker thinks about music and the way that Daniel Ek thinks about music, like it is, you are, when you read this thing, you're sort of reading the future product roadmap for Spotify as laid out by Sean Parker, which I'm sure Spotify had already thought through. And if you, if you find, if you find the content of this episode interesting, you'll just like, like love every word of, of reading this. So go check it out in the show notes.

• 39:42David Rosenthal?

  Well, and this is what's interesting. So I don't know. It, it's probably impossible to know whether Spotify had, already had on their roadmap, all the things that I'm about to say that Parker lays out. But essentially, this is, you know, the first key to Spotify was what we talked about earlier, which is really getting the product experience right. Like it's a better product experience than I- Their iTunes or piracy because you don't have to worry about organizing and files and all. It's just right there at your fingertips, you know, wherever you are on any device. That's great, but that's only the first thing. The second key to Spotify is Facebook and distribution.

• 40:18Ben Gilbert?

  So Yeah, so Sean Sean in his email to Daniel says, my goal for the second generation Napster. Once we'd gotten around to cleaning up the messy interface, which he actually rails on as an aside. He rails on Napster's interface for most of this this letters. He so clearly holds himself as like a product designer and is just massively ashamed that they weren't able to sort of clean it up. Anyway.

• 40:40David Rosenthal?

  Which is funny because he was basically, I mean, he was technical, but he was basically the business dude at Napster. Like he was not the product designer.

• 40:47Ben Gilbert?

  Yeah. So my goal for the second generation Napster was to implement social and sharing features. This would have dramatically increased the volume of sharing happening through the system. Based on the comment you made to Zuck, I suspect you're moving in this direction. You should build this capability directly into the client using Facebook to connect to authenticate. And then leveraging the viral communication channels to spread Spotify rapidly around the world.

• 41:11David Rosenthal?

  Then he says, you guys are likely going to be the first major success story with Facebook Connect, which Facebook had just launched, which was their login platform. Then he says, if you need some

• 41:21Ben Gilbert?

  On its own has been has been quite the topic of discussion.

• 41:23David Rosenthal?

  Well, Cambridge Analytica and all that.

• 41:27David Rosenthal?

  Then he says, if you need some help navigating Facebook platform, in particular, the viral channels, I'm happy to lend a hand.

• 41:35David Rosenthal?

  And this is really how Spotify becomes a $30 billion company. So also this email is a masterpiece of, you know, if you're a VC and you're trying to get yourself into a deal, an investment or win a deal, like this is how you do it. Take notes because shortly thereafter, Founder's Fund comes in and Sean adds another 15 million to the round that was already closed. Daniel says, of course, I need to have you involved and and then Founder's Fund and Sean end up end up investing. But this is this is it. And so at this point in time, this is the end of 2009. The company Spotify believes they're about six weeks away from being able to launch in the US.

• 42:18David Rosenthal?

  They've been working on deals with the record labels forever. Sean knows dealing with the record labels takes longer than you think. He thinks it's about 12 weeks away, you know, in the next quarter they'll get out in the US. Turns out to take another two years until they, until they're finally able to launch in the US. It's not until 2011. But that also is very fortuitous for the company because they basically take those two years and they do two things. They foster their relationship with Facebook through, brokered through Sean Parker. And they essentially re-architect the entire product to rely on Facebook Connect and social login and then distribute every

• 43:01David Rosenthal?

  action that every user takes, and we'll get into this, within Spotify gets distributed out to their Facebook account to the newsfeed. And this is really what drives Spotify's viral growth.

• 43:13Ben Gilbert?

  This is, this is, you know, it's Farmville for music. Like you really are just seeing every update that every one of your friends takes in Spotify in your newsfeed.

• 43:24David Rosenthal?

  Ben, listen to Wake Me Up Before You Go.

• 43:27Ben Gilbert?

  I mean, I seriously, I remember turning publishing on and off specifically when I was listening to certain songs. Like, ooh, I hope this doesn't go out on my Facebook. And I was one of those people, David, did you ever use Audio Scrobbler?

• 43:40David Rosenthal?

  Yes.

• 43:41Ben Gilbert?

  Which became Last FM. Or move with, yeah, merged with Last FM. I was like, I had that hooked into iTunes. So I was always scrubbing to my Last.fm account. And then when I realized, so that I enabled the switch for that to get published to Facebook, but like, no one else, like, it was very much a like Homebrew Computer Club type thing to be sharing all your music data on Facebook before Spotify. And then I remember when Spotify lit up in the US, it was like, holy God, every single person's listening, you know, habits are showing up here in real time.

• 44:14David Rosenthal?

  You know, it's either like you farmed a root vegetable, or you listened to, you know, I don't know, what was popular music at this point in time? Like, so hard to remember. Justin Timberlake.

• 44:28Ben Gilbert?

  Here's the thing that's actually not hard to remember is, I'm pretty sure, I heard a great quote once that was, your, your music taste for the rest of your life is whatever you were listening to senior year of college. So I would bet if we go look at what you and I actually listened, like, I was listening to a ton of Radiohead and what I listen to today, a lot of Radiohead.

• 44:46David Rosenthal?

  Yeah.

• 44:48David Rosenthal?

  That's uh, so it works. Colleges. That's why it's important. It sets your habits for life. Uh, so 2011, basically Spotify has now had time to build this relationship with Facebook. And in July of 2011, they launched in the US, but September 2011 is the biggest moment in Spotify's history. And that is 2011, Facebook F8, their big annual conference. During the keynote, Zuckerberg invites Daniel Ek up on stage and announces a major partnership between Facebook and Spotify. Uh, and it's two things. One, at that F8, Facebook had announced, uh, launched OpenGraph and the platform the year, uh, well, the platform

• 45:32David Rosenthal?

  had been launched many years before, but OpenGraph launched the year before, uh, that basically allowed lots of people to now insert activities that people were doing in non-Facebook apps like Spotify, like Zynga into the, the newsfeed. Um, they launched the ticker in 2011, which is basically like a real-time firehose stream. I think this was kind of in reaction to Twitter of, um, everything, literally everything all your friends have done, streaming by you.

• 46:00Ben Gilbert?

  And it was like that little, you had your regular newsfeed, but then up in the top right corner, you also had the real-time ticker.

• 46:07David Rosenthal?

  Yep. And it was basically just garbage that like got overwhelmed with marketing that all these companies were hacking into Facebook. Um, but so in this partnership, not only is, um, is Spotify a launch partner for the ticker. So, you know, all, what all your friends are listening to, playlists they're making, everything, uh, is getting pumped into the ticker and the newsfeed. They also, if you have Spotify installed on your computer and you're on Facebook, there are play buttons on all of these things, uh, in the ticker and in the newsfeed, you just click the play button on the song, right within Facebook, it starts playing the, the music. And so if you don't have Spotify installed, this is a big incentive to now install Spotify.

• 46:49Ben Gilbert?

  And you know what? We, we sort of, um,

• 46:53Ben Gilbert?

  What's the right way to say this? We sort of criticize and poke fun at the wow, they really hijacked Facebook for this purpose. But this is like the exact perfect product usage fit match where it was an amazing, amazing experience as a Facebook user to suddenly have like real time music available as a play button from that little thing. Like, at the very least, it was super valuable to see, to have social music recommendations. And this is a thing that like we sort of assume today. That's like, oh, well, Spotify's

• 47:36Ben Gilbert?

  cool playlist will show me what my friends are listening to, or based on my listening habits, or, you know, a friend will tweet out what they're listening to. But this was like so crazy breakthrough that I, it basically takes the way that people used to word of mouth recommend new albums to their friends, or old things they had found that were cool, and bring them into the primary way that you were interacting online. And I just think, like, it was a brilliant move on Spotify's part to be able to get this distribution and,

• 48:09Ben Gilbert?

  you know, partner with Facebook in this way. But talk about a perfect, a perfect reason for Facebook to have a platform. Like, Facebook was never going to do this. They canned WireHog, they had a million other things to do. And this made their service so much better. At least in, you know, maybe not as, as crazy as they went with the implementation, but this notion of, of being able to experience my music based on what my friends are listening to.

• 48:33David Rosenthal?

  Actually, I think you're right. Like, it is unfair to lump Spotify into this whole group of companies, Zynga being, you know, primary offender, number one of just hijacking the news feed. Like, it actually was a pretty good product experience. Now, do I care that, like, Ben is listening to Wake Me Up Before You Go, or somebody I went to middle school with is? Like, no. So they overdid it. But like this, and I think you see this now, like, of all these companies, and there was a whole wave of them, you know, Zynga, there are a bunch of social newsreader apps. There were social shopping sites, like all this stuff. All of these companies are dead because they weren't actually like useful products that people wanted. But Spotify is still around and is a $30 billion company now.

• 49:14David Rosenthal?

  It's like the only one, I mean, Zing is still around, but that's mostly because of their real estate holdings. But.

• 49:20Ben Gilbert?

  Yeah. And one other point on Spotify is while it significantly ratcheted back on Facebook, like you don't really see, see this in people's news feeds anymore. Spotify themselves gained enough of a critical mass where, you know, most people, or let's, let's throw out most millennials in the US who are going to be on Spotify are on Spotify. I don't know if that's a totally fair assumption, but let's just take that at face value for the moment. They have that experience in the sidebar on Spotify where you can see what your friends are listening to. That is snagged from the Facebook friend graph. And so, you know, they're not using it as necessarily as a growth vehicle anymore.

• 50:03Ben Gilbert?

  But I would say maybe once every other week or so, I will listen to a song because it's in that sidebar on Spotify. And it's still, you know, harkening back to that, it added to the Facebook experience. It adds to the Spotify experience to have a current view of what your social network is listening to.

• 50:20David Rosenthal?

  Yep, yep. Well, regardless, it certainly works for Spotify. So basically overnight, like, I mean, literally in 24 hours, they get a million signups from this. Cause it's all over everyone's newsfeed.

• 50:35Ben Gilbert?

  Wow.

• 50:36David Rosenthal?

  And then within the month, they've doubled their user base. They were, well, almost doubled. They were just over 3 million users, primarily across Europe at this point in time. They just launched in the US. And by the end of September, they're, they're, I believe, over 6 million users and over 2 million of those are paying.

• 50:57Ben Gilbert?

  So. US is a heck of a market to enter.

• 50:59David Rosenthal?

  Yeah, totally. Well, especially on the back of Facebook and Mark Zuckerberg, you know, bringing you on stage on the keynote.

• 51:05Ben Gilbert?

  Right. So 2 million of the 6 million from the US were premium?

• 51:11David Rosenthal?

  That was, I, that was worldwide. So 6, 6 million worldwide, 2 million paying premium. And that's a lot of money, like.

• 51:19Ben Gilbert?

  That's also, that's not so different from today. I mean, today it's in the high 40%, but I mean, it's, it's really interesting. From the earliest days, they had an incredibly well converting premium model.

• 51:31David Rosenthal?

  Yep, incredibly well converting. And they tweak it over time. So originally, it was free to listen on desktop, and then you had to pay to go mobile. They tweaked that so that it was free on mobile as well, but only shuffle mode. So you couldn't, you still can't pick specific songs. You can only shuffle playlists. Yeah, it converts really well. So basically, you know, on the back of that, like, that's the rocket fuel that Spotify needs to reach escape velocity and take off into the large company it is today. So they finished 2012, the next year with 20 million active listeners. So huge growth,

• 52:12David Rosenthal?

  like over 3X from 2011. 5 million paying subs, so almost 3X growth on paid. 1 million paying subs in the US at the end of 2012.

• 52:25David Rosenthal?

  And then they just start raising a ton of money to keep pumping it into marketing and product development, too. 2012, there is 100 million from Goldman Sachs at a $3 billion valuation. 2013, there is 250 million at a $5 billion valuation. They also, funny aside, kind of just like Dropbox, this is the era when everyone wants to be a platform. So Spotify also gets caught up in this, builds the Spotify platform, allow app developers to build apps based on music.

• 52:53Ben Gilbert?

  Wait, really?

• 52:54David Rosenthal?

  Yeah, of course, this is all buried in history now, but

• 52:56Ben Gilbert?

  Completely missed that.

• 52:57David Rosenthal?

  Lots of hype. They launched it late 2011. They kill it in 2014, but it's like, this is the future. You know, you can build apps with music. And it's like, what? Anyway, fortunately

• 53:10Ben Gilbert?

  It's so funny. It's so funny to watch these companies try and launch these like broad-based platforms that don't make sense, and then you kill it, and then years down the line, launch another platform that is like highly targeted, something that really makes sense. Like Spotify Connect today is freaking awesome. Like the ability to play Spotify out to various partners, Sonos, and, you know, everyone that can hook a speaker or a playback device into Spotify. It's worked so well. And like, that turns out that was the killer way to integrate with Spotify for things coming out of Spotify.

• 53:39David Rosenthal?

  Yeah, yeah, totally. But they get there.

• 53:43David Rosenthal?

  And they just keep raising more and more money. They ultimately end up raising, I believe, about $2.5 billion in the private markets. They also, in late 2015 and then into 2016, as, you know, Facebook is now no longer, Facebook has vastly locked down its platform. You're not getting all this crazy distribution. They really catch the next wave really well, too, and time it well with machine learning and recommendations. They launched the Discover Weekly playlist, machine learning-generated, algorithmically-generated playlist, unique to each user, with new songs that they think you'll like, or songs that you don't know well, that they think you'll like. They launched

• 54:25David Rosenthal?

  that at the end of 2015. Radar, which is new music from artists you like, launches in 2016, along with the daily mix. And this drives kind of the next wave of growth in the company and engagement. And so by the end of 2016, they have 40 million paying subscribers, which like, that's huge growth.

• 54:45Ben Gilbert?

  And just to take a pause on sort of internal innovation, it's worth pointing out that the Discover Weekly playlist was a, like, very much an experiment within the company, before they launched daily mixes, before they came out with release radar, before that got promoted to like a first-class thing on the home screen. It was just one of the playlists available to you, like 70s, 80s, 90s, Discover Weekly. And they had this framework, which were playlists, on which they could sort of test this new concept of, can we algorithmically generate stuff that people will want to listen to and be accurate in that and improve in that. And it's really interesting, I mean, the innovation

• 55:27Ben Gilbert?

  that the company had, that they have sort of a few innovations over their lifetime, but that ultimately made them a $30 billion company, it was, streaming should be the way that this, that this world works, and we're going to persevere with the music labels to make that happen. Facebook is this amazing distribution vehicle, so we're gonna, you know, that's, that's our sort of innovation number two. And we're in the wave of number three right now, and they really had a nice framework internally to be able to not only test something, but then like, now we're seeing really double down on it as it was working and promoting it to like a first-class piece of the platform.

• 55:58David Rosenthal?

  Yeah. And I think it also... It's a good point. We didn't really cover earlier. This has always been a thread through Spotify's product history, but is best expressed in these playlists in Discover Weekly and Radar and Daily Mix, is this idea of the playlist. Playlist had been around since recording cassette tapes in the 80s. And then certainly iTunes had playlists. But what was great about Spotify is they really made playlists the first classes. And so like, and this was part of what they got the labels back on board with is, whereas iTunes is a singles focus, like you are buying individual songs. You can buy albums, but like people buy songs. With Spotify, the focus is on playlists, and that kept people engaged,

• 56:43David Rosenthal?

  engaged with artists, and listening a lot more. And when the labels were getting paid, labels and artists are getting paid based on number of streams, keeping people streaming more, listening more aligns incentives a lot better.

• 56:59Ben Gilbert?

  Yep, absolutely.

• 57:02David Rosenthal?

  So, end of 2016, 40 million paying subscribers. Now, some of those are family plans, some of those are student plans. We talked about this in the Beats episode. It's not quite fair to say that you just multiply that by 10, and that's how much their $10 per month, or euros per month, is the cost, and that's how much they're making per month. But even if you multiply it by five, be really conservative, that's $200 million euros in subscription revenue per month. That's a lot of revenue. I mean, that is a serious business.

• 57:36Ben Gilbert?

  Wouldn't it be great if they could keep a ton of it, instead of just like, you know, like 10% of it?

• 57:43David Rosenthal?

  Wouldn't that be great? Well, they keep 30%.

• 57:46Ben Gilbert?

  Yeah. Well, ultimately, so I guess where I was going with this is ultimately there, during that year in 2016, their gross margins on the premium stuff is 16%. The ad consolidated stuff, they actually lose, I'm sorry, the ad-supported stuff, they actually lose 12%. So it's a negative 12% gross margin, and their consolidated is 14%. Which jumped up the next year due to sort of a deal negotiation. But you know, the thread as we as we get into sort of narratives around the IPO, which we'll we'll go to in a few minutes. I'm sorry, the the direct listing, not the IPO is certainly that it's,

• 58:29Ben Gilbert?

  you know, that it's incredibly low margin business relative to a lot of these other technology behemoths that have have really become huge in the last few years.

• 58:37David Rosenthal?

  Yep. Well, to get us there quickly.

• 58:42David Rosenthal?

  Company's growing. As we mentioned earlier, there's always been a robust secondary trading market for the stock. They've raised all of this money. They don't need to raise any more money. We'll get into the business model and in a minute in narratives. But at the very least, they have a very nice cash flow dynamic where their subscribers pay them upfront every month, the $10, 10 euro a month subscription fee. They don't pay the revenue share. Spotify doesn't pay the revenue share out to the labels until after the end of the month. So just like Amazon in this regard, they have a positive or a negative working cash flow cycle that allows them to be cash flow positive, even if they're not net income positive.

• 59:26David Rosenthal?

  And in the meantime, they had hired a guy named Barry McCarthy as their CFO, who is their CFO. He had been the former CFO of Netflix, also took a short detour after that to be the COO of Clinkl. Sad. We're not going to talk about that one here.

• 59:45Ben Gilbert?

  That would be My only goal for this episode was to get to yell Clinkl.

• 59:48David Rosenthal?

  Oh, my goodness. One of my friends in business school did his summer internship at Clinkl. That's for another episode. Anyway, fortunately for Barry, he moves on quickly from Clinkl and becomes the CFO of Spotify. And Barry is the one who really leads the charge, saying, why would we do an IPO and give 7% of the offering? A, raise money when we don't need it, take dilution of the company, give 7% of the offering to banks. Let's just do this direct listing. So they do. They set a reference point. So there's no, there's no pre-sales like in an IPO. They set a reference point for trading of $132 share or which equates to a market cap of about 23 and a half billion.

• 1:00:31David Rosenthal?

  That's where shares have been trading on the private market. They announced that they're going to do the first trade publicly on Tuesday, April 3, which they do. It opens, the first trade happens at $165 a share and 90 cents, right around the 30.

• 1:00:46Ben Gilbert?

  Which is totally way higher, like the reference price was 132, Reuters reported that it would be between 145 and 155. You know, it just, just kept climbing up to the day.

• 1:00:57David Rosenthal?

  Yep. And so that's about a $30 billion market cap. It ends the day at $149 a share or 26 and a half billion dollar market cap still up. As we alluded to, the folks at the New York Stock Exchange mistakenly raised the Swiss flag outside the exchange.

• 1:01:15Ben Gilbert?

  They both start with S or Europe, that's fine.

• 1:01:17David Rosenthal?

  Swedish flag. It's okay. That's quickly rectified. But this morning, here, we're Thursday morning, two days later, still trading about $150 a share. So right around just below a $27 billion market cap.

• 1:01:31Ben Gilbert?

  Yeah. And the really important thing here, sort of for the future of direct listings is, you know, will it, will it sort of settle here? Because the thing that everyone was really worried about is there's going to be all this incredible volatility. They didn't hire bankers to stabilize. You know, the, if it, if it ends up falling below $132 a share, that's below the last, uh, last place it was trading in the private markets. But, you know, all indicators are positive right now and Spotify did a few really intelligent things to sort of mitigate some of the possible risks of, of doing this direct listing and having all the volatility. The first of which being, they actually did hire investment banks.

• 1:02:13Ben Gilbert?

  And, and as you sort of read a lot of these articles, it, it becomes clear that like, it wasn't one, it wasn't two, like they, they, they paid Goldman Sachs, Morgan, Morgan Stanley, Allen and Company. Morgan and Stanley is technically serving as financial advisor, but ultimately they're gonna, they're gonna pay 44 to 50 million bucks in banker fees.

• 1:02:34David Rosenthal?

  Yeah, advisory fees. Yep.

• 1:02:36Ben Gilbert?

  It's quite comparable to what they would have paid if they had actually IPO'd. It's, it's sort of shy of, recently, if you look around Snapchat paid over 60 million, but, but if you look, you know, Dropbox was only. Around 30 million. Mongo was at like 17 million. Stitch Fix was at 7 million. Like they're actually, despite the fact that, that they are doing a direct listing and there's lots of other reasons why that's awesome. They are, uh, they are paying a hefty fee out to banks to help, uh, I think to help stabilize or help craft the messaging or, or something.

• 1:03:11David Rosenthal?

  Yeah. I'm not sure exactly what the banks are doing. I think it's probably their institutional sales forces that are,

• 1:03:19David Rosenthal?

  marketing the stock to large institutional investor clients, hedge funds, mutual funds and the like. I think that's probably what they're paying them for, which is really what a bank would do in an IPO process. It's just that they're doing it on an advisory basis instead of taking, literally buying the shares from the company and then reselling them to those investors. So. Yeah.

• 1:03:43Ben Gilbert?

  And aside from that, yeah, one other thing, the other really smart thing that Spotify did leading up to this is they, um, you know, they, they encourage sort of second market, trading for their employees and they, um, you know, the more volume gets out there to be traded, the more certainty they have around what it's going to be in the, in the public markets. And so, um, I don't know exactly what they did. I, this, I think they waived, they waived the, basically their right to,

• 1:04:12Ben Gilbert?

  be the ones purchasing when employees are selling their shares, um, and to, to kind of encourage this. So. All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired, Logora. The agentic operating system that is redefining how the world's best legal teams work.

• 1:04:32David Rosenthal?

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

• 1:04:48Ben Gilbert?

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

• 1:05:03David Rosenthal?

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

• 1:05:27Ben Gilbert?

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

• 1:05:46David Rosenthal?

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

• 1:06:16Ben Gilbert?

  Truly insane numbers. And that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at legora.com/acquired and just tell them that Ben and David sent you.

• 1:06:41David Rosenthal?

  Should we get into narratives?

• 1:06:43Ben Gilbert?

  Yeah, let's do it. Let's do it. So one thing that's interesting to take a look at before getting, before totally doing narratives is what the cap table looked like. So Daniel X. still owned 25.7% of shares.

• 1:06:56David Rosenthal?

  And Martin owned 13.2%. So that's almost 40% among the two co-founders.

• 1:07:02Ben Gilbert?

  That's like a Dropbox level of ownership.

• 1:07:05David Rosenthal?

  It's more than Dropbox.

• 1:07:07Ben Gilbert?

  Yeah, they took on so much capital. I mean, they've raised $2.5 billion and it's been 12 years.

• 1:07:15David Rosenthal?

  Yeah. Well, they raised at such high valuations along the way. And again, you know, this is narratives here. They raised at such high valuations, their revenue numbers were so impressive. But the question is, how much of that is, you know, going to flow down to the bottom line after the labels take their 70% cut?

• 1:07:36Ben Gilbert?

  Well, it's so funny to be doing this right after Dropbox, because if you look at them, you know, these ownership percentages are so high and you say, why are they so high? Growth is an amazing leverage point and profitability, or close to profitability, or at least running a lean operation and generating a lot of cash is also a really high leverage point. So both of these companies grew like wildfire, monetized from an early day. And, and, you know, that just gives them a lot of, of ability to, to raise at really high valuations and bring a lot of cash into the business with a lot of certainty in the future.

• 1:08:12David Rosenthal?

  Yeah. But the difference between Dropbox and Spotify, as I'm sure you'll get into, I actually didn't look up, what, do you know offhand what Spotify's overall gross margin is?

• 1:08:25Ben Gilbert?

  I do, I do. So it actually went up last year because of a renegotiation with the labels, where Spotify said, look, we want it, we want a higher take rate. But if we don't grow and hit our numbers, you get to take more money. And so it went from, if you look at their consolidated gross margin from 2015, 16 and 17, it was 12%, then 14%, and then a huge jump last year to 21%. So they're definitely betting the farm on, on future growth here right now. And, you know, being nicely compensated for it from the labels.

• 1:08:56David Rosenthal?

  Yep. So it's 21% gross margin?

• 1:08:59Ben Gilbert?

  21%. Yeah. And for folks that are, that haven't stared at gross margins all day, what you would want from a technology company is really high fixed costs and really low variable costs. So that would be a really high gross margin because you, your actual cost of revenue is, is, is very low. So if you look at something like a Facebook, they tend to hover around an 85% gross margin.

• 1:09:21David Rosenthal?

  And Google, I think is high 80s, low 90s.

• 1:09:25David Rosenthal?

  But Dropbox, getting back to that comparison, is just under 70, so 67% gross margins currently at Dropbox. So all of this is significantly higher. And Ben, just like you're saying, like, the reason this is important is like, you know, tech companies require a huge amount of fixed costs in the engineering, in the servers, all the stuff that you need, the employees that you need to build the companies. But then, the business models tend to be so scalable on a marginal cost basis, like, it doesn't cost Facebook anything to sell another ad, or Google anything to sell another ad word. Dropbox, it does cost them in storage

• 1:10:07David Rosenthal?

  to bring on new customers. But especially after they've moved off AWS, it doesn't cost them that much. You know, they're still making 70% gross margins.

• 1:10:16Ben Gilbert?

  Right.

• 1:10:16David Rosenthal?

  Not the case with Spotify.

• 1:10:19Ben Gilbert?

  That's right. That's right. So, getting into the narratives, a quick snapshot of their business today, they're unprofitable. In 2017, they did $5 billion in revenue, which is awesome, but they took a $1.46 billion loss. So, you know, you would, you would hope to see that sort of change soon, where they're actually generating, generating a profit, rather than generating a billion and a half dollar loss when they have 5 billion in revenue. But they're not there yet. On their balance sheet, they have $582 million of cash available, so about half a billion bucks of cash. Now, if, one thing that's interesting to note, so they didn't raise any money, because this wasn't an IPO, they've

• 1:11:03Ben Gilbert?

  got half a million dollars of cash available on their balance sheet, but they're losing a billion and a half every year, or at least at their current run rate. So unless they get profitable fast, they will actually need more money to continue funding the business.

• 1:11:18David Rosenthal?

  Now, yeah, I think there's a yes, but here.

• 1:11:23David Rosenthal?

  Yes, but if you look at, because of some of the dynamics we were talking about earlier with the negative working cash cycle, they actually are cash flow positive, operating cash flow positive. So in 2017, they generated 179 million euros in operating cash flow. Now, they still lost money on a cash basis for the year.

• 1:11:47Ben Gilbert?

  Right.

• 1:11:47David Rosenthal?

  Because they're having to pay off interest on, on the debt that they have, the convertible debt that they have. So, you know, yes, they will eventually need to turn the income positive. That's the bet here. But they are cash flow positive on a, they are cash flow positive. But it's not anywhere near the levels that Dropbox is at. I believe, I can look it up quickly. I believe Dropbox is generating right around half a billion in operating cash flow right now and growing quickly. Spotify growing too, but like they're kind of hamstrung by these margins.

• 1:12:24Ben Gilbert?

  Yeah. Yeah. And thanks for that correction. That's a, that's a, that's a great point and not to be overlooked. And the last thing I'll say is growth is spectacular. Like if you look at revenue growth from 2016 to 2017, they went from 3.6 billion up to that, that 5 billion number. You know, when you're generating that much revenue to be growing like that is, is really, I mean, they're, they're in a, they clearly, you know, hit a high pressure valve when they were looking around for what market to enter. This doesn't look like it's going to stop flowing anytime soon. They, they have 159 million monthly active users. 71 million of those, which is almost half are, are paying, paying premium subscribers,

• 1:13:07Ben Gilbert?

  which means they're, they've switched off the ad tier and into the, the paying tier, which is they have double the number of, of Apple Music subscribers. I actually don't know if that's subscribers or, or monthly active users, but they sort of brag that they're double Apple Music. So, you know, that, that

• 1:13:25David Rosenthal?

  I think it's, I think it's paying. I think it's subscribers. I think it's paying. Yep.

• 1:13:28Ben Gilbert?

  Yeah. I think, I think that's true too. So

• 1:13:31David Rosenthal?

  Real quick, I looked up Dropbox. So Dropbox 2017, $330 million in cash flow from operating activities. Spotify, $179 million. So roughly a little less than twice as much for Dropbox.

• 1:13:46Ben Gilbert?

  Cool. Thank you. So if you look at what Spotify says in their F1, you know, they're advertising that streaming is the tidal wave on here and it's very early days and it's growing globally. That smartphone growth is a huge driver, that Spotify is the market leader in a huge way and even this behemoth, Apple, can't catch them. They use data in a huge way to provide this personalized experience. They're running as an operationally lean business. And that they really saved music. Like, they are not shy about this story. The way that they opened their F1 is really by talking about the incredible decline that the music industry was in,

• 1:14:31Ben Gilbert?

  and how streaming sort of pulled them out of it and saved the music industry. And so the way they talk about themselves, you know, the skeptics would argue that, you know, they are really at the mercy of these labels, and they have no bargaining power, and they have no pricing power. And what Spotify says is, "Look, like, the music labels love us because we saved the industry." And there's all these ways for both artists and labels, for everyone to do better, because the way that we enable people to listen to music actually creates growth for music.

• 1:15:05David Rosenthal?

  Yep. And I think all that is true. You know, it's Sean Parker and Napster 2.0, working with the music industry.

• 1:15:17Ben Gilbert?

  Yeah. So what would the skeptics say? You know, I haven't heard as much about this in the last, call it, six months, but for the few years before that, it was like Spotify was a trope. Like, it's a terrible freaking business. They're always, the suppliers have all the leverage, the music labels take a huge cut. Not only do they take a huge cut, but there's a Most Favored Nations clause in their agreements where, basically, for Spotify to get a better rate, they have to go and get all of the major labels, the sort of four or five major labels that make up 85% of the musics listened to on Spotify, to agree to this new lower rate.

• 1:15:59David Rosenthal?

  It's a cartel.

• 1:16:00Ben Gilbert?

  It's a total cartel. And unlike the, the technology business of, uh, let's, let's look at Netflix, for example, where they actually, um, license the shows and pay an upfront cost of, you know, you look at House of Cards, a hundred million dollars to create House of Cards internally, or a

• 1:16:18David Rosenthal?

  Or not licensed that Netflix creates the shows.

• 1:16:21Ben Gilbert?

  That Netflix creates the show, or, or pays a license fee. Sorry, I conflated those to, uh, existing back catalogs of, from, from other existing produced shows. They pay a one-time fee upfront and they own that for a certain number of years. Whereas, uh, and, and so they can generate as much revenue as they want for it. They get to keep the revenue and it's just a sort of a one-time cost. Um, but if you look at what Spotify is doing, compare and contrast, every single stream, um, you know, has a percentage that's paid out to the music labels and therefore, um, you know, Spotify cannot outrun their costs.

• 1:16:53David Rosenthal?

  It's, it's this, yeah, it's this difference between variable and fixed costs. Like Netflix has an even greater amount of fixed costs versus Spotify, both because they're paying upfront a, a fixed price to license the, the shows and, and movies that they didn't make. And then a lot of money to actually make their own content. Uh, but then when they, all their revenue, they just keep all the revenue. Um, they don't have to pay a percentage of their subscription fees to the movie studios. It's the opposite, what you're saying with, with Spotify where, uh, a percentage, a large percentage of their subscription revenue is getting handed right back to the labels. So as the subscription revenue grows, so does the amount that they have to pay.

• 1:17:36Ben Gilbert?

  Yep. It's a good, good succinct explanation. Uh, you know, skeptics also argue they, they have catalog parity with Apple Music. Whereas if you look at something like in Netflix, um, I have all this great stuff available on Netflix. Oh gosh, there's this entirely non-overlapping subset of stuff available on HBO Go. Maybe I'll pay for both. I'm sorry, HBO Now. Um, maybe I'll pay for both. And, and there's actual, um, um, people actually do subscribe to multiple of these things. And if you look at, uh, a music subscription service, basically no one subscribes to multiple, uh, because they have the Same back catalogs and skeptics would say that congratulations, you have algorithmically generated playlists.

• 1:18:17Ben Gilbert?

  Uh, I don't think that's differentiating enough to make people switch or uh, make artists want to launch with, you know, any sort of exclusivity or anything like that because it's still only ever going to be this subset of the market of listeners. They could release two by releasing on both. Um, and lastly, that, that music is something that's just going to be owned by the platform owners. So it, sure, you've done well, Spotify, but you had a 10 year or nine year head start on Apple Music. And God, they're growing so much faster than you are. They will catch you soon.

• 1:18:47David Rosenthal?

  I think when we did the Beats, when we did the Beats episode, was it 36 million subscribers? I believe that Apple Music is at now. So roughly half of Spotify is paying subscribers and that's in a uh, two years, two and a half years since it launched.

• 1:19:03Ben Gilbert?

  Yeah. I mean, it's a bit of a farce for Spotify to say, we have twice as many subscribers as Apple Music. Like you are almost a decade older than Apple Music.

• 1:19:10David Rosenthal?

  Yeah.

• 1:19:11Ben Gilbert?

  And they're, they're coming up fast.

• 1:19:12David Rosenthal?

  And for all of Spotify is really brilliant. As we talked about distribution tactics, uh, you can't beat being the default player on the device. Uh, but then also, you know, there's another, there is another, um,

• 1:19:26Ben Gilbert?

  I don't, so that, who, that was what the skeptics would say. I mean, I use Spotify. I don't pay for Apple Music. I'm uh, I highly ingrained in the Apple ecosystem. Like maybe they're the ones who can do it.

• 1:19:37David Rosenthal?

  Yep. Well, I was going to say, there is another um, player, you know, lurking in the shadows here. Uh, which is what do I do? Uh, I use Amazon Music and that's Jeff Bezos. Your margin is my opportunity, even if your margin is very small.

• 1:19:54Ben Gilbert?

  David, that's because you don't like music.

• 1:19:57David Rosenthal?

  I do like music. I actually converted. I now pay for Amazon Music, uh, but it's cheaper. I think it's seven bucks a month, uh, six or seven bucks a month. Um, but because it's baked into Prime either. So when you pay for it.

• 1:20:09Ben Gilbert?

  Your, your, your 12% gross margin is my opportunity. Like,

• 1:20:14David Rosenthal?

  Well, welcome to, welcome to Bezosland.

• 1:20:16Ben Gilbert?

  Yeah.

• 1:20:17David Rosenthal?

  Because it's all bundled. It's all part of Prime. Amazon can have a totally different business model. So Amazon Music Unlimited, which is what you pay for, is cheaper than Apple and Spotify, just as good. I mean, maybe there's some small things on the margin that like Spotify does better with, with algorithmic recommendations and Apple being baked into the device, but like ultimately, especially within an Alexa world now, being the default on Alexa. That's very powerful. Apologies to all the speakers of our listeners who we just activated. Lady A.

• 1:20:52David Rosenthal?

  You know, and price is, is meaningful to a lot of people. And then, and then there's the free tier for Amazon, which is you have complete control. It's a limited catalog, but it's most of the stuff that you care about if you're a casual music listener. And then it's just completely free with Prime and you can play directly. You're not limited to shuffle mode. You can play on any devices. You know, it's, it's a big disruptive force.

• 1:21:20Ben Gilbert?

  Yep. Yeah, I'm not going to bet on it, but

• 1:21:25Ben Gilbert?

  good case.

• 1:21:28David Rosenthal?

  I think it's, why, why wouldn't you bet on it?

• 1:21:32Ben Gilbert?

  I don't think Amazon gets music. Like I think, I mean, we, we've seen them try it with Amazon MP3. Like they, they've taken multiple steps at music. I think it's a, it's a, um, an animal that you have to have the right DNA to create.

• 1:21:46David Rosenthal?

  I think that could be, and we talked about that a lot on the Beats episode. I do think though, there's an element of segments of the market. Like there are a lot of like, how big is Spotify's TAM really of people who are going to pay 10 bucks a month in the world for music? Like they already have 70 million people doing it. How many more people will do it? Especially when there's an alternative out there of like, I could get something that's like 60% as good for free.

• 1:22:14Ben Gilbert?

  Yeah, I mean, for free that, yeah, so I think Amazon will take share on the from Spotify's free tier, or better yet, since it's a growing market, will take the share that would have gone to Spotify's free tier. I don't, I wouldn't bet on them for the subscriber revenue.

• 1:22:35David Rosenthal?

  Yep. Well, I think there you have the narratives on Spotify.

• 1:22:42Ben Gilbert?

  Yep. All right. Into what would have happened otherwise?

• 1:22:44David Rosenthal?

  Let's do it. Um, well,

• 1:22:48Ben Gilbert?

  They could, they could have IPO'd.

• 1:22:51David Rosenthal?

  They could have IPO'd. Yeah. Um, now, they are generating cash from operations. Um, so they don't need the capital. They've already raised a lot of capital. Um,

• 1:23:05Ben Gilbert?

  Here's a crazy thing that could happen. I was foreshadowing this a little bit earlier with the Ben and Jerry's thing, but they could IPO, like now that they're publicly traded. I mean, six months or a year or two years, like if they need to raise cash, I mean, it's like doing a, you know, dilutive secondary offering that a public company would do.

• 1:23:28David Rosenthal?

  In a secondary offering. Yep.

• 1:23:29Ben Gilbert?

  Yeah, yeah. And they could just do that as their IPO. Um, and as I was thinking through this, David, like I want to make sure I'm thinking about this right. So let's hypothetically say they do this, they did this direct listing and started trading at, what, 165? Um, and it's up to 150, right? It fell to 150, but it's at 150 right now. Um, let's say it goes up to 180 or 200 in the next year or so. Um, and then they go and do an IPO at 200. They basically get to raise cash later and take less dilution.

• 1:24:09David Rosenthal?

  Yep, yep, yep.

• 1:24:10Ben Gilbert?

  And so like if there were these liquidity reasons why they wanted to be public, but they thought about it like, huh, I don't think we actually need the, need the cash right now. So let's not take the dilution. Let's take some dilution later if we do need to raise capital. Like you could see that this is maybe only chapter one and that the, the dilutive offering happens later.

• 1:24:34David Rosenthal?

  Yeah, I mean, I think the question, though, is will they need capital? I think they they don't in in their current business model. They will need capital potentially if they try and move to the Netflix playbook of we are going to develop our own artists and make our own content. Now, that's been bandied about in music and, you know, there was the famous Taylor Swift, you know, exclusive with Apple and then that didn't work out. Ben Thompson's written a lot about this. Does it make sense in music to have exclusive content in the way it does with video? Unclear.

• 1:25:11Ben Gilbert?

  Yeah, because here's the thing is in in videos, since people are used to paying for multiple or switching between, if somebody launches something like Stranger Things, then you're going to switch to that provider or you're going to add that provider if you want to watch that.

• 1:25:28Ben Gilbert?

  If you're an Apple Music subscriber and Taylor Swift drops her new music video only on on Spotify, you're not switching, like you're highly, highly ingrained with all these playlists and configuration and friends that you've made in one service or the other. You're probably not going to do it for a new album. I mean, maybe for like two or three artists that are all like if Jay-Z and Beyonce, here's the thing they actually do with title, like if if you look at like, it hasn't worked for anyone yet.

• 1:25:56David Rosenthal?

  Well, I think it doesn't work because it doesn't make sense for the artists, like especially in today's industry. As an artist, you make your money from shows and from branding and merchandising.

• 1:26:07Ben Gilbert?

  So you need maximum exposure.

• 1:26:08David Rosenthal?

  Maximum reach. You wouldn't want to artificially limit, you know, your audience. Whereas in video, it's a lot different. Like you have a lot more niche content and people are used to, you know, oh, this will be, this is an HBO exclusive or whatever, like, you know, they're the paying directly for content is a lot more ingrained in in people's psyche.

• 1:26:35Ben Gilbert?

  Yeah.

• 1:26:35David Rosenthal?

  Plus, you also have the actors who actors act in content across, you know, creators and publishers, essentially, like, just because, you know, Will Smith did that exclusive movie, I forget what it's called, with Netflix. That doesn't mean Will Smith can't go do his next movie with Disney or Fox or, well, Fox is part of Disney now, or, you know, Universal or whoever. Whereas in music, like Taylor Swift becoming an Apple exclusive or Spotify exclusive, that means she's not gonna ever release content on the competitors? Like, that doesn't make sense.

• 1:27:12Ben Gilbert?

  Yeah. Yeah, something would have to change in the ecosystem where people would have to actually subscribe to multiple, multiple providers, which I don't think is gonna happen. Or people, artists would actually start generating more of their revenue from streams rather than from streams being their top of funnel and then monetizing fans more through shows and all that.

• 1:27:36David Rosenthal?

  Yeah.

• 1:27:39Ben Gilbert?

  Hmm.

• 1:27:40David Rosenthal?

  So, yeah, I don't think they need the cash.

• 1:27:46Ben Gilbert?

  Yeah, well, then it makes sense that they didn't do an IPO.

• 1:27:48David Rosenthal?

  Yeah. Which I think was the whole argument of Barry McCarthy, the CFO.

• 1:27:53Ben Gilbert?

  Right, right. And it's super, the thing they touted, which I don't think is the main driver, but it's super employee friendly because they, they don't have this six-month lockup period. In fact, the only group, I think, actually, I think Tencent is restricted from selling shares for some amount of time, but that was a one-off thing in, in their agreement, and all employees were free to trade on day one.

• 1:28:19David Rosenthal?

  Yeah, so Tencent is a, I think, 7.5% shareholder of Spotify. They did a deal with Tencent at the end of last year, end of 2017, where they essentially swapped equity stakes in Spotify and with Tencent Music Entertainment, which is their Spotify competitor in China. And this is, Spotify was never gonna be able to launch in China, just like Facebook and Google haven't. This is a way to get access, you know, to, likewise, Tencent, TME, Tencent Music Entertainment was not ever gonna be dominant in the US or Europe or the like. This is a way to go global, essentially, for both companies. So it makes sense that there'd be a lockup for, for those.

• 1:28:57David Rosenthal?

  Well, should we get into tech themes?

• 1:28:59Ben Gilbert?

  Let's do it. Let's do it. Well, mine, so in these IPO ones, I want to broaden to sort of tech and investing theme. This big, the big one for me that I think is the, I'm going to use your phrase, the thing that's been bandied about in the press a lot recently, has been, are we going to see more direct listings? Because, you know, if this can be a shift away from the sort of walled garden of Wall Street and paying the banker fees and, you know, having to ingratiate yourself to that world, which people have just railed on for, you know, particularly in Silicon Valley, how dumb the process is. I mean, there's, Dick Costolo

• 1:29:40Ben Gilbert?

  has done a lot of great interviews about how silly it felt to go do the exact same presentation 80 times on the road show and have to really be a dog and pony show. And so to the extent where, you know, Spotify can put up one stage presentation on that they video recorded and then everybody can just look at that and then they don't fly to New York and bring half the company and ring the gong and throw the parties and give the interviews, like, maybe this is the way of the future.

• 1:30:07David Rosenthal?

  Yeah, yeah. Well, there are a bunch of problems too. Like, you know, the Dropbox IPO last week, like, you know, it was a big day, as we said, in Silicon Valley here, lots of Dropbox employees and investors. But like, it wasn't too, because they're all subject to the lockup, like, you know. And then, and then, you know, depends, then the lockup comes off, but like, maybe that depresses the stock. A lot of people are selling. Sometimes companies, you know, will re-lock up their employees, investors to prevent the stock being depressed.

• 1:30:36Ben Gilbert?

  Traders build the lockup into their models.

• 1:30:38David Rosenthal?

  Yep, yep. It just, you know, it kind of sucks. And, you know, the, plus, the having to create new shares to sell to the public if you don't need the cash, and you always have to do basically a minimum of 7% of the company. Like, why would you do that? You know, I mean, in these later rounds, that Dropbox, that Spotify was raising, they were selling, you know, 1% or less of the company. Why would you now sell a huge amount of the company?

• 1:31:07Ben Gilbert?

  Yeah, I mean, the criteria that I basically came up with is fourfold for will we see this in the future? One is, I think you have to be a household brand name like Spotify. Like, one of the things the bankers do on the roadshow is like really familiarize the institution and large blocks of potential share owners with with the company. Lots of people were already very familiar with the company. You have to not need the cash. So, you know, that that already limits lots of companies. You have to have this very cash efficient business model. And

• 1:31:40Ben Gilbert?

  we need this Spotify price to hold steady. And if it doesn't, I think it'll scare off people from doing this for a long time. And it's not that volatile right now. It's done a nice job of staying around where it should be, but it's bounced around a little bit. So I think the next few days are going to be telling.

• 1:31:56David Rosenthal?

  Very telling. Yeah. Well, I think there's one nuance I'd add to your first point, which I totally agree with, is you have to be a known name. I don't think you have to be like a consumer household name. You have to be known amongst the institutional investor community. But that's also happening because those those mutual funds, those hedge funds, have been investing in private companies over the last five years. So they know these names, these stocks, you know, whether it's whether it's T. Rowe Price, or Tiger, or Wellington, or, you know, like, all these, I don't know about T. Rowe, but all those other firms were already shareholders in Spotify. So they already, and these are the biggest owners

• 1:32:40David Rosenthal?

  of public stocks in the market. So a lot of that education and marketing is kind of already happening while companies are private.

• 1:32:54Ben Gilbert?

  I have one self-serving tech theme that I thought was just fun to read in their F1.

• 1:32:59David Rosenthal?

  Do it.

• 1:32:59Ben Gilbert?

  So they list, they list podcasts in their, they have a services section, and they list new content offerings. And one of them is video, and one of them is podcasts. And I have been noticing, like, you know, as much as I have held the belief that Spotify and

• 1:33:17Ben Gilbert?

  SoundCloud, anyone else that's starting to work in podcasts, just doesn't do it well relative to dedicated podcast apps. You know, it's now the, it's, I don't know if it's on, like this on everyone's app, but at the top of the home screen on my little homepage for Spotify, it's listen to these podcasts. And they say in their F1, which this is a, this is a big market stat about podcasts, that there were 348 million podcast listeners across all platforms worldwide at the end of 2016, going up to 484 million in 2017, which is a growth of 39% year over year.

• 1:33:54David Rosenthal?

  Wow.

• 1:33:55Ben Gilbert?

  And their quote on that is, "This engagement presents a significant opportunity for Spotify as we believe we have the ability to enhance the podcast user experience with a better product that is focused on discovery."

• 1:34:06David Rosenthal?

  Seriously.

• 1:34:07Ben Gilbert?

  Which is notoriously the problem in podcasts.

• 1:34:09David Rosenthal?

  Think about, the dynamics are very different, the problems are very different, but think about the issues with the music industry when Spotify came along and just fixed them from a product perspective, just like Dropbox just fixed, you know, file sharing, a different type of file sharing. The podcast, this is where the podcast industry is today. Like, the market is there, it's growing, like there's huge, but like, the, the industry and from a product perspective is completely broken. Like, somebody, somebody needs to come along and just fix it.

• 1:34:43Ben Gilbert?

  Mm-hmm.

• 1:34:45Ben Gilbert?

  Mm-hmm. I still don't know if it's gonna be them. I like the bet on the industry right now, and I just think it's kind of fun that they had in their F1.

• 1:34:52David Rosenthal?

  Yeah, yeah. I don't think it's gonna be Spotify either. Like, it's, it's hard for big companies to do this. Anyway.

• 1:35:01Ben Gilbert?

  It's kind of hard for me to believe that Spotify is worth $30 billion. I mean, maybe I'm getting into grade the, grade the DPO right now, but like, I mean, think about, like, Uber just had the share tender for like 50-ish billion. And like, you look at Airbnb's most recent private valuation, like, I, is Spotify really a $30 billion company?

• 1:35:26David Rosenthal?

  Yeah, I mean. The thing is like, we're just so divorced from fundamentals at this point. You know, like Spotify is definitely a $30 billion company. If you, if you value it on a revenue multiple, 100%, but, but their margins, their gross margins are structurally very different from, you know, other tech and software companies. So if you value it on a, you know, well, you can't do a P E basis because they don't have earnings. But if you value it on a cash flow, multiples of cash flow basis, it's still nutty. You know, like even, so let's say they do 300 million of operating cash flow in 2018.

• 1:36:12David Rosenthal?

  I don't know if that's what they're projecting, but let's just assume, you know, then that's a, what, 100 times, 100 times operating cash flow that they're trading at. So like, you're telling me that if you buy Spotify today, you are assuming, you know, so much growth that you're willing to pay 100 times the cash flow. Cause cash flow really is how you should be valuing these companies. 100 times its cash flow today. No, I mean, it's not crazy like other, other. It's not crazy relative to other. Other stocks trade that way too. But I think this gets back to something I mentioned a little bit before, like what's the TAM? How many, how much growth is left in Spotify? You know, to be willing to pay 100 times cash flow for something, you have to be willing to believe

• 1:36:56David Rosenthal?

  that there's so much growth that like, that's gonna, cause essentially what you're doing right now is you are paying for 100 years of cash flow of Spotify. Like the cash flow will repay your investment in 100 years. You believe that there's a lot of growth, that it's going to be a lot shorter than 100 years. But like, I don't know, can Spotify double? Probably. Can they 10x? I don't know. I don't think so.

• 1:37:20Ben Gilbert?

  Yeah, I mean, it's interesting how my anecdotal evidence is so much different than the numbers. Like what I said at the opening of this episode, and I said, it feels like pretty much everybody that is a millennial that is going to buy, you know, is going to subscribe to Spotify is already subscribed to Spotify. But if you look at, you know, what they, they, their reported user growth, I mean, they, let's see, our 159 million monthly active users have grown 29% year over year as of December of 2017. So, and their premium subscribers have grown 46% year over year. So, yeah, to your point, will they 2X? Probably. Will they 3X? Seems like they could get there. Will they 10X?

• 1:38:00David Rosenthal?

  Yeah. So then the other bet you're making is like, well, maybe they can improve their margins. That's like a big bet, you know?

• 1:38:08Ben Gilbert?

  Or can they offer another product? I mean, the other, the other piece here is they've got this audience, you know, can they start meaningfully doing ticket sales to concerts? Can they enter video in some way? Can they become the, the provider of podcasts and then figure out how to monetize that? I mean, there's, yeah, the, how much do you model in possibility of a bolt-on business?

• 1:38:35David Rosenthal?

  Yeah. Whereas like, when I look at, Spotify is a great company, for sure. I think I'm going to be very laudatory in grading this direct listing because I think it was the right thing to do. But it just in terms of like, comparing, I can't help but compare Dropbox and Spotify's, you know, first public offerings because their listings, because they're back to back. With, with Dropbox, like I feel, personally, I feel a lot better making that bet because the bet on Dropbox to me is a bet like, will the TAM increase? Will more people have a use case over time to share files in a like semi-professional sort of way versus with Spotify? Like, are more people going to listen to music and

• 1:39:19David Rosenthal?

  want to pay for Spotify who aren't already? Now, they're going into more countries, but like, how many more countries can they go into? You know, they're not going into China. They did this deal with Tencent. So they do have exposure to China. I don't know.

• 1:39:38Ben Gilbert?

  Hmm. Well, I think it's time to go into grading and listeners.

• 1:39:42David Rosenthal?

  Can I, I want to, I want to sneak in a couple of tech themes first.

• 1:39:44Ben Gilbert?

  Yeah, I'll go for it.

• 1:39:45David Rosenthal?

  All right. I have three sort of interrelated tech themes that really we've covered all throughout the history and facts, but I think, um, I think are, are important here. And that's the importance of a couple of key product decisions and only a couple of key things. Like with Spotify, it was, you know, the focus on playlists. It was, we didn't talk a lot about this, but it was doing a desktop app, not a web app, because that enabled almost zero latency. When you click play, the file streamed and played immediately. Whereas some of their competitors, because there were competitors, remember Groove Shark and some of the others? They were all web apps. The performance was kludgy. People don't want to wait for music. Just like a couple of key product decisions that can really make the difference early on.

• 1:40:30David Rosenthal?

  But then you have to couple that with distribution too. Like Spotify would have done well without Facebook, but it wouldn't be a $30 billion company without Facebook.

• 1:40:40Ben Gilbert?

  Yeah.

• 1:40:40David Rosenthal?

  And, uh, and then I think the related one to both of those that we just see time and time again on this show is like, to do all that, you have to be like, you have to have such tenacity as a founder. You have to have a vision. It has to be right. But then you gotta like, work at it for, and focus maniacally for many years, uh, years and years. It took so long for Spotify to even get off the ground and then to go country by country. And then five years later, come to the US, or I guess three, four years later, come, no, five years, five years after founding, come to the US. Um, it just takes a long time.

• 1:41:17Ben Gilbert?

  Yeah. Daniel Ek's only 35.

• 1:41:22David Rosenthal?

  I thought he was a little older, but yeah, maybe he's only 35.

• 1:41:25Ben Gilbert?

  I think that, I think I saw that in the F1.

• 1:41:29Ben Gilbert?

  I mean, looking at those companies, he started those companies before Spotify. Spotify has been 12 years and it's just impressive, passionate, motivated founder.

• 1:41:40David Rosenthal?

  Yeah, totally. All right. That's what I got.

• 1:41:44Ben Gilbert?

  All right. So on grading, listeners to clarify, though, we did just talk about, you know, do you feel like this is actually worth $30 billion? The way that we grade is was, you know, on the typical acquired format, was it a good idea for the acquirer to pay this money for the acquiree? The way that we grade IPOs and now DPOs is was it a good move for the company to, to do this transaction, you know, was it, was this the right move for them? And so, you know, we're basically looking at three options here. Do what they did, IPO, or don't do anything, stay private, you know, keep, keep doing what they were doing.

• 1:42:29Ben Gilbert?

  Sure seems like a great call. I mean, they couldn't do nothing. They had to, they had to get liquidity. They didn't need to raise money. It seems like they're not seeing any of the downsides that, that would have come from

• 1:42:44Ben Gilbert?

  potentially doing this direct listing instead of the IPO. I mean, the whole Wall Street community was a little freaked out and trying to nay say that, gosh, there's going to be all this volatility and it's going to drop below the last price that it was trading in the private rounds and the demand's not going to be there. And, you know, lots of things, but I don't think we're seeing any of that. So it seems like it was a great decision and a gutsy one at that.

• 1:43:09David Rosenthal?

  Yeah. Caveat that we're still early. It's only two days in. So a lot will depend on what happens over the next couple of weeks, but, but thus far.

• 1:43:19Ben Gilbert?

  Yeah, thank you for that because we may need that clause.

• 1:43:22David Rosenthal?

  We may need that clause, but the fears were about what happened immediately after trading, like the whole point of doing an IPO, the argument of the bankers is we're there to stabilize the stock, stabilize trading. If you go back and listen to our Facebook IPO episode, they definitely needed the bankers to stabilize trading in the stock because it was a rocky, rocky start.

• 1:43:44David Rosenthal?

  But, you know, without the bankers there, what'll happen and like, everything's been stable. So, yeah.

• 1:43:53Ben Gilbert?

  Yeah, I don't know. I don't know how to assign a grade to it per se. Like, it feels weird to grade this against. We got to figure out what our, our actual sort of format is for, for these IPOs because, you know, it's, it's sort of like, either it was an A, probably not an A plus, or it was like a C. It's, it seems rare that we're going to ever have an IPO decision that was an F or a DPO decision that was an F.

• 1:44:20David Rosenthal?

  We might, maybe if we revisit the Snapchat IPO.

• 1:44:25Ben Gilbert?

  There you go. There you go.

• 1:44:28David Rosenthal?

  Well, do you want me to?

• 1:44:30Ben Gilbert?

  Yeah, I mean, I'll say A. We just have like a lot. It's kind of silly for these on the scene ones to do any grading at all, but, um, you know, all signs are positive right now.

• 1:44:38David Rosenthal?

  Yeah. I mean, if there is stability now, now I do have some questions personally about a $30 billion valuation for Spotify. But that's what it's, you know, the market is saying.

• 1:44:52Ben Gilbert?

  Or at least that's what 3.2% of shareholders who have sold have managed to get the market to say.

• 1:44:59David Rosenthal?

  Right, right. Which is not a large float. So that may be artificially, artificially supply constraining the stock and raising the price, driving the price up. But, you know, as long as there's not like panicked trading, which it seems like there's not. This seems like a good new path for companies to get liquidity, get out on the public markets. It would be great for Silicon Valley if like this becomes a viable path. So, so far, so good. Yeah. Hey, and if it does, like Barry McCarthy, the CFO is going to be hailed as a genius.

• 1:45:33Ben Gilbert?

  Yeah. Yeah, no kidding. Yeah. Former clinical, former clinical employee hailed as genius. Story 11.

• 1:45:41David Rosenthal?

  Come a long way. It's come a long way.

• 1:45:47Ben Gilbert?

  Carvouts?

• 1:45:49David Rosenthal?

  Carvouts. So I can't remember if I've actually mentioned on the show or not, but I know I've talked a bunch about my, my wife Jenny. She is the head of audience engagement and education at San Francisco Ballet here in San Francisco. And the ballet, so if you, if you live in San Francisco, you should come to the ballet anyway, because it's awesome. The, I mean, the athletes, the dancers are amazing. It's wonderful to watch always. But they're doing a big festival at the end of the season coming up at the end of this month in April. And Festival of New Works, it's going to be really cool.

• 1:46:28David Rosenthal?

  And Jenny is hosting a number of, of panel discussions around it, but one is going to be called Silicon Ballet. Bringing ballet and technology together, the intersections of tech and ballet. And it is, it's at the end of the month, April 28th at 5:30 PM.

• 1:46:46Ben Gilbert?

  Is it starring you and Jenny?

• 1:46:50David Rosenthal?

  Actually, neither of us are speaking on the panel. But there are going to be some really cool participants. So if you're in San Francisco and Silicon Valley, come, come to the ballet always, but, but come see this panel. It'll be really cool.

• 1:47:04Ben Gilbert?

  Awesome.

• 1:47:06Ben Gilbert?

  Well, I finally saw Black Panther and that movie was amazing and everybody should go see it and it's remaining few, few days in theaters.

• 1:47:16Ben Gilbert?

  And even more awesome was the, so Kendrick Lamar

• 1:47:21Ben Gilbert?

  put together the soundtrack and he did a couple of songs himself and guested on a couple of other songs and then handpicked a bunch of other artists. And it's just powerful. Like it's a really,

• 1:47:33Ben Gilbert?

  it's maybe one of the best, maybe the best Marvel movie. I mean, the, the, the amazing sort of societal themes that are going on right now that they managed to pull into the movie and make extremely accessible and deal with really difficult topics. And have a really cohesive story with great character development and stunning visuals. I think I'm like the last person that to like be, be talking about this and be aware of this, but if you haven't seen Black Panther yet, I highly recommend it before it leaves theaters.

• 1:48:05David Rosenthal?

  It's awesome. Yeah, I haven't been able to get to the theater to see it, but I definitely want to. It, it looks awesome.

• 1:48:11Ben Gilbert?

  Or go on Spotify and listen to the soundtrack.

• 1:48:13David Rosenthal?

  Well, that's what I was gonna say is can you get a playlist of the soundtrack on Spotify?

• 1:48:17Ben Gilbert?

  You can, you can.

• 1:48:19David Rosenthal?

  All right, we'll link to it in the show notes.

• 1:48:21Ben Gilbert?

  We will.

• 1:48:22David Rosenthal?

  Spotify's new viral growth mechanic via the acquired podcast.

• 1:48:28Ben Gilbert?

  That's right.

• 1:48:29David Rosenthal?

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

• 1:48:36Ben Gilbert?

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

• 1:48:46David Rosenthal?

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

• 1:49:07Ben Gilbert?

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

• 1:49:19David Rosenthal?

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

• 1:49:30Ben Gilbert?

  All right, listeners, if you aren't subscribed and you want to hear more, you can subscribe from your favorite podcast client. If you feel so inclined, we'd love a comment on Breaker. If you haven't tried that out, it's a cool podcasting app. Please comment or like this episode and create some virality of our own. And if you're on iTunes or Apple Podcasts, we'd love a review there, too. And of course, always appreciate sharing with your friends if you liked this episode. So thanks so much for joining us and we will see you next time.

• 1:50:03David Rosenthal?

  See you next time.