Jet

Ben & David break down Jet.com’s meteoric rise, culminating in Walmart’s blockbuster $3B+ acquisition of the company just two years after its founding. Will we look back on this deal as an ‘Instagram-like’ bargain or a ‘Pets.com'-sized blunder? And most importantly, can *anyone* compete with Amazon going forward? We speculate wildly. 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 Topics covered include: Community spotlight: Nowdue https://www.nowdue.ai, a super fast invoicing platform for teams on Slack. Invoice like it’s the future! This looks very cool. Jet’s deep origins in Founder & CEO Marc Lore’s first two companies, The Pit http://www.thepit.com/hub/press_releases.asp and Quidsi https://www.quidsi.com (aka, diapers.com) Lore’s chance run-in with Jeff Bezos at a school picnic in Seattle http://www.bloomberg.com/news/features/2015-01-07/amazon-bought-this-mans-company-now-hes-coming-for-them-correct in the early 2000’sAmazon's dramatic acquisition of Quidsi in 2010, including Bezos’ admonition to Amazon corp dev to keep Quidsi from being bought by Walmart under any circumstances (covered well in The Everything Store https://www.amazon.com/Everything-Store-Jeff-Bezos-Amazon-ebook/dp/B00BWQW73E)Lore’s less-than-favorable opinion of Amazon's culture http://www.nytimes.com/2015/12/27/technology/jetcoms-strategy-low-prices-fast-delivery-happy-workers.html?_r=2Lore's vision of Jet http://www.newyorker.com/business/currency/can-jet-com-take-on-amazon-and-win as an ‘online Costco’ that can directly with Amazon on price by selling goods to a “huge middle-class of people" at effectively zero margin, and make profit on membership feesJet’s huge http://www.recode.net/2014/7/29/11629270/ceo-who-sold-diapers-com-to-amazon-raises-55-million-to-challenge, pre-launch https://techcrunch.com/2014/09/16/quidsi-co-founder-raises-an-additional-20m-for-a-new-e-commerce-biz/ fundraising rounds https://techcrunch.com/2015/02/11/e-commerce-site-jet-raises-another-140m/, and subsequent massively promoted public launch http://www.wsj.com/articles/frenzy-around-shopping-site-jet-com-harks-back-to-dot-com-boom-1437359430 in July 2015Jet’s pivot in October 2015 to drop the membership model https://techcrunch.com/2015/10/07/jet-now-raising-ditches-its-membership-fees-but-says-profitability-still-on-track-for-2020/ (their only profit engine), and subsequent massive growth (but also accompanying massive losses) 'Admitting defeat http://fortune.com/2016/07/22/jet-com-amazon/” to Amazon in July 2016? Immediately followed by the blockbuster $3B+ Walmart acquisition announcement http://news.walmart.com/2016/08/08/walmart-agrees-to-acquire-jetcom-one-of-the-fastest-growing-e-commerce-companies-in-the-usIs e-commerce really a winner-take-all business and will Amazon just take over the world? Featuring liberal citations (again) of Ben Thompson's https://stratechery.com/about/ Aggregation Theory https://stratechery.com/2015/aggregation-theory/ and the importance of customer experience. Is there any path for Walmart & Jet to compete effectively with Amazon? Is Marc Lore Walmart’s only hope? Fantastic interview with Tim Cook http://www.washingtonpost.com/sf/business/wp/2016/08/13/2016/08/13/tim-cook-the-interview-running-apple-is-sort-of-a-lonely-job/ discussing (among other things) the massive amount of growth still left in the internet Followups: Lucasfilm: Star Wars Rouge One trailer https://www.youtube.com/watch?v=frdj1zb9sMY drops! Featuring a strong female protagonist! https://twitter.com/chockenberry/status/764150433233276928 New section: Hot Takes! (thank you @cteitzel on Slack for the idea) Verizon/AOL acquires Yahoo! http://www.wsj.com/articles/verizon-finalizes-4-8-billion-yahoo-deal-1469380974Lyft reportedly turns down acquisition offer from GM http://fortune.com/2016/08/12/gm-lyft-acquisition-interest/Microsoft acquires Beam https://techcrunch.com/2016/08/11/microsoft-acquires-beam-interactive-game-livestreaming-service/Randstad acquires Monster.com http://www.prnewswire.com/news-releases/randstad-to-acquire-monster-worldwide-to-transform-the-way-people-and-jobs-connect-300310880.html The Carve Out: Ben: Michael Mauboussin’s Talk at Google https://www.youtube.com/watch?v=1JLfqBsX5Lc and Reflections on the Ten Attributes of Great Investors https://doc.research-and-analytics.csfb.com/docView?format=PDF&source_id=em&document_id=1063945621&serialid=1wRGyN6EnJdsEAzicRfCQyDmuExS84d2HcYRBRMNZJ8%3D after thirty years of honing his craftDavid: Strava https://www.strava.com, the fantastic social fitness-tracking appNone this week… coverage of Instagram Stories http://blog.instagram.com/post/148348940287/160802-stories to come next time!

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

• 0:00Speaker 00

  90% plus percent. I don't think we rode together 90% plus percent of that ride.

• 0:03David Rosenthal?

  Yeah.

• 0:06Speaker 02

  Who got the truth?

• 0:09Speaker 02

  Is it you? Is it you? Is it you? Who got the truth now?

• 0:14Speaker 02

  Is it you? Is it you? Is it you? Sit me down, say it straight, another story on the way.

• 0:23Speaker 00

  Welcome to episode 19 of Acquired, the podcast where we talk about technology acquisitions. I'm Ben Gilbert.

• 0:29David Rosenthal?

  I'm David Rosenthal.

• 0:30Speaker 00

  And we are your hosts. Today's episode is the big news of the last few weeks. Walmart acquiring Jet.com.

• 0:38David Rosenthal?

  I think this set a new record in terms of episode requests that I got, Ben.

• 0:43Speaker 00

  Yeah, if you can buy an email, Slack, in person, Twitter, I think I personally saw north of 10.

• 0:49David Rosenthal?

  We gotta give the people what they want.

• 0:51Speaker 00

  It's true. Before we dive into it, I want to do a community spotlight. We, we have a listener. His name is Chris Laurent and he has an app called Now Do. Invoicing like it's the future. So Now Do is to do super fast invoicing for teams. It's actually a Slack app powered by Stripe. And if you're interested in doing some invoicing for your team, you should go check them out. They're at nowdue.ai, which I love those AI TLDs.

• 1:21David Rosenthal?

  Absolutely.

• 1:24Speaker 00

  So listeners out there, let us know. Get at us at [email protected], on the website, on Twitter. If you would like to be on the next community showcase and we'd love to tell everyone what you're up to.

• 1:36David Rosenthal?

  Yep. Or on Slack. And if you're not in the Slack community, go to our website to join. Lots of good discussion from lots of people, not just Ben and me.

• 1:45Speaker 00

  Acquired.fm. A breath of fresh air from David and I.

• 1:49Ben Gilbert?

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

• 2:08David 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.

• 2:29Ben 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.

• 2:51David 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.

• 3:09Ben 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. So, on to this week's topic. David, you want to do the acquisition history and facts?

• 3:41David Rosenthal?

  As always. So, Jet.com blockbuster acquisition this month by Walmart. Over $3 billion for a company that was two years old, but had only been public for a year. But the story actually starts-

• 3:59Ben Gilbert?

  And not gone public, but-

• 4:00David Rosenthal?

  Or it had been launched publicly for a year. But the story starts way before then, actually. Back in 2005, when Mark Lorrie, who is one of the co-founders and CEO of Jet- Founded another company called Quidsy, which you may or may not have heard of, but you may know its main operating business, which was diapers.com.

• 4:24Speaker 00

  Killer domain.

• 4:25David Rosenthal?

  Killer domain name. And, and the Quidsy story actually starts even earlier than that, when Mark started his first company, which got sold to Tops, the trading card company. And he moved out here to Seattle to run this new division of Tops. And when he was here in Seattle, he was thinking about going into e-commerce and starting diapers.com. And his daughter went to a private school here in Seattle that Jeff Bezos's children just happened to go to as well.

• 4:57Speaker 00

  Hey.

• 4:58David Rosenthal?

  And so they met at like a school picnic one day and chatted about e-commerce. And little did they know the intersections that would be to come.

• 5:06Speaker 00

  Wow. So this is 2001, before he started Quidsy. Jeff was obviously, what, six, seven years in, in full force with Amazon?

• 5:14David Rosenthal?

  Yep. Sometime between 2001 and 2005, this happened.

• 5:17Speaker 00

  Wow. Okay. Okay. So, you know, e-commerce was a thing. Amazon was, you know, they were not a startup anymore. This was a very real company. It's not like they were both ideating that maybe e-commerce will be a thing together.

• 5:31David Rosenthal?

  No, Amazon was a thing.

• 5:32Speaker 00

  Yeah.

• 5:32David Rosenthal?

  Public company. And, and Lori was thinking about, thinking about jumping into the fray, which he did in 2005, when he started diapers.com. And there is a great history of diapers.com. Would make a good episode for us someday, but it's already been covered very well in the Everything Store, which is the fantastic book about Amazon. And the punchline is that after a protracted negotiation during which Amazon tried to basically clone and then compete with and undercut on prices

• 6:12David Rosenthal?

  for everything, diapers.com and all of their other soap.com and many other properties, Amazon ended up acquiring the company in 2010 for $545 million.

• 6:23Speaker 00

  Do you know why that didn't work? It seems like Amazon would have the resources to continue to, to. You know, deep discount, win on price and then eventually you put them out of business.

• 6:33David Rosenthal?

  They would, but there is an important other player in this story, which we will see comes back again the second time, that Walmart was also interested in acquiring diapers.com.

• 6:45Speaker 00

  Oh, wow. So it came to a point where-

• 6:46David Rosenthal?

  And had made a bid for the company.

• 6:47Speaker 00

  I see, I see. So Amazon's strategy maybe was working, but-

• 6:51David Rosenthal?

  Very defensive, prevent, literally in the Everything Store, Brad Stone writes about that Bezos gave direction to his corp dev team, like, do not, under any circumstances, allow Walmart to buy this company.

• 7:07Speaker 00

  Wow. Yeah, super interesting.

• 7:10David Rosenthal?

  Super interesting. So, Amazon buys diapers. Lori and the many employees of Quidzy go and work for Amazon. The Quidzy was established in New Jersey, actually, in Hoboken. So Mark moved.

• 7:29Speaker 00

  And as was Jet, right? Jet's based out of New Jersey?

• 7:32David Rosenthal?

  So, Amazon, much like they did with Zappos, left diapers alone. It's still an independently operating company, fully owned by Amazon. Lori continues to run it for a couple of years and two years later, in 2013, he leaves and he starts thinking about what he's gonna do next.

• 7:53Speaker 00

  Was that on good terms? Do you know how he left?

• 7:56David Rosenthal?

  Yeah, well, it's interesting, especially now that the Jet acquisition has happened. You know, as chronicled in the Everything Store and elsewhere, you know, the negotiations and the tactics that Amazon used in acquiring diapers were aggressive. And Lori was not a fan of Amazon and especially after having worked there. And so when he leaves in 2013, which is pretty quickly, you know, we don't know what the terms of his retention package were, but I got to imagine it was longer than sort of two-ish years that he stayed there.

• 8:36David Rosenthal?

  He's kind of got a chip on his shoulder and he wants to gun for Amazon and Bezos kind of with a vengeance.

• 8:44Speaker 00

  Yeah, and I think he rips on when he was starting Jet or talking about the reasons behind starting Jet, he rips on Amazon's culture a little bit. And he's talking about among the many, you know, ways that he wants to compete with Amazon on Jet being, well, I'll leave you to tell the business strategy, but he wants to create a place that's not such a cutthroat culture.

• 9:02David Rosenthal?

  Absolutely. I've got the quote right here. He does, he gives a quote in the New York Times after he leaves Amazon and as he's starting Jet, he says, "I saw that it didn't," at Amazon, "I saw that it didn't matter how you treated people. You just paid them enough so you didn't care if you burned them out and then you got new people and burned them out. It was an environment of very short-term thinking."

• 9:24Speaker 00

  Wow, which is, you know, we talk about Amazon all the time on the show and we praise them for their incredible long-term thinking.

• 9:31David Rosenthal?

  Yeah, I don't, I don't think of Amazon as a, as an environment of short-term thinking, but we'll get to that. So, so he starts Jet in the summer of 2014 and the vision, the idea that he has is that Amazon obviously is very, very good at what it does, but Amazon's core customer is not your average American. It's the upper class, it's wealthy individuals, upper-middle-class, people who actually care, they care about price, but they also care a lot about convenience and selection, Amazon's holy trinity, which we will come back to.

• 10:12David Rosenthal?

  And he thinks there's an opportunity to compete directly with Amazon and to compete on price, to be the low-price discount retailer on the internet. And the model that he has for that is Costco.

• 10:26Speaker 00

  Another great Seattle company.

• 10:27David Rosenthal?

  Another great Seattle company. The intersections are just amazing here.

• 10:32David Rosenthal?

  And so, and so another quote that he says as he's starting the company in this interview is, he says, "There's this huge middle-class of people that are going to be spending more and more dollars online and for them, it's going to be all about price and that they'll be willing to trade off convenience and selection versus price." So he has this big vision. He's going to win the core. Middle class of America away from Amazon. And he's, he's not going about this small. He goes big. So he raises a seed round from NEA, Excel, Bain and WTI as he's starting the company. So this is July 2014, one year away from launch, just starting the company, raises $80 million right off the bat.

• 11:17Speaker 00

  Wow. Yeah. I mean, anybody who's going out and raising a seed now and knowing what, what valuation you're getting, like there are a small handful of people in the world that could do a seed like that and instill enough trust to say, yeah, you know, my, my seed venture, you can have what 20 to 25% of it or something for $80 million.

• 11:37David Rosenthal?

  That's incredible. And, and he's not done. He doesn't stop there. February of 2015, we're still months away from launch. They haven't sold a single thing. The website isn't live, anything. He raises another $140 million. So before they even launched the company, launched the product, he's raised $220 million.

• 11:56Speaker 00

  Wow. And I remember, you know, I remember hearing about this when it was going on and everyone that had been, you know, burned in the, the late nineties, talking about, oh my God, the bubble's back. This company is, it doesn't even have a great plan to make revenue. They haven't launched a product yet.

• 12:11David Rosenthal?

  Pets.com all over again. Well, needless to say, there was a lot of hype when they finally launched on July 21st, 2015. So just over a year ago, a year ago, as we sit here today. And when they launched, they spent a ton of that money on advertising, customer acquisition. I remember I was in, I was in New York City last fall, shortly after they launched and like Jet had bought out like, felt like half of the subways on, on New York City, in New York City and their, you know, billboards all over the place, all over the country. They.

• 12:52David Rosenthal?

  They did not go, they did not play small ball here.

• 12:55Speaker 00

  Yeah, and they actually, I think they had a pretty successful organic invite campaign too, where they, they gave people like six months of free membership. I think it was called the Jet Insider Program. Yeah, I have it here. And refers were given up to, yeah, that's it. Six months of free site membership and they got almost 400,000 people, 350,000 people that, that signed up for the early membership program. So, I mean, that's, that's pretty incredible to be able to build a base of 350,000 users pre-launch.

• 13:25David Rosenthal?

  Yeah, absolutely. And they did it by, as you mentioned, giving away free membership for six months. So, we mentioned a minute ago that the model for how Lori and Jet were going to compete with Amazon was they were going to use the Costco model. And so, the idea was that Jet was a membership site and it cost $50 a year to be a member.

• 13:46Speaker 00

  Half of Prime.

• 13:47David Rosenthal?

  Half of Prime, yep, half of Prime. And that the company Lori was super explicit about this, that much like Costco, if you actually look at like Costco's financial statements and you take the amount of the, the amount of money that they make from membership fees and you look at their net income, like it's basically the same thing. They make no money on everything they sell in the store. The only money they make is from the membership fees. And so, that was what Jet was going to do. So, again, this is like, this isn't us talking. This is straight from Lori here. Quote, he says, "The bottom line is, we're basically not making a dime on any of the transactions. We're passing it all back to the consumer." So, they weren't going to charge membership fees for six months.

• 14:31David Rosenthal?

  If you were part of a Jet Insider, you didn't have to pay for six months, but then they were going to charge $50 a year.

• 14:37Speaker 00

  Which really is only a $25 value. I mean, we're actually, for those of us who are no longer price sensitive because, to the, a membership fee like that, because we're used to paying a hundred dollars of Prime a year, like, giving me $25 toward that, sure, like, that, that's interesting, but it's not like, it doesn't seem like a huge reward and it doesn't seem like a huge barrier to keep me away from signing up either. The convenience afforded by fast shipping and I guess they weren't quite doing as fast shipping, but free shipping, it seems of course worth a prime membership.

• 15:11David Rosenthal?

  Yep. Well, and so then it comes down to like, okay, so what was Jet actually doing? And the whole idea again was that price was most important. And so they had a goal that everything that you would buy on Jet would be 10 to 15% cheaper than you could get anywhere else online. And by that they meant Amazon. So they actually built a lot of tech around this. And the whole idea was to incentivize customers to buy more than one thing at a time. So like the default behavior that Lori saw with Amazon and that, you know, I definitely fall into this category. I don't know if you do, you do Ben too, is that once you're a prime member, you're like, oh, I need this.

• 15:54David Rosenthal?

  I'm going to order it like right now, one off, like I'm not going to wait and order a bunch of stuff. Whenever I need something, I just order it and it comes.

• 16:01Speaker 00

  Right. And they've slipped away from that a little bit with things like prime pantry or add on items where I no longer feel like.

• 16:05David Rosenthal?

  Subscribe and save, which they got from diapers.com.

• 16:08Speaker 00

  Oh, interesting. Yeah. With, with those, with those kinds of mechanics, I'm a little bit less confident in Amazon actually than I was, call it three years ago before those things, when I would just be like, oh, I'll just prime it. I'm sure it will get here and I'm sure I'll be able to get it free and right now. And, you know, when you, when that's the promise for so long and then you, you have a couple of these things where it's like, you need to buy something else to get the free shipping. It does actually sting you a little bit.

• 16:35David Rosenthal?

  It does, it does. And so what Jet did, a couple of things, you had to hit minimum order amounts to get free shipping. But also as you added more items to your cart, and in particular items, and they would incentivize, surface these items and incentivize you to do it, that were low physically located in the same fulfillment center.

• 16:56Speaker 00

  So it costs less.

• 16:57David Rosenthal?

  So it costs less to assemble this package and you could send it all in one box. They would then drop the price on your, on your items and your total order as you were. Basically doing these behaviors that they were incentivizing. And the idea was, and another thing that they did and still do is, I believe, is if you use a debit card instead of a credit card, you'll get a one and a half percent.

• 17:19Speaker 00

  They give you half the interchange back?

• 17:20David Rosenthal?

  Yeah, they give you half the interchange back. If you, this is super interesting. If you waive your right to return anything, then they'll give you an extra discount on, if you waive your right to return certain items, they'll give you a discount on those items.

• 17:35Speaker 00

  That's so interesting. I mean, all these things are wildly ambitious, very interesting. They're intuitive.

• 17:42David Rosenthal?

  And require a lot of technology, actually.

• 17:44Speaker 00

  Right, right. A lot of technology and a ton of financial modeling. I mean, you have to imagine that they're figuring out what return rates are, what it's worth to them, if they're going to make the trade off between customer maybe getting dissatisfied with something they have and blaming the Jet brand versus how much it costs them to facilitate the return and actually accept the thing back. All this is very ambitious and interesting, maybe too short of a timeframe since it's only been a year, but did it work?

• 18:12David Rosenthal?

  Interesting. So let's remember, all of this, you know, the stated goal is all the savings that we're going to get operationally from this, we're going to pass back to the consumer and we're gonna, our starting prices are going to be so low anyway that we're basically not making any gross margin anyway. And the whole idea was the membership fee would make up for that. Well, a couple of months go by, we get to October 2015, and the other shoe drops. And for whatever reason, I got to imagine the internal data was showing that it was a flop.

• 18:46Speaker 00

  And that's like three months after they launched?

• 18:48David Rosenthal?

  Yeah, three, three months after they launched. Jet announces that they're dropping the membership fee. So it's now completely free, open to anyone to shop on Jet. And the prices are still going to be really low. So they basically said, our only profit engine, we're killing. I'm reminded of the quote that people often, they don't really anymore, but they used to talk about Amazon, like the, the equity analysts would say that, you know, when they were down on Amazon, that it was a charity being run for the benefit of the American consumer. What Jet literally became a charity being run for the benefit of the American consumer.

• 19:27Speaker 00

  Wow.

• 19:28David Rosenthal?

  And, and, and, you know, so Lori's, you know, statement on this was that they decided that on some items, the data showed them that they actually didn't need to discount 10 to 15 percent. They would only discount four to 5 percent and that's how they would make money. But remember, again, they're discounting 4 to 5 percent relative to Amazon, which already has like incredibly low prices and drives massive and can get those prices through massive scale and negotiating power with suppliers and their incredible supply chain and everything.

• 20:00Speaker 00

  So with all those advantages, Amazon still maintains this razor thin.

• 20:04David Rosenthal?

  Razor thin profit margin. So the fact, the idea that you could take Amazon's profit gross margin on items, knock it down by another 4 to 5 percent, do all the fulfillment yourself and still make money? Perhaps suspect here. But nonetheless, the very next month, in November of 2015, they managed to raise another $350 million round that Fidelity leads. This time, it was publicized at a $1.4 billion post-money valuation.

• 20:37Speaker 00

  Okay. So David, you are a venture capitalist. You get Mark Laurie approaching you for this round. Why would you do it?

• 20:45David Rosenthal?

  And the, you know, I got to imagine like, if not slide one, but somewhere in the pitch deck is the slide that says, oh yeah, our profit model, we just killed that.

• 20:54Speaker 00

  Right, right. So what, what could possibly be the thing where you're like, you know, we painted it as a pretty negative story so far. Why would you do it?

• 21:01David Rosenthal?

  Here's why you'd do it. So they announced the round in November 2015, another $350 million. In December 2015, in Q4 holidays, you know, the big moment for retail, at the end of December, they announced that they now have 2 million active customers and that they did 33 million in revenue in December alone. This is for a company that only launched six months ago. So this is incredible, incredible growth.

• 21:31Speaker 00

  So it's growth, even though, you know, even at this point in history, you, you would have been still suspect on the unit economics of the business. It's, it still seems like a, a, a good investment opportunity?

• 21:44David Rosenthal?

  Go, go, go, Ben.

• 21:47David Rosenthal?

  You know, I mean, I'm sure this was the story, wasn't, is still the story that to compete with somebody like Amazon in e-commerce and in retail, you need to acquire customers and you need to make a huge splash and you need to just make this massive investment in that customer acquisition, plus the infrastructure. And to do that, you're going to have to lose money for a long time. And Amazon itself lost money for a long time, as we all know.

• 22:15Speaker 00

  Yeah. And I wonder too, like, is it, is Mark Laurie going into making that pitch without any hedges and saying, you know, this is a hundred year company, we're going to be enduring, we're going to serve the middle class? Or is there something in there where you're like, ooh, this, this could be a quick turnaround, like something like this Walmart thing could happen?

• 22:34David Rosenthal?

  Well, that's what I was going to say, you know, whether this was a slide in the pitch deck, literally or metaphorically, we'll never know. But I got to imagine going through all of these investors' minds are, hey, this is a get to scale play. And if Jet can get to scale, maybe there's some chance that they can build a, you know, a sustainable standalone business here. But there are a lot of people in this world who are very threatened by Amazon and who would love to have an opportunity to bring into their fold, an at scale e-commerce business, of which there are basically one in the world, in the US right now, which is Amazon.

• 23:17Speaker 00

  Right. Right, right.

• 23:20David Rosenthal?

  So we'll get to that in a second. So that was December 2015, May 2016, so a couple months ago. Jet announces again that now they did 90 million in revenue in May of 2016. So they've tripled revenue, monthly revenue, from the December holidays. And December, of course, is the biggest revenue month for any retailer.

• 23:43Speaker 00

  So their year over year would have been way up.

• 23:45David Rosenthal?

  Way, way, way. Well, it was, it was infinite because they weren't even launched in May of 2015.

• 23:49Speaker 00

  Right. But presuming that they could compare it to a quarter.

• 23:53David Rosenthal?

  Right. The growth is, the growth is incredible. No doubt about that. But what was interesting is shortly after that announcement, last month, so July 2016, Laurie does another interview with Fortune. Clearly, PR was one of their customer acquisition strategies.

• 24:12Ben Gilbert?

  Yeah.

• 24:12David Rosenthal?

  And Laurie is very good at that and has always been. But it's interesting, this quote that he says in this interview last month, he says, well, this being American retail e-commerce has never been a winner take all market. Which, you know, he wasn't exactly saying it was before, but he was kind of like, hey, Amazon, I'm coming for you. I'm going to beat you before that. He says, this has never been a winner take all market. There will be a really large number two, three and four, and we can be one of those. So he basically said, I give up. I can't be number one.

• 24:49Ben 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.

• 25:03David 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.

• 25:17Ben 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.

• 25:27David 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.

• 25:44Ben 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.

• 26:00David 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.

• 26:17Ben 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?

• 26:26David 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.

• 26:37Speaker 00

  So this is a good time. I mean, we, a lot of times we pause and wait for tech trends till later.

• 26:46Speaker 00

  For, for new listeners, we've got our sections coming up, our acquisition category, what would have happened otherwise? What tech theme does this illustrate for you? Then we grade the acquisition. And rather than saving this for what tech themes, you know, David, is he wrong about the future? That the economics that the internet creates can turn retail into a winner take all market?

• 27:10David Rosenthal?

  Well, I think, you know, if you go back to our, our favorite analyst on this show, Ben Thompson and, you know, the idea of aggregation theory, this kinda is the underpinning, you know, sort of ideology of the internet and internet business models is that you can take all of these industries that before the internet were by necessity fragmented and could have multiple winners because you needed physical store space in, you know, every market in town. And that led to, you know, some companies would do better in some locations and others and others. All of a sudden, there, there's only one storefront and it's a website.

• 27:51David Rosenthal?

  And, and that can lead to just this huge ability to aggregate, you know, if you can create the best customer experience, and we'll get back to this a lot. I want to talk about the idea of the customer experience of Amazon versus the customer experience of Jet, that the, the best customer experience is going to win and be a winner take all.

• 28:10Speaker 00

  Yeah. And I'm, I'm trying to look up a stat here. E-commerce has a percentage of US retail revenue. In 2012, I, I'm sure it's only a few percentage points more now, but in 2012, it was like 5%.

• 28:28Speaker 00

  Like, there is so much of retail that has transacted physically that has yet to move to online. And you and I were talking about this the other day, about I'm doing the dumb thing where I try and time the market and wait for a little dip in Amazon so I can buy it and then realize like that, that, you know, short-term little gain and then hold on to it for the long point, the long while. And you're making the obvious point that Ben, there's so much retail that still has to move to online. There's 10x or 100x more growth left in this company if they continue to conquer the way that they are. And I do wonder as all this, you know, the 90% of retail that's left physically as it

• 29:10Speaker 00

  moves to online, is that Mark Lorrie comment, is history gonna disprove that, right? Is it, maybe it will be a winner-take-all market because if you vertically integrate and have all of the distribution centers-

• 29:25David Rosenthal?

  And the best customer experience.

• 29:26Speaker 00

  And the best customer experience, yeah. And you have all that under one roof, like Amazon or maybe what Jet could be. Maybe retail is a winner-take-all in the future.

• 29:35David Rosenthal?

  Well, I think we should talk a lot more about that. We'll just wrap up real quick, acquisition, acquisition, history and facts, because we're at the end here. So, August 8th, last week as we're recording this, bombshell announcement, Walmart acquires Jet for $3.3 billion, $3 billion in cash and $300 million in stock retention incentives for employees. So, couple of quick things on this. One, Mark Lorrie is gonna continue to run Jet. It'll be a standalone property, taking the Amazon model here, like Zappos

• 30:14David Rosenthal?

  and like diapers. But he's also gonna run walmart.com. And they have a pretty significant lockup on him. So, a huge portion, it's been reported that a undisclosed but huge portion of his financial outcome from this deal, both in the stock incentives that were the $300 million and I think also a big part of what he would earn from the cash upfront, is gonna be subject to him staying at Walmart for five years.

• 30:53Speaker 00

  Wow.

• 30:54David Rosenthal?

  Which is quite long compared to, you know, traditional lockups in tech acquisitions.

• 31:00Speaker 00

  Right, right.

• 31:03Speaker 00

  And he owned a tremendous amount of this company still, something like a quarter or a third, even after all this money.

• 31:08David Rosenthal?

  Even after all that money raised, yeah.

• 31:11David Rosenthal?

  Don't know exactly because we don't know the valuations on the early rounds, but he definitely owned a lot.

• 31:17David Rosenthal?

  And super interesting and so much of the, so much of the press, both the press and the actual statements from Walmart about this deal are, you know, clearly a lot is about.

• 31:30Speaker 00

  Yeah, the fact that they're putting in the acquisition announcement that he's going to run Walmart.com. It's like, obviously you don't pay 3.3 billion for a person, but they really wanted Mark Laurie.

• 31:42David Rosenthal?

  Well, we'll get into that next in acquisition category, but, but to come back to, to this idea of, you know, is there going to be a really large number two, three, four in, in US retail e-commerce? Man, it is really hard for me to imagine that.

• 32:01Speaker 00

  Yeah, I think right now I was trying to do some research, research the other day and who is the number two to Amazon right now? Like is, is there a meaningful second large e-commerce site? And what it comes down to is that there are category by category. I was talking to a friend who, who used to work at Amazon and he was saying that, that, you know, in electronics, there's obviously like your best buys of the world that, that dominate online in that category. Still generally way behind Amazon, but there is no, you know, massive horizontal platform like, like Amazon is that, that gives you a, a strong number two.

• 32:36David Rosenthal?

  Yeah. And I think, well, let's, let's, uh, let's continue this discussion in tech themes, but, um, let's do category first. So this is a tough one. Uh, where are you going to put it, Ben?

• 32:48Speaker 00

  Yeah. So my, I sort of have like a little flow chart here. I don't believe that Microsoft, that's a good Freudian slip. I don't believe that Walmart will independently operate Jet.com forever. I think that they take the learnings from that and roll it into their business. They could do something really insane and.

• 33:10Speaker 00

  Bet the farm on Jet, that they actually keep Jet alive and pour all the Walmart.com resources into that. But I don't think they'll do it. I think what ends up happening is they run Jet as a standalone thing for a few more years. They take the learnings from it. Maybe even they, they take the entire model and rebrand Jet.com as Walmart.com and keep that entire model as, as the, the way to do Walmart e-commerce. But I, if they had permanently kept it alive, I would have said business line, but since I have low confidence in that, it's a people and a technology acquisition. I think it's, it's actually more the people that know how to build the technology. I think they've probably built a tremendous amount of interesting technology now, but it's really the fact that Walmart, other

• 33:55Speaker 00

  than Walmart Labs who built the mobile app, but that's much less sophisticated, doesn't have in their DNA, a strong technology background. And I think with buying such a, a large group of people who are running such a fast growing business, it's like, can we overcome this tipping point of making this actually a place for technologists to go like Amazon is, rather than what you usually see in these scenarios of buying a smaller company and those people are just a trit at some point. It's like, is, is Jet a big enough buy that we actually can tip the scales and say, you know what, you are a sophisticated developer and architect that

• 34:33David Rosenthal?

  Or product person or whatever.

• 34:34Speaker 00

  Yeah. That, that is interested in, in building the future of this stuff. This is the most interesting place to be.

• 34:40David Rosenthal?

  Yep. No question. There's that part of it. You know, as I was thinking about this, I was going through the, you know, our standard rubric of categories and I kind of went down the list. I'm like, hmm, okay. Well, people, there's definitely a big aspect of that in, in Lori and the other people at Jet. Technology also, exactly as you were saying, a big aspect of, of that to this deal. Product, I don't think there's really a lot of product here because I mean, Jet was a retail platform, not a, not a product itself. So maybe, maybe not that one as much. Business line, yep, they're adding the Jet.com business line. And then asset too, the category we added last time with Waze.

• 35:19David Rosenthal?

  Very much. So in the press release that Walmart puts out here, they they know that they make sure to like, I think the second bullet that they call out about the rationale is that Jet has a growing customer base of urban and millennial customers.

• 35:35Speaker 00

  Boy, that doesn't sound like Walmart's base.

• 35:36David Rosenthal?

  Yeah. Who does not shop at Walmart? Urban and millennial customers. So there's definitely an asset buy here in the customer, the customer base. I think you're right, though, at the core, like, the two biggest reasons are the people and the technology. But it kind of like could fit into multiple buckets here.

• 35:56Speaker 00

  Yeah. Yeah, I agree. It's funny, as you say, that the millennial generation and the urban, the urban dwellers are more of the Jet base, and that's so obviously not Walmart. I saw a couple comparisons on a couple other podcasts I listened to and then in Stratechery to Walmart being this generation's Sears. And kind of fading into irrelevancy because the factors that made them big are not aligned with the current generation. And, you know, you see this this incredible trend toward urbanization and in a very meta way, Amazon setting the the trend for what does a modern urban campus look like, rather than being out in the suburbs and industrial parks?

• 36:41Speaker 00

  And Jet just caters to that demographic and plays on that trend so much better than Walmart's existing business.

• 36:48David Rosenthal?

  So do we think that this means that we're going to see biodomes in Hoboken?

• 36:53Speaker 00

  Nailed it. That's exactly what I mean. For for those of you not in Seattle, Amazon is building these like, super crazy.

• 37:02Speaker 00

  Is it biospheres?

• 37:03David Rosenthal?

  Biospheres, yeah.

• 37:04Speaker 00

  Yeah, yeah, yeah. Obviously biodomes then.

• 37:06David Rosenthal?

  Is the, yeah.

• 37:09Speaker 00

  But the, yeah, it's like an indoor or like an indoor Central Park type thing for Amazon employees and people in.

• 37:17David Rosenthal?

  I think it's going to be open to the public.

• 37:19Speaker 00

  Oh, really?

• 37:19David Rosenthal?

  In right in downtown Seattle.

• 37:21Speaker 00

  That's awesome.

• 37:23David Rosenthal?

  Yeah, right near in the middle of Amazon's campus.

• 37:26Speaker 00

  We, yeah, I'm trying to like, take off my, obviously, we're huge fans of Amazon here. So like, I'm really trying to take off my Amazon's going to take over the world hat when when looking at this thing. Because I think more and more, even over the past year, with Amazon's tremendous growth and just having a lot more faith in their their long term plan.

• 37:46Speaker 00

  I just start evaluating things as are they really going to compete with Amazon? And I think that's a pretty fair assessment, but in

• 37:56David Rosenthal?

  They're like this generation's Microsoft, like, you know,

• 37:59Speaker 00

  Right, right.

• 38:00David Rosenthal?

  Like in the 90s, you know, any company that was trying to raise venture capital, like, the first question would be like, well, what are you going to do when Microsoft starts competing with you?

• 38:08Speaker 00

  And then Google. And that was like the question for a while.

• 38:10David Rosenthal?

  And then Facebook.

• 38:10Speaker 00

  So here's, this is like a great allegory. So mobile undid Microsoft, or at least the old Microsoft way, like, what will be the thing that pushes Amazon into irrelevancy?

• 38:23David Rosenthal?

  Yeah, great question. I mean, and I think this is like, obviously, you know, self admittedly, we're both huge Amazon fanboys here, but like, I don't think it's jet, you know? I think it's something, and I think there's also a good chance that

• 38:38Speaker 00

  You mean like it wasn't the Mac?

• 38:39David Rosenthal?

  Yeah. Yeah. I think there's a good chance that whatever that is, comes from Amazon itself, you know? You know, they're making big investments into drones with Prime Air. Like, that could be hugely disruptive because that changes the economics of delivery and fulfillment. You know, it could be voice that they're doing with Alexa because that changes the customer experience of how you order. You know, it could be 3D printing, right? With like, you, products that you're buying, don't get made at a factory anymore. They get made, maybe they get made at your house, but maybe they get made locally. And then, you know, just last mile delivered to you. Amazon's investing in that too. Like, it's hard to see,

• 39:23David Rosenthal?

  you know, what the, maybe virtual reality, like, I don't know.

• 39:27Speaker 00

  Yeah, it's interesting. The other lens to look at that through is maybe, we're just mixing tech themes all through here this episode. But it's, one of the things that, that is talked about with why Apple nailed mobile, is because Apple like skipped a generation and lost the previous war. So it's, it's like, who's sitting out this one? And will be like, way behind and gasping their last breath to come up with something truly innovative that unseats Amazon.

• 40:01David Rosenthal?

  I've been thinking about this too. There's a great article that we'll link to in the show notes. Series of articles that have come out this week on Apple, interviews with the senior team.

• 40:12Speaker 00

  Yeah, they're doing a ton of PR right now.

• 40:14David Rosenthal?

  They must be trying to hide something.

• 40:16Speaker 00

  Getting ready for the September 9th thing.

• 40:17David Rosenthal?

  Yep. But there's a really good one with Tim Cook and he kind of talks about this a little bit. And I love this because in tech, like it's so easy for us to like always be thinking like, what's the next thing? Like, you know, what's the, you know, and, and he talks about this, like the interviewer asked him, you know, iPhone growth is slowing, you know, it actually was down last quarter, like what's next after mobile? Like, is it a car? Is it, you know, AR? And Tim makes this great point. He's like, mobile is the greatest market that technology has ever seen. And we are still so early in it. Like every person on the planet is going to have a smartphone. And half of them do already.

• 41:00Speaker 00

  And so many people that never had computers have smartphones.

• 41:03David Rosenthal?

  Exactly. Like you can't even compare like, yeah, okay, let's look at the auto industry. Like it's way smaller than the phone industry. And his point is that like, you know, he says, mobile still has so many amazing years of growth ahead of it. Like it's, you know, to use an Amazon phrase, it's day one, you know, still 10 years into the smartphone. And I think Amazon is kind of the same thing. Like that's their phrase. It's day one. Like, you know, e-commerce is day one, you know, there's still so much ahead of it.

• 41:35Speaker 00

  Yeah.

• 41:36David Rosenthal?

  It's 5% of US retail. Like there's so much ahead of it.

• 41:40Speaker 00

  Yeah. I was going to refute the Tim Cook thing because like two and a half billion people or three billion people or something have smartphones. So there's like two to three X more growth left in it.

• 41:50David Rosenthal?

  Well, his point was that, um, his point wasn't so much that. It was like, think about all of the. The corners of your life that your smartphone is going to be a critical part of in the future that it isn't today, like Uber, great example, like who would have thought the smartphone would have like been your taxi a couple of years ago and now it is, but like, is the smartphone your doctor today? No. Will it be in five or 10 years? Maybe.

• 42:16Ben Gilbert?

  Right.

• 42:17David Rosenthal?

  You know, is, uh, is the smartphone, you know, whatever, was the smartphone how you bought stuff on Amazon five years ago? No. Is it how you buy stuff on Amazon now?

• 42:26Ben Gilbert?

  Yes. Yeah. Interesting. Yeah. And, and you make a great point on the, the retail thing. Like it really, it's cheesy, but like it really is day one. Like people overwhelmingly still don't buy their stuff online.

• 42:40David Rosenthal?

  So yeah, I mean, I think of course there are things that, uh, waves that will come along that could disrupt Amazon. Um, but it's also like they, they, Bezos has architected that company so well that like they're out at the front of every wave I can, I can see at least.

• 42:57Ben Gilbert?

  All right, listeners. Now is a great time to talk about a new partner of ours here on acquired Lagora, the agentic operating system that is redefining how the world's best legal teams work.

• 43:11David 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. Lagora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

• 43:27Ben 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.

• 43:42David 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. Lagora'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.

• 44:06Ben Gilbert?

  And they recently launched Lagora 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.

• 44:25David Rosenthal?

  And Logora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Logora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Logora 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.

• 44:55Speaker 00

  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 logora.com/acquired and just tell them that Ben and David sent you.

• 45:20David Rosenthal?

  All right, let's get into what would have happened otherwise.

• 45:24Speaker 00

  Yeah.

• 45:27David Rosenthal?

  Well, I can tell you one thing that would not have happened. Jeff would not have sold to Amazon under any circumstances. I mean, I can't, I can't imagine Lori, you know, working for Jeff again.

• 45:40Speaker 00

  Yeah. And, okay, so that's not a possibility. So the Walmart thing falls through, let's say Walmart's just not willing to pay the price tag. Is it like to Target or one of the other sort of bigger?

• 45:55David Rosenthal?

  Yeah, or Google.

• 45:56Speaker 00

  Retailers. Why a technology company? Like, why, why a Google or?

• 46:01David Rosenthal?

  Well, Google's been experimenting in many ways over the last couple of years with trying to compete with Amazon in different ways. You know, there was Google Shopping Express.

• 46:11Speaker 00

  Which has never really been.

• 46:12David Rosenthal?

  Never taken off, but they sunk a ton of money into that. And a whole bunch of initiatives, I don't think any of which have really worked, but that they're working on.

• 46:23Speaker 00

  Yeah.

• 46:24David Rosenthal?

  And so you could imagine that, I mean, because I don't know if they still are, but for a long time, Amazon was the number one advertiser on Google. They spent more money on AdWords than anyone else in the world.

• 46:36Speaker 00

  Oh, man, I totally believe that because that you, it's amazing when you search for a product now, how your, your organic search result and your paid search result are both for that product on Amazon.

• 46:46David Rosenthal?

  And like. Neither Google nor Amazon are happy about that. You know, Amazon is aggressively trying to move, do everything they can to reduce that dependency.

• 46:57Speaker 00

  Right. It's like Amazon's paying the Google tax.

• 46:59David Rosenthal?

  Yeah, exactly. And Google is like, oh, man, that's a huge opportunity. And like, that's the biggest part of our business. Like, how can we just do that directly?

• 47:07Speaker 00

  Yeah. And, oh, man, this is really interesting fact. So I've been using smile.amazon.com for a long time.

• 47:15Speaker 00

  They basically take the affiliate fee that you would be giving to, you know, whoever referred you, like clicking through from the wire cutter or something, and donate that to the charity of your choice. And I was like, that's so interesting. I always wondered, like, what's the motive for Amazon to do that? And they basically are trying to give you a strong enough incentive to bookmark it so that you hit Amazon as direct traffic instead of going through Google and paying that customer acquisition tax.

• 47:43David Rosenthal?

  Even though they'll then pay that affiliate fee on everything you buy, they won't be paying the ad word tax to Google.

• 47:49Speaker 00

  Yeah. It's like, we'd rather donate this money than give it to Google.

• 47:52David Rosenthal?

  Yeah, seriously. Interesting. Okay, so, I mean, I think somebody else buys this company like,

• 47:58Speaker 00

  Yeah, like,

• 47:59David Rosenthal?

  they were not going to be able to continue to raise the amount of money that they would need.

• 48:03Speaker 00

  No. Which is, is so interesting that, I mean, Amazon did.

• 48:11David Rosenthal?

  But Amazon did it in the public markets.

• 48:13Speaker 00

  And Amazon did it before, like when there was no Amazon to compete with.

• 48:17David Rosenthal?

  Yeah, right. They built that business over a very long period of time.

• 48:21Speaker 00

  Right.

• 48:21David Rosenthal?

  And they did it financed by the public markets.

• 48:24Speaker 00

  Yep.

• 48:24David Rosenthal?

  Neither of which Jet had the luxury of doing. They had to do it super fast, and they had to do it from private market investors.

• 48:31Speaker 00

  Yeah. And they definitely get picked up because investors have put a ton of money into this thing. It's not, it's not going to zero. Like, this company is going to get picked up at some point for some kind of favorable outcome.

• 48:45David Rosenthal?

  Yeah, I mean, you got to imagine that that was a huge part of the investment thesis for all the VCs and the mutual funds that invested in Jet.

• 48:56Speaker 00

  Yeah, and you start to wonder too, like a few months ago, do you start getting, if you're Mark Laurie, do you start getting investor pressure to be looking around?

• 49:04David Rosenthal?

  Yeah, like it's clear you're burning tons of capital, like growth is there, you're getting, building a customer base, but like you've explicitly told the market you have no profit engine.

• 49:14Speaker 00

  Right.

• 49:14David Rosenthal?

  And then you've explicitly told the market that you no longer think you can beat Amazon.

• 49:20Speaker 00

  Right.

• 49:21David Rosenthal?

  Something's got to happen.

• 49:23Speaker 00

  Yeah.

• 49:25Speaker 00

  Yeah. Another thing that was going through my head is, okay, so like, why is this, we had Taylor Barrett on last week, and he was talking about the acquisition that he thinks, or the acquisitions that he thinks go the best are the ones where the founder of that company, the acquirer, the company to be acquired, is excited to get their hands on the assets and resources of the larger company to make their original vision fulfilled and more successful. And what are Walmart's assets that Mark Laurie would be happy to get his hands on to make that dream come to fruition?

• 50:03David Rosenthal?

  Yeah.

• 50:04Speaker 00

  Why is that a good place to land for Jet?

• 50:06David Rosenthal?

  Well, I think, I think it's a couple of things. One, a lot of money.

• 50:10Speaker 00

  Yeah.

• 50:11David Rosenthal?

  Like Walmart has way more money than Jet would ever be able to raise.

• 50:15Speaker 00

  So, yeah, that's an interesting thing that like, if, if it really is true that they're going to let Jet continue to be its own thing, and they, I mean, it's a tall order to, to hold Walmart to their word of continuing to pour money into this thing. Like, we don't know what promises were made, but like, this thing needs a ton of capital to grow. Walmart's effectively the best private investor, or maybe the best, since they didn't have access to the public markets and definitely couldn't have IPO'd. It's like, hey, this is actually a great place to, if they're committed to it, fulfill our mission and just pour a ton of money into growing.

• 50:52David Rosenthal?

  And I think that's number two, which was Doug McMillan, the CEO of Walmart, you know. Well, at least if you listen to the interviews after the acquisition and the press release, you know, clearly has a man crush on Mark Laurie. You know, and Doug has said, you know, Mark's basically going to have carte blanche to do what he needs to do to make this a successful business and all the resources he needs. And then I think three, the other, the third asset that if I'm Mark, I'm excited about is the customer base of Walmart. Like the vision of Jet originally was like, serve, you know, the middle-class Americans that are price-conscious and that's Walmart's customer base.

• 51:37Speaker 00

  Yeah, that's true. And then before we move on, there was one other thing I was thinking is it's really difficult to compete with Amazon now merely because of how razor-thin their margins are. And Amazon, you know, famously, your margin is my opportunity. It's a Jeff Bezos quote from a long time ago when they were starting Amazon. And he was saying that about Walmart, you know, that they were making a few, what, 3%, 4%, 5% of profit margin on each sale. And Amazon makes in the neighborhood of one or less.

• 52:12Speaker 00

  And they, Amazon was growing up in this world where there was opportunity to compete on price there. And Jet had a really hard time, obviously, competing with Amazon price since there just wasn't much margin left. Do you know of any historical precedent where there was already a race to the bottom? The one company became dominant because they were incredibly cheap on razor-thin margins? Like, how were they upended? How did they, because presumably you have to compete with them on some other access or some new technology comes around and upend them?

• 52:50David Rosenthal?

  I don't know. It's hard to imagine. Like, I think about like Microsoft, you know, or...

• 52:57David Rosenthal?

  Traditionally, you know, the whole your margin is margin is my opportunity quote applies to harm high margin businesses.

• 53:04Speaker 00

  Right.

• 53:04David Rosenthal?

  Like Microsoft's problem was they made so much money on Windows that they couldn't transition to a world or transition fast enough in the last generation to a world where the operating system is commoditized by the browser. But if you already are operating in a world where you know you're a commodity, it's super hard to get disrupted.

• 53:26Speaker 00

  Yeah, and that goes right into my tech theme. This is such a classic innovator's dilemma.

• 53:30David Rosenthal?

  Yep.

• 53:30Speaker 00

  I mean, for 20 years now, Walmart has watched and their their biggest fear materialize, where Amazon just grows and becomes this mega behemoth and starts stealing their business. But they can't seem to compete because what that would involve is is cannibalizing their incredible business and building a super low margin business. And, you know, that might be a long term strategy and might be the necessary long term strategy to stay alive, but they're a publicly traded company. Like, how do you tell your shareholders, you know, the next 10 years are going to be pretty rough going because we're, you know, we're undercutting ourselves and building this thing that makes way less money for a long time.

• 54:16David Rosenthal?

  Yeah, super hard. I mean, and again, we're in a minute, we're going to grade this, but, um, man, it's hard for Walmart out there right now. Like, on the one hand, like, they spent a lot of money for something that I think, at least Ben and I feel like, is still going to lose to Amazon. Like Walmart's still going to lose and Jet's still going to lose. But they spent $3 billion, 3.3, like, that's not a lot of money to Walmart. So, you know, it's a shot.

• 54:45Speaker 00

  Yeah.

• 54:46David Rosenthal?

  It's a better shot than they'd have on their own.

• 54:48Speaker 00

  Right, right. I was thinking about that in the lens of like, how do I want to evaluate this?

• 54:54Speaker 00

  It definitely puts them in a more favorable position than they were. But unfortunately, I think we have to evaluate on the lens of is this actually worth that much money? Where that falls flat, and I think what my real position is, is you kind of have to do an expected value calculation and figure out like, what do you think the chances that this thing actually succeeds are?

• 55:16David Rosenthal?

  That Jet will return in profit dollars more than 3.3 billion.

• 55:22Speaker 00

  Yeah, and like taking a 20 year time horizon, I mean, this is like a potentially trillion dollar.

• 55:29David Rosenthal?

  Category.

• 55:29Speaker 00

  Yeah, so.

• 55:31David Rosenthal?

  So, I mean, there is a non-zero chance that Jet can, can, you know, can either beat Amazon or become a meaningful number two. Like, we could be wrong.

• 55:40Speaker 00

  Right, right. Let's, let's say this becomes a trillion dollar business. I mean, if there's a 1% chance that it succeeds.

• 55:49David Rosenthal?

  Expected value is still.

• 55:50Speaker 00

  10 billion, right? Like that it, it actually kind of, it, great, 3X.

• 55:55David Rosenthal?

  Yeah, exactly, exactly. You know, this is the art of being an investor versus the science.

• 56:02Speaker 00

  Right.

• 56:02David Rosenthal?

  What are these probabilities?

• 56:04Speaker 00

  Yeah, and, you know, assigning 1% and assigning a trillion are super arbitrary.

• 56:10David Rosenthal?

  Right.

• 56:11Speaker 00

  The, the magical nature of the whole thing is it's binary. Like either it's really going to work and it's going to be company saving, which we're both saying is the very unlikely.

• 56:21David Rosenthal?

  But it could happen.

• 56:22Speaker 00

  Yeah, or it's definitely not going to work. And we know for a fact, or let's like say that it was the far more likely outcome if they didn't acquire Jet is that Walmart just was going to totally lose. Like they could not have competed with Amazon.

• 56:36David Rosenthal?

  Well, and back to the people thing, right? Like, man, 3.3 billion dollars is an expensive aqua hire. But like, who's gonna, who would Walmart be able to recruit to go be a senior leader at Walmart? Who would see them through, you know, guide them through this like, you know, last stand? That actually really knew how to do e-commerce and knew it from the best and knew it from the inside of Amazon? Like, nobody.

• 57:02Speaker 00

  Yeah, and if you're recruited to be that exec, you, this uphill battle of recruiting all the people that you know are talented to come work at Walmart with you, this way you get to bring like a world-class team.

• 57:12David Rosenthal?

  Yep, yep.

• 57:13Speaker 00

  Even, even if you're rearranging the deck chairs on the Titanic.

• 57:17David Rosenthal?

  We're, I feel like we're bleeding into conclusion, which we'll get to real quick. But two tech themes I wanted to mention quickly. One, we've touched on a bunch, but I just think this is such a like, in terms of handicapping Jet's chances for success, like I so totally believe in aggregation theory and Ben Thompson, Ben Thompson's aggregation theory and the idea that on the internet, the best customer experience wins.

• 57:43David Rosenthal?

  And this is where I think the logic of Jet was flawed, which is that, oh, like there's a segment of customers that care about price more than anything else and they don't care about the other two parts of the holy trinity of, you know, the Amazon holy trinity of retail, which is price, convenience, selection. On the internet, I think that's wrong. I think everybody cares about all those and Amazon can offer all three to everybody, to lower class people, to middle class people, to upper class people. And like, who wants to think that they don't deserve great convenience and great selection? Like, nobody, you know?

• 58:21David Rosenthal?

  So I think, again, I could be wrong, you know, but, but I think the logic behind Jet was flawed in that all three are important to everybody. So that's one. Two, I also think like this also, we've been really hard on Jet on this episode, but it also is a little bit of the faster horse thing to me too. Like we were talking about like, what's gonna actually disrupt Amazon? I don't think it's Jet, you know, like it's, Jet is a faster horse. Like what, what'll disrupt Amazon is like drones, you know, or 3D printing or virtual reality.

• 58:56Speaker 00

  Right. And it's so interesting to look at Walmart acquiring Jet. It's like, okay, cool. Jet can be competitive on price, much like Walmart was already always competitive on price and their business model was to make a little margin. Amazon has this different business model where they've created this incredible flywheel where they make a small margin on third party sellers for using the platform. Oh yeah. And then they also charge those third party sellers that use fulfillment by Amazon for like leasing space in their warehouses. They've created this totally-

• 59:27David Rosenthal?

  And running their websites on AWS.

• 59:29Speaker 00

  Right, right. They've created this totally different business model that's not making a couple pennies on every transaction. It's like, like having a percentage of every piece of the backend and the logistics leading up to that transaction.

• 59:42David Rosenthal?

  Yep.

• 59:43Speaker 00

  I I think they're they're playing a different game.

• 59:46David Rosenthal?

  Yep. Whereas Jeff fundamentally was playing the retail business model.

• 59:51Speaker 00

  Yeah.

• 59:52David Rosenthal?

  Okay, conclusion.

• 59:54Speaker 00

  D. Like, it's it's not an F because Walmart had to do something.

• 59:59David Rosenthal?

  Yeah.

• 1:00:03David Rosenthal?

  I'm gonna go C for the reason that I was saying a minute ago, which is like, they had to do something, and this, I think, was the best that they could do. Like, again, they weren't gonna hire, like, what search firm in the world is gonna take on that job of like, you know, hey, the JD says, build Amazon within Walmart. You know, like, nobody who's actually capable of that is gonna take that job.

• 1:00:27Speaker 00

  Yeah. Yeah.

• 1:00:31Speaker 00

  So you think this is just as good as YouTube?

• 1:00:35David Rosenthal?

  Okay, okay. C minus.

• 1:00:39David Rosenthal?

  We're all over the place. Okay, that's what we got for Jet. Hopefully you enjoyed it. This was a lot of fun doing.

• 1:00:46Speaker 00

  Got a couple of sections.

• 1:00:48David Rosenthal?

  Couple of sections to wrap up quickly here. Follow-ups. Ben, did you watch, did you see the new Star Wars trailer during the Olympics? Lucasfilm follow-up alert.

• 1:00:59Speaker 00

  Ah, my god. So, my, spoiler alert, and let's give about five seconds of me talking to-

• 1:01:07David Rosenthal?

  Spoiler for the trailer, not for any movies.

• 1:01:09Speaker 00

  There are there are people, there are dedicated people who don't want to watch the trailers. My favorite tweet of the whole thing, so obviously, there's this incredible moment at the end where you get about a half second where you see Darth Vader, and it's like,

• 1:01:22Speaker 00

  it's amazing, right? And

• 1:01:26Speaker 00

  I don't, I don't know how much we want to get into this on the show, but, you know, Twitter's become this place that is not necessarily the greatest place to hang out all the time for for all people. And I'm gonna look up the actual tweet.

• 1:01:41Speaker 00

  Here it is. It's from Craig Hockenberry, the developer of Twitterific. Everyone's worked up about seeing Darth Vader for half a second. Seeing a strong female protagonist for the other 215 is more important.

• 1:01:53David Rosenthal?

  Yeah, love that.

• 1:01:55Speaker 00

  It was awesome. It was like.

• 1:01:57David Rosenthal?

  Mic drop.

• 1:01:58Speaker 00

  I know. I found myself, like, I saw that right after I saw the trailer and I'm thinking, oh, like, I and the rest of America and the world are all worked up about Darth. And there's this incredible shift going on in, like, the world where the most anticipated movie of this year has a amazing, strong female lead.

• 1:02:21David Rosenthal?

  Yep, as did the previous Star Wars movie. Yeah, Disney just continues to be a stellar steward of Lucasfilm and Star Wars. And like, man, two Star Wars films in two years. And then we're gonna get three in three years.

• 1:02:39Speaker 00

  Right. And we're like so amped up about this trailer.

• 1:02:42David Rosenthal?

  With strong female protagonists.

• 1:02:43Speaker 00

  Right. And we've never met any of these characters. Like, these are entire, except for that little quick clip of Darth Vader. Like, this is, these are people that exist in a universe that we're invested in, but we aren't invested in a single one of these, these, uh, these characters. So tremendous job to Disney, as usual.

• 1:03:02David Rosenthal?

  Okay, new section that we're adding, uh, this will be very quick. But we got several requests for this is hot takes.

• 1:03:10Speaker 00

  Yeah, thanks. Thanks for throwing this out in the Slack as an idea.

• 1:03:13David Rosenthal?

  Yeah. Um, there have been a ton of M&A transactions happening recently. It's like they're coming hot and heavy.

• 1:03:21Speaker 00

  We should do an episode just based on like.

• 1:03:23David Rosenthal?

  What is going on in the market? Yeah, we could, we could do some fun stuff. So four that we have today for the idea here is we're gonna do 30 seconds or less quick takes on these deals. Number one, Verizon acquiring Yahoo.

• 1:03:40Speaker 00

  Yeah, like.

• 1:03:42David Rosenthal?

  I feel like we just did that episode, so we don't have to do that.

• 1:03:45Speaker 00

  Man, I saw these great, uh, more great tweets about like that, that Verizon, that Yahoo is gonna be like the fabric that holds all of Verizon's AOL assets together.

• 1:03:56David Rosenthal?

  What?

• 1:03:57Speaker 00

  It's like, I have no idea what that means.

• 1:04:01David Rosenthal?

  That's like, uh, that's like random startup generator.

• 1:04:04Speaker 00

  Right, right.

• 1:04:05David Rosenthal?

  You have a history in Ben.

• 1:04:06Speaker 00

  Oh, God. Oh, yeah.

• 1:04:08David Rosenthal?

  We won't get into that here.

• 1:04:09Speaker 00

  Yeah.

• 1:04:10David Rosenthal?

  Okay, uh, number two, uh, Lyft turns down acquisition offer from GM.

• 1:04:17David Rosenthal?

  Reportedly.

• 1:04:20Speaker 00

  It better have been really low. Like, to me, I don't know if there's a strong place for a second player here. I think that ride sharing lends itself to a winner take all dynamic because density is so important.

• 1:04:35David Rosenthal?

  Customer experience.

• 1:04:36Speaker 00

  Yeah, like if, if.

• 1:04:38David Rosenthal?

  If I wait two minutes for an Uber versus 10 minutes for a Lyft, I'm opening up Uber every time.

• 1:04:44Speaker 00

  Yeah. Yeah, I remain bullish. I tried to start a company a few years ago called Red Ride that was a ride sharing aggregator. And I remind, I remain bullish on aggregating all the other options, but, um, I don't think there is a way that you can be almost exactly like Uber, but slightly worse without like a different value.

• 1:05:04David Rosenthal?

  That's never been a winning value prop. I'm gonna be exactly like X, but I'm gonna be slightly worse.

• 1:05:10Speaker 00

  Yeah.

• 1:05:10David Rosenthal?

  Yeah. Okay, um, close to home, Microsoft acquired local Seattle startup Beam.

• 1:05:18Speaker 00

  Yeah, I'm super curious to see what they're gonna do with it. I mean, I, we don't know how, how big the deal was. Beam was an incredibly fast growing Twitch like service that enabled interactivity and, um, a lot of features that weren't available on Twitch.

• 1:05:31David Rosenthal?

  You could actually play games or you could, you could.

• 1:05:34Speaker 00

  Influence.

• 1:05:35David Rosenthal?

  Influence things that were happening in the game while somebody else was playing.

• 1:05:39Speaker 00

  Yeah. Great job to, to that company to, for, for building something that caught on so fast, um, tech stars and, and all their other.

• 1:05:45David Rosenthal?

  Super young, incredibly talented founders. Uh, big, big congrats to everybody there.

• 1:05:51Speaker 00

  Yeah, to me, I think they're, it's, they're gonna meld into whatever, um, is part of the, the broader gaming strategy right now.

• 1:06:00David Rosenthal?

  Yep.

• 1:06:00Speaker 00

  But I don't think that they're gonna like bet on Beam being this distribution vehicle to compete with Twitch.

• 1:06:05David Rosenthal?

  It's clearly not Twitch. I mean, Twitch is a, Twitch is a juggernaut, so, um, but will be great as part of Microsoft. Okay, final one, Monster.com getting acquired by Ronstadt.

• 1:06:17Speaker 00

  Oh, how the mighty have fallen.

• 1:06:19David Rosenthal?

  Yeah.

• 1:06:20Speaker 00

  It's so funny thinking about like early days of LinkedIn when that was getting started.

• 1:06:26Speaker 00

  That Monster was the thing with the Super Bowl commercials, right? Monster was the place that, before I was thinking about jobs.

• 1:06:33David Rosenthal?

  I think the deal size was a little over $400 million, something like that.

• 1:06:36Speaker 00

  Yeah. Yeah. So it's what a 50th, less than a 50th, the size of the LinkedIn deal.

• 1:06:43David Rosenthal?

  Yep.

• 1:06:43Speaker 00

  And, you know, the trend there, like, let's call it what it is, network effects are so powerful. A flat site like Monster is just never going to compete with a site that has all the right network effects and incentives that LinkedIn does.

• 1:06:59David Rosenthal?

  Network effects, they are a thing.

• 1:07:01Speaker 00

  We should just rename the podcast.

• 1:07:03David Rosenthal?

  That's what we, yeah.

• 1:07:05David Rosenthal?

  Aggregation theory, network effects, flywheel.

• 1:07:08Speaker 00

  Perfect.

• 1:07:09David Rosenthal?

  Boom. We don't have to do any more episodes. Okay. Carvout, what you got, Ben?

• 1:07:14Speaker 00

  All right. So another podcast for me, it is another, a previous Carvout that I had was a talk at Google by Michael Maubassong.

• 1:07:26David Rosenthal?

  Oh, so good.

• 1:07:28Speaker 00

  Yeah, incredible. And he has this great book, Untangling Skill and Luck, The Success Equation. He has a podcast episode where he is on the Masters in Business podcast, is a Bloomberg News publication, and really, really good. He talks about a lot of the same things, but applies it more to fund management, about luck versus skill. He talks about a lot of the things that we all know, but get caught up in the glitz and glamour of what company is hypergrowth right now. And he kind of like brings it home and makes you realize investing is more about identifying mispriced assets and places where you have an information mismatch, and then using that information to your advantage. And everyone is very, very

• 1:08:12Speaker 00

  focused on, you know, will Amazon go up? So I want to put money in Amazon, but how there's all these other strategies around using, using information to your advantage to, yeah, identify and bet on mispriced assets.

• 1:08:26David Rosenthal?

  Oh, man. You set my heart aflutter. I thought you were gonna say that that Michael was starting a podcast of his own and that would have been like the most amazing thing I've heard all month. Sadly, sadly no, but Michael, if you're listening, you gotta get on here. But just to add on to that really quickly, he also did release a about 20, 30 page piece this month, their last two with sort of 10 top, top, you know, eternal truths of investing. And it's so good. He is, he is just a treasure.

• 1:09:05Speaker 00

  Are we both following Bill Gurley on Twitter?

• 1:09:08David Rosenthal?

  I think we are.

• 1:09:10Speaker 00

  I think that's both of our sources.

• 1:09:12David Rosenthal?

  Yeah, I think that's both of our sources. I have a, I have a non Bill Gurley carve out, though.

• 1:09:17Speaker 00

  All right.

• 1:09:18David Rosenthal?

  Mine is actually Strava, which is an app for iPhone and Android designed for, for working out, for bicycling, for running, for swimming. And it is so fun. I bet, I bet a lot of our listeners are already on it, but Ben and I went for a long, at times ill fated, but really fun bike ride this weekend. And we both use Strava to track our ride. And it's just like, the app is so well done. Back to customer experience, like it's the little things like, we didn't have to tell Strava that we were biking together. But at the end of it, because it knew that we were, it was

• 1:10:00David Rosenthal?

  tracking us, our rides, and that it was 90% plus together, it joined our rides together. And then to all of our friends who are following us on the app, like it was Ben and David rode together and, and your friends give you kudos and just like the, all of the little, the, the segments, there are

• 1:10:19Speaker 00

  The leaderboards.

• 1:10:19David Rosenthal?

  The leaderboards. It's so well done. And it makes, working out and exercising in outdoors, which I love to do anyway, just that much more fun.

• 1:10:29Speaker 00

  And it makes you feel like you're part of a community, which is super cool, too.

• 1:10:32David Rosenthal?

  And their, their marketing and brand is just like, so on point.

• 1:10:37Speaker 00

  If you like to bike or run, like just go watch all their videos that they've produced.

• 1:10:43David Rosenthal?

  It'll make you like, literally go out the door and start running.

• 1:10:46Speaker 00

  Yeah. Yeah, it's awesome.

• 1:10:49David Rosenthal?

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

• 1:10:55Ben 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.

• 1:11:06David 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.

• 1:11:26Ben 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.

• 1:11:39David 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.

• 1:11:50Ben Gilbert?

  All right, that's it. If you aren't subscribed and you'd like to hear more, you can subscribe now from your favorite podcast client. And if you feel so inclined, we'd love a review on iTunes, or a tweet, or a post on Facebook. So thank you so much, and have a great day, everyone.

• 1:12:04David Rosenthal?

  We'll see you next time.