Pod Insights All-In with Chamath, Jason, Sacks & Friedberg E162: Live from Davos! Milei goes viral, Adam Neumann's headwinds, streaming's broken model, microplastics & more About this episode (0:00) Live from the WEF: "Oh Davos, Kumbaya"
(4:25) Why Davos lost its luster, plus major moments: Milei's speech, Jamie Dimon on Trump
(21:53) Boeing's regulatory capture leading to negative impact on consumer safety
(35:16) Adam Neumann facing familiar challenges at his new startup, Flow
(50:24) Evaluating "tech-enabled businesses" vs. traditional businesses that are utilizing technology
(1:00:47) Streaming at a crossroads: is the business model broken?
(1:20:51) Science Corner: New study on microplastics in water bottles
(1:32:42) All-In Poker
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https://twitter.com/chamath
https://twitter.com/Jason
https://twitter.com/DavidSacks
https://twitter.com/friedberg
Follow the pod:
https://twitter.com/theallinpod
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Intro Music Credit:
https://rb.gy/tppkzl
https://twitter.com/yung_spielburg
Intro Video Credit:
https://twitter.com/TheZachEffect
Referenced in the show:
https://twitter.com/dschlopesisback/status/1747025441825640681
https://twitter.com/davidsacks/status/1747724966941139276
https://twitter.com/andrewrsorkin/status/1746723727574794537
https://twitter.com/Jason/status/1746951952578298264
https://twitter.com/aphysicist/status/1747868626948907325
https://www.weforum.org/agenda/2024/01/special-address-by-javier-milei-president-of-argentina
https://www.opensecrets.org/federal-lobbying/clients/summary?id=D000000100
https://www.opensecrets.org/federal-lobbying/top-spenders
https://www.youtube.com/watch?v=wXMO0bhPhCw
https://www.dodig.mil/reports.html/article/2871623/audit-of-the-business-model-for-transdigm-group-inc-and-its-impact-on-departmen
https://www.google.com/finance/quote/TDG:NYSE
https://stacksonmain.com/gallery
https://www.societylasolas.com/photogallery
https://therealdeal.com/national/nashville/2024/01/12/adam-neumann-faces-shortfalls-on-flow-property-in-nashville
https://nypost.com/2024/01/11/sports/inside-nbcs-100-million-peacock-nfl-playoff-game-gamble
https://www.sportsvideo.org/2024/01/16/peacocks-nfl-playoff-exclusive-sets-live-streaming-records
https://www.businessofapps.com/data/disney-plus-statistics
https://www.businessofapps.com/data/netflix-statistics
https://finance.yahoo.com/news/americans-are-canceling-more-streaming-plans-as-prices-balloon-153035743.html
https://www.manscaped.com/products/crop-preserver-manscaping
https://www.pnas.org/doi/10.1073/pnas.2300582121
https://www.xometry.com/resources/materials/polyethylene
https://www.bpf.co.uk/plastipedia/how-is-plastic-made.aspx
https://www.reuters.com/business/environment/france-bans-plastic-packaging-fruit-vegetables-2021-10-11
https://www.pbs.org/wgbh/frontline/documentary/plastic-wars
Transcript 18,482 words · 6 speakers
Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:00 Jason Calacanis? All right, everybody. Welcome to the 54th Annual World Economic Forum here in Davos. You guys didn't know this, but as elites ourselves, we were invited to kick off the festivities. Surplus elites. You know, the All In Podcast, very popular. And so they wanted us to come and represent the pod and our audience there. And it's been amazing. If you haven't seen some of the great musical performances this year, I mean, they're so notable. Let's just start off here. I mean, guys, we were here for this live.
0:33 Jason Calacanis? Soak it in. I mean, on the replay.
0:37 David Sacks? There's the air flute.
0:42 Jason Calacanis? Wait, wait, there's a great moment where she really starts vibing. Wait for the head shake.
0:49 Jason Calacanis? Eyebrows are great, but the head shake comes in about there. There it is. There it is.
0:54 David Sacks? I like your mu mu. I like her mu mu. Have you ever played the air flute? Or just the skin flute, Chama? Just the skin flute.
1:04 Jason Calacanis? But guys, guys, this isn't it. There were other, there was a witch doctor or something. I'm not sure exactly what's going on here. I'm going to just apologize in advance for mocking this. Or for sax mocking it, I should say.
1:20 Jason Calacanis? This was incredible. I don't know exactly what's going on here with the blowing of the hair.
1:25 David Sacks? We've come a long way from COVID, that's for sure.
1:28 Jason Calacanis? So they're blowing the COVID on each person's forehead here to spread the COVID. They've all taken the mRNA vaccine. But you know, we each have a speaking gig. Each of us is speaking. And so I thought to kick this off here, gentlemen, instead of us just telling everybody our schedule, I would sing our schedule. And so let me just grab a, let me see if I got my guitar here. Hold on. Let me just grab it here. Oh, here it is. Okay. Hold on. It's happened to have the guitar.
1:58 David Sacks? Is that an air guitar or a real guitar?
1:59 Jason Calacanis? Oh, no, it's a real guitar. It's actually a real guitar here. So, but I thought, you know, everybody is really excited about each of our speaking gigs. So I thought we would just kick it off here. Let me just see if it's in tune. Guys, hear that? Oh, okay.
2:15 Speaker 02 All right, I think we got it. Kumbaya, my lord, a kumbaya. Sax is interviewing Putin, my lord, a kumbaya. In the dictator lounge at noon, a kumbaya. Conquering Europe, kumbaya. And now, I'm gonna, there's a little audience participation in here, besties. I need you each to sing with me. Okay. It's, uh, we're gonna start here, it's gonna be, just listen one time and then you're gonna repeat, okay? Here we go.
2:53 Speaker 02 It's hard to keep it together. O davos kumbaya. So just, "O davos kumbaya," ready? Three, two. O davos kumbaya. Okay, very good, very good, okay. Now go to the next verse here. Chamazin Loro Piana, kumbaya. Hosting Steve Bannon at 1 PM, a kumbaya. Free burgers at 2 PM, a kumbaya. Billionaire bunker panel, a kumbaya.
3:35 Speaker 02 Teal just bought one, kumbaya. Hunter Biden after-party at 1 AM. Eight balls and escorts for everyone, brought to you by Burisma. That's for you, Sax. And now you all sing.
3:55 Speaker 03 O davos kumbaya.
4:05 David Sacks? Wow. Fabulous. You really are the world's greatest moderator.
4:13 Speaker 02 Rain Man David Sax.
4:25 Jason Calacanis? Alright, everybody. Yes, the World Economic Forum is wrapping up in Davos. If you don't know what the WEF is, I'll just give you the brief overview. 3,000 people, 5 days, tons of parties, happens in Davos, Switzerland. It's run by a foundation. They call these non-government organizations, NGOs. I can think of it, kind of like the TED conference. Topic this year was rebuilding trust. It's politicians, business leaders, economists, journalists, all the elites. The mission statement of the WEF, improving the state of the world by engaging business, political, academic, and other leaders of society to shape global, regional, and industry agendas. It's a money printing machine. I'll give you a funny backstory later if you care to know.
5:07 Jason Calacanis? But basically, they try to shake it down for about 40 grand a year to go to this thing. Tons of notable moments that we can get to on the docket here. Freebreak, any highlights for you watching this, you know, get mocked on social media this year? It's been a slow unraveling from this being something that people used to flex about going to Davos. Now, people are literally apologizing on social media, X, Twitter, etc., explaining why they're going because they're kind of feeling shame in going to this event. So what are your thoughts on the sort of whole flipping of this from being a flex to requiring an apology in advance?
5:49 David Friedberg? You guys know Andrew Ross Sorkin, the journalist for CNBC? I think he posted on Twitter, you know, "I know, I know, forgive me, I gotta go to Davos." It's almost like embarrassing now that you are associating yourself with the elite cabal in the Swiss Alps during a time of rising global populism and all the criticism that's been rained down on Davos in the last couple of years. And then Davos is trying to adapt by trying to be more cool and appeal to the populist notions that have criticized them, thus the flute playing, thus the...
6:25 David Friedberg? Shamanism, you know, and thus I think a lot of what Javier Millay has called a general economic support for what he defines as collectivism, which I'd love to talk about, but why don't we just say that?
6:37 Jason Calacanis? Yeah.
6:38 David Friedberg? There's generally been like a response from the community that attends Davos, but there's a lot of conflict here with the fact that folks are flying in on private jets and telling everyone to stop producing carbon. The fact that they're all dining and spending lots of money and telling everyone that we should move to more towards socialist conditions and higher taxation. It's all, a lot of irony wound up in this whole thing. It's almost like a, like a, like a Simpsons show. It's what it's become.
7:02 Jason Calacanis? Well, and the theme rebuilding trust is kind of insulting at its face, at least to me, like we, we don't trust you. You don't need to rebuild trust with us. We're not going to trust you. There's no way for you to do that, especially after what happened with COVID. Sax, did you have any sort of reaction to this year's Davos and just how people are reacting to it? You heard Friedberg sort of thoughts on it?
7:28 David Sacks? Well, Davos has become a parody of itself, and that's why you saw these clips go viral of these ridiculous antics of the priestess doing, I don't know what she was doing, but the only two sets of remarks that actually were taken seriously on their own terms was the speech by Millay from Argentina and then also comments by Jamie Dimon. And the reason why they went viral is because they were actually saying sensible things that contradicted the sort of established wisdom or consensus at Davos. I mean, they were effectively subtweeting the other elites at Davos. I mean, Millay gets up there and I think he was introduced by Klaus Schwab.
8:11 David Sacks? And he immediately starts denouncing collectivist experiments and says that the West is in danger because its elites have been co-opted by a vision of the world which leads inexorably to socialism and thereby to poverty. So Millay basically says this right in front of Klaus Schwab. I mean, he's describing the, the people at Davos. That's why that took off and went viral.
8:34 Jason Calacanis? It was incredible. I mean,
8:35 David Sacks? Yeah.
8:36 Jason Calacanis? Yeah.
8:37 David Sacks? In a similar way.
8:38 Jason Calacanis? And he flew their commercial.
8:41 David Sacks? I didn't know that. Yeah. Kudos to him. Jamie Dimon gave this interview, I think it was on CNBC, where he basically went full Chamath. You know, he basically admitted that Trump had been right. And that, you know, a lot of the criticism of Trump and all the derogatory comments for years were were basically just lazy. And he said that, you know, Trump was largely right on NATO, on immigration, on tax reform. He grew the economy. Immigration. Immigration, he was mostly right on China, he said. Diamond said he didn't always like how Trump said things or talked about people, but he said his policies were largely sound and only look better in time since we've abandoned them.
9:26 David Sacks? And and he's basically saying that, you know, look at where we are right now. And he questioned the kind of everything is hunky dory narrative that the Biden campaign is pushing out. So he really went off script there. And like I said, I think Chamath said it first here on this pod three months ago. And now Jamie Dimon is accepting that. So that was a huge sub tweet, you could say, of all the elites at Davos and the accepted wisdom. And, you know, the narrative that they're all pushing out. So, you know, that was the other big interview that went viral. And I think that's really saying something that, you know, that the elites now have parodied themselves to the point where Davos has become a joke.
10:09 David Sacks? And the only talks or remarks out of Davos that people pay attention to are the ones talking sense to the people at Davos because they're not listening.
10:21 Chamath Palihapitiya? Chamath, your thoughts? Look, everything has a season. And I think that when
10:29 Chamath Palihapitiya? there was a much more singular hierarchy of status, Davos played a very important role to signal to other people that you had made it.
10:39 Chamath Palihapitiya? But you know, these things come and go. And I think that this is sort of in the back half of its usefulness and half-life. What is it probably more than anything else now? A glorified enterprise software sales conference, where the reason to go to these conferences for a lot of these companies, I suspect, is that it allows you to close very big deals, multimillion dollar licenses of this, that, and the other thing, where you can get the leaders of that counterparty across the table from you and hammer out a deal. And I think you pay forty grand a ticket for the right to get everybody together to do that. So I think they want to pretend that it's a lot more than what it is. And I think what it is, is that.
11:21 Chamath Palihapitiya? And I think whenever you have the ability to convene people to close business, that's valuable. Beyond that, I think it's sort of in the eye of the beholder. And it used to be that the beholder thought that this was important. And now I think we realize it's much of nothing. It's shaman and airflutes and all kinds of stupidity, which is why people have the courage to go and mock it. And I think that Malay's comments and Jamie Dimon's comments exemplify that. The only other thing I would say is that I had heard, although I haven't seen it, so I don't know, is that Alex Karp apparently did a very thoughtful speech about antisemitism. And which was also, which was also very countercultural to the established logic
12:06 Chamath Palihapitiya? that the surplus elites at Davos want to believe, which is the anti-Israel, pro-Palestine line. I haven't heard of those, so I don't know how impactful that was. But those are the three things that I've just seen on Twitter, just kind of.
12:19 Jason Calacanis? The Malay speech, I think, is the one that everybody is keying on, and correctly so. You know, obviously, he's the new president of Argentina. And this speech was amazing. People might not, people might not also know that he was an economics teacher. And so this talk about collectivism leading to suffering and regulatory capture and bloat, which we'll talk a little bit about when we talk about Boeing today. Was incredibly powerful. It's super basic. You know, listen, free markets work. There are people opting into either side of it. He went over essentially without saying it, the rule of 72 and like 200 years of GDP growth and how GDP growth under capitalism
13:01 Jason Calacanis? rises everybody up and then collectivism, AKA socialism, is a bit of a disaster. But it's well worth watching it. There was a really cool thing that a company called Heygen did, H E Y G E N, with their AI tool. They just immediately took his speech, put it in his own words and published it and translated it as if he was speaking English because he was, he was speaking this native tongue. So really worth checking it out. And yeah, it was super notable. It's very basic, but I think, I think it's, everybody wants to hear this right now, which is if you're picking collectivism and socialism and redistribution of wealth, Argentina has like a really good history of watching this
13:45 Jason Calacanis? fail. And now they're in the process of dismantling it.
13:49 Chamath Palihapitiya? And I'll say something else before Friedberg says something here, which I think is going to be very thoughtful. Jason, the other reason why Argentina is a really good example to use is that what does Davos represent at a different level? Well, what it is, is old Europe getting together in a way that allows them to continue to coalesce power. And what's interesting is if you had presented the case of any other country trying collectivism and failing, it wouldn't get nearly the same attention as Argentina. And the reason is that Argentina has so many ethnic Europeans. And I think that's another reason, which is like, when you present people that are telling you it didn't work, that frankly
14:31 Chamath Palihapitiya? look like you, speak the same language as you, I think it actually goes further in making the point than if you found somebody in South Asia or Africa that said the same thing to these folks, which they have, which they've not listened to. And so this is why I think Malay is so interesting and important because he looks the part of a Western leader. And I think that that unfortunately is what it's going to take for some of these folks to listen.
14:56 David Friedberg? Yeah. And everyone's acutely aware. I mean, I'll say three things on this. One is just talking to your point, Jim, about the history of Argentina and how it relates to this. Position that Malay holds in being able to speak credibly to this. Second is what he said, which I think is really important. And third is how it relates to the United States. But this was clearly to my, from my view, one of the most important media events of the year. I do think that anyone that's listening to us right now should go watch it and go listen to the entirety of the speech. It is so important. I hope everyone really takes in what he said. Just briefly on Argentina, in the mid 19th century, Argentina was a colonial nation, very agricultural, but a lot of free market, pioneerism going on. Businesses were built and an economy flourished in Argentina.
15:41 David Friedberg? This photo I put up here is from 1913, Buenos Aires, which at the time was called Paris of the West. I was about to say, it looks like Paris, right? The architecture and everything is beautiful and stunning. But here's, here's some statistics a lot of people don't know. Argentina at this time was wealthier than France or Germany, twice as wealthy as Spain, and had one of the top 10 highest GDP per capita's of any nation on earth in 1913. And so it was this flourishing, vibrant economy with a lot of innovation, a lot of arts, a lot of building, a lot of employment, a lot of immigration. And then as the series of military coups began, I don't know if you guys are aware,
16:22 David Friedberg? but there was a military coup in 1930, 1943, 1955, 1962, 1966, 1976. And in every one of these cases, the essence of the coup was one of relativism, which is some people have benefited more than others. As a result, we need to change the way that the government and the social structure is functioning, and it had to be taken by force. And I think this is the big story of Argentina that says so much more than any other nation of the past century, century and a half, which is that these cycles happen based on not absolutism, but on relativism. And I'll just give you what I mean by that. Malay made this point, which is so important.
17:03 David Friedberg? From the year 1800 to the year 2020, in the year 1800, we saw 95% of the world's population in extreme poverty. By 2020, it was less than 5%.
17:15 David Friedberg? And this was driven by free market capitalism, democracies that allowed people, individuals to pursue their own self-interest and as a result, deliver products into a marketplace that people wanted and were willing to pay for. And that incentive, that market-based system, allowed the entire world to move forward. The relativism problem is that some people move forward faster than others, and that causes this great cycle of what some people might call envy or jealousy. And Millais said it best, "The West is in jeopardy," which is the key statement he was trying to make in his point, "that countries are no longer defending free markets. This is a, quote, 'private property and other institutions of libertarianism due to errors in their theoretical framework and ambition for power.'
18:00 David Friedberg? Opening doors to socialism and condemning us to poverty, misery, and stagnation. Socialism has failed in all countries where it was attempted." And then he started to harp on about neoclassical economic theory and the issues of that. But I want to show you one last image, which speaks so clearly to the point that he's making, which is as these governments that are well-intentioned, and the people that elect the governments and put them in power are well-intentioned, then try to redistribute wealth by getting the governments to step in and play a market role. The market role that they play causes inflation, causes degradation in economic opportunity, economic mobility, and prosperity for most people. And you can see this in this chart, which we've looked at many times. But everything on the top of this chart, this is a chart that shows the 20 years of
18:45 David Friedberg? price changes of various goods and services in the United States. Everything that's gone up in price is something that the US government has a role in buying or paying for.
18:56 Jason Calacanis? Yeah, controlling, yeah.
18:57 David Friedberg? And everything that's gone down in price is where there is a free market that has allowed people to access goods and services at a lower price over time as opposed to a higher price over time. And while the intention is that the government is doing good for people by making education, healthcare, and other goods and services available to them, the government stepping in and intervening in the free market causes the price to go up, and ultimately you end up in a really negative cycle that resolves- in this collectivism approach that he's talking about. And that's why I just wanted to tie back what he said to what's going on in the US today. And I've harped on this a lot, but the growing role that the federal government is playing. And the intention is good, but the impact is bad over time. And that's really, I think, why it was such an important speech.
19:42 David Friedberg? He was so clear, it was so important for me to hear it. I'm sorry I harped on, but I just really.
19:46 Jason Calacanis? No, it's the key of his speeches. Hey, good intentions can lead to a bad outcome here. Yeah, you want everybody to have healthcare, you want everybody to have education. The government is providing it and there's no customer and there's no market, there's no competition. And the products and services that you are referring to, they include medicine, they include college, they include tutoring. They they don't just include, and they include air conditioning, they include refrigerators and televisions, smartphones, all of that. And picking which system and which set of problems you want to have, I guess, is what societies need to do. And free markets.
20:20 Chamath Palihapitiya? It's a weird reflexive loop, though, for governments, because these people, what he also said was these aren't just well intentioned people. They're also a small class of elites that wanted to feel like they were better than everybody else by implementing things that worked. And so there is a dark part of this as well, which is their desire for power. And I think it's important to not gloss that over. So this wasn't just a bunch of bumbling do-gooders that screwed things up. This was also a bunch of folks that that irrespective of the data, had an opportunity to gain influence and power. And I think that that's that's an important thing to acknowledge because it created a very negative reflexive loop that governments used, meaning if you look at Friedberg's charts. Why did that happen?
21:04 Chamath Palihapitiya? Well, part of what happened was the administrative state became more and more powerful. They were able to pass laws, they were there to decide who the winners and losers were. That is a drug and that drug is very addictive. And so what happened as this happened was the laws went and reinforced those dynamics of those people being able to decide winners and losers. The thing that it has that has not happened yet, though, and maybe we're beginning to see it in some of these markets that the government is too involved in, is that it has bred a level of incompetence and incapability. That we now have to unwind because the average everyday citizens' lives are either
21:45 Chamath Palihapitiya? at risk or these services are just so expensive that it's just untenable. And I think that's where we are now.
21:52 Jason Calacanis? It's a great segue, I think, into this Boeing issue that we've seen because here's an issue of regulation and safety where you want the government and you want safe planes and you want some level of regulation, but then you get regulatory capture.
22:04 Chamath Palihapitiya? But the government, the government has not been the supporter of the safety agenda that citizens think.
22:10 Jason Calacanis? Yes.
22:11 Chamath Palihapitiya? Meaning, when you look at what has happened in the US airline industry, there are a handful of end-user providers, but those are all using OEM equipment from one of two vendors, Boeing or Airbus. So it's a duopoly, but in many ways, it's a monopoly, the way that these folks fight with respect to tariffs and imports and incentives. So the United States airline industry is a monopoly of one company. Now, if you look at what's happened, what they would say is, well, planes have become safer and safer and safer. Yes, but they've become safer in some ways, in the most simple and obvious ways, but they've become unsafe in that you have these fleets of planes that are now behaving very
22:56 Chamath Palihapitiya? unpredictably. And if you look under the hood, what happens is Boeing, as an example, in like the last four years, how much money do you think they've spent on lobbyists and PACs? I'll tell you, $65 million. How much have they spent just in the last year? Almost $11 million. They're like the 15th most active spender in, in politics in Washington. Now, what did they use that money for? Well, that's also documented. See, the crazy thing is, this stuff happens in plain, in plain sight. So they were able to water down the safety regulations. What does that allow you to do? It allows you to have a situation like this unfold. And then on the other side, the pilots' unions can lobby those same politicians who are
23:39 Chamath Palihapitiya? taking money from Boeing and prevent systems...
23:45 Chamath Palihapitiya? That would actually make these planes safer. You can have more improvements in the guide by wire technology. You can have more improvements in GPS. You can have more improvements in a computer's ability to help improve and augment the capability of the pilot. Unfortunately, that will result either in fewer pilots or less pay. And so that doesn't happen nearly as fast and obviously as it should. It's the same for air traffic control. And all of these issues build up because we've allowed monopolies to build up. So as much as we think we are a capitalist society, we have veered into this collectivism in certain markets. And where it's measurable and obvious, we need to point at it and say, let's go fix it.
24:26 Jason Calacanis? Yeah. And this would be, let me just tee up a little bit of what you're referring to in case people don't know, but everybody probably saw the news that on January 5th, the door blew off of one of these Boeing 737 MAX jets. If you've heard that name before, it's because this isn't the first time that the MAX jets have had problems. This plane safely landed, thank God, and there was nobody sitting in the row where the door blew off. And this has to do with some bolts on the doors. But this is just the start of problems with the 737 MAX. There's an incredible documentary, if you haven't seen it, we'll put it in the show notes, Boeing's Fatal Flaw. And the version before this, the 737 MAX 9 is the one that had the bolts come off.
25:07 Jason Calacanis? The MAX 8, if you remember, there were two really harrowing instances where tragically 346 people died in these two instances because the plane, literally the software on the plane, which is called MAX, Maneuvering Characteristics Augmentation System, which was designed because they were trying to get more fuel efficiency and they had positioned the engines in a weird way on the wings. So they had to kind of help pilots level this stuff. And to your point about regulatory capture, there was all this behind the scenes. Manipulation of the market to try to get these planes built, to try to get them out the door because there was so much money at stake. Well, on these two terrible accidents, the plane, the nose literally dove and the pilots
25:52 Jason Calacanis? were fighting it in both cases.
25:54 Chamath Palihapitiya? Right.
25:54 Jason Calacanis? They just crashed and everybody on board died. And for 20 months, the 737 MAX models were grounded and that cost the company over $21 billion. So there is no competition to your point. And then in a free market, if there were 10 providers, would this be much different, Chamath?
26:11 Chamath Palihapitiya? Absolutely.
26:12 Jason Calacanis? Yeah, so I think that's what you have to realize here is that these duopolies, you'd think there's competition. In a duopoly, there isn't competition.
26:19 Chamath Palihapitiya? No, I mean, like, for example, like, if you look at the car market, how many instances? I think the last big incident that I remember was, I think Ford had an issue with the fuel tanks of some cars that were exploding, right? But the reality is, when that happens, there are alternatives. One is that there's a legal requirement for Ford to just fix these things quickly. There were lawsuits that happened, there was class actions, there were settlements. But there's also the ability for folks that can afford it is just to switch vendor, and of which there are 50 other vendors to choose from. That is a healthy dynamic. So today, when you look at the auto market, what do you see? A plethora of choice. And when you see fatalities or safety issues, they are overwhelmingly driver error.
27:03 Chamath Palihapitiya? And we assume that and we get insurance to deal with that.
27:07 Chamath Palihapitiya? When you look at airplanes, you have these three sections of risk that each are compounding because there is no competition. Number one is that the monopoly vendor has zero pressure to actually test these things adequately. Because on the other side of building something well is shareholder pressure to deliver something sooner and faster so that they can reap more profits. Then second is you have a regulatory infrastructure that puts rules on top of rules, but then will bend the rules if you donate to them. Right? And that's measured and known. And then the third are the folks that actually operate the planes who have this actual incentive to not see technical improvements because it defends their job for longer.
27:50 Chamath Palihapitiya? And in all of these cases, there isn't enough competition to shine a light on this to say, how does society actually want this market to operate? This is collectivism, it's not working.
28:01 Jason Calacanis? Freiburg, you have thoughts on this Boeing regulatory capture and the issue of only having two vendors there? And the complexity of these machines now in relation to that?
28:13 David Friedberg? Nick, you can pull this up. This is an audit of the business model for a company called TransDigm Group. TransDigm Group is a aircraft aerospace parts manufacturer. They sell certified, regulated aircraft parts to aviation companies as well as to airlines, private pilots, and also the government. And they do about $7 billion in revenue, $3.5 billion in EBITDA. So, Timo, to your point a couple of weeks ago about what's the appropriate competitive EBITDA margin that a company can ultimately achieve, their EBITDA margin's 53% this company. Insane, better than Facebook, insane.
28:56 David Friedberg? On $7 billion of revenue and growing, Nick, if you want to pull up their stock chart, and you guys can see how the business has performed over the years. And their business model has been relatively simple. They've acquired aerospace companies that have certified parts, they drop the cost and raise the price. And they do that over and over again, and here's the business over the last 10 years. This thing is, you know, roughly 10-bagger, 8 to 10-bagger in the last 10 years. The market cap is $60 billion today, no end in sight. And so, there was a government audit done of the business. By using uncertified cost data, which is one of the most reliable sources of information to perform cost analysis, we found that TransDigm earned excess profit of at least $21 million
29:40 David Friedberg? on 105 spare parts. On 150 contracts. So they're selling spare parts into the government. The government auditor came in, audited them and identified because there's no real audit, there's no real accountability in government as purchasers, but there is regulatory authority on deciding who are the winners and who are the losers in the market. Trans time has been elected a winner because they have regulatory approval to make and sell these parts. The cost to get approval to make and sell these parts is so high that it makes it prohibitive for startups to come in and compete in this marketplace. And now that they're a preferred supplier and they get these single contracts where there's no competition to be a supplier, they can raise the price every year. Multiple audit reports over the last 23 years have highlighted the problem
30:25 David Friedberg? of the Department of Defense paying excess profits on sole source contracts where cost analysis was not used to determine fair and reasonable prices and this problem continues to occur. Now, I'm not necessarily saying that this is a negative on Trans time. It's a fantastic business. It's well run. It's one of the best run public companies with a multi 10 billion dollar market cap in the world. But the condition is that the US government comes in and picks and chooses through its regulatory authority which companies can make products. The cost to enter and compete becomes prohibitively high. And then the company has complete pricing power and there's very little accountability in the overall system. And I think that this plays out not just with this company, but obviously also with Boeing and the fact that we've narrowed down the competitive market space
31:07 David Friedberg? to just a few sole source providers that have very little accountability and eventually these sorts of conditions arise. Either prices get too high, quality degrades, all the other things that natural market forces would keep a check on.
31:18 Jason Calacanis? Yeah, and in terms of competition Chamath, the, I guess the only thing you could say is consumers could potentially maybe try to avoid the 737 MAX. I know I did when all these accidents happened. I just told, you know, my, my person who books the flights, hey, do not put me on a 737 MAX, period, full stop. And you know what? You're going to wind up paying a lot more. You're going to have a hard time getting certain routes. You're going to reduce it because, you know, most airlines, I think, have these 737 MAXs in there. So you, when you have such a few number of providers, to your point about it's not like cars, it's not fragmented like that. You can't avoid a certain car type. A plane type, the way you can avoid a car type. So just wrapping up here, Chamath,
32:00 Jason Calacanis? what changes should we see in terms of late-stage capitalism, something in the example like air travel and manufacturers? Is there any way to unwind this reasonably? Or is it too late because we're at this?
32:15 Chamath Palihapitiya? Well, I go back to some of the examples that we've made fun of before. You have to rely on the government to actually be competent in key moments in time. I think this is one of them. The organization that could do something about it, for example, take the FTC or even take the DOJ. We are investigating Amazon's purchase of the portable vacuum cleaner Roomba, right? Critically important issue. And that is apparently for the American people, higher than the sclerosis that the government
32:55 Chamath Palihapitiya? has enabled, enabled in the airline industry, which affects everybody. So could the right government agencies choose to actually focus on something important here and actually figure out, hmm, why is this happening? Because I think the door plugs issue is endemic of a much bigger problem. This is a company that's rotting because there is no accountability. And the reason there's no accountability is there's no real functional competition. And I have not seen any good answer to accountability other than competition.
33:30 Jason Calacanis? Yeah, I mean, the, the good news is the FAA really took quick action to ground these 171 Boeing 7379 MAX aeroplanes.
33:41 Chamath Palihapitiya? But they don't, they do not understand the scope of the problem if they let them back in the fleet and this is happening.
33:46 Jason Calacanis? The bigger picture problem of lack of competition. Yeah.
33:49 Chamath Palihapitiya? They're, they're.
33:49 Jason Calacanis? No, no, no.
33:50 Chamath Palihapitiya? My, my point is.
33:51 Jason Calacanis? Safety of these.
33:52 Chamath Palihapitiya? Yeah. My, my point is like, you have to adjudicate the interaction of very complicated hardware and software in that first go around. Here is just a pure systemic hardware failure. So the point is that whether it's them or their suppliers, there's just a, some complacency that sets in when you know you will always have the business, to Friedberg's point. It is a very corrosive thing in running a business, trying to have.
34:25 Chamath Palihapitiya? Motivated employees, when they know on the back end of it that they could make anything in the world, and they'll just be able to sell it to somebody and they'll have to take it. That's that example that Friedberg just cited. Twenty odd million dollars for just random stuff for, what is it, fifteen pieces? That's crazy. That's just straight up theft. And so when you have that, how do you expect the employees of that organization to give a [bleep]? I don't see how, I don't see how you could expect that. And so my point is the FAA has a much bigger problem. So for example, like the DOE has a loan program to try to create a diverse energy infrastructure in the United States. Maybe we need to look at some of these sectors and instead of building the
35:08 Chamath Palihapitiya? administrative state, take some of that money instead and just create programs to get more competition.
35:15 Jason Calacanis? All right. In other news, Adam Neumann, you remember from WeWork, Infamy/fame, has a new startup, you may have heard of it, Flow. They've raised a ton of money. He started buying a bunch of apartment buildings. The idea, people can rent nice apartments in cool cities. That focused more on social interaction and hanging out, common spaces, all that great stuff. And there's also allegedly or reportedly some sort of rent to own, where renters can receive equity in the company over time. And I don't think this has ever been released, but the idea would be maybe you own shares in Flow. Flow manages around 3,000 units, most of which were purchased by Newman after he left WeWork. And you know, he took down a windfall as an exit package. And so according to The Real Deal,
36:00 Jason Calacanis? that's a real estate publication, Newman had a 60 million variable rate mortgage on one of these properties in June. Sax, maybe you could explain to us what's going on here since you have a lot of experience in real estate.
36:12 David Sacks? Well, it's pretty simple. He can't make his interest payments.
36:15 Jason Calacanis? Okay.
36:15 David Sacks? The reason is, is because he had floating rate debt. So if he had locked in his debt over, say, 10 years back in when he bought this building in 2021, or whenever it was, when interest rates were extremely low, you know, that was during the ZERP period, probably could have locked in long-term debt at maybe even 3%, 3% or 4%. And instead, he got floating rate debt. And if you look at where commercial debt is now, I mean, it's 7, 8, 9%. If you can get it, which is pretty hard. So he maxed out on debt when he bought these buildings. He bought them top of market. It sounds like in 2021 because real estate, like a lot of things, moves inversely to
36:57 David Sacks? interest rates. So when interest rates spiked over the last year or so, then real estate valuations went down. So he bought a bunch of buildings, top of market, using a lot of debt that was floating rate. Interest rates spiked, perfect storm. Now he can't make his interest payments.
37:14 Jason Calacanis? The crazy part about this, when I was watching it happen, Chamath, and we talked about it, I think, on the program at the time, was Andreessen Horowitz put in like over 300 million at a billion dollar valuation, but they didn't do that in peak ZERP. They did that in 2022 when the writing was on the wall. What are your thoughts on why they would make a bet like that? And yeah, just tech VCs betting on real estate for a second time. How does that occur?
37:39 Chamath Palihapitiya? Well, I don't think it occurs because they cared about real estate. I think it allows them to take $300 million of committed capital and put it out there so that they're $300 million less available, which means that they're $300 million closer to raising a new fund, which means that they can raise, they can charge 2% on more money. That's why they did it.
38:02 Jason Calacanis? Got it. Yeah. So just keep the money train deploying capital. It's a place where you can put a big, huge check and you can raise your next fund and yeah.
38:11 Chamath Palihapitiya? Yeah.
38:12 Jason Calacanis? Okay.
38:13 David Friedberg? Let me, let me, let me offer.
38:16 Jason Calacanis? I mean, I don't disagree. I think that candidly, what you've said is exactly how mega funds are thinking about it. We have to deploy capital to raise our next fund. And if we still have capital in our last fund, then we can't deploy.
38:26 David Friedberg? Jason, if you're going to have to deploy large amounts of capital, wouldn't you feel better deploying that capital with an entrepreneur who's actually run a big business before, even though the business failed?
38:39 Chamath Palihapitiya? No, no, no. If you're, if you're, if you, if you were not optimized for fees, you would do what Peter Thiel did and just have the fund and return the money.
38:46 David Friedberg? Right, and for
38:48 Chamath Palihapitiya? Peter Thiel does that because he's already won. But for everybody else that's trying to win, the only way to win in a world where your exits are not that great is to actually generate money via fees. Even though that fees are taxed at current income, that's the way to win in venture. It's not carry, it's by fees. And so it's, and I don't blame Andreessen. I think like that's, that's smart for them to do. And if they have folks that are willing to enable that by giving them money, they should do it. But are they going to generate huge rates of return? Probably not, because that's not what real estate is known for. Real estate is known for long, steady tax ARBs. That slowly compound for the, for the owner of the company over 20 or the owner of the business over 25 to 35 years.
39:33 Chamath Palihapitiya? That's not what a venture fund is supposed to be doing for a 10 year, 12 year return cycle. So obviously they're doing it for fees. That's okay. I think that's capitalism.
39:41 Jason Calacanis? What do the LPs then think, Sax? If we look at this, you know, you're an LP in a technology firm. I'll take Andreessen out of it for a second, but let's just say some giant LP gives giant amounts of money to a venture capital firm and then they're deployed in real estate. What happens, you know, in their minds? And is there any kind of tension that would occur?
40:01 David Sacks? Well.
40:02 Jason Calacanis? Handicap in the situation?
40:03 David Sacks? You can never judge a VC based on one investment. If we were to do that, every VC would have a lot of egg on their face because we're supposed to take big swings and swing for the fences and try and hit home runs and grand slams. And a lot of them are going to make you look foolish. You have to look at an investment portfolio and track returns over time. So I wouldn't judge any particular investor based on one investment. So I don't think that's fair. Now, in the case of this investment, if you want me to explain what I think went wrong,
40:35 David Sacks? I think Adam Neumann had a compelling vision. His vision. Was to create a new experience in, in, I guess you'd call it apartment living and that people would be willing to pay more for that because he would create this national brand in apartments. And right now apartments are super local and there's, there is no brand in, in, you know, apartment living. So I think as a entrepreneur, as an operator, he had a, a great vision and I think he actually achieved his vision. If you read these articles carefully, what they say is that his occupancy was high and people were willing to pay at least a little bit more for the experience of being in a flow apartment. The problem for Adam Neumann is that at the end of the day, his plan to raise rents by
41:20 David Sacks? creating an experience, even though it worked, it just didn't raise rents that much. And what ended up being much more important were the moves in interest rates and how he capitalized these acquisitions and the price he paid on the acquisitions. So there's an old saying in real estate that you make money based on the buy, not on the sell, meaning that, you know, when you go and sell your apartment building, office building, or whatever, you're monetizing an acquisition that you did correctly. And if you don't buy at the right price, you're never going to be able to make money on the sale. And I think this is a really good example of this where he bought at top of market, his capital stack was over reliant
42:02 David Sacks? on debt and he had floating rate debt. I mean, those are just financial mistakes and timing mistakes that you can't make up for, no matter how good an operator you are in real estate. And in a way, I mean, this is the same thing that happened with WeWork, which is he delivered an excellent product. I mean, people love WeWork offices.
42:21 Jason Calacanis? Absolutely. Yeah. They, they pick them over other offices because of the vibes, because of the culture, because of the community. So he, he is a ma, he has some mastery of that, but to your point, entry price matters and the economics matter.
42:35 David Sacks? If you look at WeWork, it didn't fail because the product wasn't good. It was because he didn't pay enough attention to the financial aspects of the business. With WeWork, he leased a bunch of offices at the absolute top of the market and then over-invested in TIs, tenant improvements. With Flow, he bought a bunch of real estate at the top of the market and sort of did it with the wrong capital stack. So this is the problem is that when you get into a real estate business, It doesn't really matter how great you are as an entrepreneur operator. If you're not good at like sort of the legacy, old school real estate part of it. And the, the old school real estate guys were, were saying during WeWork, this is not going to work.
43:17 David Sacks? You know, this is, this is Regis, but with a bad capital structure. And the old school real estate guys were saying something similar about this. And, you know, it just goes to show that if you are going to try and disrupt a legacy industry, you do have to kind of understand the ins and outs of, of that legacy industry.
43:34 Jason Calacanis? And the great paradox of this Saks was when he did Green Desk, which was the precursor to WeWork. When he did the first WeWorks in San Francisco and other places, his playbook was find a building that's empty, that cannot be leased. So he got 25 Taylor Street, like Sixth and Market, the worst area by the Tenderloin. And we had an office there for a little bit and I had my podcasting studio there for a little bit. This was a terrible off, this was a terrible area, but he made it hip and cool and it was really cheap. And man, it sold out and it was packed and the vibes were great. But then, as you're saying, then he moved all of a sudden to Soma and he started opening up these glass filled ones and, you know, the, he was renting them for less with all their giveaways and six months free and all this stuff than they could ever afford.
44:18 David Sacks? Right.
44:19 Jason Calacanis? He kind of had mission drift, right? The playbook, they just, they changed the playbook and it economically was not viable.
44:25 David Sacks? Well, the timing, the timing got really bad. And again, they didn't pay attention to the financial aspects as much as they should. In this case, I think that if he was trying to execute this play today and doing his acquisitions today, he could actually make it where he would, he would need a lot more equity because he wouldn't be able to get as much debt financing. But if he had the equity and could do more of an acquisition based on equity, the prices he'd pay right now would be much lower. And then as interest rates come down, he could ride that wave, he could refi, pull his equity out and put debt on it that is cheaper as the price goes down. So there was a way to maybe make this work, but you know, with real estate, the timing is just so important.
45:07 David Sacks? Again, your cost basis of when you get in the investment is probably the most important thing in terms of whether you make money or not.
45:15 Jason Calacanis? Did you see this by chance, the real estate piece in 60 Minutes, the package they did last week, Saks? It was basically what we were talking about here a year ago. Super compelling. If you haven't seen it, it's basically the all in podcast from 12 or 18 months ago. Has anything changed on the field in terms of commercial real estate or is it just continuing to collapse?
45:34 David Sacks? No, I mean, that's changed. I think that the, all the commercial real estate guys, the sponsors and the deal makers and so forth, they're all kind of hanging on by their fingernails, waiting for interest rates to come down.
45:46 Jason Calacanis? And all the leases are still coming off, right? Like people are still who had six, seven, eight year leases that were signed pre-COVID.
45:52 David Sacks? It depends on the market. I mean, some of the, some of the markets are coming back, but again, what this flow news showed, this Adam Neumann news shows is that you could be fully occupied and you could still default. And the reason is because of your capital structure, the interest rates have spiked up. You're now paying, you know, all of your operating income is being eaten up by your debt service. The only way to make it through that is you, you go to your bank, who's one of these regional banks, and you work out a deal to extend, you know, they call it pretend and extend. And they let you hang on there. You'll like, you know, extend the term of your
46:34 Jason Calacanis? Kick the can down the road, yeah.
46:35 David Sacks? Yeah, they'll, they'll lower your debt payments in exchange for more term and you just try to get to the other side of these high interest rates. And then once you get to the other side, again, you're hanging on, you're not defaulting. That's what everyone's doing. So if rates don't come down as expected this year, you know, I think the market's expecting 150 basis points of, of rate cuts. If that doesn't actually happen, there's a lot of real estate sponsors who are in trouble. And in turn, there's a lot of regional banks who are in trouble because they're the ones who made all these loans to these sponsors. So everyone's trying to, like you said, kick the can down the road.
47:10 Jason Calacanis? Yeah. And the, the 60 Minutes piece also talked about how there's some emergency rezoning going on in New York specifically where they take the floor plate in the middle. Which I think you talked about, Sax, you have to have windows if you want to convert to residential. And they just make an empty space, the void, they call it, in the middle of the building that, you know, they'll deal with in the future, but they just have this empty space in the middle of the building that's not going to get used. And then the rest that has windows gets used to be converted into lofts, et cetera, in New York. So people are starting to think creatively if people don't come back to office. Okay.
47:45 David Friedberg? Let me ask you a question, just based on that set of comments. Given Adam Neumann's experience as an investor in this space and this general opportunity, wouldn't you rather back a known, someone who knows and has been through the market and has experience versus some founder who shows up and has never run a business in this space? I mean, this guy has more experience than anyone else.
48:04 Jason Calacanis? It's such a great point. I don't know about that. Well, here's the thing, Friedberg, the great point about that is you don't see a lot of founders who explicitly come out and say, I want to build a hundred billion dollar business. I want to build a giant business. They're so rare that VCs who have a lot of chips, they would like to back those, you know, swing for the fences folks. And so I do understand why people would back him again.
48:25 David Friedberg? And they've run at it before. They've done it to some degree. I mean, yeah, he failed.
48:29 Jason Calacanis? They learned from their mistakes, and this time around, he learned from those mistakes. This is the exact same mistake. So therefore, they made the bad bet.
48:35 David Friedberg? I'm not advocating, by the way. I'm just asking.
48:38 Jason Calacanis? No, I understand. But to your point, Friedberg, I can understand people want to bet on somebody who is crazy and swings for the fences. This entrepreneur clearly does not learn from their mistakes. I think both of those things could be true. Right, Trama?
48:50 Chamath Palihapitiya? What I would say is that I think that where I've made the biggest mistakes in my investing career is when I confused what I was investing in, for one thing, when it was the other. And so when I look back, and I had a small dalliance in biotech because I thought, oh, this is going to be more computational biology, and I understand computation, so this gives me an edge. Turned out I was wrong. There was another time where I've invested in certain sectors of the economy because I thought they were technology businesses, and at best, they were tech-enabled versions of an existing industry. And when I look at those investments, the thing that I got wrong was not listening to the very experienced investors in those sectors and why they passed.
49:38 Chamath Palihapitiya? And that has caused me no shortage of headache and grief. And so if I had to learn anything from all of this, it would be that if it looks like a duck and it quacks like a duck, it's a duck. It's not a tech company. And so if that duck means it's a real estate business, I would talk to a real estate investor and wonder to myself why they wouldn't have done this deal. Similarly, you know, when it's a biotech business, I have to ask myself, why wouldn't they have done it? They know more than I ever will in this space. And so similarly, I kind of look at this as an example of that, which is could be a very talented person in an industry. I think just it gets important for us to be very clear and lucid and intellectually honest about what industry that is.
50:23 David Sacks? I think it's a great point. I mean, look, I think whenever you're dealing with a tech-enabled business, which I would define as a more traditional business model with some sort of software layer, you know, on top of it.
50:38 David Sacks? You have to kind of assess like, how much of a difference does that software really make at the end of the day? In this case, this is a real estate business with a very thin kind of software slash.
50:51 Jason Calacanis? A veneer of technology.
50:53 David Sacks? Of, yeah, the experience layer is a very small part of the overall, let's call it P and L of this business.
51:02 Jason Calacanis? Such a great point. Sax, I mean, the perfect analogy would be like if you have, if you're taking a flight on United, the United app is delightful now. It's a really good app. I don't, you, this is a commercial airline. It's called United Airlines, Sax. You pay for one ticket instead of the whole plane, but.
51:15 Chamath Palihapitiya? Have you been to a McDonald's recently?
51:17 Jason Calacanis? I actually went to McDonald's. Yeah. You order through an app now and there's a big screen.
51:20 Chamath Palihapitiya? The point is you walk in there and it's probably not the McDonald's you knew 15 or 20 years ago. It's not about waiting in line and ordering and it, that's not how it works anymore. There. So the point is, is that a tech-enabled business or is that still a restaurant? Well, if you spend a lot of your time intellectually contorting yourself to try to justify why the next version of McDonald's is a tech-enabled business, you're just going to lose a lot of money. It's a restaurant. Now, all restaurants need technology and what you see by McDonald's is even the oldest and most established are running forward very quickly to implement technology because they know that it creates efficiency, which then flows to the bottom line for them.
51:59 Jason Calacanis? Yeah.
52:00 Chamath Palihapitiya? So the reality is that we have lived in this wonderland. Where we've looked at these software businesses that have eighty and ninety percent gross margins and impose that expectation on other markets and then made investment decisions by trying to justify how that it's a tech-enabled real estate business, a tech-enabled healthcare business, a tech-enabled energy business, without being honest with ourselves that those businesses have over decades, because of lots of competition, found a consistent and reliable resting place in terms of gross margins, far below eighty and ninety percent. And so, instead of willing tech-enabled businesses to be at eighty and ninety and tricking oneself, I think it's more realistic to ask yourself, why aren't eighty and ninety
52:44 Chamath Palihapitiya? percent gross margin businesses decaying to thirty and forty percent gross margins like every other part of the economy, when everything will be technology-enabled? I think that that's a very reasonable question. And I think the answer is, there is no safe space. I don't think that you can justify eighty and ninety percent gross margins in software, when you can use a model and whip up a competitor. I just think that we are all going to a place where everything is a tech-enabled version of something.
53:10 Jason Calacanis? Yeah, marketplaces would be a notable exception there with network effects. So, DoorDash versus the tech-enabled restaurant, asset-light marketplaces. You and I and Sacks have been involved in a bunch of different marketplaces together. Sometimes they're asset-heavy, sometimes they're asset-light. When they're asset-heavy, man, it's really hard to make those businesses work, huh, Sacks?
53:28 David Sacks? Yeah, I mean, I think we should differentiate between gross margin and then the net operating margin or profit, right? And so, you know, gross margin is, what is the cost on the margin of providing one incremental unit? And the thing about pure software businesses is that on the margin, you can provision another instance of the product, almost for free. I mean, there's a little bit of hosting costs at AWS or whatever. So, on the margins, it's, you know, it's like the perfect gross margin business.
53:59 Jason Calacanis? As opposed to a hamburger?
54:00 David Sacks? As opposed to a, yeah, a restaurant is gonna have very large cost of goods sold, or COGS. The simple heuristic that I use is just, does this company have large COGS, cost of goods sold, and are they physical world COGS? If they are, it's not a software business. It's at best a tech-enabled business. So, just look for that.
54:27 David Sacks? You know, does this business have large physical world cogs? Now, what I would say is if the cogs are virtual, like, you know, it could be hosting costs, or it could be paying Twilio for telephony or something like that, then at least it's still not like as good a business because the the margins aren't as good, but it's very scalable, right? Because you're not, you don't have that like huge friction of needing to scale up physical world infrastructure, physical world, supply chains, that kind of stuff. So I like virtual cogs a lot better, or digital cogs a lot better than physical cogs.
55:02 Jason Calacanis? I I love it when marketplaces, though, I mean, we could speak to that, too. You know, when I had Dara on the pod the other week, and when he launches an adjacency, hey, we're going to sell alcohol, hey, we're going to sell groceries, hey, we're going to add this thing that's right next to the already, you know, portfolio of Uber offerings, doesn't cost them much, right? They just have to get the supply side up and running, but they already have the demand side. And I think that's where like these super apps are doing really well, or Airbnb adding, you know, some inventory in a new city that they unlock, right?
55:30 David Sacks? Well, true, true marketplaces are perfect gross margin businesses as well, because they don't have physical inventory that they themselves own. What you'll see is with a lot of marketplaces, they'll cheat by buying the inventory themselves, at least to jumpstart the market and then selling it.
55:47 Jason Calacanis? Yeah.
55:48 David Sacks? And so when you see that line item on the P and L, the, you know, that they have real cost of goods sold, you know, oh, wait a second, this isn't a true marketplace, they're providing the service.
55:59 Jason Calacanis? Yeah.
56:00 David Sacks? And so again, it's just a way to like catch whether the business is truly one of these great high gross margin businesses, or whether it's more of a tech-enabled business that's pretending to be a pure software business.
56:12 Jason Calacanis? Yeah, direct to consumer got people in a lot of trouble during the last cycle in venture capital.
56:18 Chamath Palihapitiya? If you look at a lot of these companies.
56:23 Chamath Palihapitiya? Even the best SaaS businesses have seen their gross margins erode by about 15 to 20%. It used to be that best-in-class software business can generate 90, 91%, 8, 8, high 80s to low 90s gross margins. Now that's not true. You see a lot of these best-in-class companies that are in the high 60s to low 70s. So it already just shows you that that pressure has, has come upon the market. And so is it that the software-enabled business goes towards 85? Or is it that the 85% gross margin business goes towards 30? It looks like it's the latter. That's just what the data says.
56:57 David Sacks? Well, ma'am, I'm just categorizing certain costs differently than you are. But I don't know why a software business would go all the way to 30, right? Because again, sales and marketing don't count in the gross margin. G and A doesn't count. Even R and D doesn't count in the gross margin. It has to be, you know, a unit cost that you can attribute on the margin to that incremental instance of the product. So things like, again, paying Twilio for meter telephony or paying OpenAI for like meter to API access. All of that is definitely in COGS. And I think some customer support costs that can be attributed on kind of a per instance basis, that goes in there. But if, if sales and marketing and R and D and G and A aren't going in there.
57:40 David Sacks? I mean, I just, I don't know why it go all the way to 30. I guess I'm just saying that I still think software businesses and marketplaces for that matter are still the best kinds of businesses on a margin profile basis. The problem is that there's a lot of fake software businesses or fake marketplaces out there that are pretending to be pure tech businesses. When actually they're, they're more like old school businesses that have the veneer of technology.
58:07 Chamath Palihapitiya? And I think to your point, they're like the trick of saying, I'm an 80% gross margin business, but having no profitability is then. Who cares? So when you look at the profitability of these businesses, again, you'll be in the the twenty to thirty percent. That's why when you see companies that are in the high thirties to low fifties, they're A, very unique, and B, you should expect that there is something fundamentally monopolistic about them. And that is a single plus way to filter out these companies because in a highly competitive market, you cannot extract those kinds of profit dollars. Capitalism says you can't do that. So you can only do it when you have an N of one or N of two
58:52 Chamath Palihapitiya? kind of competitive dynamic where there's essentially a mutual detour with your biggest competitor.
58:57 David Sacks? Yeah, it is. It is a good point that just because you have good unit economics or good gross margins doesn't mean that the business is profitable at the end of the day.
59:06 Chamath Palihapitiya? Yeah, it could be totally crap.
59:08 David Sacks? Eighty percent gross margins and still be losing a ton of money because you've got too much overhead. You've got too much sales and marketing. You've got too much R and D. Yes.
59:15 Jason Calacanis? So you're selling to customers who don't really need it and then they eventually cancel, right? Like, we see that a lot.
59:20 Chamath Palihapitiya? Look at the streamers. Look at the streamers. That's just a big recycling exercise. It's just like people come to the top of the funnel, they use the product, and then they leave and then you have to reacquire them over and over again. And it could be the case that SaaS actually looks a little bit like that, too, at the bottom line level.
59:35 Jason Calacanis? But when you hit your natural audience, it does get challenging, yeah.
59:38 David Sacks? Well, this is why in SaaS, there's a heuristic called the rule of forty, which is for public market SaaS companies, you want to see that their operating margin plus their growth rate equals forty or is greater than forty ideally. So in other words, you could have a SaaS business with a twenty percent operating margin and a twenty percent growth rate, and that would hit rule of forty, and that would be a very attractive business. Or you could have I don't know, it could be growing 50% year over year and its operating margin could be negative 10%. And that'd be okay too, because they're losing money, but at least the investment is leading to a well above average growth.
1:00:19 David Sacks? You know, or you could be growing, you could, you know, be growing slower, you could have a 10% growth rate and have a 30% operating margin, and that would also be hitting the rule of 40. So it's just a simple way of like tracking whether this is a good business at scale. I don't think startups have to worry about this until they get to kind of the later growth stage.
1:00:38 Jason Calacanis? Yeah, when you're in your B C round, you're making 50, 100 million. Yeah, you got to be really thoughtful about this in the beginning of trying to get product market fit and triangulate on something. So Chamath just mentioned streaming, NBC Universal, if you didn't know it, paid the NFL $100 million for the exclusive streaming rights to one, that's right, one first round playoff game for the NFL. That happened last weekend between the Chiefs and the Dolphins. That was on their service Peacock and B C's app, basically their version of Netflix or Disney Plus. It garnered 23 million viewers, which makes it the most streamed live event in U.S. history. Even so, that's almost half of what the Packers and Cowboys had, about 40 million.
1:01:23 Jason Calacanis? Lions versus Rams, same weekend, 36 million. And so this has brought into question what's going on with streaming. Have these businesses gotten ahead of their skis? Just to give you a couple of charts, Disney Plus took off like a massive rocket, peaked in Q4 of 2022 at 164 million subscribers, they're now at 150 million. Here's a chart, I mean, just amazing how quickly they got to Netflix-ish numbers. Here's Netflix's chart, again, this is quarterly, they're up to now an all time high, 247 million subscribers and the annual growth rate all the way back to 2001, still pretty spectacular. And their revenue also very respectable for Netflix.
1:02:05 Jason Calacanis? However, they overspent massively during the peak streaming era, 2019 to 2022. And that's when subscriber growth started to slow. Obviously, they were spending way too much and other entrants came in like Apple Plus and Amazon Prime, where they really didn't even think that they had to make a profit, they were using. Streaming maybe to sell more iPhones or to get more Amazon Prime subscribers. So here is the major problem. Here's the churn chart. Basically churn means people cancel, right? And so as these services have cut what they're offering, the number of Marvel shows or Disney, you know, having Star Wars shows, the churn goes way up. People are also having subscription overload.
1:02:49 Jason Calacanis? I don't know how many of these I subscribe to, but I think it's all of them. Or maybe out of these one, two, three, four, five, six, seven, eight, nine on the chart. I think I have seven of these. So there is definitely some unbelievable subscription burnout. And the streamers, in order to get these businesses above water, have raised their prices. We all know that. You've probably seen your streaming bills, you know, have three, four, five bucks added to them every month. And at the same time, they're cutting how much they're spending. So you're paying more for a last month. Your thoughts on this dynamic?
1:03:20 Chamath Palihapitiya? If you bring the chart back up, here's the most important thing that's worth noting. Let's take Stars as an example. It churns 12% of their users every month, which means that over a year, they've churned 144% of their user base. That means that they have to basically turn their entire membership base one and a half times in order just to tread water. Right? So if you start with 100, it's a lot of money that you have to spend to make sure you end the year at 100. Forget about growing. If you look at Peacock, they're going to lose 100% of their subscribers in a year. If you look at Discovery, they're going to lose 75%.
1:04:02 Chamath Palihapitiya? If you look at Max, they're going to lose 50 odd percent. Apple TV, same. Hulu and Disney Plus will lose 60%. Netflix will lose almost 40%. So the only winner in all of this is Facebook and Google. The only winners are Facebook and Google because that's where the ads will appear to try to reacquire these folks. Right? So I guess that's a positive indication. But the reality is that money isn't infinite. And so what happens in a dynamic where you have a category, where there's just a lot of consumer churn? I think what happens is it evolves in phases. And in phase one, which is sort of where we are now, where there's a bunch of relatively well-established folks,
1:04:46 Chamath Palihapitiya? is that they are going to initially overspend on content because they are going to try to differentiate the cost of acquisition based on content, right? Which makes sense. I have a tent pole. Come and watch it here. You can't watch it anywhere else. And I think that was the Peacock example, where they had this football game and all these people showed up. And they thought, this is exactly why we're paying so much money for these rights, because people will show up. I think the problem is that when everybody is doing it, everybody's doing it. And so you don't know how to differentiate. Even in our group chat, look at the number of times when somebody randomly says, is there something to watch? And everybody's got 50 recommendations. Guess what I do? I tune it all out because I'm like 50
1:05:29 Chamath Palihapitiya? across six different services. I have no way to track it. And then I lose interest and I'm like, you know, I'll just stick to YouTube. So I think what happens is in phase one, folks spend a lot of content. In phase two, they realize that actually what you need to do is spend on a long tail of content in a much more disciplined way. So there's a company that I know about. For example, they just signed a pretty big deal with Amazon, hundreds of millions of dollars. And I was trying to figure out, is that a lot or a little? And it turns out that Amazon's trying to get three or four or five versions of these going, which means that before we probably could have gotten
1:06:14 Chamath Palihapitiya? five or 600 million. And instead you get two or 300 million. It's still an incredible thing, but it just goes to show you that there's a lot of competition. And so instead of having
1:06:24 Chamath Palihapitiya? A single mode, right, if you were to graph something where there's a few pieces that just get all the money. Now you're smearing this content across all kinds of stuff. And I think that that makes it very difficult to keep folks. So I suspect that you're just going to see a lot of churn. I don't, I don't like this category at all as an investor.
1:06:43 Jason Calacanis? Clearly, there's been overspend here, but consolidation is coming. Friedberg, any thoughts on the streaming space?
1:06:48 David Friedberg? I just think this is the opposite of what we were talking about earlier, where there's a free market competing and it's benefiting consumers. I mean, the point that you made is a really good one, that there's a lot of great content to watch. Folks that raise prices, people cancel. So you got to drop prices, you got to offer good content. And I actually think this is a really good and healthy thing to see happen is competition that benefits consumers and there'll be some set of winners here and some set of losers. But I think ultimately it's just really good to see this, how it all shakes out. Who's willing to put up the big bucks? Who's got the smarter algorithm that predicts how fresh your content has to be and how unique it has to be relative to other platforms to keep the audience's attention?
1:07:31 David Friedberg? I would argue if you look at those numbers and you look at the performance over time, Netflix absolutely rules the roost in this sense. They're an incredible operating team. They have an incredible capability of predicting what content will work, how quickly they have to refresh content, how much they should be investing in content per quarter, per month, and they're clearly retaining users and making money. And others maybe that are newer to the game haven't figured that out yet, but it's just very good to see the competition. So I don't know how to predict what's going to happen here, but it's good to see.
1:07:57 Jason Calacanis? It's clearly going to be a massive consolidation. Also, these folks are launching advertising-based versions. So you probably saw Netflix has an advertising tier. And so a lot of these folks didn't have those. Disney Plus, I think, is going to have one as well.
1:08:10 David Friedberg? You know what no one's paying attention to is YouTube TV. I don't know, do you guys subscribe to YouTube TV?
1:08:15 Jason Calacanis? I'm a Hulu person.
1:08:16 David Friedberg? Yeah, I think it's fantastic. If you look at some third-party data on YouTube TV, the subscriptions are going through the frigging roof. And it's really interesting to see because with YouTube TV, you're basically rebundling the unbundling that happened in cable, except you're doing it over the internet and you can access it anywhere. So they've basically converted the pipe as the value to the service itself as the value which you can access anywhere you want on any TV, in any room, without boxes, while you're on the road, on your phone, on your laptop. And it seems to be kind of highlighting that maybe it wasn't necessarily the bundling that was the problem, but the way that the service was being offered. So who knows, maybe bundling versus all of this part and parcel, you gotta pick five different providers and buy content on the fly. Maybe that's not what consumers want.
1:09:01 Jason Calacanis? Young people don't care about the live channels, old people do, but yeah Hulu and YouTube TV are really wonderful products because they work really well on Apple TV. The apps work great, but they also work great on your iPhone, your iPad. So, you know, they're really spectacular in that way. Sax?
1:09:19 David Sacks? Well, this is tied this conversation back to what we were talking about with margins and SaaS and tech-enabled versus real software businesses. I personally have never seen a B to C subscription business that works. The churn is just too high. I mean, what I've seen is that the monthly churn rates on a software subscription for consumers is somewhere in the 5 to 10% range. So on a full year basis, you're retaining maybe 50% of your customer base. You're effectively rebuilding your business from scratch every two years. It's a very tough place to be. This is why I basically skewed towards B to B SaaS is because a good B to B SaaS business will have net expansion. Instead of 50% churn,
1:10:00 David Sacks? you'll do 120% expansion. And so you're actually building a subscriber base with long-term value. Now, how did Netflix do it? I mean, Netflix avoided that prohibitive level of churn by spending literally billions of dollars on content and original programming. And again, it goes back to the point, this is not a pure software, pure tech business. It includes an old-school studio, which is very capital-intensive. And they financed a lot of the content acquisition with billions and billions of dollars raised during that ZERP period from, I think, both equity and debt. And you have to wonder if that could
1:10:42 David Sacks? be done again in this post-ZERP period where capital is just a lot scarcer.
1:10:47 Jason Calacanis? I think this is gonna work really well, though, for Netflix and Disney. Man, these huge archives that they own, these libraries are gonna get them to... Three, four, 500 million global subs and it's become money printing machines that I don't think they're going to need a ton of new content.
1:11:01 David Sacks? The question is whether you could recreate an archive of that level today, given how much more expensive capital is. My point is that Zerp helped Netflix catch up to these studios and create this huge library. But still, I think that what the streaming services have shown in their churn is that if you don't provide original content and original programming, then users will churn off that. So you have to kind of have both. You kind of have like the library as filler, but if you don't have a hot show come along every so often, the subscribers will churn off that.
1:11:34 Jason Calacanis? Yeah, you need to have some new content, depending on how deep the library is. It feels like Netflix and Disney Plus have done a great job with their libraries, just to give you an idea. Revenue for Netflix for 2023, 33.5 billion, 247 million subs. That's ARPU yearly revenue for those folks, 136 bucks a year. Now, the reason you're seeing that number not make sense if you're paying 15 bucks a month is because internationally Netflix is a lot, lot cheaper. But I love those two businesses. I think they're going to be extraordinary over time.
1:12:06 Chamath Palihapitiya? Netflix has to acquire 100 million people a year just to stay even.
1:12:12 David Sacks? What's their churn rate?
1:12:13 Chamath Palihapitiya? 4% a month.
1:12:15 Jason Calacanis? I think it's fine.
1:12:15 David Sacks? Right. So they're churning half their customer base every year. That's my point.
1:12:19 Chamath Palihapitiya? 100 million people.
1:12:22 David Sacks? They're rebuilding their customer base from scratch every two years. How does that make sense?
1:12:26 Jason Calacanis? It's totally fine because what happens is you have people coming off their parents' plan, getting their own, people go through a bad beat, they don't like it, you know, whatever, they unsubscribe, but they all come back, back and forth, back and forth, and then it just keeps growing over time.
1:12:41 Chamath Palihapitiya? I think you're describing something that's true. I think David is describing why it's a shit business.
1:12:47 Jason Calacanis? I mean, if they, if they make more money than they spend, and I don't think they need to do a ton of advertising.
1:12:52 David Sacks? Eventually, you churn through so much of the market that actually you can't maintain that growth rate. I mean, if you reactivate, maybe you can do it, but I don't.
1:13:00 Jason Calacanis? I think that's what's happening.
1:13:02 Chamath Palihapitiya? From a business perspective, the only logical thing that I would do if I was running one of these businesses is attach it to another business where you can think about it in terms of LTV. So the only obvious example of that, I think, is Amazon Video because you can stick it beside Prime and a bunch of other things. And now you have a very different way of justifying. LTV and minimizing churn. And that seems like a, I buy that argument, Jason. I don't buy like a standalone business like this trying to do it. Yuck.
1:13:33 David Friedberg? I, I, no. Sorry, real quick. Have you guys dug into Netflix's business? I mean, they're still growing top line. The EBITDA margin continues to expand. I mean, all those facts might be true, but that churn engine and that recapture engine seems to be working in a way that they're printing cash and growing. It's pretty impressive. I don't know if there's a limit there, but I mean, I haven't looked at the analysts.
1:13:53 Chamath Palihapitiya? I think that is the key.
1:13:55 David Friedberg? Yeah.
1:13:56 Jason Calacanis? To the bundling point, Apple Plus, which is the TV component, not the hardware product, is bundled as part of this Apple One program, which is kind of like Amazon Prime. And so I think you're seeing a little bundling there. Netflix also added video games to make it even more sticky. So I think there's like a subscription super app coming, which the New York Times is kind of done, right? With Wordle, Crosswords, The Athletic, Wirecutter, and the New York Times. So I think you're going to start to see.
1:14:23 Chamath Palihapitiya? Honestly, you just had a jumble of names that went in one year and out the other. I don't remember a single one. You said, this is my point for most people, Jason, not at a media aficionado like you.
1:14:31 Jason Calacanis? New York Times is doing fantastic doing this bundling. Some people come for the crosswords and Wordle, and that's why they subscribe and they like the news. Other people come for the news. They discover crosswords and Wirecutter and The Athletic and they stay for that. So I do think there's going to be an incredible business here. I'll take the other side of it.
1:14:46 Chamath Palihapitiya? Yeah.
1:14:47 Jason Calacanis? They spent a lot on content, though, during that period where Disney Plus came in. And I think everybody's now has a little more discipline and the budgets came way down. If you didn't know, The Hulk cost 250 million or something, the She-Hulk, rather, that cost 225 million for nine episodes.
1:15:02 David Friedberg? What?
1:15:02 Jason Calacanis? The first Avengers, 225 million.
1:15:04 David Friedberg? Wait, sorry, 225, 250 million for nine episodes?
1:15:08 Jason Calacanis? Of the She-Hulk, yeah.
1:15:09 David Friedberg? Oh, my lord.
1:15:09 Jason Calacanis? And people criticize it for having bad CGI. So it's, I think there's like new discipline coming to Hollywood.
1:15:14 David Friedberg? Was this a Netflix show?
1:15:15 Jason Calacanis? A Disney Plus show.
1:15:16 David Friedberg? A Disney Plus show?
1:15:17 Jason Calacanis? Yeah.
1:15:17 David Friedberg? I don't, I don't know about you guys. I've been rewatching The Sopranos. I find some of the content on HBO Max to be the best content out there.
1:15:23 Jason Calacanis? Oh, my God. I've, I've rewatched it.
1:15:24 David Friedberg? There's so much rewatchability on it. Disney doesn't have that much rewatchability. I don't know.
1:15:28 David Sacks? The only reason I keep my Max subscription is because I'm waiting for House of the Dragon, season two. I mean, they didn't have that one show. I'd be like, yeah, cut it, you know?
1:15:37 Chamath Palihapitiya? Yeah.
1:15:37 David Sacks? I do think thi- this could help Netflix because a lot of these streaming services came along. We had way too many, right? We got saturated with streaming services and most of them you subscribe to. You may not even remember subscribing. You may just subscribe to a free trial to get an NFL game. And then you get billed because you forgot to cancel it.
1:15:55 Chamath Palihapitiya? By the way.
1:15:56 David Sacks? Yeah.
1:15:56 Chamath Palihapitiya? Have you guys ever gone into Apple iCloud settings and looked at your subscriptions? Oh, boy. Yeah. Get in there and. Guys, just rip, go, go, if you have like an extra five minutes, you will save so much money by going into subscriptions in your settings and just turning them all off. I was shocked. I was shocked. I mean. This is part of your austerity measure?
1:16:19 Jason Calacanis? Absolutely.
1:16:20 Chamath Palihapitiya? You know how many subscriptions to Disney Plus I had? How many? Well, this is what's so gross is why they even let me do this. I had three. What? Three. Yeah. How's it even possible? One for the plane, one for the kids. I had three. I had three. I had two HBOs. I had two Netflix. Oh, no, Netflix keeps sending you a message saying, hey, you need to update your payment information, but then I'm watching Netflix on my Apple TV. So I'm like, I'm clearly playing for it, paying for it somehow. It's so confusing and
1:16:55 Jason Calacanis? I have the perfect solution for you. There are credit cards now where you can set a spending limit. And so what I do is every year I just turn off the limit on that credit card. I just take it from unlimited or on cap down to zero and I do this for business as well. And then all the subscriptions timeout.
1:17:11 Chamath Palihapitiya? You know what I call that?
1:17:12 Jason Calacanis? What?
1:17:13 Chamath Palihapitiya? Jeff. Jeff does that for me.
1:17:15 Jason Calacanis? Jeff does. Yeah. But I mean, having somebody go in there.
1:17:18 Chamath Palihapitiya? I have a Jeff. I have a Jeff.
1:17:21 Jason Calacanis? You know, but it's very simple. You only use one card for subscriptions and then you turn it off every year to see which ones you want to keep going. It works really well. And then you move the other ones to a new card.
1:17:28 Chamath Palihapitiya? I don't even want to say how many thousands of dollars I was wasting on like Duolingo. I was like, I'm paying for Duolingo and then I was paying for like.
1:17:35 Jason Calacanis? And your Italian is still terrible.
1:17:37 Chamath Palihapitiya? Yeah, terrible. And then I had, I had like.
1:17:39 Jason Calacanis? You have a case against them. You could sue them.
1:17:41 Chamath Palihapitiya? Dual Lingo and I had Babbel and I had Rosetta Stone. So I'm like, my Italian is not improving because of any of these three apps, but I was paying them collectively like $400. I had a Whoop subscription. I don't even have a Whoop.
1:17:54 Chamath Palihapitiya? When Rick Thompson started Manscaped, I was, I signed up for Manscaped. I get all this ball deodorant. I've never used it once.
1:18:01 Jason Calacanis? We know, we know. We sit next to you in poker. We know. It's not working, bro.
1:18:06 Chamath Palihapitiya? Just a message to Manscaped. I have tried to cancel. I have called, I have emailed. I took it upon myself to try. It's impossible to cancel. They won't even let you reset your account so you can get a link to cancel. It's so hard.
1:18:20 Jason Calacanis? And still your balls are terrible.
1:18:22 Chamath Palihapitiya? Yeah. My balls are phenomenal.
1:18:25 Jason Calacanis? No, I've sat next to him poker, man. Not real. Okay, let's get into plastics and get off Chamath's balls.
1:18:32 Jason Calacanis? I mean, how did we get here?
1:18:34 Chamath Palihapitiya? Subscription services.
1:18:36 Jason Calacanis? Subscription services, yes. Streaming is at a crosswords, crossroads, apparently, so.
1:18:42 David Sacks? They're really trying to make that ball deodorant happen, aren't they?
1:18:45 Chamath Palihapitiya? They're trying to make it happen.
1:18:46 David Sacks? Well, they're trying to make fetch happen. Ball deodorant's not happening. I'm sorry.
1:18:49 Jason Calacanis? I mean, what are you supposed to do? Squat and swipe? How does that work? Is it a spray? Are you lifting and spraying?
1:18:56 David Sacks? You gotta give them points for creativity, trying to create like a new thing, but yeah.
1:19:00 Chamath Palihapitiya? I was trying to support my friend in signing up for a subscription service and now I can't cancel. That's my problem. That's my predicament.
1:19:08 Jason Calacanis? Could you also take a shower and use soap? I don't know. Just putting it out there.
1:19:12 Chamath Palihapitiya? I, I'm, I, it's.
1:19:14 Jason Calacanis? What's going on down there, Chamath?
1:19:15 Chamath Palihapitiya? Does it have to do with the product? I signed up because Rick was the venture investor that seeded it and started. I supported my friend.
1:19:22 Jason Calacanis? Yes.
1:19:23 Chamath Palihapitiya? And now I want out and I cannot get out.
1:19:25 Jason Calacanis? You can't get out.
1:19:26 Chamath Palihapitiya? Every, every time I try to get out, they pull me back in.
1:19:29 Jason Calacanis? I'm just gonna say, when it comes to Manscaped, no, no testimonials, please. No testimonials.
1:19:33 Chamath Palihapitiya? The worst part is like, you know, it comes to the house and.
1:19:37 Jason Calacanis? Oh, somebody opens your ball deodorant and puts it on your desk?
1:19:40 Chamath Palihapitiya? They do. No, they put it right on the.
1:19:42 Jason Calacanis? The entire staff knows you have stinky balls.
1:19:44 Chamath Palihapitiya? Well, that's what's so funny. They put it right on the kitchen counter. So as I walk through the.
1:19:47 Jason Calacanis? Everybody, the walk of shame.
1:19:50 Chamath Palihapitiya? I grab it and I'm like, who's seen this bottle? Ah, there it is.
1:19:53 Jason Calacanis? What is it, Chris?
1:19:54 Speaker 03 Bottles, come on.
1:20:03 Jason Calacanis? Oh my god. Oh man. How do you apply it? Is it just a little dab will do ya? No, I mean, you know. It's not a spray. It's apparently an ointment, Sax. It's an ointment. This is far too much information.
1:20:15 David Sacks? Nah, I'll try it.
1:20:16 Jason Calacanis? Don't ya?
1:20:17 David Sacks? I'll try it.
1:20:21 Jason Calacanis? You know what? I'm gonna give you my, my subscription.
1:20:30 David Sacks? Why not?
1:20:32 Jason Calacanis? Use the promo code Chamath for 10% off your. Use the promo code Dictator, you get 10%.
1:20:39 Jason Calacanis? You can never cancel.
1:20:41 David Sacks? I think it's D I C K tater.
1:20:44 Jason Calacanis? Dictator. Yeah, use the promo code Dictator. You get 10% off your ball deodorant at Manscaped. All right, Friedberg, it's your turn to shine. No, not ball deodorant. We wanted to talk about microplastics. A study came out. It's terrifying. We've known plastics have been terrible for years. Obviously, it's been turned into some sort of political discourse with straws and everything, but plastics are horrible. We shouldn't be using them, but this study confirms a bunch about drinking microplastics. Educate us on this study that everybody's talking about right now. Dr. Friedberg.
1:21:17 David Friedberg? I, I wouldn't start with the statement that plastics are awful. Plastics are polymers, which are long chains of what are called monomers. This is hydrogen, carbon, and oxygen that comes together to form these specific molecules. And then we can kind of bake them into crystal-like structures. And the reason the plastic industry took off is because it ended up being very cheap to create materials that we could turn into chairs, that we could turn into bottles, to move stuff around. Lot of applications, everything from solar photovoltaics to our computers, to our laptops, to our phones. Everything has some form of these polymers in it. The polymers that are commonly used for making bottles that we consume beverages
1:22:00 David Friedberg? out of are PET plastics. These PET plastics are made from a combination of natural gas and crude oil. So we kind of have a production process where we get the carbon, hydrogen, and oxygen that's naturally found in natural gas and crude oil, convert it into these molecules that we turn into long chains, and we turn them into bottles. And fill those bottles, and they end up being a lower carbon footprint than using glass, about 5X the carbon footprint to use glass instead of plastic in making a bottle to store stuff and move liquids around. Forty percent cheaper, and a lot of other kind of reasons why the industry and the
1:22:41 David Friedberg? world adopted plastics, not just for bottled beverages, but for other applications. So in bottled beverages, because these are polymers, there are these long chains of little molecules that are stuck together. Some of those chains break, and then some of those little chunks of those molecules end up floating around in the liquid that we're consuming. And what this study did that kind of highlighted a set of data that hadn't really been studied well before, is they used a form of spectroscopy, so kind of a multi-spectral light system, shining light at different wavelengths on the liquid in a bottle, in a plastic bottle, to figure out how many of these little plastic particles there were in the liquid.
1:23:20 David Friedberg? And in doing that, they found that there was on the order of 10,000 little plastic particles per liter of water, or per liter of soda, or drink, or Gatorade, or whatever beverages that you're drinking. The real question then is, well, how risky is that? So if you look at a lot of the health agency studies, the kind of well-adopted and well-researched efforts on is there toxicity associated with PET plastics on its own, they find that there's very little genotoxicity, or no genotoxicity, meaning it doesn't change your DNA, there's no carcinogenicity, so it doesn't cause cancer. But there are other studies recently that have shown different mechanisms by which these little tiny microplastics might end up in your cells.
1:24:04 David Friedberg? They absorb into your body and they're small enough that they can cross into barriers. They can get into your brain. They can get into your cells. When they're in your cells, there are other mechanistic studies that are done in a Petri dish. As opposed to being studied in the body. Where they've demonstrated that they could actually disrupt the function of organelles like mitochondria. Endoplasmic reticulums, all these little things that operate in your cell. They can cause irritation, they can trigger chemicals to be produced that might cause allergies. That might cause inflammation and so on and so forth. So while the general molecule of PET itself. Isn't known or shown in any way to cause cancer or to cause changes in your DNA. There are other mechanisms by which these little tiny plastics. Might be disrupting cellular function, might be causing other health issues.
1:24:47 David Friedberg? And that's now going to open up a big area of research that. That's going to be predicated, I think, on the fact that this study now shows. That there are thousands, hundreds of thousands of little pieces of tiny plastic in these plastic bottles that we're drinking water. And soda and juice from that are getting into our body and into our cells.
1:25:05 Chamath Palihapitiya? Two hundred and forty thousand little pieces in the average one liter plastic bottle.
1:25:10 David Friedberg? It's a pretty scary statistic. When you hear that number.
1:25:13 Chamath Palihapitiya? Small enough to cross the blood brain barrier.
1:25:16 David Friedberg? Right. And in rats and mice. They've shown that these little microplastics can actually accumulate in the brain if they consume enough of them. Now, the reason this hasn't been well understood or studied in the past. Is we kind of look at the aggregate amount of plastic that's in a liquid. And it's like, oh, the amount is so small, it doesn't matter. But when you start to look at how small these little pieces of plastic are. And add them up, the cumulative effect over time. That they can actually cross into cells, cross the blood brain barrier, maybe are not getting removed from the body. That's opening up a whole lot of research because there's no easy way to just scan a body and say, is there plastic in it? How much plastic is there? Because there isn't a good chemical signature for it. And what these guys did is they used light to look in the liquid to find the plastics, which we can't easily do in the body today.
1:26:01 Jason Calacanis? So Freiburg, are you going to drink plastic bottled water anymore?
1:26:04 Chamath Palihapitiya? I'm not.
1:26:05 Jason Calacanis? Okay.
1:26:05 Chamath Palihapitiya? Jamal? I've already stopped. This started for me about four months ago. My wife basically said, we're getting rid of all plastic. And at first I really pushed back and I'm like, this is crazy. And she just kept talking to me about it and showing me all this data. And yeah, about a month ago, I would say I switched. So now I use glass and a carafe like this.
1:26:26 Jason Calacanis? Yeah, much better.
1:26:27 Chamath Palihapitiya? We got rid of all of the plastic in our, in our house, in the gym, no more bottles.
1:26:32 Jason Calacanis? It's wasteful anyway. Like, why not, if you have beautiful filtered water at home, put it in a carafe.
1:26:36 Chamath Palihapitiya? Sure, but the scary thing, I mean, it's a little bit more inconvenient, I'll be honest with you, but it is very scary. And I think that it does alter the phenotype of the human body over time. And I think you'd have to be insane to bet against that. And I suspect when you look at the rates of depression and autism and Alzheimer's and dementia and autoimmune diseases, Crohn's, rheumatoid arthritis, to think that all of these environmental factors have no impact, I think is, is taking a very scary bet.
1:27:08 Jason Calacanis? Here's what I do. I buy these glass bottles on Amazon. You know, two or three cases of them. I have the best water filter system at home. We fill them, we put them in the refrigerator, and we haven't bought plastic in years.
1:27:22 Chamath Palihapitiya? Wow, in years?
1:27:24 Jason Calacanis? In years, only because I care about the environment, because I'm a good person.
1:27:27 Chamath Palihapitiya? Good for you.
1:27:28 Jason Calacanis? You know?
1:27:30 David Friedberg? Jason, I'll also say like that, that application is a pretty small, like, I think on the order, if I'm right, 80% of bottled beverages are drunk outside the home. So people are buying stuff at convenience stores, at gas stations, at markets, taking them with them to work. And that's how a lot of plastic bottles are consumed.
1:27:48 Jason Calacanis? I carry a Conti with me.
1:27:49 David Friedberg? Remember, the US is such a small percentage of the global population. You go to Africa, you go to Brazil, you go to China, there isn't a great, like, people don't have these amenities that we have in our upper and middle class America that plastic bottles have provided access to products that consumers around the world
1:28:05 Jason Calacanis? Yeah, but I-
1:28:05 David Friedberg? otherwise wouldn't be able to afford. So there's a reason they exist. But by the way, I also want to just be really clear, there isn't conclusive evidence or science that shows these plastic microparticles or nanoparticles are causing these health effects. There's certainly a lot of questions that it brings on, well, what is the cumulative effect of these little things getting into cells? Do they get into cells? Why?
1:28:24 Chamath Palihapitiya? What do they do when they're getting in there? Why would anybody bet that it's zero?
1:28:28 David Friedberg? Right, so that's the research.
1:28:29 Chamath Palihapitiya? What is the upside?
1:28:30 David Friedberg? Right. Well, the upside is that people get to access cheap beverages on the street that otherwise people that are living on $13,000 a year that can buy a, you know, a plastic soda for 25 cents.
1:28:40 Chamath Palihapitiya? You can also buy water in a can, though.
1:28:43 David Friedberg? Yeah, so that's, that's definitely an alternative. They're a little more expensive generally. Plastic just became the cheapest container.
1:28:48 Jason Calacanis? Sacks, your thoughts?
1:28:51 David Sacks? Sorry, guys, I stepped out to get a, a drink here. Did I miss anything?
1:28:56 Jason Calacanis? It would be better if you had put a straw in your water bottle and we're drinking from a plastic bottle.
1:29:01 Chamath Palihapitiya? Plastic bottle. Now I understand your level of depression.
1:29:06 Jason Calacanis? It's what's causing it. Sacks is just killing those Arrow water bottles.
1:29:09 Chamath Palihapitiya? Yeah.
1:29:10 David Sacks? Did I miss something?
1:29:11 Jason Calacanis? Yeah.
1:29:11 David Sacks? That was a science corner. I stepped out.
1:29:14 Jason Calacanis? Also, I, I use these beautiful Contigos. I think some people use Yetis or other kind of things. And I actually carry them with me only because I try to like, think about the environment. Just the amount of plastics being created. I don't know if you've seen this, but like, you go to Whole Foods now, or you go to any supermarket and you see this wall of salads? Freiburg, like, this is unconscionable. Like, we're literally giving people salad in a giant plastic box.
1:29:43 David Friedberg? I don't, so first, yeah, let me just say a couple of things about this, because there's this conception that this is just awful, awful, awful, but plastics, there, there is a degradation of these PETs when they're exposed to sunlight. There is a recycling system that many of, much of this material ends up in.
1:29:59 Jason Calacanis? Much of it?
1:30:00 David Friedberg? Yeah, I mean, not, not a lot.
1:30:01 Jason Calacanis? I don't think that's actually correct. Not a lot.
1:30:02 David Friedberg? But what would the alternative be, right? So the alternative is you put it in a glass thing and you charge people $15 for a couple of pieces of lettuce. The reason, the reason the plastic industry emerged is because it provided a low-cost way to transport materials. And that, we're, we're all very wealthy, so we have to just step outside of our bubble for a second and recognize that most people, you know, the, the dollar difference is a huge difference for most consumers. They're not going to make that dollar leap. So, you know, the fact that plastics emerged is to support a consumer market that's grown up all over the world.
1:30:32 Jason Calacanis? Yeah, but how, how does this make sense? Look at these bananas, just as an example. To give people an idea, bananas already come with a case.
1:30:39 David Friedberg? Called a peel.
1:30:40 Jason Calacanis? And they're literally wrapping bananas in plastic now. And you know, I think this is where regulation makes sense.
1:30:48 David Friedberg? No, there must be a gas in here or something because they're trying to keep the bananas from going bad. That's why I probably want to put in it.
1:30:53 Jason Calacanis? I want to shout out like this is where I think regulations actually do work. France, Spain, a lot of countries now are just saying, you know what, for fruits and vegetables like, yeah, don't put them in plastic, please. We're not going to allow you to do that. And I think.
1:31:07 David Friedberg? I'm not pro-plastic, by the way. I'm not drinking plastic from plastic bottles, but we have to be cognizant of where this industry emerged from, what the science has about it. Like, I don't want to just be flipping on it and be like, all plastics are bad.
1:31:18 Jason Calacanis? What is going on in the oceans, Friedberg, is unconscionable. Like, this is not like a do-gooder thing. It's just, there's no reason that we need to have plastics as a standard. It should be banned.
1:31:28 David Friedberg? I'll give you some good optimism around this. There's a lot of efforts right now to develop microbes that can actually biodegrade these PET plastics. So there's, so we're engineering these microbes that will produce enzymes. These are little bacteria that'll produce enzymes. Those enzymes can then be made in the plastic itself. So then the plastic will biodegrade within a year after you use it. So there's a lot of this kind of effort on how do you make naturally biodegradating plastics using bio sources and biological molecules as part of the production process. And a lot of big plastic packaging companies and industrial biotech companies are investing in this area.
1:32:06 Jason Calacanis? This is where collectivism can do good, you know, like if we actually, as a society, say, we want to do sustainable packaging, like because of the tragedy of the commons, like you're saying, Freiberg, because it's cheaper, capitalism, like there's no floor here, you know, to stop people from doing this and stop from using plastics unnecessarily, like wrapping bananas, etc. All right, listen, it's been an amazing episode of the All In Podcast for the dictator.
1:32:33 David Friedberg? Wish me luck today, boys. Wish me luck.
1:32:35 Jason Calacanis? Use the promo code DICK.
1:32:36 David Friedberg? We'll be following the live stream on the chat.
1:32:38 Jason Calacanis? Following the live stream. Use promo code DICK to get 20% off your ball deodorant.
1:32:42 Chamath Palihapitiya? Hey, what do you guys think about actually like running some poker tournaments through the year called All In?
1:32:48 David Friedberg? Hundred percent.
1:32:49 Chamath Palihapitiya? That would be super fun, though.
1:32:51 Jason Calacanis? Hundred percent. I think we could replace the WSOP pretty quick. I mean, it'd be pretty. Replace the WSOP? I'm not kidding. We have still Helm Youth on our squad.
1:33:01 Chamath Palihapitiya? I think Jason's right. I'm not just Helm Youth. I think you can get all the pros because I think the problem is like those championships have been so watered down, right? There's fifty-two of them just in Vegas in June and July. And then now you have like these circuit rings so that there's bracelets and rings. And then there's the European one, then there's this one, there's the Bahamas.
1:33:21 Jason Calacanis? The all-in cup would be amazing.
1:33:23 Chamath Palihapitiya? You can't have, I think, in order to be a world champion, can you really have like a hundred and fifty winners a year?
1:33:30 Jason Calacanis? Sax, are you bored with Holden?
1:33:31 David Sacks? Well, I'll play with you guys, but yeah, I'm kind of bored with it.
1:33:35 Jason Calacanis? Yeah. I played a tournament yesterday, Big O, thirty-seven players. I came in first. I don't know if you played Big O. Where did you play? I had a speaking gig yesterday in LA. After the speaking gig, I was going to the airport. I had a little time and I just stopped by Hollywood Park where. Stop.
1:33:51 Jason Calacanis? I did, I did. Well, I wanted to see the new one. You're the best. And.
1:33:55 David Sacks? I don't know. There's nothing more boring than playing in a tournament with people you don't know.
1:34:00 Jason Calacanis? Oh, it was great. It was great. There was like a fight broke out.
1:34:03 David Sacks? Forever. I mean, I did the WSOP a couple of times and, you know, I think I lasted like three days. It's a long time to be playing poker at tables for people.
1:34:11 Jason Calacanis? Chama, I got to the final table and they wanted to chop and I was the short stack. I was like, well, you know, my flight's in for a couple of hours. I'd rather not chop. And this woman, I got in a fight at the casino almost. This woman was wearing a mask and she goes, this mother effer won't chop. And I said, ma'am, it's my option to not chop.
1:34:34 Chamath Palihapitiya? Madam, madam.
1:34:35 Jason Calacanis? I said, ma'am, madam, whatever, they, them. And she went crazy and the floor came over. I said, ma'am, you have to sit down. She called me a mother effer twice to my face. How much did you win? You went on to win? And I was the short stack and I went on to win the tournament. I kid you not. How much did you win? Fourteen hundred bucks. So. What did you win?
1:34:54 David Sacks? What was the hourly rate on that? You make like fourteen dollars an hour?
1:34:57 Jason Calacanis? It was a hundred dollar buy-in. So yeah, it was two hundred bucks an hour. But here's what happened. So I had this guy massively. You played for seven hours? Six hours, maybe. It was awesome. It was great. I was, I had the time of my life. It was the first time I played in a tournament for like, since we played the one drop that time. I haven't played in a tournament since then. It was so much fun.
1:35:17 Chamath Palihapitiya? Jason goes from playing the 100K buy into the $100 buy.
1:35:21 Jason Calacanis? I had a time of my life because I've never played Big O before. It's where you have five cards and it was high, low. It was so dynamic and fun.
1:35:28 Chamath Palihapitiya? Oh, yeah, yeah. Big O. Yeah, yeah, yeah.
1:35:29 Jason Calacanis? Big O is so fun. You have five hole cards and it's high, low. So I was like, I'll learn Big O. I've never, I've literally not played one orbit of Big O. I won the tournament. It was awesome. And so then it's me and this one guy. And, you know, I've got like, I've got him like three to one or whatever. And he's like, listen, I gotta go, please. I got my kids. I was like, no problem. I'll chop it with you if we take 400 off the top for the dealer. There's a dealer cried. She was like, what? And I was like, yeah, just, I'll chop it with you evenly. And so I won and I, I just chopped it up and gave a big tip.
1:36:01 Chamath Palihapitiya? What, what did you, did you get like a certificate or like?
1:36:04 Jason Calacanis? I think they put you on the website or something like that, like for this.
1:36:06 Chamath Palihapitiya? Let's look it up.
1:36:07 Jason Calacanis? Yeah, it's on the poker classic website that I, I, or I don't know if it's called the poker classic, whatever it is. But my point is we would have a great tournament. We do each of the games. Each of us gets a free roll into the game. And then everybody else buys it and I like it.
1:36:19 Chamath Palihapitiya? Sax, you like PLO or you just like chess now?
1:36:22 David Sacks? No, I like hold'em, but I'm just saying I wouldn't play with a bunch of strangers. You know, I like playing with friends, you know, but.
1:36:29 Jason Calacanis? To goof off and have fun.
1:36:30 Chamath Palihapitiya? Yeah, yeah.
1:36:31 David Sacks? Yeah, yeah, yeah, yeah. Like sitting, the problem with tournaments.
1:36:33 Chamath Palihapitiya? You'll RSVP to my game to show up at six and show up at 8:30.
1:36:38 Jason Calacanis? Yeah.
1:36:39 Chamath Palihapitiya? And then listen to yourself on the pod and then leave.
1:36:42 Jason Calacanis? Yeah, he's editing the pod at the table.
1:36:44 David Sacks? There's a lot of things you can do while at a poker game.
1:36:46 Chamath Palihapitiya? Oh.
1:36:47 David Sacks? You can watch your podcast. You can edit your podcast.
1:36:49 Jason Calacanis? For the Sultan of Science, the King of Bleep, David Friedberg and yeah, definitely the Rain Man himself. We're live from Davos. We'll see you next year. Bye bye.
1:36:59 Chamath Palihapitiya? Wait, did you give me the shout out? Am I?
1:37:01 Jason Calacanis? I did for the dictator himself. Use the promo code dick.
1:37:04 Chamath Palihapitiya? Dictator, no, Chairman Dictator.
1:37:06 Jason Calacanis? Chairman Dictator, use the promo code chair, man, or dick. You get 10, 20 or 30% off.
1:37:13 Chamath Palihapitiya? Can somebody from Manscaped, please let me cancel, please, please. It's like 10 bucks a month. It's just 10 bucks a month. I'll give you the money. I just don't want to get, I want to be able to cancel.
1:37:25 Jason Calacanis? I'll pay you 10 bucks a month to not send you all the order.
1:37:30 Speaker 03 We'll let your winners ride. Rain Man David Sacks.
1:37:37 Speaker 03 And instead, we open sourced it to the fans and they've just gone crazy with it. Love you, Westy. I'm the queen of Kinoah.
1:37:50 Speaker 03 Besties are gone. That is my dog taking a piss in your driveway.
1:37:58 Speaker 03 Oh, man.
1:38:01 Chamath Palihapitiya? We should all just get a room and just have one big, huge orgy because they're all just... It's like this sexual tension that we just need to release somehow.
1:38:09 Speaker 03 What? You're the bee. What? You're the bee. What? You're a bee. Bee? What? We need to get merch. Besties are back.
Previous E161: US strikes Houthis, market instability, Q1 rate cuts in doubt, Carta's major mishap, DEI Next E163: Market rips, Media RIFs, Texas defies Biden, Fintech reckoning, ARkStorm 2.0 & more Page updated October 26, 2026 · transcript and summary are machine-generated
