Is Threads The Next Twitter Or Clubhouse 2.0? — With Zach Coelius

Zach Coelius is the managing partner at Coelius Capital. He joins Big Technology Podcast for a conversation about Threads' real potential, asking whether it's a redux of Clubhouse — destined to fizzle — or a real threat to replace Twitter. In this conversation, we cover Threads' potential, Elon's effort at Twitter, and whether we can really make assessments from the outside. Stay tuned for the second half where we discuss the venture capital environment and how Coelius' investments are performing. We also look at the demise of MediaMath, a once-leading ad-tech company that just went bankrupt. --- Enjoying Big Technology Podcast? Please rate us five stars ⭐⭐⭐⭐⭐ in your podcast app of choice. For weekly updates on the show, sign up for the pod newsletter on LinkedIn: https://www.linkedin.com/newsletters/6901970121829801984/ Questions? Feedback? Write to: [email protected] Learn more about your ad choices. Visit megaphone.fm/adchoices

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

• 0:00Alex Kantrowitz?

  We've got so much news to talk about. Threads, the state of investing with someone who actually spends the money, and chaos in the ad tech ecosystem. My conversation with one of the best investors in the world coming up right after this. This episode is brought to you by Genesis. What does it actually take to put a Gentic AI to work across an entire enterprise? I recently spoke with Genesis chairman and CEO Tony Bates about why orchestration is emerging as a competitive advantage in customer experience and what companies need to get right in the AI era. Then I sat down with Adam Mitchell, head of enterprise business solutions at Voya Financial, to go inside a large scale agentic CX transformation, including the business decisions,

• 0:43Alex Kantrowitz?

  trade offs, and lessons along the way. You can watch both conversations now on my YouTube channel today. It's never been more challenging to get frontier compute. How do you know where to look, who to trust, or how much to pay? Akash is an open cloud that provides easy access, flexibility, and peace of mind. That's how companies like Razor were able to cut their inference cost by 15 times. Visit akash.network/alex for a free consultation. That's akash.network/alex for a free consultation.

• 1:17Speaker 01

  LinkedIn presents.

• 1:23Alex Kantrowitz?

  Welcome to Big Technology Podcast, a show for cool headed, nuanced conversation of the tech world and beyond. Zach Koleas is our guest today. He's the managing partner at Koleas Capital. He is a friend of the podcast. We've had him on in the past. Last time he told us he'd lost money on just one investment that he had made. Well, we're going to get an update on that and plenty more today. But first, we're going to talk about threads. Zach, welcome to the show.

• 1:46Speaker 02

  Yeah, good to be back. Good to see you again.

• 1:48Alex Kantrowitz?

  Great to see you too. Likewise. So are you on thread? You are on threads. I found your account.

• 1:54Speaker 02

  Of course. Yeah, yeah. I think it's Z Koleas or Zach Koleas. And you know, it's not used to promoting myself on.

• 2:03Alex Kantrowitz?

  Mark Zuckerberg property.

• 2:05Speaker 02

  Zuckerberg property. So. What do we got here? Let's look it up because you know, got to get that out there.

• 2:11Alex Kantrowitz?

  As you look it up, I want to definitely start with something that you said on threads, which I thought was pretty insightful and actually kind of picks up on what we were talking about last week with Alex Heath on the show. You wrote, I wonder how much this app cannibalizes Facebook Blue versus Twitter. It seems like it will be a material amount. So basically, your thought is that, look, this is going to take energy away from flagship Facebook. I think it will take energy away from Instagram almost or as much or as much as it will take energy away from Twitter. Now I'm actually even more convinced that it's going to take energy away from Twitter. The thing is booming. I mean, 100 million users as of Monday, we're recording this Monday. Who knows it'll be, what it'll be on Wednesday morning when we publish. Zach, what do you think?

• 2:55Speaker 02

  Yeah, I mean, I think there's a couple of parts there. Um, one, the 100 million thing, you know, everyone is excited about it and they're talking about it, but I think we have to be careful because like Facebook could create 100 million users on, you know, a poop app, like if they wanted to. If they were like, they were like, what's, we want to make this big. They could, they could basically because of their control of such a gigantic user base, they could move those people on to anything. So the question is, is how much of this is, is viral, organic, natural, people are excited, they're telling other people, it's the movement of people to value in the product and how much of this is just distribution?

• 3:35Speaker 02

  And we don't know, right? I have no idea. Um, but I, I take the 100 million with a grain of salt when it comes to it being a Facebook property.

• 3:44Alex Kantrowitz?

  Now, okay, I'll take it a grain of salt also what Zuckerberg said, which is that they've done very little outside promotion. It's been mostly organic. So, okay, we're taking, we also know he has personal animus with Elon Musk. So that's an important factor to consider. But that's it. Here's the counterpoint, right? Which is that Facebook has tried to create lots of standalone apps in the past. Many of them have failed. They tried to basically a direct Snapchat competitor and that didn't go anywhere. It had an app called Threads in the past, which was a direct message app and that didn't work. So like this, something is obviously working. When you're in the app, you feel there is an energy there.

• 4:18Speaker 02

  Yeah. No, no, no, no questions. I just, I always like to like to. It's easy to basically look at a headline number and then just assume assume things. And I think, you know, as we've learned in the past, those assumptions are not always correct. I think the other thing that I'm I'm particularly interested in is like, you know, remember the early days of Clubhouse? And how unbelievably amazing it was and how the community was just like, just astonishingly good. And then very, very quickly, basically the grifters, the information entrepreneurs, the people who are hacking human biases, the angry political voices came in and they destroyed that community.

• 5:03Speaker 02

  And so I think what's what's interesting is how long will the magic that is threads right now? Like when I open threads, I don't see a lot of that garbage. Like I'm seeing my friends and I'm seeing interesting things and like it's valuable. There's not a lot of garbage in it. What happens when those those folks show up en masse and start start polluting the waters? I don't know. I'm I'm I'll be very interested to see how it all plays out.

• 5:34Alex Kantrowitz?

  So thinking it through, like the argument with threads would be that threads was sorry, the argument with space Clubhouse was that it was really a feature. Right? This wasn't a standalone app. Right? This was something that might exist within a Twitter. But now you have threads, that's a proven format, right? It's a text based app like Twitter.

• 5:55Speaker 02

  The thing is though. I mean, I'm not a consumer pro, like I don't invest in consumer really. So like, you know, take this with a fistful of salt, like I'm not claiming to be an expert here. But like, I think if Clubhouse could have maintained the magic that was the early days, that's not a feature, that's magic. That's, that's, that's a special thing that like, at the end of the day, I think what I think the thing that the mistake that a lot of people made, including all the investors who dumped a shitload of money into it, was that they thought the magic that was Clubhouse was a function of the product that had been built. And what instead that magic was the very careful audience curation that happened in the beginning. And that's what made it magical.

• 6:40Speaker 02

  Threads is magical, right? Well, I don't know if it's magical. It's not Clubhouse magical, but it was like, it's, it's bad.

• 6:44Alex Kantrowitz?

  It has energy.

• 6:45Speaker 02

  Polluted yet. So like, the question is, is that lack of pollution, is that sustainable? Uh, or is it gonna go away? And I don't know. And there's, I think there's interesting questions around if, if there's algorithmic sort of tools that Facebook has developed to help keep it from becoming polluted. That, which makes sense, like with AI now, you can do some really interesting stuff that you didn't used to be able to do before. It would make sense to me that Threads is basically largely build a next generation AI for filtering the feed that works. But I don't know.

• 7:16Alex Kantrowitz?

  Yeah, I would assume the same thing as well. And one of the things that we saw in the early days of Clubhouse was that, in any new social app, now people understand that there's kind of a land, land grab for audience at the beginning, which is why you would end up getting, you know, so many interesting people showing up at Clubhouse because, you know, they wanted to see what the experience was and they liked the experience, but also they were like, wait, I go on one of these, you know, conversations or one of these live clubhouses. Uh, and next thing I know, I have 10,000 followers on this. And what's that worth? And it seems like the same thing is happening on Threads where it's like, oh, there are large audiences up for grabs. So people are investing more than they necessarily should, just to see if they can build that audience in the land grab.

• 8:00Alex Kantrowitz?

  And I think you're totally right, Zach. The real question is what happens once, you know, that land grab starts to peter out and people say, is the audience that I have here worth the energy that I'm putting into? Versus the audience that I have on Twitter and LinkedIn or wherever it is.

• 8:14Speaker 02

  Yeah, like, I mean, so like, for instance, on LinkedIn, I have 140,000 followers on LinkedIn. Like, you know, theoretically, that makes me a big shot. In reality, nah, it's not really all that impactful. And my Twitter following is, you know, a fifth of that, and it's substantially more impactful in terms of, like, the value that I get out of it. Um, and so we'll see what happens with Threads. I assume what will happen is it's just, it just, it just further dilutes the audiences across all the different platforms and further segments them. And so the value of threads will not be anywhere near as valuable as Twitter. Cause that's my, my guess, but we'll see.

• 8:57Alex Kantrowitz?

  Yeah. I didn't want to end this conversation or this side of the conversation without talking about that original thread that you posted, which is that you said, basically, if there's going to be cannibalization that will happen to Facebook properties. And you look at it, and by the way, I don't know if you've had this experience, but every time I open threads, it's an image or video. And every time I open Instagram, it's the same thing. So I mean, why don't we try it now?

• 9:18Speaker 02

  They're compelling. Yeah. I mean, obviously with Instagram, it's just images. Let's, let's see what the, I mean, look, I moved it from the back of my apps to the, the front of my apps.

• 9:31Alex Kantrowitz?

  Oh, actually I have a text post at the top and then a link. So maybe this is not completely holding up.

• 9:36Speaker 02

  Yeah, I've got one from three hours ago. That's, oh, it's a long text thing with an image. And then the next one is an image that looks very Instagrammy.

• 9:48Alex Kantrowitz?

  Right. That's the theory here is that it's just going to look more and more like Instagram. And then does it sort of dilute the growth of Instagram? I mean, we spoke about it on Friday, but I'm curious what you think about it. Cause you, you pointed that out right away as soon as you got on the app.

• 10:02Speaker 02

  Oh yeah. I think there's, there's the, the question I have, and I'm not an expert at this. And my friends who work at these big companies are a thousand times smarter than I am, is when you have sort of like large scale, like when you're really big, does the incremental cannibalization have larger than incremental consequences to the network effects of the property? So like, does losing 10% of Facebook equal just 10%? Facebook's 10% smaller and threads is 10% bigger. And it's just like, it's just moving the, the sort of chairs around? Or is 10% actually have a 15, 20, 30% impact because of the lowered subsequent engagement for everybody and the lower value of the property?

• 10:47Speaker 02

  Because you've got, you know, 10% of. 10% is gone. So now it's just starts to shrink as a result. The product becomes less useful. I mean, I think I, we all noticed that with Facebook Blue. When they made the algorithm changes to allow politics and news. And then it became this crazy fucking, fucking Republican uncle thing. And then everyone like, was like, fuck this and everyone left. And now my feed is a fraction of as interesting on Facebook as it used to be. You know, before they started to do that.

• 11:18Speaker 02

  You know, everyone moved to Twitter and Instagram. So I don't know, maybe I don't, it's interesting question. They have the data, I don't.

• 11:24Alex Kantrowitz?

  Right. And it does seem, you know, it's like that. If you lose 10% and you lose greater than that 10% on your network. It seems like Twitter is probably the most risk of, of that happening to it here.

• 11:35Speaker 02

  Yeah, I think, I think, I think this is, this is a direct blow to Twitter and it will be. I mean, the thing is, is that even if it only carves off a portion of the Twitter audience and Twitter keeps a bunch of these other, like, I'm assuming they're going to keep the sort of right wing folks will stay on Twitter. I'm assuming the, you know, there'll be like certain groups that will stay on Twitter. But if they carve off a portion of that, then, you know, then this is the same, the same question. It's like, does 10% equal a more than 10% decline in the value? And for Twitter, I think, yes. Like if, if, if the interesting tech people gravitate over to threads and that's where they all go. I think Twitter is going to see a pretty significant hit from that.

• 12:20Alex Kantrowitz?

  Monetization. So Facebook can make $40 per person on its platform. Snapchat makes $13 in a year.

• 12:29Alex Kantrowitz?

  Now Twitter's always struggled. I mean, we both come from the ad world, so we know what the story is. You need to have performance advertising, basically ads that compute to sales. And Twitter has always struggled to do that because its ad system has just been inferior. While Facebook's ad system has been much better in terms of optimization. Now Mark Zuckerberg has said, okay, we're not going to turn on monetization until we're on the path to a billion users. I've heard from folks that, and this isn't, I don't really want to get too deep into the sourcing, but take this for what it's worth, that we could potentially see something like in Q4. That's when people are expecting it because that's when, you know, it's holiday season, advertisers are expecting, you know, or need places to

• 13:13Alex Kantrowitz?

  put their money. And, you know, Facebook can now say we're 100 million users in, they'll probably be 200 million users in at that point. It's time to turn this on. I mean, they could make a serious, so Twitter in its best year in 2021 made $5 billion. With Facebook's ad tooling and a similar user number, I mean, could you see four times that much?

• 13:37Speaker 02

  I mean, let's see, why not? At the end of the day, this is exactly what Facebook is very, very good at monetizing, which is, you know, feed-based attention, one-ality. And they've got the advertisers, they've got the ad formats. I mean, it's a one-for-one replacement for, you know, advertising on Blue for sure, like identical effectively. And, you know, very similar to a lot of Instagram elements. So I don't think they would have any problem making comparable revenues. I mean, at the end of the day, you have to remember, these businesses, they, they're very strategic about when they want to utilize revenue opportunities like this to fill holes in other parts of the business. So if, you

• 14:21Speaker 02

  know, if they were still, if they're strong right now, which I don't know if they are, obviously they've gone through some really struggles since ATT. But if they're, if they're feeling strong, they want to hold this back to have it as, you know, a lever they can turn when they need it. When something else comes short and they can turn this lever to fill a hole. They're not feeling as strong, they'll monetize sooner. I don't know. I have no inside information.

• 14:50Alex Kantrowitz?

  Yeah, it's very interesting. And of course Twitter just hires Linda Iaccarino, who comes from NBC and is trying, her whole thing is, I'm going to convince advertisers that this is a place where they can feel comfortable spending their money and Meanwhile, Elon is challenging Mark Zuckerberg to a quote, "literal dick measuring contest." And someone goes, "At Linda Yaccarino, can you please help?" And I'm like, looking at that, I'm like, "No, she can't." Like, she's not going to be able to. It's almost like, you know, so I think Aaron Levy, who's going to come on the show in a couple of weeks, he put the list of all the mistakes that Elon's made. And it's like, this does seem to be the exact list of things that you'd want to do if you were like, literally trying to destroy the platform you just bought.

• 15:35Alex Kantrowitz?

  But push back on me. Yeah, I'm curious what you think.

• 15:37Speaker 02

  I mean, look, I generally have felt like there's like, the, the social media, by definition, creates this weird echo chamber feedback loop that causes humans to lose their goddamn minds. So like with Trump, we saw that, like, we'd see that over and over again. And I think with Elon, that's happening, right? Like, I think in most circumstances, if we knew all the details of what was happening inside these companies, and we paid as close of attention as we do, as we do to Elon and Trump, we would think the same things we think about Elon, regardless of the companies are succeeding or failing. I just think that

• 16:22Speaker 02

  like, the incentives are for the individuals as an axe to grind, to push information out. And the individuals who have good information, you know, they don't really have the same incentive to like, go out there and try to spread the word that things are actually good. And so you end up with a whole bunch of fucking losers spreading a whole bunch of crap to make the world seem horrible. And so, and then the feedback loop is the press, just they eat that shit up. They love it. They're just suckers for it. And so like, any individual with an axe to grind, they... Like they they spread that shit. And I think it just leads to this really nasty feedback loop. And then the audience becomes very, very sort of convinced that that's the

• 17:07Speaker 02

  reality. Like, like, for instance, like, you, you and I know, like, when you think about ad tech, right? Like, when we read what the press writes about ad tech, it's just like, it's hot garbage. It's total garbage. They have no idea what they're talking about. They don't understand it. Technically, they don't understand it. They don't even understand the most basic concepts. Like, they're just fucking wrong.

• 17:24Alex Kantrowitz?

  It's really embarrassing. That's true.

• 17:25Speaker 02

  It's embarrassing. Yeah. And, and so then you're like, you're like, okay, this is like, these people are fucking stupid. And then you're like, you have to remember, okay, we know this is true for this. What level of relative insight do we think they have for everything else they write about? And the reality is probably not very much, because they have to cover everything, right? Their job is to literally write about everything, and to become experts in everything, which nobody is. And so then, then you have to just assume that they're effectively playing to the their incentives. And their incentives are to get clicks. And the things that that get clicks are outrage, and, and, and, and playing into the human psyche and biases. And

• 18:05Speaker 02

  so, so therefore, to bring this all back, I think Elon has got a lot of bad press, because everyone loves to hate on the guy. I think he also enjoys playing into that. I don't know why, but he does, it seems. But I, if I had to, if I had to underwrite the whole thing, put money on it, I think the, the, the perception of Elon versus a reality is very far apart, almost by definition, I'm sure. And I bet you the perception is skewed dramatically worse than the reality is. And I think that then I think we'll be surprised. I'm not, I don't, I'm not, I don't have enough information to know if what's going to happen. But like, I think on average, people are usually surprised in these instances when things work out better than they thought they would.

• 18:50Alex Kantrowitz?

  Yeah. Okay. Well, now I'm going to say my thing, because, you know, I, I think that, first of all, with, I don't want to spend the whole podcast talking about this. We have so much good stuff to get to. But I feel like we should, we should at least, like, take a moment to talk about. So first of all, I think that, that Yes, like when you work in an industry and you read press reports about it, almost all the time, you're rolling your eyes. And I think that's, that's certainly bad and true. I think that there are some reporters that are good and they, and we know them from in the ad tech world. And I think when people specialize, then they can actually get stuff right as opposed to, but what we're talking, what we were talking about in this past bit of conversation, which is like, you have like, and I'm not gonna, well, I'm gonna pick on

• 19:32Alex Kantrowitz?

  the Guardian. Like you'll have like a journalist from the Guardian who tries to explain like real time bidding and like talks about how it's evil. And you like read that and you know anything about real time bidding and you're like, just burn it, just burn, you know, print this out on a paper and burn it. You should not be writing about this stuff. So yeah, those generalists, they definitely bring the whole profession down. Now in terms of like the way that the press is handling Elon, like, yeah, definitely. I think the press is telling a story of Elon that's worse than what it is. But this is the thing that gets lost in it often is like, as a user, you can tell, like, you can tell sometimes that the product is, when you're using a product and it's diminished.

• 20:10Speaker 02

  For a decade.

• 20:11Alex Kantrowitz?

  No doubt it was a hot mess, but it's, it's almost unusable now. And I'll just point to some of the decisions.

• 20:16Speaker 02

  Oh, really? It's dramatically worse? What is it? What's worse in your opinion?

• 20:20Alex Kantrowitz?

  I think that, all right, I'll just go back to the, um, the coup with, uh, in Russia with Prigozhin or the insurrection, mutiny, whatever you want to call it.

• 20:27Speaker 02

  Yeah, yeah.

• 20:28Alex Kantrowitz?

  I just wanted to know who the reporters were on the ground in Russia and Ukraine.

• 20:32Speaker 02

  There's no reporters on the ground there. There are no reporters on the ground in Russia.

• 20:35Alex Kantrowitz?

  There, I mean, in Ukraine.

• 20:36Speaker 02

  Good reporter in Russia, they put in jail.

• 20:38Alex Kantrowitz?

  Yeah, yeah, no, I know. We spoke about him on our last, last Wednesday show.

• 20:41Speaker 02

  Yeah.

• 20:42Alex Kantrowitz?

  Okay. But let me say like the people who are like, you know, the reporters on the ground in Ukraine are the people who are actually reporting on this in the living. I, I wanted to see that blue check next to them. Yeah. But it was much harder to figure out who they were. It took longer. It did. It was less useful.

• 20:58Speaker 02

  Why, why do you think that's Twitter's fault?

• 21:00Alex Kantrowitz?

  Because they removed the blue check mark from their all, every reporter. And it's like,

• 21:05Speaker 02

  blue check?

• 21:06Alex Kantrowitz?

  Sorry?

• 21:07Speaker 02

  Did you used to be blue check?

• 21:08Alex Kantrowitz?

  Yeah, I don't, it doesn't matter about me. I'm talking, I don't care.

• 21:11Speaker 02

  I think, I think, I think what's interesting is. I think it's, I think it's always interesting to call out, to try to identify our own biases, even if we don't think that they impact us.

• 21:22Alex Kantrowitz?

  Right.

• 21:22Speaker 02

  Because the thing that's, that's, um, they're, they're real. I think they're very real. So.

• 21:28Alex Kantrowitz?

  Our biases.

• 21:29Speaker 02

  Yeah, yeah, yeah. You, you have a bias.

• 21:31Alex Kantrowitz?

  So, all right, let's, all right, let's say, even if that's the case, given that's playing in here, like.

• 21:36Speaker 02

  Yeah, you do.

• 21:37Alex Kantrowitz?

  Twitter is a news and information source. So I just want to know who's reporting and I'm not going to say, if I see a blue check mark next to them, I'm not saying I trust them.

• 21:46Speaker 02

  Look, I agree with you. The argument is a good argument. I don't disagree with the argument. The, but the counter argument.

• 21:51Alex Kantrowitz?

  Right.

• 21:52Speaker 02

  Which is Twitter needs to figure out how to separate who is a real person from a bot. They have to do that. That's the only way to basically take Twitter to the next level. Otherwise, the fucking Anons and the, and doing it with the legacy blue check system was not working. It was not working. And so the idea, the big idea was great. Let's get the users to pay a little bit of money and then use that money to fund, uh, making more money from the platform. And if we get all the users to do that, it will work. And that's an idea. That idea didn't work.

• 22:30Speaker 02

  Um, I assume, and, and, and by the way, in the process, we can kill all these fucking blue checks that, that Elon thinks is a bunch of stuck up little bitches, which, you know, whatever. Uh, so like, I assume that they're going, they tried it, they failed, they're going to go try it again. I mean, if Elon is good at anything, it's trying it, failing and doing it again. He's done that over and over and over and over again. He's, he's good at that. Like he's, he's learned how to do that better than almost anyone in the world. So like, I assume that's what's happening now. We'll see. I mean, maybe not. But he's also got a, you know, a workforce that massively destabilized and I don't know how well they can execute

• 23:09Speaker 02

  relative to his needs. And now he has Zuck with his, you know, fucking beating him about the face. He's got, he's got a real hard road.

• 23:16Alex Kantrowitz?

  Yes, he does.

• 23:17Speaker 02

  Challenging.

• 23:18Alex Kantrowitz?

  Yeah.

• 23:18Speaker 02

  But I think the blue check thing was a risk potentially, you know, that, that they, they, they, they, they took. Unclear if that will work.

• 23:27Alex Kantrowitz?

  There's so much better ways to have done it, though. If they were trying to get to what your aim is, just connect a credit card, pay a cent. That's it.

• 23:34Speaker 02

  Sure. Look.

• 23:36Alex Kantrowitz?

  The $8 thing and the same blue check mark and the execution of it.

• 23:40Speaker 02

  This is the thing. The, the, the reality that we're discussing right now.

• 23:45Alex Kantrowitz?

  Right.

• 23:46Speaker 02

  Versus the reality of actually building the product. So if we were at the company and we had access to all the data and we had access to all the things that's ever been tried and we had the team and we made the decisions that we made. I guarantee you the difference between what we're talking about right now and what they have is the same difference between the guardian writing about RTB and what we actually know the difference is. So we are morons relative to the person in the seat making the decision. And so when we have the conversation about, well, they could have just done it this way. Generally, I have to take that with a huge fistful of salt.

• 24:22Alex Kantrowitz?

  Yes.

• 24:23Speaker 02

  We are the guardian.

• 24:25Alex Kantrowitz?

  No, I disagree with that. I really do.

• 24:27Speaker 02

  I know you do, but you're wrong. We are the guardian.

• 24:29Alex Kantrowitz?

  I've been inside a tech company also, so I understand the constraints that exist. But you can also see like, at the end of the day, like you, you are what you do. Right? Like you're, you are, and that's the product that they produce. Like these are.

• 24:42Speaker 02

  It's too early to judge.

• 24:43Alex Kantrowitz?

  Yes.

• 24:44Speaker 02

  Anyone based on the consequences, the outcomes that they have.

• 24:48Alex Kantrowitz?

  At Twitter, you mean?

• 24:49Speaker 02

  Like Elon blew up four rockets, three or four rockets on the pad before he built like the most valuable company in the fucking world. Like, like the failures in the process are just part of the process. And so like the, for the fucking people in the stands to sit up there being like, yeah, look at him fail. Like, fuck that. That's bullshit. Like, like in, in like a few years, we can look back and we can say, oh, he's a failure. Great. In a few years, I'm happy to do that. But until then, I my belief is like it. It's just a bunch of fucking people in the stands yelling about shit they don't actually know about.

• 25:26Alex Kantrowitz?

  Okay, I think that like saying Elon's No, no, no, it's okay. By the way, like Zach, like this is why we're here. Like you're on the show because I know we're gonna have a good conversation. And on this show, I don't want any like, we shouldn't hold back. Like, we should have a real discussion about it when it comes to this.

• 25:43Speaker 02

  I don't know how to hold back.

• 25:44Alex Kantrowitz?

  No, it's good. It's good.

• 25:46Speaker 02

  Much as I probably should learn how to do it.

• 25:47Alex Kantrowitz?

  No, no, I mean, well, do it in places other than this forum, because this is good. No, I'm enjoying this, right? It shouldn't be a conversation that's held behind closed door or being polite. Like, let's actually get to the heart of the matter. There's no other way to address it. So.

• 26:01Speaker 02

  So that's the fun part.

• 26:02Alex Kantrowitz?

  On the I'm just gonna say one last thing about this, then we go to the next thing, or then I'll give you the last word, then we go to the next thing, which is that like, if you're a user of a product and the product gets worse, you're totally within your rights to say, I wish the product was not bad.

• 26:14Speaker 02

  Absolutely.

• 26:16Alex Kantrowitz?

  Cool. I'm point of agree.

• 26:17Speaker 02

  If you're on that first SpaceX rocket, or you're the company that put the satellite on, I think there's a company that put the satellite in the third one.

• 26:24Alex Kantrowitz?

  Yeah.

• 26:25Speaker 02

  The third or fourth, I don't remember which one it was, that that blew up, they were very unhappy.

• 26:29Alex Kantrowitz?

  Oh, you know who it was?

• 26:32Alex Kantrowitz?

  It was Meta. Mark Zuckerberg was furious about it.

• 26:39Speaker 02

  So Meta, beautiful. It was, it was, it was, it was, it was. And maybe this all comes back to like, Zuck was mad. And Elon was like, suck it, bitch. That's how rockets work. And Zuck's held that grudge ever since. Maybe that's it.

• 26:53Alex Kantrowitz?

  Sometimes it's the simplest explanation that makes sense.

• 26:56Speaker 02

  Occam's razor.

• 26:57Alex Kantrowitz?

  Exactly.

• 26:58Speaker 02

  That's fair. Yes, you're right. It was Meta. Beautiful.

• 27:01Alex Kantrowitz?

  Zach Koleas is with us. He's the managing partner at Koleas Capital. First half, all about threads and Twitter. Second half, promise you'll be equally as good. We're gonna talk a little bit about investing, a bit about what's real and what's not in AI, and then craziness in the ad tech world, which we know and love and we'll talk about. Back right after this. This episode is brought to you by AVPoint. Everyone's racing to roll out AI right now. Co-pilots, chatbots, agents doing real work. But here's the part nobody loves talking about. All that AI runs on your data. And most teams have no single way to see it, secure it, and prove it's under control. That's exactly what AVPoint does. For 25 years, they've been the trusted layer beneath the world's most demanding data,

• 27:46Alex Kantrowitz?

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• 28:31Alex Kantrowitz?

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• 29:26Alex Kantrowitz?

  And we're back here on Big Technology Podcast with Zach Koleas. He's the managing partner at Koleas Capital. And in 2020, mid 2020, he tweeted this, "The traditional J curve in early-stage venture is currently nonexistent. Usually companies without traction die early, and winners take times. Over the last five years, I have invested in 63 companies. So far, only one has been a loss. One, even the lowest performers get funded. There's so much money chasing companies right now. Literally, everything is getting funding. Any idiot with a checkbook, myself included, in our sector, looks like a genius right now. We can argue about the cause and the potential outcome, but we can't argue that the beta

• 30:07Alex Kantrowitz?

  only has one direction up." So, here we are in 2023. The world has changed a little bit. So, give us an update.

• 30:16Speaker 02

  Yeah, it's like, we were, we were, oh, man. It's so good. It was so easy. I raised my last fund in 2021. And, like, literally, it had been like, it had been six years of 50% compounding RRR every year. I mean, and, I mean, I looked like a genius. We all looked so smart. I read my fund. It took three weeks to raise. Only, never, only in Zoom, no in-person meetings, three weeks. People were committing on the first call. It was like, it was beautiful. Ah, so good. Yeah, we all looked so smart. It was great. Yeah, it's like Wile E. Coyote. You know, it's like, you know, it's running, running, running,

• 31:00Speaker 02

  running, running, and then just ran off the cliff. And now Wile E. Coyote is like hanging in midair. And we're all like, oh, how far do we have to fall? Yeah. So, we had one other company go out of business since then. So, now I've got two, two dead, two dead bodies to my record. But we, I mean, God, we're dodging bullets left and right. I had a company that I was convinced was going to fail last fall, that somehow managed to scrape together around. And now they're, they're doing okay. But it was like, it was a slog. I have another company right now that is fighting tooth and nail to stay alive. And it's, it's challenging.

• 31:44Speaker 02

  And, yeah, I mean, the funny, I mean, literally, Before, before the bear market began, you know, a year and a half ago,

• 31:56Speaker 02

  I mean, I would, I would have multiple exits a year and every company would effectively mark up every year. And, you know, now it's, I haven't, I haven't seen a carry check, new carry check in a year and a half.

• 32:11Speaker 02

  And being, being a VC right now in a bear market is a much harder job. It's still a fraction as hard as being an entrepreneur, like being an entrepreneur is 10 times harder or more. It's so much harder. Your job's harder than being a VC. Like this job is not that hard. You can make it as hard as you want to. Like you can, like, if you want to work 80 hours a week, you can, but it's, you don't have to.

• 32:33Speaker 02

  And there's diminishing returns, which a lot of people don't talk about in VC. But like, it's still an easy job relative, but it's much harder than it was. Yeah. Back when everything went up. I mean, literally everything, every, yeah, yeah, it's crazy.

• 32:47Alex Kantrowitz?

  What do you mean there's diminishing returns?

• 32:50Speaker 02

  Oh, so what happens in VC is that about 80% of that value in the job comes from about 20% of the work. And then anything you do beyond that, it's kind of like you're pushing a rope. And that's why you see so many VCs on Twitter and so many VCs writing thought pieces, which are actually garbage and doing stuff that like, they're kind of trying to get out in the ecosystem to like, raise their name recognition. But it's, the value of it is de minimis because the real value comes from people who you've built relationships with over a long period of time. That they trust you and they come to you first before they come to anyone else. And like, hey, I got this thing. And you're like, great.

• 33:37Speaker 02

  Like, so I'll give you an example. It'll play into our next segment. So there's an entrepreneur, I had funded 2017, 16, 2017, probably. And he built.

• 33:50Speaker 02

  AI for drive to restaurants. So you know, you go to McDonald's and you're like, hey, I want hamburger and fries. And McDonald's bought the company and it was great outcome for everyone. We're all super happy. And then so in 2021, he's like, he gets free and he calls me up. He's like, I'm free. And I'm like, I'm in. I mean, I, my check is here. You just tell me what the price is going to work out to be. And then in November of 21, he comes back to me. He's like, well, good news and bad news. The good news is we raised a shit ton of money. The bad news is the price is crazy high. And I'm like, you're a pro. I'm in. I said it was in, I'm in. And so then during 2022, I was like, God, I'm an idiot. Like I top ticked the market, like my, it's the first check from my new fund.

• 34:33Speaker 02

  My LPs are like, God, he's an idiot. And then, then the product came out in 20, this, this last 2020, the end of 2022. So like, you know, six months ago. And it's so good. It's, it's literally LM's generative AI for call centers. So, you know, you call the airline, you call a hotel and it's better than a human, demonstrably better than a human. It literally like, it speaks whatever language you speak. It speaks at whatever speed you speak at. It speaks whatever accent you need to speak in and it answers on the first ring. So it can go from one to a million agents concurrently. So literally you call an airline, you're never going to wait on hold ever again.

• 35:17Speaker 02

  Waiting on hold will be like dialing a phone. Like we talk about dialing a phone. Like most kids don't even understand what that dialing a phone means, but like, but literally like they're waiting on hold will be in the English language will be just as antiquated as dialing a phone in, within a few years. You'll never wait on hold again. And so it's like, and then the great part is, is like, like that entrepreneur is so good. That company is going to be such a big outcome that like.

• 35:46Speaker 02

  You know, I didn't have to do a lot of work to get that, just have this relationship that I've had with that guy for over a decade and do the work in that process to be in that position. So it's like, one of the great things about VC is that you just, you're effectively harvesting the labor that's been put in, in the previous years.

• 36:08Alex Kantrowitz?

  So one of the, so in the good times, right? You invested in these companies and they kind of, you know, they kept going. And now it seems like, tell us a little bit about like, what's going on now? Like the companies that you funded during the good times, like, are they like, you know, kind of at the end of their runway and trying to raise again and struggling? Or are they like, have they battened down the hatches and laid off a bunch of people to get profitable and survive? What's the sort of state of startups right now?

• 36:38Speaker 02

  I mean, all of the above. The good news is, is that like, the majority of my portfolio generates a lot of cash. We do, I think we do north of, I think it's 800 million in revenue across all the companies in the portfolio now. Like, it's just like, it's a lot of money coming through those companies. So like, the, the vast majority of them, at least from a revenue perspective, are doing fine. They've just had to batten down the hashes and they've, they've found this growth has slowed. And, and as they, as their growth has slowed, they've had to cut back and stop spending as much. So then their growth has slowed more. So that feedback loop and then all the other companies in the ecosystem are doing the same thing. And a lot of, I sell, I invest in B2B software companies. And so they largely will often sell to other startups.

• 37:23Speaker 02

  And, and so you've seen this sort of like, sort of like feedback loops on feedback loops, which is that like, companies stop spending on growth. So they stop growing and then they stop spending on software from other people. So then they stop buying and then vice versa. And so the whole ecosystem has basically deflated as a result of no more free money in the ecosystem. Growth has slowed down. That's, you know, that's normal. That's part of what a bear market is. It weeds out a lot of the companies that were playing company and pretending to be real things. And then it weeds out a lot of these companies, a shit ton of these companies that the VCs were funding with a bunch of dumb money and that were, that were all just fueled by dumb money.

• 38:04Speaker 02

  And those companies are going out of business. Thankfully, I don't invest in that shit. So like, I'm not getting hit yet with that. But the whole ecosystem is getting hit and so everything is going down. And so, you know, the companies of mine that are, that have not yet found revenue at scale,

• 38:24Speaker 02

  they're, they're in a tough spot. Like they have to find product market fit or they, they die.

• 38:31Alex Kantrowitz?

  And what about the markdowns? Like, is that also becoming a thing that a lot of the companies that you're working on are doing?

• 38:36Speaker 02

  We have a company that, that did a markdown recently. You know, that's, at the end of the day, there's a couple of different ways it can work out. One way is, is you can have what's called a pay to play situation. The way a pay to play works is they go to all the investors and they're like, hey, guess what? You need to invest at this price. Usually it's a reasonable price. You need to invest X amount of money or your holdings will be diluted by 90%. So before you own 1% of the business, if you don't invest now in this round, pay to play, you're going to lose 90% of your, your, your investments. So now you're going to own 1/10 of 1% of the business.

• 39:17Speaker 02

  Massive dilution unless you invest. So there's pay to play. I haven't had a pay to play happen yet in my portfolio. Thankfully, thankfully they're in good shape, but like I, it could happen. It's possible. And then, then you just have to re-underwrite the company. You have to go in, you look at how they're doing. You talk to the, you talk to the customers, you talk to the team, you're like, okay, do I want to re-underwrite this company at this price? Yes or no? It's just a decision that gets made on the spot. And then you have down rounds, which are company goes out and they try to raise money. And the money that they're trying to raise is at a lower price than they would have raised before.

• 39:58Speaker 02

  And the problem with down rounds is that you end up with this situation where the existing investors have an incentive to play chicken with the new investors. So I'll give an example. We had a down round right at the beginning, actually of 2022, right at the beginning of the bear market. And the founder had gone out and tried to raise money and tried to raise money and failed, failed, failed, failed. And he was on bad terms with his existing investors. It was a kind of a weird, weird, weird dynamic. And the new investor comes in, it's like, I want to invest in the company. But as soon as you have bad terms with your existing investors, fuck them. I want them to take a 90% write down.

• 40:39Speaker 02

  So a total cram down of existing investors. And the existing investors were like, hmm, fuck it. Shut it down. Just shut down the whole business. They're playing chicken because they knew that they could get a better deal than that. That, but, but their leverage was to just shut down the whole business. And so the entrepreneur calls me up and it's like, literally crying like, ah, this is bad. What the fuck? Like, I'm trying to save the company here. And I'm like, dude, this is a negotiating posture. This is how it's going to work. And then the new investor is like, why am I even bothering with this? Like, what are you doing? And I'm, I'm a reasonably big sized shareholder in this company. I mean, we had maybe like 500 invested in this company. And so like, it's enough that I care. So, and I called the existing investor.

• 41:23Alex Kantrowitz?

  Wait, how much invested?

• 41:24Speaker 02

  What's that?

• 41:25Alex Kantrowitz?

  How much did you have invested in?

• 41:26Speaker 02

  500K.

• 41:27Alex Kantrowitz?

  Okay.

• 41:28Speaker 02

  So like, it's enough that like.

• 41:30Alex Kantrowitz?

  You don't want to lose that.

• 41:31Speaker 02

  Yeah. Well, I mean, this is my job, right?

• 41:33Alex Kantrowitz?

  Right.

• 41:34Speaker 02

  You know, the current, the current portfolio is about 100 million of deployed capital. So like, I have to spend my time accordingly. And you, you want to spend it on the winners, not the losers. And so you, you know, when there's a write off occurring. You just, that is what it is. So in this instance, I go to the existing investor, I'm like, hey, there's gotta be a way we can work this out. And so this ends up being six weeks of phone calls between these three parties with me being the mediator, trying to get this thing sorted out. And of course, it sorted out exactly where you thought it would, like at a middle ground that's fair, that everyone was happy with. And we all took some dilution and the new investor got to

• 42:15Speaker 02

  dilute this and everything got sorted out. And now the company seems to be doing okay. But like, these down rounds are like just incredibly time consuming. Like, it's just a real, because because this chicken that gets played between the existing investor and the new investor, the leverage that they both have is simply to be a stick in the mud. And so then you end up with this very complicated dynamic that's very time consuming. And, and so when that happens, it's painful, very painful.

• 42:45Alex Kantrowitz?

  Now, I wonder a little bit about AI, because like, there's been this moment, and we spoke about this with Elliot Brown last week, but there's been this moment where like, people say AI, and all of a sudden, it seems like it's brought back like the roaring, you know, 2020, right? And now it's like, well, how much of this is actually investable? There's been reports that like actually interest in chat GPT is going down. I had it on Google Trends. Some people had it on like the actual web traffic to this stuff. So I'm kind of curious, like, are you seeing, so you mentioned the call center application, that's very interesting. Are you seeing like real and practical uses of this latest wave of generative AI? And can you share a few examples?

• 43:23Speaker 02

  Yeah, yeah, no, I mean, I'm, I've seen quite a few. I'm a real believer in what I'm seeing.

• 43:32Speaker 02

  It's not perfect. It's not magic. It doesn't, doesn't solve all the world's problems and it won't invent, you know, an endless tub of ice cream that we can always have just sitting in front of us. It just automatically replenishes. Not yet, anyway. But it doesn't, it is powerful. So for instance, I have another company in the business process outsourcing space. So they basically, they take things that were done by humans in the Philippines and in India before, and they automate them. And it's like, it's better. It's demonstrably better than what they were getting before. It's cheaper.

• 44:03Alex Kantrowitz?

  What type of process do they automate?

• 44:05Speaker 02

  Um, they're not very public, so I'm not gonna, okay, not gonna.

• 44:10Alex Kantrowitz?

  Like, I used to report on this company. What's it called? Name's escaping me right now, but it's they they yeah, they did robotic process automation. Is it similar to that type of stuff?

• 44:22Speaker 02

  Similar in a way. It's this is this is different in its own way, but they're but yeah, there's there's some similarities, but but the end the end result is is that AI makes that better, you know, for the call center thing, AI makes that better. For I have another company called Fireflies, you might know, they do. They do your Zoom calls, they basically transcribe your Zoom calls and they turn them into action items. And and I mean, Fireflies is, I mean, AI has made they got early access to GPT four. And I mean, God, that product got it was already good and it got really good. Like people, if you're not using Fireflies right now for your Zoom calls, you're making a mistake.

• 45:01Alex Kantrowitz?

  So wait, what does it do? It just transcribes and then gives you like some notes and action items?

• 45:05Speaker 02

  Yeah, so it transcribes the entire call, figures out what you discussed, and then creates all of your follow ups and action items, and it can push information into your CRM like it does. It's, I mean, if you're if you're a professional and you're doing calls that have anything that you need to keep track of, and you're not using Fireflies, you are literally making a mistake.

• 45:25Alex Kantrowitz?

  Yeah, the company that company that I was thinking of again is UiPath.

• 45:29Speaker 02

  Yeah, of course. Yeah, Romanian company. Amazing company. Great. Yeah. Yeah, no, no, UiPath is great. But AI has taken that whole market and like that and and really dramatically increased the performances of products. And so if you think about that, at the end of the day, like, all software products are is they're like tools to help people do their jobs better. And when you make those tools better, then people can basically get better outcomes and they become more efficient and the world becomes a better place. And so broadly, I think AI is it's a big, big monster, awesome trend. And we're seeing we're seeing a lot of consequences. When it comes to like the consumer use case, like ChatGPT as a consumer use case.

• 46:15Speaker 02

  I still prefer to search and read the source materials versus like go just ask the question of chat GPT. I find the answers are kind of like, they're kind of like, they're weak. They're just, they're just sort of soft and they're not, they don't have an edge to them that I find interesting. And I don't understand the conflicts between the various different positions on a subject. It's just like, oh, here's the answer. And then you go read the source material and you're like, yeah, it might be the answer, but it's, it just seems like it's sort of the mismatched center. Like it just like, take all this, mash it together and come up with the most probabilistically sort of vanilla answer we can get. So I, I have not found, chat GPT has not become like one of my main go-to sources, but that's just me personally.

• 46:57Speaker 02

  And I'm not a consumer investor, so I don't have a good sense of like where consumers are thinking about it from a personal use case.

• 47:04Alex Kantrowitz?

  Yeah. And it's just one of those stories where the data is also just like very instructive. I think in terms of like, all right, well, less people visiting. I mean, I know they did release an app, but I don't see it very high in the app store. So where are you on product? I mean, you're doing AI business software. Where are you in terms of like productivity and jobs? Do you think that this is going to be something that helps create jobs?

• 47:26Speaker 02

  Or? Well, I mean, take the call center one.

• 47:28Alex Kantrowitz?

  Right.

• 47:28Speaker 02

  Good example.

• 47:31Speaker 02

  When that happens, the pace that it will happen at will be so fast. I, I, I think it will be massively destabilizing. Like, so think about, if you're an airline and when, when, you know, when United rolls out, you know, this company's solution.

• 47:50Speaker 02

  Any other airline that doesn't have it within 12 months is going to be, they're screwed. I mean, I, I'm not going to do business with airline that doesn't answer on the first ring. Like, and like, I get that now because of status. And like, when I have to deal with that airline that doesn't have that, I'm like, ah, I can't handle this. And so now every airline will be able to provide first ring better than a human AI call center. So they're all going to change very rapidly, right? They're all going to switch and all those jobs are going to disappear overnight. Like, I mean, you're 90% of those jobs, give or take, will, will, will be eliminated. And when you do that across all the call centers in the world.

• 48:30Alex Kantrowitz?

  A lot of jobs.

• 48:32Speaker 02

  Very destabilizing.

• 48:32Alex Kantrowitz?

  So what happens to society in that case?

• 48:35Speaker 02

  I mean, look, long term, I think the, oh, these tools make us more productive and it increases economic benefit and everyone's going to be happy. Short term, that's the problem is that like technology now is speeding up the rate of disruption and destabilization. And I don't think people handle that. Humans don't handle these things well. They go fucking crazy. And so like when you take all the call centers in the Philippines and you've laid them all off all at once, it's going to be a big problem.

• 49:05Alex Kantrowitz?

  Yeah. So when you read Mark Andreessen's Will AI Save the World essay?

• 49:10Speaker 02

  Well, he's got to, at the end of the day, do I want a world where we create things like AI to make us more productive and smarter? Yes. Is it, do I, do I think most of the doomers are idiots? Yes. So I largely align with Mark Andreessen, but at the end of the day, like.

• 49:32Alex Kantrowitz?

  There's nuance in the middle.

• 49:33Speaker 02

  Am I afraid of the consequences of AI in terms of destabilizing human systems? Absolutely. Am I afraid of AGI in the long term? Yeah, it's not a zero. Like there's a real risk of like long-term, long-term AI cataclysm. That's, that's, that's not zero. And like two or three years ago, before, you know, we came out with LLMs and generative AI. The number was a fraction of what it is now in terms of like that risk number. And, you know, on the other hand, humans are just so stupid that like, if you leave us to our own devices, like we, I'm more scared of humans and nuclear war and global catastrophe as a result of the way that we treat this planet than I am.

• 50:18Speaker 02

  That much more scared of that than I am of, of, of, of AGI destroying all the humans. So therefore we either, we have to, we have to become smarter or we're going to destroy ourselves because we're so stupid.

• 50:30Alex Kantrowitz?

  Yeah, I'm in the same camp. Okay, so let's talk about MediaMath. MediaMath is one of the most important ad tech companies, I think, of the last 10 years. And they just completely went bankrupt and they're shutting down. And it's just an interesting story to me because like the way I think about it, if MediaMath can't make it, then nobody can make it. So.

• 50:50Speaker 02

  Well, that's not true. Trade Desk is a large, viable, public company.

• 50:54Alex Kantrowitz?

  Yeah.

• 50:55Speaker 02

  They're, but they are the only survivor really from that. Well, there's, there's, there's Trade Desk. I mean, at the end of the day, like the, the, like, what happened to my company, Trigget, was the very beginning of the emergence of the sort of like duopoly or triopoly, which is Facebook, Google, and, and I guess Amazon. They just, they just crushed the, the open ecosystem and they, they, they, you, if you're an advertiser, you have to work with them. And if you were a, you know, supplier of tools for advertising on the open ecosystem, you got, you got your ass handed to you. But Trade Desk has done very well to navigate that and they built a big business, but otherwise everyone else is dead.

• 51:38Alex Kantrowitz?

  So what do you think?

• 51:39Speaker 02

  Unless you do, unless you do, you play in the sort of gray areas. There's lots of money you made in the gray areas. Like if you're, if you're comfortable with ethically and morally unclear things, then there's plenty of money you can make in those areas.

• 51:51Alex Kantrowitz?

  Yeah. So what are the morally unclear things?

• 51:55Speaker 02

  Oh, well, I mean, if you want to advertise products that Google won't let you advertise, Google won't take your money. There's people who will take your money. Like, and so there's, if you're, if you're willing to use tactics and strategies that Google or Facebook is uncomfortable with to, to, to, to get users to engage with ads, and there's lots of ways to do that. In the old days, it was pop-ups and pop-unders and, and, and it was spam. And there's lots of ways to advertise in ways that are ethically and morally dubious, but that make a lot of money. There's advertisers who will be more than happy to fund those ads. There's lots of ways to make money in the ad ecosystem.

• 52:35Speaker 02

  Just, you know, are you building equity value in those businesses? No, but you can put a lot of cash in your pockets.

• 52:40Alex Kantrowitz?

  Yeah.

• 52:40Speaker 02

  I have friends who have big yachts from that shit.

• 52:43Alex Kantrowitz?

  Right. What do you think happened with MediaMath in particular? Was it just that there was only room for one or were there strategic mistakes there?

• 52:51Speaker 02

  I, I think the.

• 52:54Speaker 02

  It was a challenging, like if the ecosystem had stayed open, I think a lot of us would have succeeded and done well and had great outcomes. When the ecosystem became closed, the number of chairs in the game of musical chairs evaporated. And it was became very challenging. Like remember the beginning, the beginning days of those of us who were the sort of original DSPs. So there was MediaMath, there was Turn, there was Data Zoo, there was Trade Desk.

• 53:22Alex Kantrowitz?

  And for those who are listening, that's the systems that you would buy ads with.

• 53:26Speaker 02

  Yeah. So these, so MediaMath is what's known as a demand side platform. It's a tool for advertisers to buy ads out across the ecosystem.

• 53:36Speaker 02

  And when it first came out back when, so we all kind of built on this concept of real time bidding being sort of a way to buy and sell advertising. And we all, some, some came before that, some, and pivoted into it. Some of, some of us kind of pivoted into that once we saw that. But like, that was sort of the, sort of the gun, the starting gun going off to become sort of the, the future of the open advertising ecosystem. And we all kind of bet on that. And so in the beginning, there was this group of us who were, who were there invite, they were, they were smart, super smart. They got bought right away for a nice outcome. And then they went to go build a multi-billion dollar business. So like, those guys are great, awesome.

• 54:16Speaker 02

  And then of the bunch of us, MediaMath was really the only one left besides Trade Desk. Now, now a bunch of new entrants have come in subsequently and that market has remained a very hot mess in a lot of different ways. But yeah.

• 54:32Alex Kantrowitz?

  So it's largely the, when you say open and close, so it's largely just the big tech companies that came in and closed the ecosystem effectively. We went apps and they figured out how to do the monetization there and that's what happened.

• 54:44Speaker 02

  Well, so for instance, with Facebook, before Facebook went public, they missed their Q4 because their ad platform was complete garbage. Like they had, they had designed it wrong and. They, at that point in time, and there's a great book by this Antonio Garcia Martinez wrote this book, Chaos Monkeys, about this whole journey. And he wrote about, we were in that, about part of this whole process. He wrote the book. It's a good book. And but what happened was is they missed their Q4 because they had built their ad platform wrong. They just didn't, just didn't understand how to, how to build it the way it should have been. And then they, Zuck goes to the ads team and he's like, guys, what are we gonna do? And he's like, give me your best 10 best ideas. And one of the ideas was to open up

• 55:28Speaker 02

  the Facebook ecosystem to allow independent companies to manage the advertising and target the advertising on Facebook for advertisers. And so Zuck said to the ads team, great, do all your ideas. And that was one of them. And so then the ads team came to companies like us, we're like, hey, you guys want to buy ads on Facebook? So it's an open ecosystem. Like, we were allowed to participate in that, in that ecosystem. And we were like, absolutely. We're there with bells on. And, you know, my business went, we, we made it work. Like, literally, the click through rates when we were first advertising on Facebook. So before we got in there, they were lucky to get one click for every 3,000 ads. If you run 3,000

• 56:13Speaker 02

  ads, you get one click. And they were making pennies per, per, for 1,000 ads. As a result, we were able to 100x that, literally 100 times more efficient and effective. And so instead of getting one click for every 3,000 ads, we were getting 30 clicks for every ad. Like, we crushed it. Because we had, we had built good tools that targeted the right ads, the right people at the right time for things that they wanted. So you go to booking.com and you're looking for a hotel in Sao Paulo. And we were like, hey, here's a hotel in Sao Paulo. Here's the price. Here's the dates you're looking for. And people clicked on those and they bought those. And so the ad prices that we were able to

• 56:53Speaker 02

  pay Facebook went up by a dramatic number. So now, Facebook sees this, and their ads start to take off. Their business starts to take off. And they're like, oh, we shit, this is how we do it. And so then there's this big meeting that happened between Cheryl and the ads team. I don't think Zuck was there. But there's a big group of them, they get together. And they're like, okay, do we stay open and let all these independent providers buy media for the advertisers? Or do we?

• 57:20Speaker 02

  Fuck all those guys, build the tools ourselves and close and go direct. So the advertisers have to buy from us directly. They chose to go direct and to become a closed ecosystem. So I have a scar across my belly from one side to the other. I'm getting gutted by Facebook as a result of that decision. And my business, I mean, we went literally from a million in revenue to 30 million in revenue in 12 months. And we had 300 million in revenue on the books. Like, we were like, we would have blown it out if they had stayed open, but they went the other direction. It kills us. And so the whole ecosystem has largely done that. So Google has done that. Facebook has done that. Amazon has done that. They've all kind of become very closed.

• 57:59Alex Kantrowitz?

  Okay, last question for you. Still living in San Francisco?

• 58:04Speaker 02

  I am currently still in San Francisco.

• 58:06Alex Kantrowitz?

  No, Miami plans on the books.

• 58:08Speaker 02

  Oh, no, Miami's never been my jam. I mean, I'm, I'm deeply, deeply, deeply frustrated with this city. I'm deeply frustrated by the idiocy that they have driven this city into the ground. It's choppy right now. There's, there's, there's, there's hints of goodness again. And it's they're cleaning up. They're doing a good job cleaning up parts of it. But like, I mean, they, they literally destroyed this city and it's going to take years, years to grind our way through this. The big, the big question for me is what happens in the next election? Like, if the voters of San Francisco are like, oh, we want more of this. I've become very depressed and dispirited. If the voters of San Francisco are like, okay, enough of

• 58:51Speaker 02

  this. Let's get rid of these idiots that like, are just like, I mean, these, these, these, these, there's ideologues run this city and they just do stupid things after stupid thing after stupid thing. And it's like, the voters, they, they put up with more of this than, yeah.

• 59:05Alex Kantrowitz?

  It's gonna be bad. Well, I'll be there in 10 days. So maybe you and I can have a coffee. It'd be nice to see you in person.

• 59:10Speaker 02

  Come have, come have coffee in my, in my hood and we'll, I'll show you, I'll show you around.

• 59:15Alex Kantrowitz?

  That'd be great. Zach, thanks so much for joining. Great to see you.

• 59:18Speaker 02

  Oh, my pleasure. Great to see you, too.

• 59:19Alex Kantrowitz?

  Awesome. Thanks, everybody, for listening. Thank you, Nate Quatney, for handling the audio LinkedIn, for having me as part of your podcast network. And once again, to all of you, the listeners, if you've Been listening for a while, want to give us a rating on Spotify or Apple Podcasts? That would be awesome. If you're a new listener and want to hit subscribe, we do these flagship interviews every Wednesday and then we break down the news on Friday. On Friday, Ron John Roy is back with us. We're going to cover everything that's happened this week. You don't want to miss it. All right. Thanks again for listening. We'll see you next time on Big Technology Podcast.

• 59:55Speaker 03

  Now, more than ever, we need someone on our side. But Rob Whitman? Whitman's votes drove up costs, cut Medicaid and risked 350,000 Virginians healthcare to pay for tax breaks for himself and his donors. He's not on our side. Shannon Taylor will fight corruption, cut taxes and bring down costs. This November, vote for Shannon Taylor. She's for us. Paid for by HMP, the House Majority PAC dot com, not authorized by any candidate or candidate's committee.

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