Pod Insights The Prof G Pod with Scott Galloway Prof G Markets: Carvana and Corporate Governance, Hollywood vs. Microsoft, and Oddity’s IPO About this episode This week on Prof G Markets, Scott shares his thoughts on Carvana’s questionable governance in light of its recent debt restructuring. He then explains why Hollywood writers and actors should be picketing outside of Microsoft instead of the studios. Scott also discusses the successful public debut of Oddity, a beauty AI company, and why he tends to hold onto stocks for at least a year, even if they seem like momentum trades.
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Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
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1:33 Scott Galloway? This week's number 25. That's how many pounds of avocados Chipotle's new Autocato machine can peel and core. The machine will cut the amount of time it takes to make Chipotle's guac in half, from 50 minutes to 25 minutes. No joke, my local Chipotle is organizing a stand-up comedy night. I'm going for shits and giggles.
2:04 Scott Galloway? Welcome to Prop G Markets. Today, we're discussing Carvana and corporate governance and Microsoft's latest AI announcements. Here with the news is Prop G Media Analyst, Ed Elson. Ed, what is the good word?
2:17 Ed Elson? I'm excited for my vacation, Scott. T minus four days now.
2:21 Scott Galloway? Another vacation?
2:22 Ed Elson? First one, man.
2:23 Scott Galloway? Where are you going? What? Jesus, how much vacation? Literally, your life is vacation interrupted by fits of work. Where are you going?
2:29 Ed Elson? No, no, I'm going to Mykonos.
2:31 Scott Galloway? Oh, you're going. Oh, we talked about this.
2:33 Ed Elson? That's right. That's right.
2:34 Scott Galloway? Yeah, you're gonna. It's a ton of fun. That's a long way for you.
2:37 Ed Elson? It's worth it.
2:38 Scott Galloway? And you're going with buddies?
2:39 Ed Elson? Mm hmm. Five of my mates, same squad, did the same thing last year. It's, we're just running the whole thing back. I can't wait.
2:47 Scott Galloway? Six young men rolling into a club in Mykonos. There's a word for that. No.
2:55 Ed Elson? It's a recipe for success.
2:57 Scott Galloway? If I could do a Greek accent, I'd do it, but I hope you have reservations. And anyways, take us to the headlines, you Greek partying young man.
3:12 Ed Elson? Senators Kirsten Gillibrand and Josh Hawley introduced a bipartisan bill to ban federal government officials from owning and trading individual stocks. The ban would apply to senior members of the legislative and executive branches, as well as their immediate family. A US district judge ruled that cryptocurrency company Ripple did not violate securities law when it sold its XRP token on public exchanges. Cryptocurrency prices rose significantly on that news. Netflix added 6 million subscribers in the second quarter, triple what analysts expected. That's thanks to the company's crackdown on password sharing and its new ad-supported tier. Still, revenue came in weaker than expected, and
3:53 Ed Elson? the stock fell 9%. Goldman Sachs reported that profits fell 58% year-over-year in the second quarter. That's its worst quarterly profit drop since 2020 at the start of the pandemic. And finally, beauty AI company Oddity made its public debut, and as predicted on our show last week, the shares got a pop. The stock rose more than 35%. That's on top of the fact that they were repriced higher before the IPO.
4:21 Ed Elson? Scott, reactions.
4:22 Scott Galloway? So let's start with a bipartisan bill to ban federal government officials from owning and trading individual stocks. It is insane that this isn't already a law. There's a massive amount of research that the majority of these representatives and congresspeople are privy to that basically says one thing. To believe you can beat the market is irrational, dumb, illusory, what have you. And I believe the majority of them know that unless, unless you have inside information. The fact that these guys go into private hearings, security, national security hearings with defense contractors, and these people get to decide the budgets, right, of a $700
5:07 Scott Galloway? billion, this is just one sector, in military spending, and they know before anybody who's having their spending increased, who's getting spending cut. If Northrop's about to get a contract for four more trident class submarines, which will take revenues up $30 billion, and then they can go trade on those stocks. And there's some, there's some guidelines right now saying if you do it, it's bad, no, no, but they pay a small fee. And what do you know, the Speaker of the House, or former Speaker of the House, Nancy Pelosi, her and her husband, have just a remarkable track record of picking stocks. And this is not only just incredibly wrong, it, it attacks people's belief and faith in the markets.
5:49 Scott Galloway? And our robust markets, where there is a decent association with rule of fair play, are the result that American companies can raise more capital than companies in other countries. It's the reason why Americans who, when they retire, hopefully have some financial security, because our markets tend to go up and to the right. And when we let our elected representatives who have access to insider information trade stocks, it's just, it, it literally cements the notion that they are doing something the rest of us can't do. And any representative who fights this legislation is saying, I want to continue to trade on insider information. Because it shouldn't matter that they only get to invest in mutual funds. It shouldn't matter unless they believe they can beat the market, which means one of two
6:34 Scott Galloway? things, they're stupid, or they acknowledge they have access to insider information. So this is overdue.
6:41 Ed Elson? What's the difference here, really, if, say, you're a big executive at a big bank, a big investment bank, you're overseeing massive M and A transactions, you have, you know, maybe not better insider information to the senators, but I'm sure some of these executives do have more consequential insider information, but they're allowed to trade stocks. And the way that we regulate that is that we just keep track of their stock picks and we prosecute when there's evidence that they are engaging in insider trading. So why not use that same approach for senators?
7:15 Scott Galloway? So, Ed, I think your premise is flawed, and that is, having worked at Morgan Stanley and now working a lot with Goldman Sachs and different investment banks, very few of them are ever allowed to trade stocks. David Solomon and Jamie Dimon do not trade stocks, Ed.
7:28 Ed Elson? Yep.
7:29 Scott Galloway? Just for that reason. They know it. They're contaminated. The moment, when I'm on a call with someone on board, if they say you're about to get inside information, it means you are no longer allowed to trade in those stocks. One of my stallmates at Morgan Stanley went to prison for insider trading. He was feeding information to like his cousin in Singapore, and this is the late 80s. So I'd be shocked anywhere, anywhere, if you sign up to be an analyst in the M and A group of an investment bank, that you are ever allowed to buy and sell a stock. You can go into blind trusts, you can go into ETFs. So right now, there are fewer restrictions on elected representatives who have access to more insider information than anyone in investment banks.
8:11 Scott Galloway? If you're working on a deal, the fastest blue line path to prison would be to trade on insider information. And that's true of the law firms, that's true of the PR firms, helping them with comms. You get a talking to saying, you are now privy to non-public, material, non-public information, and you can go to jail if you trade on this information. This is overdue, and anyone who raises their hand and tries to get in the way of this is saying, no, I like insider trading and I want to keep doing it. Let's talk about the US District Judge. That ruled a cryptocurrency company Ripple did not violate securities law. And we saw, I think we've seen Ripple just rip up. I know that Coinbase, I think, has doubled in the last couple of months. And Jason Stavers, our editor in chief, reminded us that it almost means nothing.
8:56 Scott Galloway? And it's really interesting because we have a tendency, whenever we hear a judge has ruled, that's the headline, that's the news alert from CNN. And what Jason reminded us was a district ruling, a district judge ruling means almost nothing. And that this could just as easily be overturned as it was ruled. So it's a, it's a signal, but it's a faint signal. And you and I were talking about this, saying that everyone has seen this as some sort of unlock or liberation of crypto. And you had a different view. What are your thoughts around this?
9:23 Ed Elson? Well, the reason that they shouldn't be celebrating is because if you look at the ruling, the ruling just doesn't make any sense. Basically, according to the judge, half of those XRP tokens that were sold were securities and the other half weren't. And the ones that weren't securities are apparently the ones that were sold to retail investors on crypto exchanges. And strangely, the ones that were securities, i.e. the ones that should have securities regulations and disclosures, are the ones that were sold to institutional investors, i.e. the people who need regulations the least. So it just doesn't make any sense. I mean, they're basically saying, okay, you're an experienced investor, you're a VC, we're going to give you the protections that you need so that you can validate, yes, this is
10:08 Ed Elson? a security. But if you're just some kid who heard about the XRP token on, say, Reddit, then it's not a security, there's no regulation, there are no protections, just throw your money at the wall and see what happens. I think it's a bad ruling. And, you know, if I were to make a prediction, it'll be that the Court of Appeals will reverse the decision. And eventually, if this goes on any longer, I could see this going to the Supreme Court.
10:32 Scott Galloway? Jesus Christ, you're already in Mykonos doing edibles and trying to talk about the market, Sid. Let's move on. Goldman reported profits fell 58% year-on-year. This is some of the exit costs of getting out of the consumer business. Their trading volume is down, deal making is down. In some, Goldman is, they're great at trading, but they're primarily known as the premier dealmakers. And so when IPOs and M&As down, their earnings are going to get hit hard. They kind of took a very conservative accounting approach and threw a lot of losses at this quarter to try and get it all out. And that appears to have worked. I think the stock's actually up today. I mean, there's some, there's some things here management has to take responsibility for specifically the what looks like an expensive for into the consumer world.
11:15 Scott Galloway? So that's the bad news. The good news is they're smart enough to get out. The other stuff that is really sort of outside of their control is just what is a cyclical decline in deal making where they get a lot of fees. In terms of AI company oddity, we made this prediction and it was an easy prediction. And I want to be clear, I bought stock in the IPO yesterday. There's very few companies in the shoot who are growing 30, 40, 60% a year and also profitable. A, it's, it feels like it's a great company and there aren't that many lined up. And because there's a lag between when you decide to go public and getting public, a lot of this is not their fault in the sense that there's just so much appetite and money on the sidelines, ready for a good company, and there just aren't that many queued up on stage, if you will.
11:59 Ed Elson? Are you viewing that as sort of a momentum trade or a long-term investment? Because a lot of what you said around the combination of beauty and technology and the leveraging AI, and it's one of the first big consumer IPOs, that, that sounds sort of momentum based. Are you gonna hold for a while?
12:18 Scott Galloway? Well, is it a trade or is it a hold, right? So it's not what I call fully valued right now, but whenever you buy a stock and you could recognize a 45% gain in 24 hours, there's a reasonable temptation to sell and just take the gain or at least maybe take some off the table. I think I'm a holder here because I think I'm super excited they're about to launch or gonna launch in 2025, an acne brand. And I think if you look at the ability to absorb with machine learning, several million photographs and figure out the right treatment, I just, to me, that sounds really powerful. And when I look at the beauty industry, there really aren't what I call a lot of hot growth brands right now.
12:59 Scott Galloway? L'Macquillage is a really strong brand. It's a strong company. They just got raised a shit ton of capital. They could probably go buy some small beauty-related tech startups. And I think the momentum here is going to take the stock. Higher. I think this is a company that could be a $10 billion market cap beauty brand and be a reasonable, not a competitor, but a threat to L'Oréal and Estee Lauder, who trade at much larger market cap. So I'm probably a holder here. If it were to like double in the next 30 days, I might think about taking my initial investment off the table and playing with the house's money. What one mistake I make, but I continue to make it, is I always, almost always, hold the stock for longer than a year because
13:40 Scott Galloway? it just pains me to pay short-term capital gains on a trade. And quite frankly, sometimes that doesn't work out. Letting the tax tail wag the dog is not a good idea, but I can't help it because if I'm in something six or seven months, I just can't help but think, well, if I just hold on another five, I get a 10% pop in the stock price because I'm going to pay 22.8 as opposed to 37. And if you talk to great investors, usually where they've had really big wins is, you know, I bought $400,000 worth of Apple stock in 2010, and I think it's worth eight or $10 million now. And any one year, it did okay. In some years, it was down. But holding a stock, there's nothing that creates wealth,
14:23 Scott Galloway? like one, inheriting it. But two, if you're not smart enough to inherit money, buying a good company and holding on to it for a decade. So I have a bias towards just holding on. And to be clear, it's hurt me a couple of times. I invested in the IPO of Lemonade. It went to 200. Now I think it's at 20 or 23. When it was at 200, I probably should have said, okay, as great a company as it is, this makes no sense. And I did sell down, but I didn't sell, you know, I didn't sell all of it. I still own a bunch of it because I like the management team and I like the company. Netflix, other than TikTok, is the biggest beneficiary of the writer's strike. My understanding is somewhere between two thirds and 80% of their content
15:06 Scott Galloway? production marches on. I think they have 10,000 people in Madrid making content. So, "Thank you, WGA," said the Economic Bureau of Spain. "Thank you," says TikTok. And Netflix, just by tightening up password sharing, added 6 million subscribers. They're adding people. They're adding 6 million subscribers. And the writers, in my opinion, in the union, and I've been saying this a lot, should absolutely partner with the studios and Netflix and go really hard at the biggest pile of money. And that is Microsoft, which added $155 billion in one trading day. And basically say, "Look, we are really going to seriously get in the way of your ability to charge a
15:51 Scott Galloway? subscription fee because you are crawling our content everywhere. And we represent almost every content creator in the world. And this is the moment." And I was at this moment in 2008 with the New York Times when we were so fascinated with Google, that we let them crawl our data and debase our amazing content for pennies on the dollar. We should have all gotten together, the new houses, the Murdochs, the Solzbergers, you know, the people who own the FT, and said, "We're going to present one unified front to Google and to Microsoft and the other search guys, and we're going to extract fair value for the fact that we are painting their house every millisecond." And that is what's happening. The same moment here, the biggest pile of money
16:34 Scott Galloway? is tech as it relates to AI. And that's who the WGA and SAG-AFTRA and the studios should go after.
16:42 Scott Galloway? We'll be right back after a quick break with a look at Carvana.
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19:19 Ed Elson? We're back with Prof G Markets. Shares in the troubled used car retailer Carvana soared after the company said it had reached a deal to restructure its debt. The agreement will eliminate 83% of Carvana's 2025 and 2027 unsecured note maturities, and it will reduce its total debt by more than $1.2 billion. Shares rose 43% on the announcement. Carvana also made headlines during the pandemic as its stock more than quintupled. 2022, however, was a disaster year. Inflation and rising interest rates suppressed demand for used cars, and the stock shed all of its gains, down 98% from its peak. The company was also hit with several lawsuits. One came from a couple of shareholders who alleged that the Garcia family, which controls
20:03 Ed Elson? the company, had engaged in a pump and dump scheme. That suit claims the family inflated sales numbers and quietly sold the stock. But the debt restructuring is promising to investors. So is their latest earnings report, which beat estimates with a $105 million net loss. The company is also issuing $350 million in new stock, and year to date, Carvana is up, get this, 1,000%. It's still well off its pandemic high, but these gains put the stock back at 2019 levels. Scott, Carvana was a huge name a couple of years ago. What do you think of this news?
20:38 Scott Galloway? The markets are bipolar, and this is really speaks to what is the core competence of a great investor, and that is your ability to disassociate, specifically trying to ignore your emotions. Because when Carvana's on the way up, and it's the future, and used car prices are skyrocketing, and everybody's going to buy cars through Carvana, everybody piles into the stock and takes it to just unsustainable levels that assume that it's going to sell every car in the world. And then they have some governance problems, and governance matters. One of the reasons that our stocks in our markets traded a higher multiple is that we do have Greater regulatory scrutiny and generally speaking, we have better governance. Most boards take their role very seriously. And this transaction with his dad, it just really stank.
21:20 Scott Galloway? You just heard about it and you thought, okay, another reason not to like this company. And investors will ignore poor corporate governance when the stock's skyrocketing. They're like, whatever, you know, I'll ignore it. All right. If you get straight A's, I don't mind that you're vaping on weekends with your friends. When you start getting Bs and Cs, I'm going to start paying attention to the fact that your clothes smell like nicotine. Anyways, God, that was a good analogy. I'm proud of that. I just made that up. And everything, when you look at a company or investment, has to be set against valuation. At some point, almost any stock is overvalued. Nvidia is an amazing company in the hottest sector in the world. And guess what? Its current valuation indicates or assumes that it's going to sell every semiconductor and every GPU in the world.
22:04 Scott Galloway? So it's probably overvalued. At the same time, when Carvana was trading at cash, they do sell cars. They are an important company and they took down costs. They reduced costs. Their revenues were off 24% year on year, but their cost of sales decreased 29%. Their SG&A declines 37%. So in sum, they've cut costs faster than the revenue declines, which adds up to a decline in loss. And the loss did narrow from 438,105. So the market looks at this company and says it's a big player. They're making hard decisions that are moving them towards profitability and it had been over punished. When in March of 2021, when it hit its peak, its enterprise value to sales was 4.8. Now it's 1.1.
22:46 Scott Galloway? And by the way, that EV, that EV to sales ratio is about the same for Ford and GM who are in the ugly business of manufacturing. It's actually cheaper than CarMax right now. So the tick up is really the notion that, okay. At some point, every company, no matter how much you love it, is a sell. And again, with almost every company, at some point, it's a buy unless it's going to zero. And Carvana does feel like it adds enterprise value there.
23:13 Ed Elson? Yeah, I mean, so you bring up this idea of corporate governance and just some history on Carvana. So Carvana was spun out of another used car company called Drive Time. And it turns out that Drive Time is run by the founder of Carvana's dad, this guy named Ernie Garcia. And just a side note, that guy, Ernie Garcia, was guilty of bank fraud in the 90s. But let's just ignore that for now. Mia, our research lead, looked through the filings and she found some very sketchy information as it relates to Drive Time. So first off, Carvana buys cars and leases office space and sells warranties on behalf of Drive Time. And the filings don't disclose anything about whether Carvana could have gotten better prices
23:56 Ed Elson? on those services somewhere else in the market. There was also a shareholder lawsuit that alleged Carvana paid $400 million to Drive Time, which was at the time equivalent to a third of Carvana's gross profit. And then probably most alarmingly, there's this quote in the annual report that says, quote, "The interests of the Garcia parties may not in all cases be aligned with our stockholders' interests." Meanwhile, the Garcias have basically total control of the company because they have a dual-class shareholder structure. So you mentioned the idea of the markets being bipolar. Is there a line in terms of sketchiness, bad fiduciary obligations,
24:39 Ed Elson? just the fact that they have this strange parental relationship, literally a parental relationship with Drive Time? Is there a line at which you're like, okay, I totally need to stay away from this company and everyone else should as well?
24:52 Scott Galloway? I wouldn't invest. I mean, this is a trade. It might be, it might have just gotten so cheap that you might have looked at it and said, well, the company isn't going away. And it has more cash. At one point, I bet it was trading for cash. But here's the thing, this type of conflict, all right, selling, having a relationship with a company controlled by your father, that is uncomfortable. That in and among itself, though, isn't illegal. And there are certain situations where conflict benefits the company. Maybe they were getting a sweetheart deal. Maybe it was the best type of relationship in the industry, given the options. However, however.
25:29 Scott Galloway? The board, what this indicates is they have a shitty board that doesn't understand the term fiduciary. Fiduciary is a wonderful word. It means that once you have your deal set, once you know you're getting this many options, vesting once a year for four years, and you get a certain annual fee to serve as a director, you are now doing nothing but serving other parties' interests. You are representing shareholders, you are representing the Commonwealth, you are representing employees, you are representing the community. Here's the thing, it's okay to have related party transactions as long as a special committee of the board and the company can show that this is a good relationship with market economics.
26:10 Scott Galloway? That's okay, as long as you've done the work and said, "This is a great relationship, we benefit from the personal relationship, and the services we are buying from them and the money we are paying are market rates." That's fine. It doesn't appear they've done that here. So this thing stinks. That's not to say it won't go up another thousand percent or then down ninety percent, but in general, as someone who likes to think of themselves not as a corporate governance expert, but someone who appreciates how important it is, good corporate governance matters. I hate dual-class shareholder companies. They started with media companies, now they've perverted almost all technology companies. And to be fair, Oddity has dual-class shareholder. I think the brother and the sister who started the company now control it. I hate when you separate ownership from authority.
26:53 Scott Galloway? The Sulzbergers control two percent of the shares of the New York Times, and yet they control the company. Are they going to make decisions? Are they great fiduciaries for the other ninety percent when they get to control the company, but they only own two percent of the company? It's important, when you're on a board, to be, you know, occasionally be the, I don't know, the unpopular one. And I was at a board meeting this morning, and the companies, like a lot of companies, taking its revenues down by a certain percent and mistaking its expenses down by, I'll call it point three X of the revenue, a fraction of the revenue decline. And I'm like, those don't foot to each other. And I realize this is painful. I realize you're a young CEO that's never had to create, you know, make a bad decision between bad decisions, but as it relates to layoffs, you only want to do it once, so
27:38 Scott Galloway? you should go deeper than you want, because you don't want to do this twice. And you know, I'm setting myself up as the hero right now, but your job is to say very uncomfortable things. And at some point, you'd like to think someone on the board said, we shouldn't be sending checks for hundreds of millions of dollars to dad unless we have done a market check on this on a regular basis.
27:59 Ed Elson? Yeah, just an interesting little fact. The guy who founded Carvana was struggling to raise VC money. But then it turned out that there was this unidentified investor on the cap table who put in a hundred million dollars into the company. And a few years later, it was identified that the investor was his dad. But let's shift over to talking about the debt, because the market really liked the restructuring of this debt, because it basically just decreased the chances of bankruptcy. But the thing that I'm thinking is like, it's not as if it's eliminated the debt. It's just repackaging the debt in the form of higher interest rate payments at a later date, which basically means that Carvana has a few years to figure out a viable business model. But it still has to figure
28:42 Ed Elson? it out. And then you look at the business and used car prices are down 14% in 2022. It's expected to fall another 4% this year. My question is, is something like this really all that good news for Carvana? Have you ever been involved or tangentially involved with a debt restructuring deal like this? And what's so great about it?
29:03 Scott Galloway? Well, restructuring is not only sometimes reducing the debt in exchange for equity, but what it does is it gives the company, it takes the gun away from their head. It uncocks the gun. Because if you look at a company like Discovery Warner Brothers, it has too much debt. But the maturities are way out. So they sort of have two or three years to figure it out, to either sell stuff, or cut expenses, whatever it might be, or improve, you know, profits. So it does matter. Them, them, you know, taking the wolf at the door, and chasing the wolf away for a few years. I mean, the wolf will be back, to your point. And it might be, you know, it might be meaner and angry and hungrier. But it's going to go away for a couple of years. So restructuring and removing the imminent threat of some sort of blowing a covenant or something like that, or missing a debt payment.
29:49 Scott Galloway? Is a good thing. So I can see why the stock has rallied there. But I mean, just going back to corporate governance, Carvana touts its adjusted EBITDA metric. Whenever you hear the term adjusted EBITDA, watch out, watch out, because they're going to adjust it in weird ways. They're going to do a bunch of Houdini and jazz hands that make the numbers basically bullshit. Like, I remember my favorite was a community adjusted EBITDA at WeWork, where they took the cost of the real estate they were renting to then lease out desks, and they subtracted that from costs. I mean, it's like, you know, profits before everything. I mean, they might as well just like, it was just so ridiculous.
30:32 Scott Galloway? That's when we hit peak craziness. So whenever I hear the terms adjusted EBITDA, I get very, very queasy. And the governance and the reporting requirements in the United States have real benefits. The forward P E of US stocks right now traded about 20, or their average is 20. In Japan, it's 14. In emerging markets, it's 12. In Europe, it's 12, because people trust that the market and analysts here, and quite frankly, programs like this one, will say, okay, adjusted EBITDA is bullshit.
31:03 Ed Elson? We'll be right back after the break with a look at Microsoft.
31:18 Scott Galloway? Support for the show comes from Vanta. As AI adoption grows, so does your company's security risks and requirements. New frameworks, audits, and vendors keep piling on, but your team isn't getting any bigger. Most compliance tools promise automation, but you're really stuck doing all the work by hand, chasing screenshots, validating controls, and playing catch-up when audit season comes around again. Vanta works differently. The regentic trust platform is built to scale with you, not slow you down. With over 1,400 automated tests across 400-plus integrations, Vanta collects evidence and monitors your controls year round, cutting your audit prep by 82%. Plus, you can access the Vanta agent everywhere you work, whether your team is in Vanta every day or living in tools including Claude
32:00 Scott Galloway? or Cursor. Want proof? Over 16,000 fast-growing companies like Ramp, Ryder, and Harvey save time and resources while scaling fast with Vanta. Learn more at vanta.com/profg and get $1,000 off. That's spelled V A N T A dot com slash prof G. For a thousand dollars off.
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32:58 Ed Elson? We're back with Prof G Markets.
33:01 Ed Elson? Microsoft made two big announcements last week. First was a partnership with Meta. Microsoft's cloud computing platform Azure will start hosting Meta's new AI model called Llama 2. Like OpenAI's GPT-4, Llama 2 is a large language model that allows developers to train and build their own AI products. The model will be available on other platforms like AWS and Hugging Face, but Meta has announced that Azure is its preferred partner. Microsoft's second announcement was the pricing of its new AI tool, Microsoft's 365 Copilot. As a part of Microsoft's productivity software, Copilot can summarize your emails or turn a Word doc into a PowerPoint presentation.
33:42 Ed Elson? It won't be available to consumers at launch, but business customers paying for Microsoft 365 will have access to Copilot for an extra $30 per user per month. After that announcement, Microsoft rose 4%, reaching an all-time high and adding $154 billion in market value in just one day. Scott, your thoughts?
34:07 Scott Galloway? Satya Nadella is arguably the most successful venture capitalist in history. They made, what was it, a $1 billion investment and then a $10 billion? Greatest VC investment arguably in history, maybe with the exception of Jack Ma investing, I think it was 50 million at Alibaba and it turned out being 20 or 30 billion. Anyway, what I would say is that, and this circles back to the writer's strike, Fran Drescher should be picketing outside of Redmond, Washington, not outside of Netflix or Paramount Studios. You gotta get to the biggest pile of money. All the money being made here. Where, where does AI get? What is the coal? What is the grist that goes into these L L Ms? Other people's content.
34:49 Scott Galloway? The W G A, the S G A, SAG APTRA and all the studios should have their own technologists right now, finding the millions and billions of instances where this L L M or this generative AI tool clearly was informed by the content and creativity of their members and their product. And I would hire the biggest, scariest lawyers in the world. I would start giving money to every politician and say, you have big tech, eating our lunch, taking our lunch, borrowing our watch and then telling us what time it is. And they need to stop. And I would be filing suits and I would then come to some sort of accommodation with the deepest pocket in the world, and that is technology and say, if you want to continue
35:33 Scott Galloway? to crawl our content to inform your L L Ms, which you are doing millions, if not billions of times a day, we have to come to some sort of agreement where if you can increase your, the value of your company by 154 billion dollars in a day, we, the studios and the creators and the actors and the makeup artists and the gaffers and the writers get to share in that. Because for Microsoft, Meta, OpenAI to give up a tiny portion of the incremental revenues and value they're going to create is much greater than quite frankly, you know, taking it hard to Bob Iger and David Zaslove. They're more, they're riper or more popular targets because it's easier to understand.
36:17 Scott Galloway? But if they want to be effective versus right, and that's something I've struggled with my whole life. Okay, they're right to complain about the studio heads making too much money. But okay, the top 10 actors make too much money too. And by far, if you get a tiny slice of the value that tech is going to create off of your sweat and your creativity, you are going to end up in a much better place than if you're able to extract a pound of flesh from the studios. You're in this together. You have picked the wrong enemy.
36:51 Ed Elson? It feels like the path that you're going down is sort of the data property rights path. And, you know, there have been a lot of legislative proposals in the past. The first one that comes to mind is the data dividend, which is the notion that tech companies use our data to train their models and to train their algorithms. And that's quote unquote, our sweat that they're profiting off of. And therefore we should get a slice of it as just general content creators. Would you take it that far? Do you think that that's where we're headed?
37:24 Scott Galloway? Well, the kind of the model here is in Australia. The Australian government said Facebook is where people are getting their news. But the people actually collecting the news and spending money on it and risking their lives sometimes to collect this news aren't getting compensated. So they passed a law and said, okay, Meta, you've got to give a portion of your revenues generated in Australia back to journalists. And they're now, and they huffed and puffed and threatened to leave Australia. Same thing's kind of going on in Canada right now. And they ended up paying them 150 million a year. And this is good for business and it's good for society because we need more journalists. And I think something, something similar should happen here. I don't know if it should be regulation. I'd like to think we can accomplish a private market solution through the right to assemble and the right to organize, which unions have.
38:08 Scott Galloway? But, I mean, there's this giant sucking sound of relevance and capital from Hollywood to the valley right now. Let me run the union. Look for the union dog label. I'm ready.
38:23 Ed Elson? Right after you dragged them in a blog post.
38:26 Scott Galloway? All I want is a guest appearance on The Real Housewives. I want to be the pervy neighbor.
38:31 Ed Elson? The long play.
38:32 Scott Galloway? The pervy neighbor. God, that guy creeps me out. Oh, yeah, that's Professor G. It could happen.
38:37 Ed Elson? Let's talk about Lama 2, which is Facebook's AI model. It's basically a competitor to GPT-4. And the thing that we were finding interesting is the fact that Microsoft is a huge investor in OpenAI, which creates GPT-4. And yet, here they are entering a partnership to promote a product that's ultimately going to compete with one of their main investments. Why are they doing that?
39:03 Scott Galloway? I think Microsoft sees Meta as the swing vote. And that is, I think they see their enemy is Alphabet. And then Meta, with all of their power and consumer engagement with 3 billion people, has probably said, my guess is, so they partnered on the headset or the Metaverse. And my guess is they they like and trust each other. And Microsoft is saying, OK, the war of the worlds here is shaping up, and AI is shaping up to be between Microsoft and Alphabet. And so they're probably willing to give up some upside and get Meta on their side. So to me, it's just pick your dance partner.
39:44 Scott Galloway? You know, we didn't, in World War II, we weren't especially fond of the Russians. But we had a shared enemy. And so we were willing to make accommodations and kind of put, you know, let the past be the past, if you will. And I think that's what's going on here. I think that Microsoft and Meta, you know, that is definitely Batman and Robin and chocolate and peanut butter. So, and my guess is Lama is probably approaching it from a different, a different angle. But, you know, I think they've figured out a way to say, OK, the incremental power we have as a team is worth some of the reduction in economics.
40:18 Ed Elson? So the reason that the stock popped was actually not because of the Lama 2 partnership, but it was because of that co-pilot price announcement, $30 per user per month for businesses. Do you think $30 is a reasonable price? Do you think businesses are going to pay for it?
40:34 Scott Galloway? We had a discussion about this off mic. A bunch of folks at Prof G thought it was too expensive. And I thought the enterprise will absolutely sign everybody up for this if it makes them more productive. So. I saw it as reasonable. I'm terrible at pricing and I think pricing is one of the hardest things in business. The hardest thing in management is compensation and the hardest thing in a consumer business is pricing, in my view.
40:55 Ed Elson? Would you ever want to pay for that for our business? I mean, just taking a couple of those features, for example, taking a document, put it through the co-pilot and it turns it into a deck. Is that something you'd be interested for us?
41:08 Scott Galloway? It's a productivity tool I'd be willing to invest in, but first I would ask that people not spend all their fucking time in Mykonos, Ed.
41:17 Ed Elson? Oh, that was good.
41:23 Ed Elson? Let's take a look at the week ahead. We'll hear from Jerome Powell about the Federal Reserve's next interest rate hike decision. And then we've also got earnings from Microsoft, from Google, Meta, Amazon, Spotify, and Snap. Do you have any predictions for us?
41:38 Scott Galloway? I like what you said, Ed. I think this district court ruling has been vastly inflated in terms of its importance and you're going to see the stocks of Coinbase and the price of Ripple drop as fast as they surged. This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our executive producers are Jason Stavers and Catherine Dillon. Mia Silverio is our research lead and Drew Burrows is our technical director. Thank you for listening to Property Markets from the Vox Media Podcast Network. Join us on Wednesday for office hours and we'll be back with a fresh take on markets every Monday.
42:55 Scott Galloway? More importantly, I mean, this is really important.
42:59 Scott Galloway? Do you need a couple of pick-up lines from Makanos?
43:01 Ed Elson? Yeah.
43:02 Scott Galloway? All right, okay, no problem. I will, I will, because I want to help you out. Okay, so you see a lovely lady, you should go up and you say the following, you say the following. "Do you believe in love in first sight, or should I walk by again?" Boom! And if that doesn't work, the number two, the plan B?
43:19 Ed Elson? I don't think it'll work.
43:20 Scott Galloway? Okay, let's go to plan B. Plan B. "How about breakfast? Should I call you or nudge you?" Hello, ladies! Hello!
43:30 Ed Elson? I'm gonna film that. I'm gonna do that and film it on tape.
43:33 Scott Galloway? That would be funny. You should absolutely do that.
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